JIN v KNOX PROPERTY INVESTMENT LIMITED [2016] NZCA 565

JIN v KNOX PROPERTY INVESTMENT LIMITED [2016] NZCA 565 [30 November 2016]IN THE COURT OF APPEAL OF NEW ZEALANDCA630/2015[2016] NZCA 565BETWEEN QIAN JINAppellantAND KNOX PROPERTY INVESTMENTLIMITEDRespondentHearing: 8 November 2016Court: Randerson, Duffy and Whata JJCounsel: R Reed and A Manuson for AppellantA B Foster for RespondentJudgment: 30 November 2016 at 9.30amJUDGMENT OF THE COURTA The appeal is allowed.B The High Court judgment is set aside.C Caveat 9940802.1, which is lodged over the property at 12 Knox Street, Hamilton, is sustained.D The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Whata J)[1] The appellant, Mr Jin, and Ms Lin Luo were equal shareholders in W&L Ltd, a company engaged in real estate investment. They each contributed towards the purchase of a house at 12 Knox Street, Hamilton (the Knox Street property). The agreement for sale and purchase identified W&L Ltd or nominee as purchaser. W&L was unable to obtain sufficient finance to complete the purchase by the settlement date. Ms Luo introduced a third party, Mr Jiang. Although Mr Jin was aware of Mr Jiang's involvement, he did not know that he and Ms Luo incorporated therespondent, Knox Property Investment Ltd (KPIL) to complete the purchase. KPIL was nominated as the purchaser and settled the purchase on 1 August 2013. Although KPIL agreed to repay the $70,000 deposit to W&L on settlement, Mr Jin says this did not occur.[2] Mr Jin claims that:(a) He personally paid the deposit monies as a co-investor with Ms Luo and she agreed he would acquire the property on a 50/50 basis; and(b) After Mr Jiang became involved he was told by Ms Luo that he would retain a 25 per cent share in the Knox Street property.[3] When Mr Jin discovered that Ms Luo did not accept that he was entitled to a 25 per cent share, he lodged a caveat in respect of the Knox Street property asserting a beneficial interest by virtue of an implied trust which arose on Mr Jin providing funds towards the purchase of the property.[4] Mr Jin's application to sustain the caveat was rejected by AssociateJudge Doogue because, in short, the purchase through W&L never went ahead andKPIL purchased the property without notice of Mr Jin's claimed interest.1 The notice of appeal alleges a number of errors, but the key issue is whether the purchase1 Jin v Knox Property Investment Ltd [2015] NZHC 2296 [High Court judgment].by KPIL meant that Mr Jin could not establish a reasonably arguable case that he had acquired an equitable interest in the property. Mr Jin now appeals against the refusal to sustain his caveat.Background[5] Mr Jin claims he has been in a trusted investment relationship with Mr DavidLee (Ms Luo's partner) for some time. He says he invested in a number of propertieswith Mr Lee and Ms Luo, and that a company, W&L, was formed by Ms Luo as the vehicle for these investments. Ms Luo is the sole registered shareholder of W&L, but it is not disputed that Mr Jin held an unregistered 50 per cent shareholding in the company. A deed to that effect was produced in evidence.[6] On 13 June 2013 Mr Jin, Ms Luo and Mr Lee successfully bid at auction on the Knox Street property. The purchase agreement was signed by Ms Luo and thepurchaser was noted as W&L "or nominee". The purchase price was $700,000 with a settlement date of 11 July 2013. Mr Jin paid $50,000 of the deposit by way of personal cheque to the vendor's solicitor. Ms Luo paid the balance of $20,000 also with a personal cheque. Mr Jin says he paid the $50,000 on the basis he was co-investing with Mr Lee and Ms Luo in the property.[7] Mr Lee and Ms Luo claim the money paid by Mr Jin was simply a repayment of a loan given by Ms Luo in May 2013. Mr Jin accepts Ms Luo placed $50,000 intoa solicitor's account at his request, but denies his contribution to the deposit was a repayment of this sum.[8] W&L was unable to raise the balance of the purchase price. Mr Lee and Ms Luo say Mr Jin was made aware of this and told him that if he were interested in purchasing the property he would need to contribute funding. Mr Jin was not able to provide more finance by the settlement date. Ms Luo then identified Mr Jiang as another potential investor and together they formed KPIL on 10 July 2013. Mr Jin claims he was told that Mr Jiang would obtain a 50 per cent percent interest in the property in consideration for his contributions, while the balance would be shared evenly between him and Ms Luo.