Chang v Lee [2014] NZHC 1091 (20 May 2014)

Last Updated: 28 May 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-0008 [2014] NZHC 1091

IN THE MATTER OF	the Land Transfer Act 1952, Section 145A
BETWEEN	CHIN-FU CHANG Applicant
AND	HSING-EN LEE Respondent

Hearing:	20 May 2014
Appearances:	R Reed with S S Prasad for Applicant G D Wiles with X Hou for Respondent
Judgment:	20 May 2014

_{ORAL JUDGMENT OF ASSOCIATE JUDGE BELL}

Solicitors:

Prestige Lawyers Limited (R Reed/S Prasad), Auckland, for Applicant

Langdon & Co, Takapuna, for Respondent

Counsel:

G D Wiles, Barrister, Auckland

CHANG v LEE [2014] NZHC 1091 [20 May 2014]

[1] The applicant applies under s 145A of the Land Transfer Act 1952 to sustain caveat no 542283.1. It is registered over the title to the property at 2/12 Stoneleigh Court, Sunnynook, North Shore. The registered proprietor, Hsing-En Lee (the respondent), is the daughter of the applicant’s sister-in-law.

[2] The interest claimed in the caveat is this:

The abovenamed caveator claims a beneficial interest in the property contained in Certificate of Title NA96B/702 as cestui que trust of which the registered proprietor, Hsing-En Lee, is a trustee.

The caveator is one of the equitable owners of the property as he has funded around the sum of New Zealand $275,000 to facilitate the purchase by way of a mortgage to ANZ National Bank Limited against his property contained in Certificate of Title NA101A/67.

[3] In 2011 Ms Lee bought the property at Stoneleigh Court for a price of

$566,000. The purchase settled in May 2011. She had paid a deposit of $56,600 in March that year. To complete the purchase, she borrowed $300,000 from the ANZ Bank, which took a first mortgage over the property as security for its loan. She needed about another $210,000 to complete the settlement. The applicant, Chin-Fu Chang, had advanced $70,000 to her in March to pay the deposit and he advanced a further $200,000 odd in May so that she could complete the purchase of the Stoneleigh Court property.

[4] Mr Chang owns a property at Delamare Court, Mairangi Bay, Auckland. That property was already subject to a mortgage to the ANZ Bank. The mortgage was discharged. A transmission from the names of his deceased wife and himself into his sole name by survivorship was registered, and a fresh mortgage was granted to the ANZ Bank. Part of the proceeds of the new loan from the ANZ Bank was advanced to Ms Lee so that she could use it to complete the purchase of the Stoneleigh Court property. Mr Chang says that he advanced Ms Lee a total of

$275,000.

[5] What I have set out so far is largely common ground. What is in dispute is the basis on which Mr Chang paid Ms Lee, and whether that gives him a caveatable interest in her property.

[6] In this proceeding, the parties have advanced three different ways of characterising the payments which Mr Chang made to Ms Lee:

(a) He lent her the money.

(b) The payment he made was treated as repayment of his indebtedness to

Ms Lee’s mother (that is, Mr Chang’s sister-in-law).

(c) He advanced the money on the basis that he was to have a beneficial interest in the property.

[7] It will be seen that the interest claimed in the caveat is primarily consistent with the third basis outlined above. The second characterisation is the one advanced by the respondent, supported by her mother. The first was a matter initially advanced by Mr Chang but later abandoned. Mr Chang has advanced the third characterisation but only in his reply affidavit.

[8] In caveat cases under ss 143, 145 and 145A of the Land Transfer Act, it is necessary to see whether the interest claimed in the caveat is one capable of recognition under s 137(1) of the Act. Leading decisions, such as Sims v Lowe,¹ set

_{out the principles to be followed on such applications:}

(a) Because it is a summary procedure, it is wholly unsuitable to

_{determine disputed questions of fact.}

(b) A caveat will be allowed to lapse only if it is patently clear that the caveat cannot be maintained, either because there was no ground for lodging it in the first place, or if there was a valid ground at the outset, it no longer exists. The patent clarity will not exist where the caveator has a reasonably arguable case in support of the interest claimed.

(c) The caveator has the onus to justify the continuance of the caveat, but he will be able do so if he can show a reasonably arguable case for the interest claimed.

[9] These principles are particularly relevant in this case because there are many points of disagreement between the parties.

