Qian Chen v Li Lin

Supreme Court of NSW|2020-05-21|Before: Rees J, Mr J

Solicitors: Summit Legal (First and Second Plaintiffs and Cross-Defendant) Ren Zhou Lawyers (Defendant and Cross-Claimant) File Number(s): 2020/00139980

ex tempore Judgment on summons AND CROSS-SUMMONS

HER HONOUR: By summons filed on 11 May 2020, the plaintiffs Qian Chen and Rongxia Fan seek orders pursuant to section 74MA of the Real Property Act 1900 (NSW) for the removal of caveats lodged by the defendant, Li Lin, on properties in Lindfield, Killara and George Street, Sydney. Mr Chen and Ms Fan jointly own the Lindfield property. Mr Chen owns the Killara and George Street property.
By cross-summons filed on 14 May 2020, Ms Lin seeks interlocutory orders that the net proceeds of sale of the Killara property be paid to her or into Court. In the alternative, Ms Lin seeks a freezing order against Mr Chen.

Facts

Ms Lin says that, in about December 2016, Mr Chen asked to borrow $100,000 and she agreed. The agreement was oral. On around 3 May 2018, Mr Chen called and asked for a further loan of $250,000 and Ms Lin agreed. The agreement was oral. On 7 May 2018, Mr Chen called her again and asked to borrow another $50,000 and she agreed. The agreement was oral. In late May 2018, Ms Lin says she began to press Mr Chen to make repayments and various payments were made.
In April 2019, Ye Hu filed a Statement of Claim against Mr Chen in the District Court of New South Wales, seeking to recover $570,000 in loans together with interest. Ms Hu is not a party to these proceedings.
On 13 December 2019, Ms Lin says that Mr Chen asked to borrow a further $6,800. Ms Lin's evidence did not indicate whether she lent the money or not.
On 14 February 2020, Mr Chen entered into a contract to sell the Killara property for $1.6 million. That day, Mr Chen sent a WeChat message to Ms Lin saying: I sold the property yesterday, will exchange today, and settle on 21 April. By that time, I can give you s[o]me.
On 16 February 2020, Ms Lin sent a WeChat message asking Mr Chen to repay the money as soon as possible. The following WeChat messages were exchanged: Mr Chen: I really don't have it now. I can let you to get a cavert [sic] for my property in the city. I will repay you the money ASAP, the latest until it is settled. Ms Lin: No need to get that, I need the money urgently. Nothing else is useful to me now. …. Mr Chen: I will repay you when the house is sold in April. It can be seen from these messages - which occurred sometime after the loan agreements are said to have come into existence - that Mr Chen offered to let Ms Lin place a caveat on the George Street property but Ms Lin declined.
On 2 March 2020, Ms Lin made a complaint to the NSW Police about Mr Chen. A provisional apprehended personal violence order (AVO) was issued to Mr Chen for the protection of Ms Lin. The allegations were largely of a personal nature and, as I understand it, have yet to be determined by the Local Court of New South Wales. On 3 April 2020, Ms Lin requested Mr Chen to acknowledge his debt in writing and, due to the AVO, Mr Chen's solicitor replied on Mr Chen's behalf.
On 20 April 2020, Ms Lin lodged a caveat over the George Street property claiming a charge by virtue of an agreement dated 3 May 2018 between Ms Lin and Mr Chen, by reason of which Ms Lin was owed more than $200,000. A caveat in like terms was lodged by Ms Lin on the Lindfield property. Ms Lin's solicitor also sent a letter of demand to Mr Chen demanding repayment of the loans, failing which proceedings would be brought in the District Court of New South Wales.
On 21 April 2020, sale of the Killara property was due to settle but did not take place as Ms Hu had lodged a caveat on title. On 21 April 2020, Ms Lin also lodged a caveat on the title of the Killara property asserting an "equitable interest, constructive trust and/or resulting trust" said to arise from a loan agreement dated 3 May 2018 between Ms Lin and Mr Chen, pursuant to which Mr Chen was said to have borrowed more than $200,000 from Ms Lin. On 23 April 2020, Mr Chen's solicitor wrote to Ms Lin's solicitor requesting that the caveat be withdrawn by 24 April 2020 failing which an urgent application would be made to the Court for an order that the caveat be removed. Separately, particulars were sought of the debt said to be owed to Ms Lin.
On 28 April 2020, Mr Chen agreed to pay Ms Hu $610,000 within 42 days. The District Court made orders which provided that judgment would be entered against Mr Chen unless the amount was paid within that timeframe. Mr Chen deposed that the bulk of these funds will come from the net proceeds of sale of the Killara property. The registered mortgagee is owed some $1.05 million and the net proceeds of sale are estimated to be $500,000. The plaintiffs have no plans to sell the George Street or Lindfield properties.

