Blog 73. Appeal against Blog 63 allowed.

Hooper v Parwan Investments Pty Ltd & Anor (recs apptd) [2023] VSC 227, Forbes J.

This case was an appeal from the decision of Matthews AsJ ([2022] VSC 285) noted in Blog 63.  Before considering Forbes J.’s decision it is helpful to repeat the gist of the original decision commencing with the facts relevant to the appeal –

• In 2015 Parwan Investments (Parwan) entered a contract to purchase a residential property (the Property) with funds obtained from a bank pursuant to a loan agreement with a facility amount of $850,000. On 16 December 2015 it became registered proprietor of the Property subject to a registered mortgage securing the loan.
• On 21 October 2016 Parwan and the plaintiff (Hooper) entered into a contract of sale of part of the land (Purchased Area) for $900,001, with settlement due on 21 March 2018 unless the Purchased Area was a lot on an unregistered plan, in which case settlement was due on the later of 21 March 2018 or 14 days after notice of registration of the plan. Special Condition 7.1 of the contract made settlement conditional on Parwan subdividing the Property within 18 months from the day of sale and required that it use its best endeavours to achieve this.
• The contract of sale also provided that it was subject to a lease between Parwan and Hooper. That day Parwan agreed to lease the Purchased Area to Hooper for 24 months and thereafter, unless terminated in accordance with the Residential Tenancies Act, to continue as a periodic tenancy.
• In 2017 Hooper caveated over the Property claiming an interest as purchaser under the contract of sale.
• In 2018 Parwan executed a deed of charge in favour of Hooper creating an equitable charge over the Property securing payment of $350,000, said to reflect the value of Hooper’s improvements to the Property. In 2018 Hooper caveated over the Property claiming an interest as chargee based on this document.
• On Parwan falling into default of mortgage repayments the bank in 2020 appointed receivers of the Property. Thereafter Parwan acted through the Receivers.  In 2021 the Receivers applied to the Registrar of Titles under the Transfer of Land Act s. 89A for a lapsing notice to remove the caveats.
• Subdivision had not occurred. The bank and Receivers did not consent to sale of the Purchased Area to Hooper.  As at 3 December 2021 the mortgage debt was over $1.1m.
• Hooper commenced a proceeding seeking specific performance of the contract of sale and certain declarations. Parwan filed a Defence and Counterclaim.  Parwan also issued a Summons applying for summary judgment under the Civil Procedure Act ss. 61, 62 and 63 on certain aspects of its pleading, which effectively mirrored the relief sought by Hooper, seeking a declaration concerning the lease, and alternative relief in the form of removal of the caveats.

Relevantly Matthews AsJ held –

1. The Receivers had standing to counterclaim and press the Application contained in the Summons in the name of the registered proprietor Parwan.
2. Although the contract of sale was binding Hooper’s claim for specific performance turned on whether the Property could be subdivided and on whether the sale could be settled given the bank’s attitude and in particular whether it would discharge its mortgage.
3. As to whether the Property could be subdivided the weight of evidence was that because the Receivers and the bank did not consent to the sale Parwan was unwilling to, and could not effect, subdivision or transfer whereby it refused to perform its contractual obligations. In such circumstances the remedy of specific performance would probably require supervision by the court, which was usually a reason not to grant specific performance.  Further even if Parwan took steps towards subdivision, its achievement was outside its control.
4. As to the bank’s attitude, Parwan could not deliver clear title to Hooper by redeeming the mortgage, which had priority over Hooper’s interest as purchaser and the mortgage debt now exceeded the purchase price.
5. When the foregoing barriers, particularly impossibility of settlement because the mortgage would not be discharged, were combined there was no real prospect of Hooper obtaining specific performance.
6. There was a prima facie case of the interest claimed in the purchase caveat. On the balance of convenience –

1. 1. neutral factors were: (a) that, although the bank desired sale, no contract of sale to a third party yet existed; (b) Hooper’s claim that he remained in possession of the Purchased Area, which in light of the evidence was questionable; (c) possible VCAT enforcement proceedings by the local municipality, on which there was a paucity of evidence; (d) Parwan’s offer to pay the net proceeds of sale into court or a trust account pending determination of Hooper’s claims.
   2. Hooper’s proposed undertaking to pay the difference between the price for the Purchased Area and the mortgage debt did not affect the balance of convenience because it was ambiguous and failed to articulate relevant factors including Hooper’s capacity to pay.
   3. However, the balance of convenience favoured removal of the caveat because of strong evidence of fundamental barriers to specific performance (and so any remedy for breach of contract would be for damages in lieu of specific performance).

7. Although there was a prima facie case of the interest claimed in the charge caveat Hooper would retain the protection of the charge even without the caveat, there being no evidence that it could not be satisfied out of net proceeds remaining after payment under the bank’s mortgage. Accordingly, the balance of convenience overwhelmingly favoured removal of this caveat on condition that the net proceeds of sale were paid into court or a trust account.

On appeal Forbes J. held –

1. As the appeal was from a discretionary judgment the principles of House v The King (1936) 55 CLR 499 applied. [62]
2. The grant of summary judgment was attended by error in the finding that relief in the nature of specific performance had no real prospect of success. In particular –

1. 1. As to whether the Property could be subdivided, the contractual requirement to subdivide to create the Purchased Area did not, as a matter of principle, render specific performance unavailable and was as a matter of fact contested. It was for Parwan to show that the Melton Planning Scheme did not permit such subdivision and it had not led evidence (only assertion) on this.  The evidence rose no higher than that it had taken no step to subdivide and was refusing to do so (submitting it would be futile because of the bank’s intention to withhold consent), demonstrating only a breach of contract.  Although Parwan’s unwillingness to commence these steps was a significant barrier to settlement this was irrelevant to whether subdivision could occur – Parwan could not rely on its own non-performance as a barrier to specific performance.  Caution in concluding that subdivision could not occur was dictated by both the factual contest on this question and the discretionary nature of the relief sought, especially given the absence of evidence before the court.
   2. The proposition that Hooper lacked a real prospect of obtaining specific performance because of the bank’s refusal to consent to the sale unless its mortgage was discharged, because the sale proceeds of the Purchased Area would be insufficient for discharge, was based on the false premise that these proceeds were the only means of discharge. However, the mortgage was secured by the whole of the Property. [82]-[84], [87]-[95]

3. The orders removing both caveats under s. 90(3) of the Transfer of Land Act were not rendered erroneous by the fact that the Summons did not seek this relief. The manner in which the hearing was conducted made it clear that these orders were sought to enable Parwan to sell the Property.  The absence of an originating procedure specifying relief pursuant to s. 90(3) was explicable by Hooper’s proceeding seeking declaratory relief, the effect of which would be to maintain the caveats. [98], [99]
4. The only issue for Matthews AsJ to consider was where the balance of convenience lay in maintaining or removing the caveats. The factor most influencing her Honour, and indeed the only factor weighing against removal, was her conclusion that the contract was not specifically performable, notwithstanding that the validity of the contract of sale was to be determined at trial. [97], [100]

Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, June 21, 2023