[10] At the outset, Mr Wiles raised an argument as to the drafting of the caveat. He submitted that the requirements of s 137(2) of the Land Transfer Act had not been met. He took issue with whether the nature of the trust claimed had been stated with sufficient certainty, and whether the caveat stated clearly how the beneficial interest claimed was derived from the registered proprietor. He conceded, however, that the decision of the Court of Appeal in Zhong v Wang² is against him. In that case, a more loosely worded caveat was upheld. I regard the drafting of the caveat in this case as adequate to identify that an interest under a trust is claimed, and that the basis

for this is the fact that the caveator had borrowed funds which were then applied towards the acquisition of the property by the registered proprietor. That gave Ms Lee sufficient information, in terms of Zhong v Wang, to tell her what interest was claimed in the property. Overall, the question is not whether the caveat is properly drafted, but whether the evidence supports a reasonably arguable case for

_{the interest which the applicant claims.}

_Background

[11] The applicant is a widower. He presently lives in Kaohsiung City, Taiwan. He is retired. He and his wife had migrated to New Zealand in 1990. In 1995 they bought the property at Delamare Court, Mairangi Bay, and became its joint owners. His wife died in 1998 although, as I have set out, the transmission into his sole name did not take place until 2011. After the death of his wife Mr Chang moved back to Taiwan. While he was absent from New Zealand he rented out the Mairangi Bay property. Ms Lee came to New Zealand in 2005 to study, and lived in the Delamare Court property in place of it being rented out. She met mortgage commitments and other outgoings on the property while she lived there.

There is controversy as to how she was funded. Ms Lee and her mother say that the mother provided the funds. Mr Chang says that he paid the mother in Taiwan so that she was able to fund her daughter’s occupation of the property. Ms Lee continued to live in the Mairangi Bay property until November 2011 when she moved into the Sunnynook property. The evidence suggests that she met the outgoings on the property up until November 2011.

[12] In his first affidavit Mr Chang says that in 2011 he had discussions with Ms Lee, as a result of which he agreed to provide her with financial assistance to buy the Sunnynook property. That financial assistance was to take the form of a loan to her, which she was to repay within 10 years. He would find those funds by taking out a loan from the ANZ Bank, which Ms Lee would arrange. The loan from the ANZ Bank again was to be for a term of 10 years. Mr Chang says that Ms Lee withdrew $75,000 from his account in March 2011 towards the deposit and a further

$200,000 in May 2011. He says that the interest commitments on the ANZ loan have been met from rental income on the Delamare Court property. He says that it was also part of the arrangements that, if required, Ms Lee and her mother would meet outgoings on the Delamare Court property. He says that in 2011 he found out that the ANZ loan was in fact structured for 30 years, rather than for 10 years. When he took that up with Ms Lee she refused to acknowledge their agreement. He lodged the caveat as a result.

[13] In response, Ms Lee gives other background history. She says that before Mr Chang came to New Zealand he operated a business in Taiwan. That was a company called Shengyi Company Ltd. It manufactured hardware. The company had been financed by Citibank Taiwan. Her mother was one of the guarantors of the bank’s advances to the company. The company had failed in 1997, leaving a large debt to the bank. As guarantor, her mother had made payments of NZ$260,000 to the bank to meet her liability under the guarantees. Ms Lee says that in 1997

Mr Chang was still in financial difficulties. Her mother had advanced him a sum equivalent to NZ$8,888. She also says that when Mr Chang returned to Taiwan in

2002, her mother provided him with more financial assistance. She refers to payments amounting to NZ$54,735 made in the period 2008-2011 when Ms Lee occupied the Delamare Court property. Her case is that the payment of $275,000 to

her in 2011 to allow her to buy the Stoneleigh Court property was made as a family arrangement in recognition of the debt that Mr Chang owed to Ms Lee’s mother. It constituted a form of debt repayment within the family, and therefore there was no question of Ms Lee having to repay Mr Chang or of Mr Chang taking any interest in the Stoneleigh Court property.

[14] Ms Lee’s mother has also given evidence corroborating Ms Lee’s affidavit.

[15] In his reply affidavit, Mr Chang takes issue with much of the evidence from Ms Lee and her mother. This time, he denies that the arrangement was a loan by him to his niece. He now says the arrangement was that he was to take an interest in the property. In paragraph 21 of his reply affidavit he says:

(a) At the time, Ling-Yu [Ms Lee’s mother] had asked me whether I would be willing to use my Delamare property to get a mortgage and use that to help buy the Sunnynook property. The idea was that we would use my house to purchase a second house and I would get an interest in the second house.

(b) On this basis I got a loan of $275,000 from the bank and secured it using my Delamare property. I then gave the $275,000 to Ms Lee so she could purchase the Sunnynook property for the family’s benefit.

(c) As my house was bigger, we decided that it would be rented out (as it would get higher rent) and the rental income would be used to repay the mortgage.

(d) The bank mortgage was to be structured for a term of 10 years, during which time I would work in Taiwan and then retire to New Zealand at the end of the 10 years.

