JIN v KNOX PROPERTY INVESTMENT LTD [2015] NZHC 2296

JIN v KNOX PROPERTY INVESTMENT LTD [2015] NZHC 2296 [17 September 2015]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYCIV-2015-404-00344[2015] NZHC 2296IN THE MATTER OF the Land Transfer Act 1952 Section 145ABETWEEN QIAN JINApplicantAND KNOX PROPERTY INVESTMENT LTDRespondentHearing: 17 September 2015Appearances: Mr R Hesketh and Ms A Manuson for ApplicantMr A B Foster for RespondentJudgment: 17 September 2015ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUEIntroduction[1] This proceeding comes before the Court as an originating application inwhich the applicant seeks an order sustaining a caveat under s 145A of the LandTransfer Act 1952. The applicant lodged a caveat against the title to a property at 12Knox Street, Hamilton. He claims that he invested in the purchase of developmentof that property and that he was a party to a partnership agreement which providedthat he was to have an interest in and part ownership of the property. A furtherground is stated that he paid the sum of $50,000 as a deposit for the purchase of theproperty. It is then stated that the applicant and another person, a Ms Lin Luo,agreed to add a third party into the "investment project", Mr Chun Jiang "actingthrough his company Knox Property Investment Ltd". He further states that theparties agreed that ownership of 12 Knox Street and the profits would be dividedbetween Mr Chun Jiang, Ms Lin Luo and himself in the following respective orders:a) Mr Chun Jiang 50%b) Ms Lin Luo 25%c) The applicant as to 25%.[2] It is stated in the application that the property was registered in the name of Knox Property Investment Ltd (KPI); that Mr Chun Jiang and Ms Lin Luo each had 50 per cent of that company and that the company refuses to acknowledge the"applicants beneficial interest in the property, which arose by the applicant providing funds towards the purchase of the property pursuant to the partnership agreementbetween him, Lin Luo and Chun Jiang."Principles relating to caveat applications[3] I respectfully adopt the following statement of the relevant principles whichapply to applications of this kind as set out in the judgment of Sims v Lowe:1[29] The principles that apply to an application to sustain a caveat are well settled and can be summarised as follows:2a) The caveator must justify the continued existence of the caveat by satisfying the Court that it has a reasonably arguable case for the interest it claims.3b) An order for the removal of a caveat will not be made and a caveat will not be allowed to lapse unless it is patently clear that there was no valid ground for lodging it or that such valid ground no longer exists.c) The Court has a discretion to remove a caveat, if a caveatable interest exists, if on the facts of the case the caveator can have no reasonable expectation of obtaining a benefit from continuance of the caveat. That discretion is exercised cautiously and in line with the decision of the Court of Appeal in Pacific Homes Ltd v Consolidated Joineries Ltd.4d) The summary nature of a caveat application makes it unsuitable for determining disputed questions of fact.e) The Court has power to impose conditions when making orders.Factual background/analysis[4] The applicant says he became involved in property transactions with Ms LinLuo and that she was the shareholder in the corporate vehicle which was to be usedfor that purpose, W&L. A third person who figures in the narrative in this case, a MrDavid Lee was involved in some of the surrounding activity that led up to thetransaction whereby the property was acquired but he was not a shareholder in thecompany. Ms Lin Luo was the sole director of W&L. The applicant claims that heis an "unregistered" shareholder in W&L. I am told that litigation has since beencommenced concerning his shareholding in W&L which he alleges he is entitled tobut has not received. However, that circumstance is not of direct relevance to thematters to be decided on this application today.1 Sims v Lowe [1988] 1 NZLR 656 (CA) at 660.2 DIB Construction Ltd v Yuan HC Auckland CIV 2009 404 4551, 19 May 2010.3 In Orams Marine (Auckland) Ltd v Ports of Auckland Ltd (1994) 6 TCLR 88 (CA), the Court ofAppeal stated that "once a reasonably arguable case has been established justice will requiremaintenance of the caveat."4 Pacific Homes Ltd (in receivership) v Consolidated Joineries Ltd [1996] 2 NZLR 652 (CA).[5] In June 2013, the applicant, Ms Lin Luo and Mr David Lee inspected the subject property at Knox Street, Hamilton. They attended the auction sale of thatproperty which was conducted on 13 June 2013. A successful bid was placed and,thereafter, an agreement for sale and purchase was entered into which showed W&Las the purchaser. There is no doubt in my mind that the applicant knew that thepurchaser was that company. The applicant provided $50,000 by way of a directpayment to the vendor's solicitors made pursuant to the agreement as the deposit.Given the circumstance that the purchaser was W&L, the clear inference is that theapplicant paid this amount on behalf of the company and, in return, acquired a creditbalance in his current account with W&L, had he been a shareholder. Alternatively,he is simply the creditor of the company in regard to the amount that he paid todischarge an obligation on its behalf.