NING SONG & NA LI v LE CHI & XINGHAI MA [2014] NZHC 2161

NING SONG & NA LI v LE CHI & XINGHAI MA [2014] NZHC 2161 [11 September 2014]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2014-409-000531[2014] NZHC 2161UNDER Section 145A of the Land Transfer Act1952IN THE MATTER of Caveat 9596127.1 Canterbury LandRegistration DistrictBETWEEN NING SONG and NA LIApplicantsAND LE CHI and XINGHAI MARespondentsHearing: 2 September 2014Appearances: D A Webb and R A Kay for ApplicantsR W Maze for RespondentsJudgment: 11 September 2014JUDGMENT OF ASSOCIATE JUDGE MATTHEWS[1] The applicants, Ms Song and Ms Li, apply for an order that Caveat 9596127.1 not lapse, pending further order of the Court.[2] In the caveat they claim an estate or interest in a property owned by the respondents, Mr Chi and Ms Ma:By virtue of an equitable charge under which Ning Song and Na Li are the chargeholder and Li Chi and Xinghai Ma are the chargee.Background[3] The applicants' claim arises from a transaction entered in 2012. The applicants live in Beijing, China. They decided that they would like to emigrate to New Zealand with their families. They made contact with the respondent, Mr Chi, todiscuss this, and then travelled to New Zealand to meet him and to take advice in relation to the basis upon which they might apply for long-term business visas. According to Ms Song, Mr Chi discussed with her buying a franchise business on which they could base their applications. They also met an immigration lawyer before they returned to China.[4] According to Ms Song the understanding they had with Mr Chi is that he would look for a suitable business franchise for her and Ms Li to buy. She says that it was agreed that he would buy a franchise with their money and transfer ownership to them when they emigrated to New Zealand. There followed an exchange of emails in February 2012 and again in June 2012, and the parties then met in Beijing in October 2012.[5] After the exchange of emails in February 2012, Ms Song and Ms Li transferred the equivalent of NZD 517,000 in three instalments the last two of which followed the exchange of emails in June 2012.[6] Ms Song and Ms Li were unsuccessful in their bid for visas, and no longer intend to relocate to this country. No part of the sum of money they sent to New Zealand has been repaid to them. They have a separate proceeding in this Court seeking judgment for $517,000. They seek to sustain the caveat they have over the home of Mr Chi and Ms Ma until they are repaid. The issue before the Court is whether they have a caveatable interest in Mr Chi's property.Relevant law[7] Section 137(1)(a) of the Land Transfer Act 1952 provides that any person may lodge with the Registrar a caveat against dealings in any land or estate or interest under the Land Transfer Act if the person claims to be entitled to, or to be beneficially interested in, the land or estate or interest by virtue of any unregistered agreement or other instrument or transmission or of any trust expressed or implied, or otherwise.[8] The burden of proof is on Ms Song and Ms Li as applicants. They must demonstrate a reasonably arguable case for the interest claimed in the caveat theyhave lodged.1 In Industrial Group Ltd v Bakker the Court of Appeal noted that the statutory scheme for applications to set aside statutory demands under s 290 of the Companies Act 1993 (which has comparable time limitations on the filing and service of applications) was summary in nature, required a prompt judgment, and did not call for a detailed analysis of an alleged dispute or counterclaim.2 This application has the same features, and must be considered on that basis.The facts in more detail[9] The arrangements made between the parties are largely recorded in emails. It is clear from the emails produced to the Court on this application that they represent only a selection of the correspondence which evidently passed between the parties. Further, they have been translated from Chinese, and as far as one can judge simply from reading them, rather than having them produced in evidence in conjunction with oral testimony, they contain some words which do not appear to fit into the general scheme of the arrangements which were made. For present purposes the Court must take the translations as they are. As well, on the case as presented to me, there is an element of doubt about the order in which emails produced to the Court were sent, but for present purposes I do not think anything turns on this.[10] The first of the February 2012 emails I refer to is from Mr Chi to Ms Song. He sets out his proposed course of action in the event the visa applications are rejected, whilst expressing confidence that will not occur. If it does, however, he says that he will take out a loan to pay back the sum received.[11] The next February email seems to follow from a request from Ms Song for more detail about the arrangement Mr Chi proposes, and a greater level of comfort that she would be repaid. It contains numerous assurances that repayment will occur, including a promise to borrow money if needs be, or to use monies which Mr Chi has committed to building a house.