(e) This was a family arrangement that was meant to allow the family to have an investment in two houses in New Zealand. It was always Ling-Yu and Ms Lee’s intention that we would each have an interest in the Sunnynook property.

(f) Ms Lee has admitted on prior occasions that she never considered herself the owner of the Sunnynook property – it was a family home.

(g) However, Ling-Yu and Ms Lee now fail to acknowledge this arrangement or my interest in the Sunnynook property and the

$275,000 that I contributed towards its purchase.

[16] Further in his affidavit he says:

We had agreed to “support a house with another house” – it was not a simple loan arrangement.

[17] This expression “support a house with another house” appears to have some accepted common meaning in Chinese. Mr Chang also tries to explain away the departure from his earlier contentions that there was a loan. He attributes that to a misunderstanding on his part. He has had difficulties communicating with his New Zealand lawyers. He has given his affidavits in Chinese. He has been in Taiwan throughout and he has had to communicate with his lawyers in New Zealand long- distance. They had had instructions from him only recently. In the caveat proceeding, documents had had to be prepared in haste.

Is there a caveatable interest?

[18] I come back to the three characterisations of the payment. I dismiss the first basis as not giving any grounds for claiming a caveatable interest in the property. The advancing of funds by way of loan, if that loan is unsecured, does not give a caveatable interest in land. That is clear from authorities cited by Mr Wiles, in

particular Campbell on Caveats:³

An unsecured creditor has only personal rights against the debtor and therefore has no right to lodge a caveat against the title to the debtor’s land. This is so even if the unsecured creditor has lent money to the debtor for the express purpose of buying the land or paying off mortgages on the land, or if the unsecured creditor has provided goods and services under contract which have been used to improve the land.

[19] Rayner v Kilburn⁴ is authority supporting his submission. I also adopt the approach outlined by Fisher J, giving the judgment of the Court of Appeal in Potter v Potter:⁵

At the outset it has to be said that the appellant could logically seek to rely upon a resulting trust, or a loan, but not both simultaneously. The object of a resulting trust is to preserve for the settlor a beneficial interest which he or she had retained in the original trust property or its proceeds. The point of a resulting trust is to establish a proprietary interest, or right in rem. A loan, on the other hand, is an advance of money coupled with a contract for its repayment, with or without interest and other ancillary obligations. Even if the money is used to purchase property, and subject to the distinct question of mortgages, the lender acquires no interest in the property acquired. The right to repayment is a purely contractual one operating in personam.

³ _{Neil Campbell Campbell on Caveats (LexisNexis, Wellington, 2012) at [3.2(a)].}

⁴ _{Rayner v Kilburn (1981) 1 NZCPR 395.}

⁵ Potter v Potter [2003] 3 NZLR 145 (CA) at [13].

[20] These authorities all strongly point against Mr Chang being able to rely on a loan as a basis for a caveat in this case, as he tried to do in his original application. The issue that I have to deal with is the change in position by Mr Chang from firstly alleging a loan to now alleging a resulting trust.

[21] As to the second characterisation – the position of the respondent and her mother – I regard their evidence as showing arguable grounds why Mr Chang could not claim an interest in the property at all. But that evidence will form part of a substantive defence in an opposed hearing where the court has to decide finally whether Mr Chang does have the interest in the property which he claims. In response Mr Chang has endeavoured to counter the matters raised by Ms Lee and her mother. Those matters are not so overwhelming that I can say conclusively that Mr Chang does not have any hope of establishing that he has an interest in the property. Mr Wiles accepted that while the matters raised by Ms Lee and her mother showed arguable grounds for defence, by themselves, they could not give grounds to knock out the caveat.

[22] The third characterisation is the claim of a resulting trust. Mr Wiles invited me to treat that claim with suspicion and scepticism. It has been advanced in response to the notice of opposition which showed that an unsecured loan could not provide a basis for a caveatable interest. It is a belated attempt to reformulate the matter in the hope that something else could be made to stick.

[23] He attacked the weakness of the claim, the failure of Mr Chang to put before the court any evidence from the independent lawyers who acted for him when he took out the loan from the ANZ Bank, and his failure to address the competing interests not only of Ms Lee but also of the wider family. Mr Wiles submitted that the matter was inherently vague and improbable, and I should adopt the robust approach taken in cases such as the decision of the Privy Council in Eng Mee Yong v

Letchumanan.⁶

[24] There is force in Mr Wiles’ criticism. Notwithstanding that, I cannot at this stage say that I am satisfied that the claim to a resulting trust is so implausible that

⁶ Eng Mee Yong v Letchumanan [1980] AC 331 (PC).

the court should dismiss it out of hand. There are inherent weaknesses on the facts in the initial position that the arrangement originally was a loan. Even within a family, I would expect any arrangement under which one family member was to advance to the other the sum of $275,000 - allegedly on an interest-free basis - would still be recorded in some way, such as by way of acknowledgment of debt. Similarly, if there had been a genuine loan, repayable over 10 years, I would expect there to be some evidence of payments made by Ms Lee after she ceased to occupy the Delamare Court property. The factual weakness of a claim to a loan means that it may be open to Mr Chang to contend that there is an alternate basis for the payment.

