Zhou v Li

Zhou v Li - [2021] NSWSC 527 - NSWSC 2021 case summary — Zoe

Facts

The plaintiff says he was approached by his nephew in late 2012. The nephew wanted between $2 million and $3 million to buy a property for development. According to the plaintiff, his nephew said that, if the development made money, "I will also give you a cut of the profit or some interest in the development". The uncle agreed to lend his nephew the funds for one year, with interest to be paid at 2% per month unless the money was paid on time, in which case, the loan was interest free. According to the uncle, his nephew also said, "If I cannot repay you, the land will still be here". The nephew agrees that he asked his uncle for a loan to complete the purchase of the Epping property, but otherwise denies the words attributed to him.
In January 2013, Aus Ray was incorporated and, in early 2013, having exchanged contracts to buy the Epping property for $6.25 million, the nephew asked his uncle for $2.4 million to be used on settlement. The uncle transferred these funds to Aus Ray's bank account in April 2013. Purchase of the property was completed on 24 May 2013. A mortgage was registered over the property in favour of Westpac, securing $4 million.
In August 2013, the uncle asked that the loan be repaid. According to the uncle, the bulk of the loan has since been repaid, with some $300,000 plus interest outstanding. The nephew says that he paid various expenses at the direction of the plaintiff, in respect of another property owned by the plaintiff in Burwood, which were offset against the loan. The uncle denies such an arrangement.
In December 2020, the uncle commenced these proceedings against the defendants in respect of three business dealings, being an investment in a 7-Eleven petrol station business, the development of the Burwood property, and to recover the balance of the loan in respect of the Epping property.
On 10 March 2021, the plaintiff lodged a caveat on the Epping property, describing the caveatable interest as a lien arising from a loan agreement between the plaintiff and his nephew for monies that went towards the purchase of the land. The defendants requested that the caveat be withdrawn, noting that the caveat was holding up the bank's review of Aus Ray's banking facilities then underway. The plaintiff requested evidence to support the suggested refinance of Aus Ray's facilities, in light of which the plaintiff may consent to withdrawing the caveat. The defendants declined to provide the information and took steps to issue a lapsing notice, which was received on 14 April 2021.
The plaintiff filed a motion to extend the caveat and also to amend his pleadings. On 29 April 2021, Stevenson J granted the plaintiff leave to amend his pleadings. The amended pleadings seek a declaration that the loan is secured by an equitable lien over the Epping property. On 30 April 2021, Stevenson J extended the caveat until 5.00 pm on the day that the plaintiff's motion is determined.
The Epping property is presently valued at $13 million. Aus Ray has finance secured over the property of some $8.575 million. Westpac has recently offered to extend its banking facilities for a further three years. The nephew has received various expressions of interest in buying the Epping property, although it does not appear that he has any present intention to sell it.
The plaintiff, although a permanent resident of Australia, is presently in the People's Republic of China as a consequence of the COVID-19 pandemic and an inability to readily return. He owns no real property in Australia.
The parties have since filed eight affidavits and provided several written submissions as to whether the caveat should be extended and, if so, on what terms. The parties agree that the plaintiff's application may be determined on the papers.

[4]

Consideration

Drawing on my judgment in Ageist Pty Ltd v More Than Skin Deep Pty Ltd [2020] NSWSC 698 and Slattery J's elegant summary in Pham v Zraika (No 4) [2018] NSWSC 566 at [18]-[19], the principles governing the Court's discretion to make orders under section 74MA of the Real Property Act 1900 (NSW) for the withdrawal of a caveat may be shortly stated. The Court will normally only order the withdrawal of a caveat if the caveator can establish an entitlement to an interlocutory injunction to restrain the registered proprietor from dealing with the land pending trial of the caveator's claim: Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [77] per Sackville AJA (Beazley P and Payne JA agreeing). The language of the Real Property Act is very broad, and the generality of the statutory language accommodates a great variety of circumstances, including that the caveator's claimed interest is spurious, or even accepting that the caveator has a caveatable interest: Hanson Construction at [61]. The caveator's claim to have an interest in the land must raise a serious question to be tried as to the existence of the interest claimed in the caveat; but once the caveator discharges that onus, the continuation or removal of the caveat depends upon the Court's assessment of the balance of convenience: Hanson Construction at [77]. The authorities recognise that the strength of the caveator's claim to an interest in land may be significant in assessing the balance of convenience: Hanson Construction at [79].
I am satisfied that there is a serious question to be tried as to whether the plaintiff has an interest in the land arising from his conversations with his nephew, described at [2]: see New Galaxy Investments Pty Ltd v Thomson [2017] NSWCA 153; (2017) 18 BPR 36,811 at [117] per Gleeson JA; Warden v Mortgage House No 1 Pty Ltd [2006] NSWSC 1462; (2006) 13 BPR 24,375 at [19]-[20] per Brereton J. If the plaintiff's evidence is accepted at a final hearing, then the Court may find that the uncle was granted an equitable interest in the property development or, alternatively, that if the loan was not repaid then the uncle could look to the land as a means of repayment, viz "If I cannot repay you, the land will still be here".
The balance of convenience also favours the extension of a caveat. The nephew's initial concern that the existence of a caveat would delay the bank's review of Aus Ray's banking facilities has proved unfounded; the bank has offered to extend the loan facilities for a further three years. The nephew says he has refrained from accepting this offer as he is concerned that the existence of the caveat will cause Aus Ray to default on these facilities and be subject to default interest. It is not clear why that would occur.
Further, the nephew is concerned that, should an offer be made to purchase the property, the existence of a caveat may delay the sale of the property. There is, however, no present offer to buy the Epping property. If such an offer is made, maintenance of the caveat can be reviewed by exercising liberty to apply.
The balance of convenience further favours the plaintiff as he has offered to secure the usual undertaking as to damages by a charge - limited to $100,000 - to be secured over a property presently valued by the Valuer-General at some $450,000. The land is owned by ZF Holding Pty Ltd. The plaintiff's connection with ZF Holding is not known but, presumably, the plaintiff considers he has a sufficient connection with the company to prevail upon it to register such a charge.
For these reasons, I make the following ORDERS: 1. Upon the plaintiff, by his counsel, giving the usual undertaking as to damages (Undertaking), pursuant to section 74K(2) of the Real Property Act 1900 (NSW), the caveat lodged by the plaintiff with dealing number AQ860446 over the property comprising Lot 4 in Deposited Plan 6385 and known as 41 Rawson Street, Epping NSW 2121 is extended until further order. 2. As security for his undertaking, the plaintiff undertakes, by his counsel: 1. to procure a charge (Charge) on the property comprising Lot 2 in Deposited Plan 1042102 in favour of the second defendant up to the amount of $100,000 to secure any liability he is found to have to the second defendant pursuant to the Undertaking, on terms that the second defendant is not permitted to take any step to enforce the Charge without leave of the Court; 2. is to file and serve on the second defendant evidence as to the procuring of the Charge within 7 days of the date of these Orders. 1. The costs of the plaintiff's Notice of Motion filed on 29 April 2021 to be the parties' costs in the cause. 2. Liberty to apply on 2 days' notice. 3. These orders are to be entered forthwith. The Court NOTES that the second defendant is not to take any step to enforce the Charge without leave of the Court.

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Legislation Cited (1)

Cases Cited (6)