[9] A settlement notice was served on W&L on 23 July 2013, and on 31 July 2013 Ms Luo executed a Deed of Nomination (the Deed), as the sole director of W&L, nominating KPIL as the purchaser. Ms Luo and Mr Jiang are equal shareholders in KPIL, but Mr Jiang is the sole director. The Deed records the deposit of $70,000 having been paid by W&L and the obligation of KPIL to repay the deposit on or before settlement date. Ms Luo deposes that KPIL obtained $300,000 finance from ASAP Finance Ltd using the property as security and supported by guarantees from Mr Jiang, Mr Lee and Ms Luo. KPIL completed the purchase of the Knox Street property on 1 August 2013 using a combination of KPIL funds and the ASAP finance.[10] KPIL did not repay the deposit on settlement date, but payments were made by KPIL to W&L between 10 December 2013 and 15 January 2014. They are identified as repayment of the deposit in the bank accounts.[11] Mr Jin became aware that Ms Luo was not going to recognise his claimed interest in the Knox Street property and lodged a caveat over it on 7 January 2015. The caveat states:The caveator is beneficially interested in the property by virtue of an implied trust, which arose by the caveator providing funds towards the purchase of the property. The caveator provided the funds both directly himself and through the company W&L Limited, of which he is an unregistered shareholder. The property was registered in the sole name of the registered proprietor, who holds the property as a trustee.[12] KPIL applied to set aside the caveat on 13 February 2015. The notice for orders to sustain the caveat was lodged on 25 February 2015.The High Court judgment[13] Associate Judge Doogue rejected the application to sustain the caveat. The Judge noted Mr Jin appeared to be relying on a resulting trust, but found that a caveatable interest in the form claimed by Mr Jin is not literally available, because W&L did not become the purchaser. The Judge reasoned "[Mr Jin] cannot simplyignore the different legal entities that are involved in this series of transactions".2 He said Mr Jin could not have had a reasonable and legitimate expectation that he was going to have a beneficial interest in the property and there was no basis put forwardto justify a 25 per cent interest in the property. The Judge found "this is not a casewhere the Court could reasonably conclude on any view of it that [Mr Jin] had an equitable interest in the property which was acquired by [KPIL]".3 Associate Judge Doogue observed "the whole outline of the transaction had changed and thetransaction for which [Mr Jin] had contributed money was no longer going to goahead".4 The Judge also found that on conventional principles of attribution, knowledge of Mr Jin's claimed interests could not be attributed to KPIL via Ms Luoas she was not a director of that company.Jurisdiction[14] For the purpose of this appeal, we adopt the summary of principles recently stated by this Court in Philpott v Noble Investments Ltd: 5[26] The applicable legal principles which governed the application to sustain the caveats, and which now govern this appeal, are as follows:(a) The onus is on the applicants to demonstrate that they hold an interest in the land that is sufficient to support the caveat, but they need not establish that definitively;(b) It is enough if the applicants put forward a reasonably arguable case to support the interest they claim;(c) The summary procedures involved in applications of this nature are not suited to the determination of disputed questions of fact. An order for the removal of a caveat will only be made if it is patently clear that the caveat cannot be maintained — either because there is no valid ground for lodging it in the first place, or because such a ground no longer exists; and(d) When an applicant has discharged the burden upon it, the Court retains discretion to remove the caveat which it exercises on a cautious basis. Before it does so the Court must be satisfied that the caveator's legitimate interest would not be prejudiced by removal.2 High Court judgment, above n 1, at [14].3 At [17].4 At [17].5 Philpott v Noble Investments Ltd [2015] NZCA 342 (footnotes omitted).The issues[15] The parties agree that two key issues are raised by Mr Jin's appeal:6(a) Did the payment of $50,000 by Mr Jin result in a trust in his favour in relation to the right to acquire the Knox Street property; and if so(b) Did KPIL know about Mr Jin's interest?