[25] The governing consideration in a caveat application is to look to the interest claimed in the caveat and to see whether the evidence is consistent with it. Once the loan is put to one side, Mr Chang has an arguable case for a resulting trust. I understand that the resulting trust being contended for is the sort recognised by the

Court of Appeal in Crampton-Smith v Crampton-Smith.⁷ The Court of Appeal

quoted from the speech of Lord Browne-Wilkinson in Westdeutsche Landesbank

Girozentrale v Islington London Borough Council:⁸

... (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 the counter- presumption of advancement or by direct evidence of A’s intention to make an outright transfer ... (B) Where A transfers property to B on express trusts, but the trusts declared do not exhaust the whole beneficial interest ... [Original emphasis.]

The trust contended for here falls within the first type described by Lord Browne- Wilkinson.

[26] Again, following the Crampton-Smith decision, once it is recognised that the payment was made and has been applied to the acquisition of the property at

_{Stoneleigh Court, a presumption of a resulting trust may arise. The matters raised by}

⁷ _{Crampton-Smith v Crampton-Smith [2012] 1 NZLR 5 (CA) at [35].}

8. Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 (HL) at 708.

the respondent can be used to try to rebut that presumption but, as I have already stated, I do not regard them as so overwhelming that they can defeat the claim to a resulting trust at the outset so as to get rid of the caveat absolutely. It is for these reasons that I find it appropriate to sustain the caveat.

Outcome

_{[27] I have discussed with the parties whether it would be appropriate to follow}

_{the decision in BP Oil New Zealand Ltd v Van Beers Motors Ltd}⁹

_{to require the}

caveator to provide an undertaking as a condition of sustaining the caveat. I am conscious that undertakings as to damages can provide appropriate protection for registered proprietors when a caveat is left on the title and may hinder their ability to

_{use the property effectively. No evidence directed at that issue was filed.}

[28] It appears that Ms Lee continues to hold the property. It has been occupied - although not by her - but it is understood that she may return to New Zealand to live there. It seems as though the property is to be held, at least in the short term, only for the purposes of residential occupation. There is no evidence of her desire to realise the property. In these circumstances it seems to me unlikely that she is going to be caused any undue hardship by the caveat remaining on the title at least until the court can determine the substantive merits of Mr Chang’s claim. On that basis I do not think it is appropriate to order, as a condition of sustaining the

_{caveat, that Mr Chang should provide an undertaking as to damages.}

[29] It is normal when ordering a caveat to be sustained to require the caveator to start substantive proceedings promptly. Ms Reed accepted that that condition would be appropriate in this case.

[30] I accordingly make an order sustaining the caveat 542283.1 pending further order of the court subject to these conditions:

(a) within four weeks of today, the caveator must begin a proceeding to obtain orders sustaining the interest he claims in his caveat;

⁹ BP Oil New Zealand Ltd v Van Beers Motors Ltd [1992] 1 NZLR 211 (HC).

(b) that proceeding must be pursued with due diligence to a hearing, unless it is sooner settled;

(c) leave is reserved to the parties to apply to the court for further directions if required. In the first instance they should ask for a telephone case management conference.

[31] I trust that the parties will be able to co-operate on the matters of discovery, even before the proceeding is started, and that arrangements can be made for service on the respondent who I understand is in Taiwan.

Costs

[32] Mr Wiles asks for costs to be deferred to await the outcome of the substantive proceeding. He also refers to the applicant’s change of position, the holes in the evidence and the need for the matter to be tested.

[33] A caveat application is a separate proceeding from any later proceeding to substantiate the interest claimed in the caveat. The costs should be fixed now and should follow the result, in accordance with r 14.2(a) of the High Court Rules.

[34] Notwithstanding that, I accept the submission that at the outset the respondent had good grounds to oppose the application. The applicant has succeeded, only by reason of a change of stance. To that extent, it is reasonable to order some reduction in the costs under r 14.7 for starting the application on an unmeritorious basis. I therefore award costs under category 2, band B, but I order a reduction of costs by 25 per cent.

................................................

Associate Judge R M Bell