Hu v Zheng HC Auckland CIV 2007-404-1895 [2007] NZHC 586; (2007) 26 FRNZ 501; (2007) 8 NZCPR 587 (12 June 2007)

Last Updated: 22 September 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV 2007-404-1895}

UNDER Section 145A of the Land Transfer Act

1952

BETWEEN JINGYI HU AND AIZHEN MAO Applicants

AND XIAN QING ZHENG Respondent

Hearing: 7 June 2007

Appearances: J B Murray for Applicants

L J Turner for Respondent

Judgment: 12 June 2007 at 3:45 pm

_{JUDGMENT OF ASSOCIATE JUDGE D.H. ABBOTT}

In accordance with R540(4) I direct that the Registrar endorse this judgment with the delivery time of 3:45pm on 12 June 2007

Solicitors:

Vallant Hooker & Partners, Auckland, for Applicants – Fax [phone]

Russell McVeagh, Auckland, for Respondent – Fax [phone]

_{L J Turner, Auckland - Fax [phone]}

JINGYI HU AND AIZHEN MAO V XIAN QING ZHENG HC AK CIV 2007-404-1895 12 June 2007

[1] The application before the Court for order that a caveat not lapse relates to a residential property at 24A Maple Street, Avondale Auckland (“the property”). The property has been registered in the name of the respondent since October 1999, but which has been the applicants’ home since December 1998.

[2] The parties, for a time, were related by marriage. The respondent married one of the applicants’ two sons in November 1998. In the same month, the other son purchased the property. The applicants, their two sons and the respondent initially lived in the property for a short time until the respondent and her former husband moved to separate rented accommodation.

[3] The property was transferred to the respondent in December 1999 in the face of a threat of a mortgagee sale. The basis upon which the transfer took place lies at the heart of the present application. The applicants say that the property was transferred to the respondent to hold on their behalf, and that they contributed the money needed to clear the prior mortgage. The respondent denies that there was any arrangement for her to hold the property on behalf of the applicants. She says that she contributed the money needed to clear the previous mortgage.

[4] The applicants lodged the caveat which is the subject of the present application claiming an interest in the property under an express oral or an implied trust. The present application was filed after the respondent took steps to have the caveat removed.

Name of respondent

[5] At the commencement of the hearing, counsel for the applicants informed me of an error in the name of the respondent. She has been named in the application as Xian Qing Zheng as that is the name entered on the title. The applicants accept that her correct name is Xiao Qing Zheng. For the sake of this application (given that the title is in the incorrect name) I record that the respondent’s correct name is Xiao Quing Zheng, but she is also known as Xian Quing Zheng.

Relevant background

[6] The applicants have filed three affidavits in support of the application. They are by the first-named applicant, Jingyi Hu, the applicant’s son and respondent’s former husband, Jian Qing Hu (also known as Nelson Hu) and by a solicitor, Boon Gunn Hong. Mr Hong acted for the applicant’s son, Jian Min Hu (“Jian Min”) on the purchase of the property in December 1998, for both parties on the transfer of the property to the respondent in December 1999, and for Nelson Hu when he and the respondent separated in 2002. The respondent has filed an affidavit in opposition. There is disagreement on a number of facts critical to the key issues in this application (being the basis on which the property was transferred to the respondent, and who contributed to the repayment of the prior mortgage), but the following facts are not in dispute.

[7] The applicants, their sons and the respondent were all born in China. They are comparatively recent immigrants to New Zealand. Nelson Hu arrived in New Zealand in 1990. He became a New Zealand citizen in 1998. The applicants arrived in New Zealand in 1995. They obtained permanent residence in 1996. Jian Min arrived in New Zealand in 1997 and is now a New Zealand citizen. The respondent arrived in New Zealand in August 1998 and became either a New Zealand citizen or a permanent resident (it is not clear which, on the affidavits) in 2000. They were all living together in rented accommodation in November 1998. The applicants wished to purchase a house rather than continue in rented accommodation. Because of their age (in their 60s) and because they were not working and did not speak English, it was decided that Jian Min should seek a bank loan to finance the purchase (Nelson Hu did not have a good credit record, and was made bankrupt some three months later).