Removal of caveats

There was no dispute as to the principles which apply on an application to withdraw a caveat. First, the Court is to determine whether the caveator would have been granted an interlocutory injunction to protect the interest that the caveator claimed in the caveat. If no such interlocutory injunction would have been granted, the caveat should be ordered to be withdrawn: Bayblu Holdings Pty Ltd v Capital Finance Australia Limited (2011) 279 ALR 166; [2011] NSWCA 39 at [20]. Second, the relevant interest with which the Court is concerned is the interest recorded in the caveat, not whether the plaintiff might otherwise have a caveatable interest: Lew v Bluescope Distribution Pty Ltd [2010] NSWSC 794 at [6] (Pembroke J), followed by McDougall J in Jubilee Properties v Parkview Farm (2013) 17 BPR 33,271; [2013] NSWSC 2011 at [16].
In respect of the caveat lodged on title of the Killara property, the plaintiffs submitted that a caveat which describes a caveatable interest as an "equitable interest" is bad in form, that is, inadequately described, and cannot sustain a caveat: Circuit Finance Pty Limited v Crown & Gleeson Securities Pty Limited (2005) 12 BPR 23,403; [2005] NSWSC 997 at [27] (Brereton J). There was no evidentiary basis to support a constructive or resulting trust. There was no suggestion that Ms Lin contributed any monies to the acquisition or upkeep of the Killara property, or that Mr Chen intended to confer a beneficial interest in the Killara property on Ms Lin: Calverley v Green [1984] HCA 81; (1984) 155 CLR 242 at 252, 262 and 271. The Court would not be satisfied that there is a serious question to be tried in this regard.
The plaintiffs further submitted that an interest in the proceeds of sale is not a caveatable interest: Kondylis v Bacic [2017] NSWSC 66 at [4] (White J). There is no application for successive caveats under section 74O(1)(c) of the Real Property Act nor would the Court grant relief under that section as any caveat lodged on the basis of some promise said to have been made in February 2020 would not be a caveat based on the same estate, interest or right as the first caveat: Woodsman Pty Ltd v Jozic (2018) 19 BPR 38649; [2018] NSWSC 1311 at [18] per Darke J. I did not understand the defendant to suggest that she had a caveatable interest in the proceeds of sale.
In respect of the caveats lodged on title of the George Street and Lindfield properties, the plaintiffs submitted that section 23C of the Conveyancing Act 1919 (NSW) requires an agreement to be in writing and signed by Mr Chen to create a charge over a property: Sanna v Wyse and Young International Pty Limited (No 2) (2015) 18 BPR 35,699; [2015] NSWSC 581 at [16] (Darke J). There is no evidence of a loan agreement executed on 3 May 2018 or at all, let alone one containing a charging clause. There was no serious question to be tried as to whether these properties were charged to secure a debt owing by Mr Chen to Ms Lin. Even if it could be said that Mr Chen agreed to a caveat being lodged over the George Street property, a contractual right to lodge a caveat does not automatically give rise to an equitable interest in the property: Redglove Projects Pty Ltd v Ngunnawal Local Aboriginal Land Council (2004) 12 BPR 22,319; [2004] NSWSC 880 at [17] and [28]-[29] (White J); and Bellissimo v JCL Investment Pty Limited [2009] NSWSC 1260 at [18] (White J) followed by Bryson AJ in Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562 at [64]). Rather, a caveat must be supported by a legal or equitable estate or interest in land: Sanna v Wyse and Young at [27]. Further, the Court will not extend a caveat in circumstances where no final relief is sought in relation to the interest specified in the caveat: Break Fast Investments Pty Ltd v C & O Voukidis Pty Ltd [2011] NSWSC 871 at [3] (Black J). Ms Lin seeks no such relief in the Cross-Summons.
Finally, the plaintiffs submitted that the defendant's opposition to the removal of the caveats was entirely improper, as was lodging the caveats in the first place: Guirgis v JEA Developments Pty Limited [2019] NSWSC 164 at [40] (Kunc J). I note Kunc J's observation that lodging a caveat is not a trivial act to be undertaken lightly. A caveat that should never have been filed may cause a registered proprietor delay, stress and expense; the community also suffers because the Court's time is expended when it should not have been: at [1] and [40].
The defendant's counsel fairly conceded that the caveats are defective. The defendant did not cavil with the plaintiffs' submissions save to say that Mr Chen consented to a caveat being lodged on the George Street property.
I accept the plaintiff's submissions. Ms Lin describes a series of oral agreements to lend cash to be repaid with interest. Ms Lin's evidence does not suggest that, when those oral agreements were made, Mr Chen agreed to grant an interest in the properties to secure repayment of the loans. If the oral loan agreements were as described by Ms Lin, then Ms Lin is an unsecured creditor of Mr Chen. The high point of the defendant's case is the WeChat messages exchanged some years after the monies had been advanced and when Ms Lin was seeking repayment: Mr Chen offered to permit Ms Lin to place a caveat on the George Street property, which she declined. But the caveatable interest recorded by Ms Lin in each of the caveats - being a loan agreement dated 3 May 2018 - does not exist as the loan agreement does not exist. Thus, the caveats on the three properties should be withdrawn. Were it necessary to consider, the balance of convenience also favours removal of the Killara caveat in circumstances where Mr Chen is unable to complete a contract of sale because of the caveat and will otherwise have judgment entered against him in the District Court in favour of Ms Hu.

