XIANGTAN COUNTY XINTIAN MICRO MORTGAGE COMPANY LIMITED v BCH INVESTMENTS LIMITED [2021] NZHC 1537

XIANGTAN COUNTY XINTIAN MICRO MORTGAGE COMPANY LIMITED v BCH INVESTMENTSLIMITED [2021] NZHC 1537 [25 June 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-000556[2021] NZHC 1537BETWEEN XIANGTAN COUNTY XINTIAN MICROMORTGAGE COMPANY LIMITEDApplicantAND BCH INVESTMENTS LIMITEDRespondentHearing: 27 May 2021Appearances: A Yang for the ApplicantH McDermott for the RespondentJudgment: 25 June 2021JUDGMENT OF WALKER JThis judgment was delivered by me on 25 June 2021 at 12.30 pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy Registrar[1] The applicant, Xiangtan County Xintian Micro Mortgage Company Limited("Xiangtan"), filed an originating application under the Land Transfer Act 2017 (the"Act") for an order preventing lapse of its caveat against property owned by BCHInvestments Limited ("BCH").1 The originating application sought orders under s 145of the Act instead of under s 143 of the Act. This is but one of the defects in theoriginating application which was filed by individuals associated with Xiangtan, ratherthan by a solicitor. A company is not a natural person and can only present a case incourt through legal representation, that is, a lawyer with a current practising certificateunless there are exceptional circumstances.2[2] BCH opposed the application. It applies to strike it out with costs to follow.[3] For the reasons set out below, the application to strike out proceeded to a onehour formal proof hearing before me on 27 May 2021.[4] I now make orders striking out the application that the caveat not lapse as anabuse of process. My reasons may be stated briefly.Background[5] On 27 November 2019, Hunan Hengyu Investment Guarantee CorporationLimited ("Hunan") registered a caveat over three properties owned by BCH. BCHsubmits that Hunan is one of several Chinese companies so closely related withXiangtan and those controlling Xiangtan that "they are interchangeable". On25 March 2020, the Court determined that Hunan did not have a caveatable interest inthe properties.3[6] The Hunan application arose out of business dealings between two Chinesefamilies - the Zhou family (represented by Hunan) and the Tang family (represented1 The originating application is dated 22 March 2021, filed on 1 April 2021, and lists the caveatnumber as 11753930.1, but does not provide the caveat.2 See Re G J Mannix Ltd [1984] 1 NZLR 309 (CA). Xiangtan was reminded of this in a minutedated 13 April 2021.3 Hunan Hengyu Investment Guarantee Corp Ltd v BCH Investments Ltd [2020] NZHC 650.by BCH). Hunan asserted that it had advanced funds via Mr Junwei Tang for thepurpose of a development near the Westfield mall in Albany. Mr Zhou withdrew fromthe joint development and the development company returned the advances made toMr Tang who was required to pass them on to Hunan. Hunan alleged that Mr Tanginstead advanced them into BCH. BCH denied receiving funds and denied any use ofthe funds in the purchase or development of the properties subject to Hunan's caveat.[7] Associate Judge Andrew dismissed Hunan's application determining that theevidential basis for its claims was tenuous; there was a great deal of uncertainty aboutkey aspects of the Hunan claim, including how much BCH borrowed for the propertydevelopment, where the funds came from and why the Zhou family is still in disputewith the Tang family over these funds where the evidence (although disputed) is thatthe matter had been settled. In short, Hunan had not discharged the burden ofestablishing that it had a reasonably arguable claim for a beneficial interest in the land.[8] On 25 June 2020, Xiangtan registered a caveat said to be over the sameproperties.4 Xiangtan asserts that the BCH owes it some $7.5 million plus interest.[9] On 17 March 2021, BCH applied to remove the caveat.[10] On 22 March 2021, Xiangtan applied to sustain the caveat but served thatapplication only on 1 April 2021.[11] On 13 April 2021, BCH filed both a notice of opposition and application tostrike out the application to sustain the caveat, supported by an affidavit of Qian YuBu dated 9 April 2021. It asserts that there is no basis for a claim against it and seeksthat the application to sustain the caveat be struck out. In particular, BCH relies onthe following grounds:(a) no affidavit was filed with the originating application contrary to r. 7.20of the High Court Rules 2016;4 The caveat instrument was only put into evidence by BCH.(b) the reference to evidence in other proceedings is a reference toproceedings between different parties, not the same parties;(c) the Hunan proceeding asserted the same factual background and thecaveat at issue is in respect of properties which were the subject of thefirst caveat;(d) there is no court order granting leave to file a second caveat to protectthe same interest;(e) Xiangtan is a related company to Hunan in that there are commondirectors and overlapping shareholding interests.