[12] Evidently this did not entirely satisfy Ms Song and Ms Li. Further emails were exchanged. Suffice it to say that Ms Song and Ms Li remained concerned to1 New Zealand Limousin Cattle Breeders Society Inc v Robertson [1984] 1 NZLR 41 (CA) at 43.2 Industrial Group Ltd v Bakker [2011] NZCA 142, (2011) 20 PRNZ 413 at [24]-[25].ensure that an arrangement was in place for repayment of their money. On 22 June 2012 Ms Song emailed the proposed wording of a paragraph setting out an arrangement which would be acceptable. It read:I CHI Le, have borrowed a total of 517,100 New Zealand Dollars from LI Na and SONG Ning, 201,100 of which was transferred by bank transfer into The October Limited. The remaining 316,000 shall be deposited into The October Limited (by bank transfer between personal accounts) no later than the 27th of June. Before the 30th of August 2012, 95% of the shares in newyork deli or Cafe Culture Riccarton Mall that are owned at the time by CHI Le's company, The October Limited, shall be returned. If CHI Le'scompany, The October Limited (NZ), does not hold the aforementioned shares at this time, then the total amount of funds must be repaid, or all property under the name of CHI Le must be sold within 30 days to repay LI Na and SONG Ning.[13] Later on 22 June 2012 Ms Song sent another email to Mr Chi, which, after referring to their lending money to Mr Chi, contains the following sentence:We only ask that you transfer the shares from one of the shops to us whenthe time comes, or if that isn't possible and both shops go bad then repay the money to us. If you can't repay the money then the final resort is sellingyour property.[14] At the end of the email Ms Song proposed an agreement in these terms:I CHI Le, borrowed a total of $513,420 New Zealand Dollars (by bank transfer into The October Limited). Prior to 30 August 2012, the equivalent amount in shares held at that time in newyork deli and Cafe Culture Riccarton Mall by CHI Le's company, The October Limited (NZ), shall be returned. If CHI Le's company The October Limited, does not hold the aforementioned shares, then the money must be returned, or all property under the name of CHI Le must be sold within 30 days to pay back the money owed to LI Na and SONG Ning.[15] So far as can be ascertained from the emails, it seems that Mr Chi wrote back3 proposing an agreement in the following terms:I, CHI Le, have borrowed a total of 513,420 New Zealand Dollars from LI Na and SONG Ning, 316,000 of which shall be deposited into The October Limited (by bank transfer between personal accounts) no later than the 27thof June. Before the 30th of August 2012, 95% of the shares in newyork deli or Cafe Culture Riccarton Mall that are owned at the time by CHI Le'scompany, The October Limited, shall be returned. If CHI Le's company,The October Limited (NZ) does not hold the aforementioned shares at this time, then the total amount of funds must be repaid, or all property under the3 It is not completely clear from the emails as translated, which email replied to which.name of CHI Le must be sold within 30 days to repay LI Na and SONG Ning.[16] Yet another version of this clause is produced as an exhibit to Ms Song'saffidavit. Ms Li, Ms Song and Mr Chi met in Beijing on 28 October 2012 as I have said and as a result a further agreement was entered into, and signed by Mr Chi, in the following terms:I, CHI Le, borrowed from LI Na and SONG Ning a total of 517,000 (Five hundred and seventeen thousand) New Zealand dollars. On 27th of June 2012 the entire sum was deposited (by bank transfer) into The October Limited. When LI Na and SONG Ning arrive in New Zealand to immigrate, they must immediately return the 95% (ninety-five per cent) shares in"Newyork deli" or "Cafe Culture Riccarton Mall", which are held by CHILe's company, The October Limited. If CHI Le's company, The October Limited (NZ) does not hold the above mentioned shares at the appointed time, the cash equivalent is to be repaid or any real estate property under the name of CHI Le is to be sold within 30 days to pay back the money owing to LI Na and SONG Ning.[17] It is common ground that no shares in any company have been transferred to Ms Li or Ms Song, nor any part of their monies refunded.[18] Mr Chi swore a very brief affidavit. He says he is the sole director of The October Limited. He says that it bought Coffee Club Riccarton Mall before 30 August 2012 and owned that business at that date. The affidavit was sworn on 18 August 2014, and Mr Chi says that The October Limited has recently had to sell the Coffee Club Riccarton Mall.[19] It is unclear whether Coffee Club Riccarton Mall is a business separate from New York Deli or Cafe Culture Riccarton Mall, whether it is one and the same as one or other of these named enterprises, whether all or any of them are companies, and why Mr Chi has given evidence to the Court about a business the name of which does not feature elsewhere in any of the documents presently before the Court and does not, at least for present purposes, seem to have any relevance.[20] There is no mention in his affidavit, or elsewhere in the evidence, of whether The October Limited has ever purchased, still owns, or has sold a business by the name of New York Deli or a business by the name of Cafe Culture Riccarton Mall,these being the enterprises referred to in the emails and the agreement produced to the Court.