Blog 43. Claim for constructive trust based on derivative company proceeding.

AAGG Developments Pty Ltd v Saafin Constructions Pty Ltd & Ors [2020] VSC 768, Derham AsJ., 17 November 2020, was one of several Supreme Court cases between the same or related parties arising from the same transactions.  It is necessary to set out some factual background outside the judgment the subject of this Blog.

  • Hassan, Mohamed and Wael El-Saafin (‘the Saafin Parties’) were directors of and/or shareholders in the first defendant (‘the Company’). In 2015 the Company entered a contract with a builder to develop land owned by the Company in North Melbourne (‘the Land’).
  • On 28 October 2016 the Company entered agreements with a financier (‘Balanced Securities’) to finance this development in part secured by registered mortgage over the Land.
  • Building works were performed, a dispute arose between the Company and builder, and in April 2018 the Company terminated the building contract with the development partially completed.
  • On 9 April 2018 a Mr Franek purported to appoint receivers to the Company pursuant to an agreement securing a loan by him to Wael El-Saafin. On 18 April 2018 Balanced Securities assigned its rights to Franek, recording that about $3m was owed to it.  Subsequently, Franek nominated another company (‘MAG’) as the assignee.  Franek also assigned his personal rights to MAG.  The receivers resigned but were reappointed by MAG.
  • On 20 June 2018 various debts allegedly owing by the Company were assigned to MAG, with the purpose of turning unsecured into secured debt.  MAG then claimed that the debt owed to it was about $8.2m. by reason of the Balanced Securities loan, the Franek loan, interest, costs, and the debt assigned on 20 June.
  • Between 27 June and early August 2018: Hassan and Mohamed El-Saafin (‘the Saafins’) offered to pay approximately $4.4m. being what they considered was the sum required to obtain a discharge of the mortgage; MAG and the receivers disputed this amount; and the Supreme Court made restraining orders which were dissolved on undertakings by the receivers to the same effect.
  • On 9 July 2018, MAG as mortgagee entered into a contract to sell the Land to the plaintiff (‘AAGG’) by private sale for $4.5m. The shareholders in AAGG were persons associated with parties already involved in the above transaction, including the builder.  The sale was settled on 20 July 2018 and AAGG became registered proprietor.  The Saafins continued to offer to pay out the mortgage until advised of this sale.
  • On 26 July 2018 the Company and the Saafin Parties lodged a caveat over the Land, claiming an implied, resulting or constructive trust in their favour.
  • On 7 August 2018 the Supreme Court made interlocutory orders including restraining AAGG from dealing with the Land. The judge found a serious question to be tried as to whether: the 20 June debts were validly the subject of MAG’s security interest, and; the sale to AAGG should be set aside.
  • The Company subsequently went into liquidation.
  • In El-Saafin & Anor v Franek & Ors (No 4) [2020] VSC 389 (‘El-Saafin (No. 4)’) Lyons J. gave leave for the Saafin Parties to make a derivative claim on behalf of and in the name of the Company for relief including for a declaration that AAGG held the Land on constructive trust for the Company and orders that AAGG be restrained from disposing of the Land and re-convey it to the Company. His Honour found that a solid foundation existed for this relief.  However, this decision was subject to an appeal which had been heard with judgment reserved.  Nonetheless, pursuant to El-Saafin (No. 4) a proceeding (‘the Derivative Proceeding’) was commenced by the Company and the Saafin Parties as plaintiffs against AAGG and others.  This was fixed for trial in February 2021.

AAGG applied under s. 90(3) of the Transfer of Land Act for removal of the caveat and to restrain the Saafin Parties from lodging any further caveat.

Derham AsJ refused the application, holding –

  1. To the extent necessary, the plaintiff had leave pursuant to s. 471B of the Corporations Act 2001 to proceed with the current applications against the Company. [20]
  2. Notwithstanding appointment of Receivers and Managers to a company, its directors retained, generally speaking, residual powers enabling them to authorise the lodging of a caveat in the name of the company to protect its proprietary interest in land pending the determination of litigation to establish that interest. The Saafin Parties who were directors of the Company were in that position when the caveat was lodged.  The contrary view was not open without a thorough examination of the terms of appointment of the Receivers and Managers (there being no material in evidence enabling this examination). [13]-[14]
  3. The existence of the Derivative Proceeding and the claims for relief made in it established a prima facie basis for the interest claimed in the caveat by the Company, through the Saafin Parties, derivatively. The analysis of facts and law by Lyons J in El-Saafin (No 4) was the prima facie case.  The formulation of the interest claimed in the caveat was to be viewed having regard to the claims by the Saafin Parties ‘on behalf of and in the name of the Company’ in the Derivative Proceeding.   [15]-[17]
  4. By reason of the impending trial of the Derivative Proceeding, but subject to the outcome of the appeal in El-Saafin (No 4), the balance of convenience favoured the maintenance of the caveat to await the outcome of the appeal, or, if the appeal failed, of the Derivative Proceeding. [19]
  5. If the Court of Appeal reversed or varied the orders in El-Saafin (No 4) the underlying basis for the caveat may be destroyed and it then may be appropriate that the current application be revisited. Accordingly although the application under s. 90(3) would be refused there would be liberty to re-apply. [12]

