Ritz Bitz Pty Ltd & Anor v Cumming & Ors [2023] VSC 418, M. Osborne J.

This is the longest Blog because of the complexity of the facts and the desire of the registered proprietors to amend their Defence substantially.  This case largely concerns whether there was a prima facie case that a contract of sale existed.  An interesting twist is how his Honour dealt with misdescription in the caveat of the claimed interest in land.   Undisputed evidence was given that this was due to the PEXA options.  M. Osborne J. stated that this misdescription “would be put to one side” and did not consider possible amendment of the caveat, but noted that the caveator could have sought an interlocutory injunction which in practical terms would have secured the same outcome (but nonetheless the case remained one of caveat removal).  This appeared in turn to lead to some greater consideration than usual in a caveat case of the necessity and value of the undertaking as to damages offered.

The facts were as follows –

• The defendants Daniel and Amanda Cumming (the couple) were registered proprietors of a property in Footscray improved by a former dance hall (the Property), at which as at mid 2015 his mother lived.
• Daniel’s brother John was the second plaintiff and controlled the first plaintiff (Ritz Bitz).
• In about 2015 the brothers discussed possible subdivision of the Property and the sale of part of it to John.  John alleged that an oral contract was made at this time to sell to him that part of the Property “later known as lot 1” (Lot 1) on a particular plan of subdivision (the 2015 contract).
• In August 2015 John purchased a property in Braybrook, where their mother then lived, registered in the names of siblings of the brothers.
• In early 2016 (John subsequently deposed) it was agreed, at Daniel’s request, to change the proposed two lot subdivision to a three lot subdivision, with John bearing one third and the couple bearing two thirds of the costs (the one third/two thirds agreement).
• On about 22 August 2016 a plan for a three lot subdivision was lodged with the local Council. On 23 August 2016 it advised that it would approve the plan of subdivision, subject to compliance with requirements principally concerning fire safety including provision of a fire safety report.
• In 2017 John proffered a standard form of contract for the sale of Lot 1, which the couple refused to sign.
• In 2019 John obtained a fire safety report. By this time the Property was largely vacant and dilapidated.
• In 2020 the Braybrook property was sold.  The proceeds of sale were paid to the plaintiffs.
• In April 2022 John caveated over the Property claiming an implied, resulting or constructive trust. In September the Council issued a building order for minor work requiring compliance that month.  On 10 December Daniel and Amanda entered a contract of sale of the Property to a third party, Nikolce Talevski, under which the deposit was paid, due for settlement in February 2023.  Settlement had not occurred.
• In December 2022 the plaintiffs commenced a proceeding against the couple and, because of other transactions not presently material, a company controlled by Daniel. The pleadings were a Statement of Claim and Defence which the defendants subsequently sought leave to amend.  The relevant pleadings were broadly:
  • The Statement of Claim paragraph 52 pleaded that in about July 2015 the couple agreed to sell to John part of the Property later known as lot 1 a particular plan of subdivision for $2 m. “on vendors terms”. The agreement was particularised as oral and implied, insofar as oral being contained in discussions between the John, the couple, and their mother at the Croatian Club in Footscray.  The Defence admitted this allegation but leave was sought to amend the Defence to deny this allegation and also plead: (a) that although John had at about that time offered to purchase lot 1 on a proposed plan of subdivision for $2 m. the offer was on terms including that: (i) he would arrange and pay for lodgment of the plan of subdivision (the “condition precedent”); (ii) he would pay a deposit of $800,000 to the couple to enable them to purchase a property at which their mother could live; (iii) the balance of the price would be paid within 12 months of entry into a contract; (b) the condition precedent was never fulfilled because the plan of subdivision was rejected by the Council for want of a fire safety plan; (c) non-compliance with s. 126 of the Instruments Act.
  • Paragraph 53 of the Statement of Claim alleged that on or about 22 August 2016 the Council advised the couple that the plan of subdivision had been lodged and that lot numbers had been allocated. However, paragraph 55 pleaded that on 23 August 2016 the Council advised that subject to its requirements (principally directed at fire safety) it would “give agreement for the plan of subdivision to be lodged”.  The Defence admitted these paragraphs but in paragraph 55 went on to plead “that upon the issue of the [requisite fire report] to John in 2019 he decided not to proceed with the purchase”.    The Defence also pleaded that the subdivision was not approved “by council as per the council’s requirement for the fire safety report to be provided”.
  • The Statement of Claim paragraph 56 pleaded that the terms of the contract included that: (a) the price for Lot 1 would be $2 m.; (b) the deposit was $800,000, to be paid in kind “by John providing a property for his mother to live in (she then residing at the … Property)”; (c) the balance of the price was to be paid on terms, with John developing a backpackers hostel at Lot 1 and to pay $1.2 m. 12 months after its establishment; and (d) that John would be responsible for obtaining planning permits and procuring registration of the plan of subdivision.
  • The Defence admitted the allegations in paragraphs 56(a), (b) and (d). It did not admit the allegations in paragraph 56(c) and added that it was a term that the balance of price was payable within 12 months, subject to approval of the plan of subdivision, and there was no agreement concerning a backpackers hostel.  Leave was sought to amend the Defence to: plead that no contract was ever formed and replace the admission of paragraph 56(a) with a denial, adding that John agreed to pay a deposit of $800,000 in cash to the couple so that the couple could purchase a property in which their mother could reside.
  • The Statement of Claim paragraph 57 pleaded that the alleged vendors represented and warranted that “part of the purchase price being $800,000 should be paid in kind by John purchasing a property for John and Daniel’s mother such that she would have a place to live” and that in reliance upon the representations, John acquired the Braybrook property for his mother. Paragraph 58 of the Defence pleaded that John had purchased the Braybrook property for $665,000, being less than the agreed deposit of $800,000, and had subsequently used it as security for Ritz Bitz to purchase a hotel.  It was sought to amend the Defence to add (paragraph 58(a)) that the $800,000 was to be paid in cash to the couple, and that John had since sold the Braybrook property and applied the proceeds to his own use.
  • The Statement of Claim paragraph 60 pleaded that in 2017 John proffered a draft contract of sale to Daniel and Amanda to give effect to the 2015 contract. The Defence pleaded that they did not sign it because it “was completely different to the original offer”.
  • The Statement of Claim paragraph 62 pleaded that the couple had breached the contract because they had “failed to convey [lot 1] to John upon payment of $1.2 million”.
  • Specific performance was sought of the 2015 contract requiring the plan of subdivision to be registered (and for the couple to do all that was necessary to register the plan) and for Lot 1 to be transferred to John upon his payment of $1.2 m. to the couple.
  • The Statement of Claim did not advert to any agreement to share the costs of a contemplated two lot subdivision equally, or of any agreement to split the costs of a contemplated three lot subdivision, but his Honour noted that the most logical reading of the pleading was that John was to bear the costs.
• In June 2023 the Council served an emergency order on the couple requiring vacation of the building and performance of demolition works by 21 June. Daniel subsequently deposed that the couple lacked the resources to undertake these works.
• The defendants applied under the Transfer of Land Act s. 90(3) for removal of the caveat and for leave to amend their Defence and Counterclaim.
• John argued that his interest did not arise under an implied, resulting or constructive trust but was that of a purchaser under the 2015 contract. His solicitor deposed that those words were used in the caveat because when it was lodged John could not recall (and thereby nominate) the exact date in July 2015 of the contract, which inability meant that the only PEXA option for the grounds of claim was that nominated.  This evidence was not challenged.
• John deposed –
  • to a conversation with his mother before and to similar effect as that at the Croatian Club referred to in the Statement of Claim in which he offered $2 m. to her for the front half of the Property (the Property being, according to John, in fact his mother’s property, notwithstanding that it was registered in the names of the couple), that he agreed to pay $800,000 immediately to her which she could use to acquire a property to live in, and that he would then pay her the balance of $1.2 million once the property was operating as a backpackers hostel;
  • that “as part of the relief [to be obtained in the proceeding he] will also need to pay over the ‘deposit’ from the sale of the Braybrook Property”;
  • to an agreement to change the proposed two lot subdivision to a three lot subdivision, on the basis of the one third/ two thirds arrangement;
  • that he believed that the value of Lot 1 was significantly above $2 m.
• John exhibited to certain emails to his affidavit.
• Daniel exhibited to his affidavit a copy of the written contract provided by John, which was largely inconsistent with the alleged 2015 contract. Although John deposed that the contract provided by him in 2017 was not inconsistent with the alleged 2015 contract he did not depose that the document exhibited by Daniel was not the contract provided.  However John’s counsel stated from the Bar table that his instructions were that the document exhibited by Daniel was not the contract provided in 2017, and that John no longer had a copy of it.
• Daniel and Amanda tendered a fire engineering report dated 5 March 2019.
• The plaintiffs offered an undertaking as to damages.