[21] In emails sent in June 2012, repayment of the loans made by Ms Song and Ms Li is expressed to be conditional on shares in New York Deli or Cafe Culture Riccarton Mall not being held at 30 August 2012. In the 28 October 2012 agreement this aspect of the agreement between the parties is phrased in different terms. In thisagreement there is an obligation to repay "the cash equivalent" of shares in NewYork Deli or Cafe Culture Riccarton Mall, and sell "any real estate property under the name of Chi Li", both of which obligations arise if The October Limited does not hold shares in these named enterprises "at the appointed time". No date is given inthis document, as in the June emails. The only inference that can be drawn, without possible explanation otherwise in oral testimony, is that "the appointed time" mustrefer to the time at which the shares were ideally to be transferred to Ms Song and Ms Li, namely immediately upon their arrival in New Zealand. That has never occurred, and nor, evidently, will it.Discussion[22] An equitable charge may be found to exist where, without any conveyance or assignment to the chargee, specific property of the chargor is expressly or constructively appropriated to, or made answerable for, payment of a debt, and the chargee is given the right to resort to the property for the purpose of having it realised and applied in or towards payment of the debt. The availability of an equitable remedy has the effect of giving the charge a proprietary interest by way of security in the property charged.4[23] The High Court of Australia has identified three criteria which must be fulfilled if an equitable charge is to be established. In Hewitt v Court, Deane J said:5It is adequate for present purposes that I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship. Those circumstances have, to some extent, been indicated in what has been said above. They are: (i) that there be an actual or potential indebtedness on4 Re Charge Card Services Ltd [1987] 1 Ch 150 at 176.5 Hewitt v Court (1983) 149 CLR 639 at 668 (citations omitted).the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it ...; (ii) that that property (or arguably property including that property ...) be specifically identified and appropriated to the performance of the contract ...; and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged. It may be that the above circumstances or tests, particularly (i), would be unduly restrictive if propounded as a statement of exclusion. As has been said however, they are formulated as a statement of what is sufficient rather than what is essential. Whether or not they exist or are satisfied in a particular case should, like most questions involved in the application of equitable doctrines, be determined by reference to the substance of the transaction rather than its form ...[24] An equitable charge can therefore be established in the circumstances listed above if the parties are in a contractual relationship. Counsel did not present any argument on this; Mr Maze accepts that the circumstances set out above apply in this case. In my view it is at least arguable that the parties were in a contractual relationship, and I proceed on that basis.[25] Mr Maze accepts that the first circumstance is met. Whilst he does not concede that Mr Chi owes any sum to Ms Song and Ms Li, he accepts that there is a sufficiently arguable case that that is the position, for the purposes of this application.[26] As well, Mr Maze accepts that for the purposes of this application it is arguable that Mr Chi's house is sufficiently appropriated to the agreement, to satisfythe third limb of the analysis. I refrain from further comment on this issue, andproceed on the basis of Mr Maze's position.[27] The thrust of Mr Maze's argument is that under each of the various forms ofthe agreement, and in particular the 28 October 2012 agreement which appears to be the last agreement between the parties and arguably supersedes the earlier agreements, any obligation to repay and any obligation to sell his house was conditional on the shares in the named enterprises not being held at a stipulated point, and the evidence does not establish that to be the case. He says the applicants'claim to a caveatable interest in the property depends on the documents being interpreted to impose on Mr Chi an obligation to sell his house in order to repay the monies he received, irrespective of the conditions to which I have referred.[28] The evidence before me is sufficient to establish, for the purposes of this application, two facts. First, it was a repeated and continual theme of the requirements of Ms Song and Ms Li in this transaction that as a final resort, not having received the business they intended to receive nor repayment of their funds from any other source, Mr Chi would sell his house for the latter purpose. For example:(a) On 22 June 2012 Ms Song wrote:It's already midnight, but I can't sleep at all. After I received your email this afternoon I felt there were a few things I had to make clear.I'm not insisting on you selling your property, it's just that the two shops haven't actually been established yet. If something changeslater on and in the end they aren't actually established, then what useis your "IOU"? Using assets you don't currently have as security tomake a promise is the same as not making a promise at all. Even ifyou don't work in a bank you should still know that no bank will lendyou money based on assets that you might possibly have in the future. We only ask that you transfer the shares from one of the shops to us when the time comes, or if that isn't possible and both shops go bad then repay the money to us. If you can't repay the money then the final resort is selling your property. Furthermore, it is of no interest to us whether your property is worth 1 million or 2 million, we only want the 500,000 plus that belongs to us! We are not trying to take advantage of you to get a low price, we are simply two women who have left our hometowns and have to look out for ourselves, there's no intention of taking advantage of anyone!It is sufficiently clear from the emails before the Court that Mr Chi acceded to this requirement.