Philip. H. Barton
Owen Dixon Chambers West
Tuesday, May 18, 2021

Blog 44. Indemnity costs and injunction against caveating.

BCA Asset Management Group Pty Ltd v Sand Solutions (Vic) Pty Ltd & Ors [2021] VSC 177, Derham AsJ, 13 April 2021.

Before 2009 William Attwood, married to Jane Attwood, became sole registered proprietor of approximately 29 ha. at Devenish (the AustLII report says this occurred on 17 April 2013 but this seems incorrect).  The subsequent chronology was –

16 February 2009        Broken Creek Developments Pty Ltd  (‘BCD’)  incorporated with the second defendant (‘Colling’) its sole director and member.

20 August 2009              223 Coopers Road Devenish (‘the Land’) now comprised the 29 ha. plus land in Certificates of Title Volume 11153 Folios 541 and 542.

1 February 2010           Colling and BCD lodge caveats over the Land claiming an interest as a beneficiary under a constructive trust of which the Attwoods were the constructive trustees (‘First Caveats’).

25 June 2010                 Sand Extraction Agreement between Jane Attwood and Devenish Sands Pty Ltd.  This agreement: was conditional on the grant of an Extractive Industry Work Authority and approval of the company’s Work Plan within 180 days (clause 2.1); had an initial term of 10 years (clause 11.1); and could be terminated by Ms Attwood on the happening of a Default Event, which was defined to include an Insolvency Event (clauses 12.1 and 13.1).  It was unclear whether Ms Attwood waived compliance with the conditions precedent or when this agreement commenced.

12 January 2011              First Caveats withdrawn.

26 May 2011                   Ms Attwood registered as the sole proprietor of the Land.

29 July 2011                    Work Authority issued to Devenish Sands Pty Ltd.

23 November 2011       Colling lodges caveat over the Land claiming an interest as beneficiary under a constructive trust between himself and Ms Attwood (‘Second Caveat’).

14 January 2013             First defendant (‘Sand Solutions’) incorporated.

9 July 2014                  Work Authority transferred from Devenish Sands Pty Ltd to Sand Sol­utions.

8 August 2014               Devenish Sands Pty Ltd wound up in insolvency.

17 April 2015                Devenish Sands Pty Ltd by its liquidator disclaims any interest in the Land under the Sand Extraction Agreement.

13/14 September 2016     Second Caveat withdrawn. 

July 2017 on                    Sand Solutions seeks access to the Land for the purposes of remediation. At all times, Sand Solutions proceeds on the basis it had no right of access.

10 November 2017       Contract of sale whereby Ms Attwood agrees to sell the Land to BCA Civil Pty Ltd.

20 March 2018            Caveat by Sand Solutions over the land in Certificates of Title Volume 11153 Folios 541 and 542 claiming an interest as the grantee of a profit à prendre pursuant to an agreement entered into 16 June 2010 (‘Third Caveat’).  Sand Solutions was not at this time in existence and the only agreement known that might support a profit à prendre was the Sand Extraction Agreement with Devenish Sands Pty Ltd.

23 March 2018              Ms Attwood commences proceeding seeking an order for the removal of the Third Caveat.  

Undated                            Caveat withdrawn before hearing.

28 March 2018              Zammit J. orders Sand Solutions to pay Ms Attwood’s standard costs and otherwise dismisses the proceeding stating that the Court would take a ‘very dim view’ if Sand Solutions again caveated.

4 May 2018                      Plaintiff registered as the sole proprietor of the Land.

1 August 2020                  Colling appointed sole director of Sand Solutions.

26 February 2021          Sand Solutions, by a solicitor, lodges caveat (‘Fourth Caveat’) claiming an interest as grantee of an easement pursuant to the Sand Extraction Agreement.