[16] If it is reasonably arguable that the answer to both of these questions is yes,then Mr Jin's caveat must be sustained.Is there an arguable case for a resulting trust?[17] The Judge's characterisation of Mr Jin's interest as a loan to or investment inW&L was open to him, but we consider it an issue for trial as to whether Mr Jin'spayment was advanced in his personal capacity or effectively on behalf of W&L. AsMr Foster quite properly conceded, if it could be demonstrated that either Ms Luo's or Mr Jiang's knowledge could be attributed to KPIL then it is reasonably arguablethat a resulting trust in Mr Jin's favour arose on the payment of the deposit monies.[18] In Westdeutsche Landesbank Girozentrale v Islington London Borough Council Lord Browne-Wilkinson set out the two bases on which a resulting trust could arise:7Under 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) for the purchase of property which is vested either in 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 a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption, which presumption is easily rebutted either by the6 The second issue was identified by this Court on the leave to appeal decision as warranting further analysis: Jin v Knox Property Investment Ltd [2016] NZCA 267 at [15]–[19].7 Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 (HL) at 708 (italics in original), affirmed by this Court in Crampton-Smith v Crampton-Smith[2011] NZCA 308, [2012] 1 NZLR 5 at [35]–[36].counter-presumption of advancement or by direct evidence of A's intentionto make an outright transfer(B) Where A transfers property to B on express trusts, but the trusts declareddo not exhaust the whole beneficial interest[19] On the available evidence, there is a reasonably arguable case that there is a"type A" resulting trust — that is, Mr Jin personally invested in the acquisition of the Knox Street property assuming that he would, together with Ms Luo, jointly acquire the right to purchase it. In particular:(a) Mr Jin had prior dealings with Mr Lee and Ms Luo, and they had used W&L as a vehicle for past property investments.(b) Mr Jin produced a deed that demonstrated a 50 per cent unregistered shareholding in W&L.(c) Mr Jin attended the auction for the Knox Street property.(d) The funds provided by Mr Jin for the purchase of the property were advanced in his personal capacity because Mr Jin gave a personal cheque of $50,000 directly to the vendor's solicitors to pay thedeposit.(e) The sale and purchase agreement refers to the purchaser as W&L "or nominee". This suggests that the vehicle for the purchase was a secondary consideration only, contrary to the Judge's finding on the role played by W&L in the transaction.[20] Whether a trust in fact arose can only be resolved with finality on a full assessment of the key facts including any agreements reached and representations made by Ms Luo to Mr Jin as to the precise nature of his interest and the function served by W&L in the purchase. For present purposes it is sufficient to observe that the starting point for the asserted claim is reasonably arguable on the available evidence.[21] Did KPIL know about Mr Jin's interest?[22] It is necessary for Mr Jin to show that KPIL knew about his interest in order to be able to maintain any form of equitable interest in the Knox Street property.8On this point, Ms Reed submits (in short) that KPIL knew about Mr Jin's interestsbecause:(a) The available evidence shows that Ms Luo is a de facto director of and/or the directing mind of KPIL; and/or(b) Ms Luo's knowledge should be attributed to KPIL; and/or(c) Mr Jiang must have known that Mr Jin was the source of the deposit.[23] Mr Foster responds:(a) The evidence does not show actual or de facto control by Ms Luo of KPIL; and(b) There is a paucity of evidence showing that knowledge of Mr Jin'sinterest passed from Ms Luo to KPIL or to Mr Jiang.[24] We can deal with this relatively briefly. As this Court stated in granting leave, it is most unlikely that Ms Luo did not tell Mr Jiang (the sole director ofKPIL) about Mr Jin's deposit.9 There is also evidence suggesting a Mr Guo mayhave told Mr Jiang about Mr Jin's interests, because W&L and KPIL jointly retainedhim to provide advice on the Deed and he was obliged to disclose any matter thatmight give rise to a conflict of interest. Mr Jin's personal payment of $50,000 arguably required disclosure. Mr Guo would also have had knowledge of Mr Jin'sunregistered interest in W&L since he was engaged to prepare the relevant declaration of trust. The Deed itself makes it clear that the deposit of $70,000 was to be repaid to W&L, and cl 8 of the Deed states that KPIL, as the nominee, acknowledges it has understood the nature and implication of the transaction and has8 Foskett v McKeown [2001] 1 AC 102 (HL) at 108–109 per Lord Browne-Wilkinson.9 Jin v Knox Property Investment Ltd, above n 6, at [17].accepted W&L's previous decisions in relation to the transaction. In any event, whether Mr Jiang knew about Mr Jin's interest can only be sensibly resolved at asubstantive hearing.