(b) On the same day Ms Song sent one of the drafts of the agreement to Mr Chi and said:Regarding the $201,100, I've added the sentence "the total sum will change accordingly", we can sign it like this! This is more for myown peace of mind than any practical considerations, because inactual fact we don't actually know if you have any property under your name. We are willing to trust you. Please don't let us down.The draft statement of Mr Chi's obligations which followed that passage included an obligation to sell all property under the name of Mr Chi if shares in the cafes were not transferred before 30 August 2012. Mr Chi responded:Ok, I agree. I'll print and sign it tomorrow and send it to you.[29] Secondly, these arrangements were made (and all the monies transferred to Mr Chi) at a time when there was an expectation that the visas required by Ms Song and Ms Li would be obtained. I draw this conclusion from the fact that none of the various emailed versions of the agreement, nor the final version signed on 28 October 2012, make any reference to what would happen if visas were not granted and Ms Song and Ms Li did not come to New Zealand. The safeguards built into the various iterations of the agreement all stem from a concern to be repaid, if necessary from sale of Mr Chi's house if he could not pay from any other source, ifthe named businesses were not transferred to Ms Song and Ms Li either by 30 August 2012, or, in the 28 October 2012 agreement, immediately upon their arrival in New Zealand.[30] I am satisfied that there is, for the purposes of this application, sufficient evidence to establish that Mr Chi equitably charged his house with repayment of the sums that he received from Ms Song and Ms Li for the express purpose of buying one or more franchised business operations (which were thought would be sufficient to lay a foundation for a grant to them of the visas they sought). In my opinion it is arguable that the early references to the date 30 August 2012, and the reference in the 28 October 2012 agreement to the arrival of Ms Song and Ms Li in New Zealand, relate only to the point at which the obligation to sell arises. It is therefore arguable that the charge arises from the successive agreements, and subsisted throughout.[31] In my opinion, and on the information before me, it could not seriously be contended that Mr Chi does not have an obligation to account to Ms Song and Ms Li by one means or another for the funds he has received from them and not, at any point, repaid. Whether this is by way of an implied term in the agreement that in the event of their not being granted visas the loan was simply repayable on demand, or whether it is by way of an equitable claim for unjust enrichment or breach of trust is of no present moment. At the very least it is strongly arguable that an obligationrests on Mr Chi, which could be established by different pathways, notwithstanding the fact that none of the successive agreements specifically refers to the circumstance of visas not being obtained. The fact is that the concern expressed on a number of occasions by Ms Song and Ms Li that they must be repaid if they did not receive the businesses as intended was met with acceptance of an obligation that repayment would ultimately be met by sale of Mr Chi's house.[32] It is trite to say that equity operates on the conscience of a person it finds to be in the position of a fiduciary. I presently see no reason why equity would not intervene to give to Ms Song and Ms Li a remedy in the circumstance of their not obtaining visas. Part of the obligation assumed by Mr Chi was to repay the monies he received from the proceeds of sale of his house. That is an element of his fiduciary obligation to Ms Song and Ms Li. I find an equitable charge on Mr Chi'shouse, enforcement of which may be ordered in the event he does not pay to Ms Song and Ms Li the monies entrusted to him.[33] Mr Maze argues that the third element identified in Hewitt v Court is not established. He says Mr Chi would not be acting unfairly if he were to sell his house without repaying Ms Song and Ms Li. I disagree. From the outset it was their requirement that their placement of their monies in the hands of Mr Chi was on the basis of an obligation on his part to transfer nominated assets to them or to repay them, the latter backed by an obligation to sell his property if needs be. Contrary toMr Maze's submission, it would be most unfair if Mr Chi were to sell his house andnot apply the proceeds to repayment, now that transfer of the businesses cannot occur.[34] It follows that an arguable case has been made that Ms Song and Ms Li havean interest in Mr Chi's house on the basis set out in the caveat, and that the caveatmust be sustained until further order of the Court.Outcome[35] I order that Caveat 9596127.1 registered against Lot 34 DP 376322 in the Land Registration of the District of Canterbury not lapse pending further order of this Court.[36] The applicants are entitled to costs on a 2B basis plus disbursements fixed by the Registrar.__________________J G MatthewsAssociate JudgeSolicitors:Lane Neave, Christchurch.Davidson & Associates, Christchurch.