18 March                          Plaintiff writes requesting withdrawal of caveat. 

22 March                          Plaintiff email foreshadowing urgent application for caveat removal.

24 March                      Email by caveator’s solicitor saying he was to confer with his client.  No further response. 

31 March                          Plaintiff commences proceeding under Transfer of Land Act s. 90(3) returnable on 13 April.

6 April                        Email from caveator’s solicitor stating: his client maintained that it had rights to go upon the land and extract the sand, in accordance with a (cancelled) planning permit and a Licence granted by Earth Resources; it was anticipated that VCAT would reinstate the permit; if his client succeeded at VCAT then his client would, if necessary, commence court proceedings seeking a declaration that it had the rights it claimed; but to avoid costs the caveat would be withdrawn.

8 April                            Caveat not yet withdrawn, plaintiff’s solicitor writes with draft order for caveat removal and payment of indemnity costs. 

Undated                            Caveat withdrawn after service of Originating Motion and Summons. 

13 April                            Hearing.


An affidavit was filed on behalf of the plaintiff deposing that: no grant of easement by Ms Attwood to Sand Solutions had ever been drafted; the plaintiff intended to use the Land as a commercial water park with caravan facilities; to undertake this development other investors were required, one of whom withdrew on learning of the possible easement, others of whom would not proceed until the caveat issue was resolved, and one of whom was seeking return of her investment unless the caveat was removed within 30 days but would also seek immediate refund of her investment if Sand Solutions and Colling further caveated; delay put at risk necessary support by the Benalla Rural City. 

Derham AsJ ordered –

1.     Sand Solutions and Colling to pay indemnity costs because –

(a)      the claim to an easement (or to any other proprietary interest) lacked any basis;

(b)     the plaintiff sought withdrawal of the caveat before the proceeding was commenced, which did not occur;

(c)   before the proceeding was commenced Sand Solutions was warned that the plaintiffs would suffer damage from the Fourth Caveat, and after commencement of the proceeding an award of indemnity costs against Sand Solutions and Colling was foreshadowed;

(d)     the caveat was lodged as a bargaining chip;

(e)   it was impermissible for the innocent registered proprietor to bear any differ­ential between standard and indemnity costs, occasioned by the delinquent conduct of Sand Solutions and Colling. [27]-[28]

2.   That Sand Solutions and Colling be restrained, until further order, from lodging for regis­tration any caveat in reliance on a profit à prendre or an easement.  As to the power to grant an injunction –

(a)   Normally the injunction would be in the nature of a final or permanent injunction: as an injunction restraining Sand Solutions and Colling from lodging any further caveat on the basis of the Sand Extraction Agreement, or on the basis of an alleged profit à prendre or easement, would be an order in aid of the plaintiff’s proprietary right to quiet and peaceful enjoyment of the Land as registered proprietor; [15]

(b)  However because Sand Solutions and Colling had not appeared in court, and there may be some other basis for their belief that a subsisting proprietary right existed surviving the indefeasibility provisions of the Transfer of Land Act, it was appropriate to apply principles applicable to the grant of interlocutory injunctions by analogy; [16]

(c)         An interlocutory injunction would go because –

(i)    The plaintiff had demonstrated a prima facie case that there was a high proba­bility, approaching a certainty, on the evidence, that its proprietary interest in the Land was free from any proprietary interest of the kind claimed in the Third and Fourth Caveats.   There was also a prima facie case that if not restrained Sand Solutions and Colling would continue to lodge caveats as bargaining chips in pursuit of asserted rights under the Sand Extraction Agreement; [29]-[30]

(ii)      The injury which the plaintiff was likely to suffer was one for which dam­ages would not provide an adequate remedy.  In cases concerning the ‘quieting of title’, meaning the seeking of the assistance of the Court to protect and preserve the title to land against unwarranted challenges or claims, damages were not considered an adequate remedy; [31]

(iii)  The balance of convenience favoured the plaintiff.  The strength of the plaintiff’s claim, the weakness of the claims raised by the Third and Fourth Caveats, and the evidence of actual and potential injury to the plaintiff occasioned by the caveat entailed that the course carrying the lower risk of injustice (if it should turn out to have been wrong) was to restrain Sand Solutions and Colling, but, because they had not appeared, to give them liberty to apply to discharge the injunction. [32]

                                                                                     Philip. H. Barton
Owen Dixon Chambers West
Tuesday, May 25, 2021