[8] In November 1998, Jian Min bought the property at auction with a loan from the ANZ Bank, and the balance of the purchase price, plus legal fees being paid by the applicants.

[9] The applicants, Jian Min, Nelson Hu and the respondent moved into the property. The respondent and Nelson Hu moved to rented accommodation in April

1999.

[10] In the latter part of 1999 Jian Min was in arrears under the mortgage and the mortgagee bank was taking steps to effect a mortgagee sale. The applicants were unable to obtain a loan for the same reasons that applied when Jian Min bought the property. Nelson Hu was unable to do so as he was bankrupt. A valuation of the property at $215,000 was obtained. Jian Min and the respondent entered into an agreement for the respondent to by the property at the valuation figure. On the basis of the valuation and the agreement the respondent obtained a bank loan for

$172,000. An additional sum of $20,000 was lodged into Mr Hong’s trust account, for the credit of the respondent. Subsequently the sum of $192,000 (the bank finance of $172,000 plus the additional sum of $20,000) was transferred to Jian Min’s ledger and used to repay the sum of $191,324.97 due under the previous mortgage. The balance was applied in payment of Mr Hong’s fees and disbursements. There is no record of the balance of the purchase price ($23,000) being paid.

[11] The occupants and Jian Min continued to reside in the property. Nelson Hu returned to live there after he and the respondent separated in 2002.

[12] In July 2002, Nelson Hu and the respondent entered into a relationship property agreement which recorded that the property was to vest in the respondent. Nelson Hu subsequently applied to the Family Court to set aside that agreement, but withdrew the application shortly before it was due to be heard in August 2005. The applicants lodged their caveat a few days later.

[13] The respondent applied for lapse of the caveat in March 2007. The present application was filed two weeks after the applicants received notice of the respondent’s application to lapse the caveat.

The application and issues arising

[14] The application is brought under ss 137 and 145A of the Land Transfer Act

1952. Under s 137 a person claiming a beneficial interest in land by virtue of any trust expressed or implied may lodge a caveat to protect that interest from any dealings in that land. Under s 145A the registered proprietor of the land protected by the caveat may apply to the Registrar for the caveat to lapse. The sections do not provide any guidance on the principles that the Court applies in deciding whether or not to sustain a caveat. These have been developed in case law and are now well established. The relevant principles for the present application are:

a) A caveat should be removed if it is clear that there was no valid ground for lodging it, or that any valid ground no longer exists: Sims v Lowe [1988] 1 NZLR 656, 659;

b) The onus is on the caveator to show that he or she has a reasonably arguable case for the interest claimed: Castlehill Run Ltd v NZI Finance Ltd [1985] 2 NZLR 104, 106; Sims v Lowe at 660;

c) The Court has a discretion to order removal of the caveat even if the caveator establishes an arguable case for the interest claimed, although that discretion will be exercised cautiously: Pacific Homes Ltd (In Receivership) v Consolidated Joineries Ltd [1996] 2 NZLR

652, 656;

d) This summary procedure under the Land Transfer Act 1952 for removal of caveats (based as it is on affidavit evidence) is wholly unsuitable for the determination of disputed questions of fact: Sims v Lowe at 659-660;

e) Evidence must still meet a “threshold of credibility” and there may be cases where the Court (upon proper scrutiny of affidavits) can say that allegations made are baseless: Eng Mee Yong v Letchumanan [1980] AC 331, Pemberton v Chappell [1987] 1 NZLR 1, Reeves v OneWorld Challenge LLC [2006] 2 NZLR 186, British Mercantile &

Loan Trust Co Ltd v George Street Investments Ltd & Anor (HC AK CIV 2006-404-3922, 21 August 2006, Doogue AJ).

[15] The applicants claim a beneficial interest arising out of an express oral trust said to have been undertaken by the respondent at the time of taking title to the property in October 1999, or a trust implied by law as a consequence of money applied towards the respondent’s purchase of the property and in paying the mortgage subsequently. They say they have an arguable case under both heads.

[16] The respondent denies that there was any express trust formed, and it says that she contributed all the money paid towards the purchase price. She says that the applicants’ evidence amounts to no more than bare assertions, which are unsupported by any contemporary documents and lack credibility when considered critically.