[12] The opposition in short asserts that this application to sustain a caveat is adisingenuous attempt to circumvent the earlier determination by Associate JudgeAndrew by lodging a caveat in the name of a different entity.[13] By minute dated 13 April 2021, Gault J issued timetabling directions includingdirections that Xiangtan was to file and serve any notice of opposition to the strike-out application and affidavit or affidavits in support by 11 May 2021. A half dayhearing was allocated for 21 June 2021 to hear the applications.[14] However, Xiangtan filed no notice of opposition or affidavit in support by11 May 2021. The hearing set down for 21 June 2021 was deferred to 24 June 2021and subsequently vacated. BCH filed a memorandum on 13 May 2021 requesting aformal proof hearing in light of Xiangtan's non-compliance.[15] By minute dated 14 May 2021, Gault J concurred that the strike-out applicationshould proceed by way of formal proof. No opposition had been filed, nor hadXiangtan taken any other steps since the 13 April minute. A formal proof hearing wasallocated for 27 May 2021.[16] Xiangtan, through Mr Zhou, subsequently emailed the Court directly on17 May 2021 explaining that its lawyer was supposed to have taken over theproceeding but had been unwell.[17] BCH's counsel filed a memorandum in response dated 17 May 2021 notingthat Xiangtan was aware that it needed to be represented by a lawyer. Some five weekshad passed since Gault J's minute dated 13 April 2021 which gave sufficient time forXiangtan to instruct counsel and to inform the Court of its representation. BCH arguedthat the formal proof hearing should proceed.[18] On 18 May 2021, Xiangtan filed a memorandum noting that it had recentlyobtained legal representation in the proceeding. It advised that the reason for its delayin instructing counsel was a lack of funding. Xiangtan then requested a furtheropportunity to file and serve a notice of opposition and/or affidavits in response toBCH's strike-out application. It sought directions vacating the formal proof hearingand leave to file an amended originating application and notice of opposition and/oraffidavits by 4 June 2021.[19] On 19 May 2021, BCH filed a memorandum in response. It noted thatXiangtan had initially claimed in its email on 17 May 2021 that its delay in respondingto the strike-out application was due to its lawyer "not feeling well". However, thememorandum on 18 May 2021 now claimed that the issue was a "lack of funding".BCH reiterated its assertion that the formal proof hearing should proceed as scheduled.It also sought increased or indemnity costs against Xiangtan.[20] By minute dated 20 May 2021, Gault J determined that Xiangtan's explanationfor the delay was unsatisfactory. It had filed no affidavit in support of the originatingapplication to sustain the caveat, merely seeking leave to refer to affidavits in otherproceedings. Xiangtan did not file any notice of opposition to BCH's strike-outapplication as directed in the Judge's minute of 13 April 2021. It now sought to vacatethe formal proof hearing without filing any substantive document outlining itsposition. In the absence of an application for leave to file a notice of opposition outof time and some explanation of Xiangtan's position in response to the strike-outapplication, Gault J was not prepared to vacate the formal proof hearing on the papers.[21] The strike-out application accordingly proceeded to a formal proof hearing on27 May 2021. On the eve of the hearing, Xiangtan filed notice of interlocutoryapplication to file a notice of opposition and affidavit out of time. No supportingevidence was filed. The asserted grounds were that a lack of funding had delayedinstructing legal counsel and that counsel acting in inter-related proceedings had healthissues. Further, it suggested that no leave is required to lodge a second caveat becauseXiangtan is a different entity to Hunan and the caveatable interest in this instance arosefrom lending between 2012 and 2013 between Xiangtan as lender and Wenbin Tangas borrower.