[25] We also heard argument about whether Ms Luo's knowledge could beattributed to KPIL. For present purposes we accept that knowledge of a person in de facto control of a company may be sufficient for the purpose of attributing that knowledge to the company.10 On the available evidence it is reasonably arguable Ms Luo was in de facto control. She was instrumental in the acquisition of the property first by W&L and then by KPIL. She played the central role in obtaining funding from Mr Jiang, securing the purchase through W&L, incorporating KPIL, assigning the right to purchase to KPIL and then facilitating loan finance (including as guarantor) to enable the purchase to be completed by KPIL. She is also a 50 per cent shareholder of KPIL. Ms Luo produced KPIL's bank statements, whichshow that she used KPIL's bank accounts on a regular basis, taking and depositing large and small sums with regularity to and from accounts in her name or W&L'sname, suggesting that she had an important role in respect of KPIL, at least in operational terms. By contrast, evidence that Mr Jiang (the sole director) wasactively controlling the company's affairs is sparse.[26] More broadly, attribution of knowledge to a company depends on the application of specific facts to a substantive rule making the knowledge of those facts relevant. Whether such knowledge may be attributed to KPIL is unsuited to summary disposition. The assessment of whose knowledge counts as that of the company requires the application of legislative policy to proven facts. As stated by the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission:11 given that [the substantive rule] was intended to apply to a company, howwas it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy 10 El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685 (CA) at 695–696 per Nourse LJ.11 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 3 NZLR 7 (PC) at 12–13. the rule of attribution is a matter of interpretation or construction of therelevant substantive rule [27] In this case, as the argument has been presented to us, the substantive rule is that a bona fide purchaser for value without notice (of unregistered interests) acquires indefeasible title. Whether attribution arises in respect of this rule in the present case involves findings about:(a) What Ms Luo knew about Mr Jin's interest;(b) What role she played in the acquisition of the Knox Street property by W&L and by KPIL;(c) What role Ms Luo played in the establishment of KPIL;(d) The reasons why she did not assume a directorship, even though she is a 50 per cent shareholder;(e) What Ms Luo, Mr Lee or Mr Guo told Mr Jiang about Mr Jin'sinterests; and(f) What Mr Jiang otherwise knew about Mr Jin's interests.Outcome[28] It was not appropriate to determine in a summary way the key issues arisingfrom Mr Jin's claim to a caveatable interest in the Knox Street property. There hasbeen no discovery to date and the affidavits filed with the Court are exiguous. We are satisfied Mr Jin has established a reasonably arguable case that:(a) He paid the $50,000 for the specific purpose of acquiring the right to purchase the Knox Street property;(b) W&L acquired the right to purchase the Knox Street property subject to a resulting trust in favour of Mr Jin;(c) W&L could not assign or otherwise deal with the right to purchase the property in a manner adverse to this trust;(d) KPIL (either directly or indirectly via attribution) knew about Mr Jin'sinterest when it acquired the Knox Street property.[29] We are therefore of the view that the caveat should have been sustained and the matter determined at trial.Orders[30] We make the following orders:(a) The appeal is allowed(b) The High Court judgment is set aside.(c) Caveat 9940802.1, which is lodged over the property at 12 Knox Street, Hamilton, is sustained.(d) The respondent must pay the appellant costs for a standard appeal on a band A basis and usual disbursements.Solicitors:Prestige Lawyers Ltd, Auckland for AppellantFoster & Milroy, Hamilton for Respondent