[17] The respondent also raises an issue over the wording of the interest claimed. The description of the interest is that it arises under a trust created in or about December 1999. It is clear from the evidence before the court that the alleged trust arises at the time of the transfer in October 1999. I do not regard the difference as significant. I am satisfied that the respondent knows how the interest is said to have arisen and is not disadvantaged by what was clearly a mistake as to the date of the transfer.

[18] Counsel agree that the issues which the Court must determine on this application are:

1. Whether the applicants have established an arguable case for an express trust; and
   
2. Whether the applicants have established an arguable case that they provided funds towards the respondent’s purchase of the property.

Is there an arguable case for an express trust?

[19] Express trusts affecting land are generally required to be evidenced in writing signed by the creator of the trust, or be unenforceable: s 49A Property Law Act

1952 (applicable to trusts created inter vivos). This section replaced s 7 of the Statute of Frauds 1677, though cases under that statute remain applicable. However, this evidential requirement will not be insisted upon if, by so doing, the Court would in effect be lending its aid to perpetration of a fraud. The Court will not allow a trustee to rely on that section if it would amount to an abuse of trust and allow the trustee to take beneficially what the creator of the trust never intended the trustee to have: Garrow & Kelly, 6th ed. 2005, p 85.

[20] The Court will admit oral evidence in cases of fraud. It is a fraud for a trustee to whom land is conveyed to deny the trust and claim the land as his own:

Despite any statutory requirement for written documentation, the Courts have consistently admitted oral evidence in cases of fraud as such, legislation must not be allowed to become “an instrument of fraud”. It is a fraud for a person to whom land is conveyed as a trustee, and who knows it was so conveyed, to deny the trust and claim the land as that person’s own. Where a person makes a claim to land that has been transferred to someone else, that person may prove by oral evidence that it was transferred on trust for the claimant. So the claimant may obtain a declaration that the transferee is a trustee for the claimant.

Garrow & Kelly, 6th ed.2005, 5.5.1, p 85-86.

[21] This principle has been applied in many cases, although there appears to be some variance as to the nature of the trust created. In Pearce v Public Trustee [1916] GLR 125 the Court described it is an express trust rather than a resulting trust. In Bannister v Bannister [1948] 2 All ER 133 the Court found that an oral undertaking given by the plaintiff that the defendant would be allowed to live in a cottage rent free for as long as she desired, which caused the defendant to agree to sell the cottage to the plaintiff, brought into being a constructive trust, and the statute of frauds could not be used to defeat the beneficial interest (which the plaintiff sought to do by the absolute nature of the conveyance. In Avondale Printers & Stationers Ltd v Haggie [1979] 2 NZLR 124 the Court accepted that where a transferee denies a trust and relies upon an absolute form of transfer, the transferor

can prove the trust by parol evidence, and the trustee would thereafter be a constructive trustee of the property for the benefit of the transferor (at p 161). Bannister v Bannister has been applied in New Zealand in Adams v Tivoli (HC AK CP 817/91, 24 September 1993, Smellie J).

[22] Counsel for the applicants submitted that it was clear that the respondent was denying that she held the land as trustee for the applicants, and that although the evidence was disputed, there was nevertheless an arguable case in the affidavits filed for an express trust. He relied on the affidavit of Jingyi Hu that the respondent had agreed to the transfer into her name, on the grounds that she had a good credit rating, but on “the strict understanding that she would be holding the property for [the applicants]”. He also referred to the evidence of Nelson Hu that he had proposed to the respondent that “we use her name to raise a mortgage to repay the bank”, and his belief that in agreeing to do so “she understood clearly at all times that the property was in her name only and she was going to hold it for and on behalf of my parents”. Nelson Hu then says that he went to Mr Hong, on behalf of the applicants, “to put this family arrangement into place”. Finally, counsel referred to the evidence of Mr Hong that he was contacted by Nelson Hu, told of the impending mortgagee sale, and instructed by Nelson Hu that “the family would use the name of his wife to purchase the house and raise a mortgage” so as to prevent the mortgagee sale. Counsel submitted that this arrangement had to be considered in the context of the undisputed evidence that the applicants had decided to buy the property, and had provided the cash contribution towards the purchase price, but that the purchase had been effected through Jian Min because they could not obtain a mortgage.