Payment of net proceeds of sale

The basis on which the defendant seeks an order that the net proceeds of sale be paid to her or into Court was said to be Mr Chen's behaviour in not readily acknowledging his indebtedness in answer to the letter of demand, and the personal allegations the subject of the AVO. It was submitted that these matters required that she secure the debt.
The suggested bases for such an order are not ordinarily advanced in this field of jurisprudence. As the plaintiffs submitted, an order for payment of monies into Court is properly to be regarded as an extraordinary order: Pier (WA) Pty Ltd as Trustee for Isandi Trust v Jean Maurice Pty Ltd [2018] WASC 22 at [74]. An order that monies be paid into Court is usually, although not exclusively, properly regarded as an order ancillary to a freezing order: Allianz Australia Insurance Ltd v Vitale [2015] NSWSC 352 at [69]; Sharkey v Mayahi-Nissi (No 3) [2016] NSWSC 537 at [140].
The plaintiffs submitted that the relief ought be refused as there is no claim for final relief in the Cross-Summons that Ms Lin has any proprietary interest in the Killara property. If successful on her claim, Ms Lin is an unsecured creditor of Mr Chen. A freezing order, which the order for payment of the proceeds to Ms Lin or into court essentially is, does not provide security for a judgment debt: Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612 at 625. There were no circumstances warranting such an extraordinary order here. Rather, Mr Chen intended to pay out a creditor using the net proceeds of sale and, if payment is not made in time, judgment will be entered against him in the District Court. It was submitted that it would not be a proper exercise of the Court's power to injunct Mr Chen from paying out a bona fide creditor where Ms Lin does not assert any propriety interest in the funds or property. The fact that the net proceeds of sale exceeded Ms Lin's claim and that there was no evidence that Ms Lin had resources to substantiate the usual undertaking as to damages were other reasons posited as to why the order should not be made.
I agree with the plaintiffs' submissions. Even accepting Ms Lin's evidence for the purpose of the interlocutory relief sought in the Cross-Summons, Ms Lin remains an unsecured creditor. Ms Lin has no proprietary interest in the Killara property. Ms Lin does not claim any proprietary interest in the Killara property in the Cross-Summons. Thus Ms Lin does she have any particular claim to the proceeds of sale of the property. Mr Chen intends to use the net proceeds of sale to pay Ms Hu, although the net proceeds of sale will be insufficient to pay that debt in full. There is no reason why Ms Lin should be given priority over any other unsecured creditor, including Ms Hu. There is no other evidentiary basis to require Mr Chen to deal with the proceeds of sale of the Killara property in the manner sought. Therefore I refuse prayers 2 and 3 of the Cross-Summons.