[6] The settlement date for the transaction by which the balance of the purchaseprice was to be paid was 11 July 2013. It did not settle on that date and a defaultnotice was received on 23 July 2013. A problem emerged in that W&L was,according to Ms Lin Luo, unable to raise sufficient finance to complete the purchaseof the property. Mr David Lee said that in July 2013, he called the applicant toadvise him that additional funding was going to be required and that the applicantwas not able to offer further money. I interpret that assertion by Mr Lee is notnegated in the reply affidavit filed in the proceeding. At that point, considerationhad to be given to bringing in another investor. That is what happened. As I haveindicated, in his notice of application, the applicant says that he, Ms Luo and thefresh investor, Mr Chung Jiang, reached agreement about ownership of the propertyin the respective shares that I have recited. The applicant now accepts, though, thathe did not actually meet Mr Chung Jiang before the transactions which I am going tooutline, as the narrative continues, took place.[7] The structure of the transaction changed with the arrival of Mr Chung Jiang.A new company was incorporated, Knox Property Investments Ltd, the respondent.The shareholders in that company were Mr Chung Jiang and Ms Lin Luo both as to50 per cent. Mr Chang Jiang was the sole director. The applicant was not involved.The company was plainly incorporated in some haste and in due course a deed ofnomination in its favour was executed by W&L. This was executed by Ms Lin Luoas the sole director of W&L. It was the respondent, Knox Property Investment Ltd, which duly affected settlement of the transaction on 1 August 2013. Some monthslater, the applicant followed up on the transaction. He says he did so to find outwhat had happened to his proposed investment and, as a result, the caveat in thisproceeding was lodged on 7 January 2015.[8] The caveat recited that the estate or interest claimed was as follows:The caveator is beneficially interested in the property by virtue of an impliedtrust, which arose by the caveator providing funds towards the purchase ofthe property. The caveator provided the funds both directly himself andthrough the company W&L Limited of which he is an unregisteredshareholder. The property was registered in the sole name of the registeredproprietor, who holds the property as a trustee.[9] While the nature of the trust interest which is relied upon by the applicant is unclear, in its outlines it would appear that it is in the nature of a resulting trust. InSnells Equity, it is stated.5Where A makes a voluntary payment to B or pays [wholly or in part] for the purchase of property which is vested 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 joint purchase by A and B in shares proportionate to their combinations.[10] A trust in the form just quoted is not literally applicable in this case. Theapplicant claims he provided funds "through the company W&L Limited of whichhe is an unregistered shareholder". W&L did not become the purchaser of theproperty of course but the respondent did. Nonetheless, I consider that the Court atthe stage of deciding a caveat application should not require very accurate analysisof the equitable rights that the applicant says he has in the property.[11] Because the indication of a trust involves questions of a good conscience of the parties to a transaction, it is necessary to consider in the context of this case thebasis upon which the inference that underlies resulting trusts can be drawn in thiscase. This involves considering the reasonableness of the expectations which theapplicant says he had and which were known to the proprietor of the property5 John McGee QC Snells Equity (33rd ed, Sweet & Maxwell, London, 2014) at 25-003.concerning whether it is fair and reasonable for the proprietor of the property to be fixed with the knowledge of the events which give rise to the expectation on the partof the caveator that he would have an interest in the property, the circumstances ofhis payment of the funds and other matters.[12] I observe that for the purposes of this application, I assume that the applicant will be able to establish that the amount of $50,000 which he provided was by way of a payment of funds for acquisition of the property and was not attributable tosome other transaction such as the repayment of a debt owed to Ms Lin Luo.[13] The equities to which the respondent is subject will be affected by the state ofknowledge of the relevant human agents and principals of the company. Also, it isnecessary to have regard to the surrounding factual circumstances and reasonableexpectations of the applicant at the time when he made the payment. It is not to beassumed that an expectation that originally arose because of the state of affairs thenwill stay in effect indefinitely. In other words, the circumstances can change and theexpectation is no longer one which is reasonable or valid.