[23] Counsel for the respondent submitted that this evidence did not cross the threshold of credibility. He referred to the respondent’s evidence acknowledging that Nelson Hu had suggested to her that she raise a mortgage and buy the property in her own name, and her agreement to do so after some initial reluctance to take on the loan liability solely. Counsel pointed to the unchallenged evidence of the respondent that she did not discuss the matter with the applicants and did not discuss with Nelson that the property was to be hers in name only, and that she was to hold it for and on behalf of his parents (the applicants). He submitted that this was consistent with Nelson Hu’s evidence. He submitted that the evidence fell well short

of establishing an intention to create a trust, there being no evidence of any expressed declaration or acts on the part of the respondent showing her willingness to be bound as a trustee: Thexton v Thexton [2001] 1 NZLR 237.

[24] Counsel for the respondent also relied on the evidence before the Court of the relationship property agreement in which Nelson Hu acknowledged the respondent’s title to the property, and subsequent correspondence from his solicitor (Mr Hong) that the applicants were renting the property. He submitted that this evidence, although subsequent to alleged time of creation of the trust, could be taken into account as an admission against interest.

[25] The applicants will have the burden of proving there was an intention to create a trust at the point that the property was transferred to the respondent. For the purposes of the present application, however, they need only to establish that they have an arguable case. The question is whether there is a basis upon which it can be said that there is some manifestation of an intention to declare a trust. I accept the submission of counsel for the respondent that the only evidence of explicit discussion on the matter, currently before the Court, appears to be of discussions between Nelson Hu and the respondent. This is consistent with the fact that they were then living separately from the applicants, and the relationship between the applicants and the respondent appears not to have been a close one (Nelson Hu says that he and the respondent moved out because relations between the respondent and his parents were not good).

[26] The intention to declare a trust does not depend on a specific form of words, or, in exceptional cases, any words. As stated in Thexton v Thexton at 247, it can be inferred from acts:

A declaration of trust does not require a technical form of expression, it is a question of construction whether the words used, taking into account the surrounding circumstances, amount to a clear declaration of trust. What is needed is the manifestation of an intention to declare a trust: Paul v Constance [1977] 1 All ER 195. Where no words exhibiting the necessary intent are used it may in exceptional cases be possible to infer a declaration of trust from acts showing that a person has constituted themselves as trustee, ie from conduct evincing an intent to deal with his property so that somebody else to his own exclusion acquires the beneficial interest in his property.

[27] I accept the submission of counsel for the respondent that the applicants have not put forward anything said by the respondent, nor any specific matters on which he formed his belief that she clearly understood that the property was to be transferred in name only and she was to hold it for the applicants. However, I have also to take into account that this is a summary application, which had to be prepared urgently (within a 14 day time limit) relating to matters which took place nine years earlier, and involving elderly applicants who speak little English (and, given that an interpreter was required for Jingyi Hu’s affidavit, have no greater ability in reading or writing English).

[28] I am mindful of the submission of counsel for the respondent that the evidence does not cross the threshold of credibility. However, whilst accepting that there is some merit to the criticisms raised by counsel for the respondent, having regard to the particular circumstances of this case, I am not prepared to find on a summary application that the evidence is baseless. In the context of the applicants’ role in the initial purchase and the circumstances facing the family at the time of the transfer, I do not regard it as inherently improbable that the respondent was aware of the applicants’ continuing interest and accepted the transfer on that understanding. Whether there is the necessary manifestation of an intention to declare a trust is, in my view, a matter which must be determined at trial.

[29] I do not overlook counsel for the respondent’s submission that Nelson Hu’s acceptance of the respondent’s title in 2002 is evidence negating any express trust. This evidence may well go to the credibility of Nelson Hu in due course. However, I do not regard it as determinative in the present application. It is not a statement against interest so far as the applicants are concerned. There is no suggestion in any of the evidence before the Court that the applicants were aware that the property was being treated as relationship property. I note that Nelson did not move back to live in the property until after the relationship property settlement agreement was signed.