Freezing orders

The basis on which the freezing order is sought is not explored in the defendant's written submissions. The defendant's counsel submitted orally that some sort of freezing order was needed to protect Ms Lin against the conduct which was the subject of the AVO. I rather apprehend that this is the province of NSW Police if Ms Lin considers that further protection is needed beyond the AVO already issued, although there is no evidence before the Court that the AVO has been breached. The insistence of the defendant's counsel in repeating as often as possible - and in exaggerated terms - the conduct complained of in the AVO, gave me the distinct impression that it was sought to thereby embarrass Mr Chen. It was not appropriate.
The defendant's counsel also submitted that the proposed payment of the proceeds of sale to Ms Hu may be a preference if Mr Chen becomes bankrupt, as he has apparently considered. I rather apprehend that this will be the province of any trustee in bankruptcy, should Mr Chen go down that path. It was submitted that a freezing order should be made as Mr Chen was not acting honourably. This submission was too vague to assist me. It was submitted without any evidentiary basis that Mr Chen would leave Australia for China to avoid any judgment. This submission was also inappropriate.
As the plaintiffs submitted, the Court's jurisdiction to grant a freezing order is to be found in rule 25.14 of the Uniform Civil Procedure Rules 2005 (NSW) as well as the inherent jurisdiction of the Court. An applicant for a freezing order must establish, first, a good arguable case and, second, a risk that any judgment will go unsatisfied by reason of the other party dealing with their assets to place them out of the reach of the applicant: Tomasetti v Brailey [2012] NSWCA 6 at [14]-[15]; Samimi v Seyedabadi; Seyedabadi v Samimi [2013] NSWCA 279 at [72]-[74]. It must be shown that there is a risk, not a mere assertion, that a respondent may dispose of or deal with his or her assets in such a manner as to leave any judgment unsatisfied: Samimi v Seyedabadi at [72]-[74]. The quantum of the freezing order ought not be fixed at a sum greater than that which the plaintiff would potentially or likely recover: Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 198 CLR 380 at 428; OXC Bidco Pty Ltd v Dickson [2016] NSWSC 968 at [14]. Importantly, a freezing order is not intended to, and does not permit, the creating of security for a judgment debt: Jackson v Sterling Industries at 625; Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174 at [19].
Mr Chen accepted that Ms Lin has an arguable case in relation to the claim in the Cross-Summons for monies owed of $264,509.03, but not otherwise. But it was submitted that there was no evidence that Mr Chen was embarking on a course to frustrate any judgment. Mr Chen explained where the net proceeds of sale of the Killara property would be paid, namely, to a creditor. That should count in his favour, not against him. The George Street and Lindfield properties were not for sale and there were no plans to sell those properties. Any sale of the Lindfield property would require the consent of Ms Fan and there was no evidence as to whether that consent would be forthcoming. The allegations made by Ms Lin which led to the AVO were described as bizarre but, in any event, had nothing to do with the loan and did not indicate that Mr Chen was a person who would embark on a course to frustrate a judgment.
I agree with the plaintiffs' submissions. Here, the cross-claimant seeks, as final relief, judgment in the sum of $264,509.03 together with interest for monies owed by Mr Chen. Declaratory relief is also sought in respect of another loan for $100,000. Accepting that Ms Lin has an arguable case in respect of these claims, the question is whether there is any evidence that Mr Chen has or is likely to dispose of his assets in order to frustrate any judgment obtained in respect of these claims. So far as the sale of the Killara property is concerned, the evidence is that Mr Chen is selling that property in order to pay a debt to Ms Hu. Therefore the sale of the Killara property does not suggest to me that Mr Chen has engaged in activity to frustrate the processes of this Court but rather to discharge his obligations recorded in orders made in another Court. The evidence, unchallenged, is that Mr Chen has no plans to sell the other properties. Therefore, there is no basis made out to support a freezing order.

Costs

The plaintiffs seek an order for indemnity costs of the summons as the caveats should never have been lodged by Ms Lin: Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72. I have found that the loan agreement referred to in the caveats did not exist. Ms Lin would have been aware of this when she made three statutory declarations to support the caveats. Ms Lin was also aware that Mr Chen had entered into a contract of sale for the Killara property which was to settle on 21 April 2020. Ms Lin lodged the caveat on the property on 21 April 2020. Ms Lin would have apprehended that her actions would cause Mr Chen considerable inconvenience and, likely, the need to spend money on lawyers to remove the caveat, being money which Ms Lin would likely also appreciate that he could ill-afford. In these circumstances, I consider it appropriate to order costs on an indemnity basis.
In relation to the Cross-Summons, the cross-defendant seeks his costs on an ordinary basis in respect of the interlocutory orders sought in the Cross-Summons. The cross-defendant has succeeded entirely. The relief sought was ill founded. I consider it appropriate to order that Mr Chen have his costs on the ordinary basis.
For these reasons, I make the following orders and directions in respect of the Summons and Cross-Summons: Summons 1. Order pursuant to section 74MA of the Real Property Act 1900 (NSW) that caveat AQ17377 lodged by the defendant on the title of the property known as 29/SP83181 which is situated at 210/1-7 Bruce Avenue, Killara NSW 2071 be removed forthwith. 2. Order pursuant to section 74MA of the Real Property Act 1900 (NSW) that caveat AQ47482 lodged by the defendant on the title of the property known as 62/SP65111 which is situated at 62/569-581 George Street, Sydney NSW 2000 be removed forthwith. 3. Order pursuant to section 74MA of the Real Property Act 1900 (NSW) that caveat AQ474873 lodged by the defendant on the title of the property known as 21/853981 which is situated at 185 Tyron Road, East Lindfield NSW 2070 be removed forthwith. 4. Order the defendant to pay the plaintiffs' costs of the Summons on an indemnity basis. Cross-Summons 1. Dismiss Prayers 2 to 4 of the Cross-Summons. 2. Order the cross-claimant to pay the cross-defendants' costs in respect of prayers 2 to 4 of the Cross-Summons. 3. Note that the relief sought in Prayer 3 of the "Final Orders" section of the Cross-Summons is not pressed. 4. Pursuant to section 146 of the Civil Procedure Act 2001 (NSW), transfer the Cross-Summons to the District Court of New South Wales.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 May 2020

Civil Procedure Act 2001(NSW)

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