[14] It is necessary to also keep in mind that the applicant cannot simply ignorethe different legal entities that are involved in this series of transactions. The parties,when they set out initially to acquire 12 Knox Street, were Ms Luo, the applicant andtheir company. It was expected that the company would complete the transaction.Thereafter, presently, the payment which the applicant had made direct to the vendorwould be credited against the debt owed to the vendor and would be taken intoaccount when calculating the extent of the beneficial interest which the applicant hadin the property.[15] But the purchase of W&L did not go ahead and could not have gone ahead. It could not have gone ahead because W&L, or more accurately, the applicant andMs Luo, did not have the necessary financial resources to complete it. What thenhappened was that the nomination was carried out to a company which did have theresources to complete the transaction. It is true that the nominated company used thefunds which the applicant had contributed as part of the payment for the price it hadto pay to acquire the Knox Street property. That does not however mean that in thechanged circumstances obtained following the nomination that the applicant still hada reasonable and legitimate expectation that he was going to have a beneficialinterest in the property.[16] Initially the expectation of the applicant, as I understand his case to be, is that he would receive a 50 per cent interest in the property once acquired whether directly by himself and Ms Luo or by their company. This was replaced, he alleges, by the arrangement where he was to receive 25 per cent of the equity in the property and the other party 75 per cent. There is however no basis put forward to justify that expectation. The applicant did not contribute any further money to the respondent to use for the purpose of buying the property. Even the amount that he had originally provided as a proportion of the purchase price of the property does not arithmeticallyadd up the 25 per cent of the purchase price. He had never met with Mr ChiangJiang with whom he claims this partnership arrangement was made.[17] In my view, this is not a case where the Court could reasonably conclude onany view of it that the applicant had an equitable interest in the property which wasacquired by the respondent. The important factor is not the change of the corporatevehicles. I agree with Mr Hesketh that legitimate expectations cannot be defeated byswitching contracts to new companies in an effort to cut out someone who has alegitimate expectation. The view I have come to, rather, is based on the fact that thewhole outline of the transaction had changed and the transaction for which theapplicant had contributed money was no longer going to go ahead. The position wasin substance that an ineffective transaction had resulted and, at most, the applicanthad an entitlement to get his money back or to have his interest in the $50,000recognised in the accounts of W&L on whose behalf he had made the payment.[18] Mr Hesketh submitted that is was possible for the circumstances that gaverise to the applicant having expectations of an interest in the property to be attributedto the respondent which eventually became the registered proprietor. He referred toa Privy Council case of Lebon v Aqua Salt Co Ltd.6 What that case and anotherPrivy Council case, originating from New Zealand, Meridian Global Funds6 Lebon v Aqua Salt Co Ltd [2009] UKPC 2.Management Asia Ltd v Securities Commission,7 make clear is that, in somecircumstances, the Court has to be able to attribute knowledge of relevantcircumstances to a company and that it will do so by equating the knowledge of thedirector of the company with that of the company.[19] However, that is not this case. It is true Ms Luo was involved in the initialtransaction involving the applicant however she is not a director of the respondentcompany and, on conventional principles of attribution, what she knew about thefirst transaction could not reasonably be considered to be the state of knowledge andaffecting the equitable duty of the company.[20] However, my main ground for concluding that the applicant does not have anequitable interest is that if the original transaction that the parties contemplated hadgone ahead, he may well have had an interest in the property once acquired byW&L. That transaction however did not go ahead because the company could notcomplete it. A new company came into the picture of which the applicant is not apart. For all intents and purposes, W&L dropped out of the picture except for thefact that the deposit money which they had contributed was relied upon by therespondent, as I have noted, to make part payment of the purchase price. But that inmy view does not mean that the applicant by indirect means acquired a 25 per centbeneficial interest in the property. For those reasons, I conclude that the applicationmust be dismissed.[21] I have heard counsel concerning the matter of costs and Mr Heskethrealistically accepts that the applicant cannot oppose an order for costs and costs willbe payable to the respondent on a 2B basis._____________J.P. DoogueAssociate Judge7 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500.