[30] I find, albeit by a narrow margin, that the applicants have an arguable case for claiming a beneficial interest under an express oral trust.

Is it arguable that the applicants provided funds towards the purchase of the property?

[31] Although it is not necessary for me to do so given the view I have reached on the first basis for sustaining the caveat, given the marginal nature of that decision I will also address the second ground relied upon by the applicants, namely that they are entitled to a beneficial interest under a trust to be implied by law, as a consequence of the money they paid towards the purchase price of the property. The applicants say that they have an arguable case for a resulting trust, based both on a payment made at the time of purchase, and in respect of mortgage payments made since then.

[32] A resulting trust will be presumed where legal title to land is vested in someone other than the person who is proved to have provided the money for the purchase: Garrow & Kelly, Law of Trusts, 6th ed. 2005, p 353; Tattersfield v L W Tattersfield Ltd (1980) 1 NZCPR 235, 237 (citing Underhill’s Law of Trusts & Trustees, 12th ed. 205).

[33] The presumption of a resulting trust may be rebutted by evidence that no trust was intended: Garrow & Kelly, Law of Trusts, 6h ed. 2005, p 357.

[34] A resulting trust does not depend on any knowledge on the part of the trustee:

Tattersfield v L W Tattersfield Ltd at 237.

[35] Counsel for the applicants submitted that they have an arguable case both on the basis that they provided the money in addition to the new bank loan, which enabled the old mortgage to be repaid, and on the basis that they had made all payments in respect of the house (including payments on the loan taken out in the respondent’s name) since the house was first purchased. I shall deal with each argument in turn.

[36] The applicants again rely on the evidence of Jingyi Hu, Nelson Hu and Boon Gunn Hong. Jingyi Hu says that the applicants paid the sum required, on top of the new loan of $172,000, to repay the earlier mortgage, and to meet Mr Hong’s fees and

registration costs. He says that the applicants used savings and retirement funds from China to do this. Nelson Hu says that the extra money needed to transfer the house to the respondent (in other words to repay the prior mortgage) came from his parents, and that he told Mr Hong of this. Mr Hong noted that the new mortgage loan taken out by the respondent was not sufficient to clear the sum owing to the prior mortgagee and that Nelson Hu brought into his office the balance of the funds needed to complete the transfer, being a sum of $20,000. He says that this is the sum of $20,000 lodged into the respondent’s ledger in respect of the purchase of the property (credited with the notation “By: You”).

[37] Counsel for the respondent challenged this evidence on the basis that it was their assertion, unsupported by any detail or documents, and inconsistent with the one contemporaneous document, namely Mr Hong’s trust account record. He points to the evidence given by the respondent that Nelson Hu had told her that he used money that she had brought from China towards buying the house (both to meet the shortfall of approximately $19,000 on the prior mortgage, and any further money to be paid to Jian Min). Counsel submitted that the applicants had failed to meet the onus of proof. He submitted that their evidence, lacking any detail as to the source of the applicants’ funds and the way in which delivery was made to Mr Hong, did not pass the threshold of credibility when set against the manner of recording in the trust account, and the lack of any documentation of the arrangement other than a direct transfer into the name of the respondent. He also pointed to evidence given by Mr Hong in Nelson Hu’s application to set aside the relationship property agreement which he submitted could be read as an indication that Mr Hong did not know until then of the claim that the “top up” purchase money had come from the applicants.

[38] The evidence given by the applicants, or their witnesses in support, is clear and unequivocal on the fact that the “top up” purchase money was paid by them. Although there is no document supporting the alleged transfer of funds from China, that is not altogether unexpected given the time that has passed and the urgency with which this application had to be prepared. The evidence is consistent with the uncontested fact that the applicants provided the money needed to effect the original purchase. It is also consistent with the respondent and Nelson Hu moving to rental accommodation in April 1999, rather than the other way round.