[22] At the formal proof hearing I did not accept that there was an adequateexplanation for the failure to comply with the timetable and the ensuing delay meantthat the Court would not grant the indulgence sought. I therefore declined leave to filethe notice of opposition and declined to vacate the hearing. I however permitted MsYang to respond to Ms McDermott's legal submissions provided no evidence wasgiven from the bar.Discussion[23] The principles relating to an application that a caveat not lapse were succinctlysummarised by the Court of Appeal in Botany Land Development Ltd Council:5[24] The onus is on the caveator to demonstrate that it holds an interest inthe land which is sufficient to support a caveat. The caveator must put beforethe Court a reasonably arguable case to support the interest it claims. An orderfor the removal of a caveat will only be made if it is clear that there was eitherno valid ground for lodging it in the first place or, alternatively that suchground as then existed has now ceased to exist. There is a residual discretion,once a reasonably arguable case has been established as to whether to makean order removing the caveat. This will be exercised only cautiously, forexample, where the Court finds there is no practical advantage to maintaininga caveat and the caveator will not be prejudiced.[24] The applicant must adduce evidence to discharge that onus:6[9] To establish a reasonably arguable case there must be evidencetending to prove the facts relied on. Assertion, whether in pleadings oraffidavit, is not enough. The evidence need not be as extensive as that givenin a hearing on the substantive merits. It may be circumstantial. But if there5 Botany Land Development Ltd v Auckland Council [2014] NZCA 61 (footnotes omitted). See alsoPhilpott v Noble Investments Ltd [2015] NZCA 342.6 Virtual Spectator Ltd v Rothlander [2016] NZHC 499. Albeit I accept that this discussionconcerned applications to remove caveats rather than applications that caveats not lapse. Theprinciples as to what constitutes a reasonably arguable case are nevertheless relevant.is no evidence to prove the facts contended for, the caveator will not havemade out a reasonably arguable case for those facts.[25] A caveator must show an entitlement to, or beneficial interest in, the estatereferred to in the caveat by virtue of an unregistered agreement or an instrument ortransmission, or of any trust expressed or implied.7[26] Xiangtan has plainly failed to discharge any of the evidential requirements. Ineed not belabour the point beyond emphasising that no evidence was provided byXiangtan in support of its assertions. As set out in Gault J's minute dated 13 April2021, it did not file an affidavit in support of the originating application but merelysought leave to refer to affidavits in other proceedings between different parties. Thereis accordingly no proper basis upon which the Court can determine its application tosustain the caveat, despite multiple opportunities being given to Xiangtan to shore upits application.[27] Under r 15.1 of the High Court Rules, the Court may strike out all or part of apleading if it:8(a) discloses no reasonably arguable cause of action, defence, or caseappropriate to the nature of the pleading; or(b) is likely to cause prejudice or delay; or(c) is frivolous or vexatious; or(d) is otherwise an abuse of the process of the court.[28] This jurisdiction, as emphasised by the Court of Appeal, is to be exercisedsparingly.9 In the present case, BCH submits that the application to sustain the caveatought to be struck out on both procedural and substantive grounds. It describes theapplication as an abuse of process and "so untenable that [it] cannot possibly succeedfor a wide variety of reasons", as set out in the notice of opposition and application tostrike out.7 Land Transfer Act 2017, s 138.8 High Court Rules 2016, r 15.1(1). The principles governing such an application are wellestablished Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267–268endorsed by the Supreme Court in Carter Holt Harvey Ltd v Minister of Education [2016] NZSC95, [2017] 1 NZLR 78 at [10].9 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR679 at [89].[29] Counsel for BCH submit that the Court has "no option" but to strike out theapplication to sustain the caveat. I agree that is the appropriate outcome.[30] The application was defective from the outset. Xiangtan subsequently failedto comply with any of the timetabling directions in the various ways outlined above.Moreover, and in my view more crucially, the complete lack of any proper evidentialfoundation in support of its application renders it hopelessly inadequate. There is nobasis on the evidence properly before the Court to find that Xiangtan has a caveatableinterest in the properties in question. The claim is therefore an abuse of process forthe reasons set out.[31] I accordingly grant the application by BCH to strike out the application tosustain the caveat.[32] BCH is entitled to costs. It seeks an uplift of 20 per cent to reflect the fact thatit has been put to the time and trouble of resisting an application to sustain a caveatwhich fell well short of the procedural requirements under the rules, which defectswere never rectified. I agree. I award costs on a 2B basis with an uplift of 20 per cent.............................................................Walker J