[39] I do not regard the entry “By: You” in Mr Hong’s ledger as determinative on the point. That is equivocal, in my view, in the context of an intra-family arrangement where funds were delivered to him by the respondent’s husband, in circumstances where there was no issue that the money was to be deposited to the respondent’s account. It may be a matter of criticism of Mr Hong that he did not enquire further into the source of the funds, and record that in some manner, but again that has to be viewed in the context of a family arrangement undertaken with some urgency to avoid a mortgagee sale. His uncertainty about the source of funds is recorded in the settlement statements prepared for the respondent which, although noting the deposit of $20,000 as paid, was annotated “Check if paid & to whom”. A similar notation in respect of the settlement statements for both Jian Min and the respondent in respect of the balance of the purchase price also supports the view that this was not an arms-length transaction.

[40] I also take into account that Nelson Hu denies unequivocally that the respondent had any savings to put into the purchase, or that he told her that he had used any money from her towards the purchase. This is not something that can be determined on this application.

[41] I have already addressed the respondent’s point as to inconsistency of the applicants’ argument with Nelson Hu’s position in the relationship property settlement and subsequent correspondence. I merely add that I take the same view in relation to the respondent’s argument that Mr Hong’s evidence in the Family Court proceeding suggests that he was not aware, prior to that point, that the applicants had contributed the top-up purchase money. I am not convinced that that is the proper inference to be taken from that affidavit, but in any event, I do not consider that to be a statement made on behalf of the applicants at that point, and therefore admissible as a statement against interest.

[42] Weighing up all of this evidence, I come to the view that the applicants have an arguable case for a beneficial interest arising out of a resulting trust, on the basis of providing money for the purchase of the property. The position is not without doubt, but I am not persuaded that the evidence is baseless. Again, in coming to this view, I am conscious of the circumstances of the applicants, and that they appear to

have relied heavily on their son, Nelson Hu, who may not always have been acting with the applicants’ interests at the forefront of his mind. They do not appear to have had independent legal advice until recently.

[43] This leaves me just to deal briefly with the last of the applicants’ arguments, namely that they have a beneficial interest arising from the payment of mortgage money. I note that both parties claim to have paid the mortgage prior to September

2002.

[44] Counsel for the respondent submitted that a resulting trust could only arise in respect of payments made towards purchase price, which was to be viewed at that time. He relied on the following passage from the decision of the High Court of Australia in Calverley v Green [1984] HCA 81; [1984] 155 CLR 242, at 257:

It is understandable but erroneous to regard the payment of mortgage instalments as payment of the purchase price of a home. The purchase price is what is paid in order to acquire the property; the mortgage instalments are paid to the lender from whom the money to pay some or all of the purchase price is borrowed.

[45] Counsel for the respondent argue that Calverley v Green was distinguishable on its facts. He referred to (dicta) in Tattersfield v L W Tattersfield Ltd where the Court noted that the plaintiff had not only provided purchase money towards the property, but also had expended money on its improvement (which clearly would have followed the purchase).

[46] I do not intend to make a finding on this point, given the decisions already made. I sound a note of caution, however, that although the decision in Calverley v Green is persuasive only, I find it difficult to see how a payment of a loan can be considered to be payment of purchase price so as to give rise to a resulting trust. If the trust does not attach at the time of acquisition, it is difficult to see how payment of the mortgage in these circumstances could give rise either to a resulting or an institutional constructive trust, and even if there was a prospect of a remedial constructive trust, the applicants would not have a beneficial interest until such a trust was declared by a Court.

Decision

[47] I find that the applicants have an arguable case for a beneficial interest in the property in respect of either an express trust, or a resulting trust to be implied from the payment of money towards the respondent’s purchase of the property.

[48] I order that Caveat 6536943.1 registered against the title to the property (Certificate of Title NA 40B/1299) not lapse until further order of the Court, but subject to the following conditions:

a) The applicants are to commence proceedings for a declaration that the respondent holds the property on trust for them, and as to the terms of such trust, within 28 days;

b) The respondent has leave to apply for rescission of this order if the proceeding is not prosecuted with reasonable diligence.

[49] As will be apparent from the reasons for decision, the applicants have succeeded but by a comparatively narrow margin. I propose following the course adopted on summary judgment applications. I reserve costs until the substantive

_{issue has been determined.}

Associate Judge DH Abbott