M. Osborne J. ordered removal of the caveat, holding –

1. The misdescription in the caveat of the grounds of claim would be put to one side because the true alleged interest had been asserted in a solicitor’s letter and, even if the court had not had power (which it did have) to amend the caveat, the caveator could have sought an interlocutory injunction to restrain settlement of the third party sale which in practical terms would have secured the same outcome. [34]-[35]
2. Although completion of the alleged 2015 contract was conditional on registration of the plan of subdivision, and thus on consent of a third party, a court would, in appropriate circumstances, make orders in the nature of specific performance compelling the vendor to do what was necessary to obtain approval for the subdivision and, if approval was granted, to settle the contract. This interest was sufficient to support a caveat. [36]-[38]
3. There was not a prima facie case that a contract existed, because even allowing for the admissions in the Defence, the contract as alleged was attended with difficulty, as follows –
   1. The Statement of Claim lacked precision, in particular:
      1. the allegation that the subject matter of sale was land later known as a particular lot number on a plan of subdivision could not accurately reflect the particularized July 2015 discussions, because this plan was not yet prepared; [43]
      2. notwithstanding consensus in the pleadings that the plan was uncertified because Council’s fire safety requirements remained unaddressed, the Statement of Claim did not directly engage with the fact that settlement was impossible pending certification and subsequent registration of the plan, nor with what was necessary to procure certification or with who was responsible for securing certification and registration; [44]-[45]
      3. the reference in paragraph 52 to “vendors terms”, unidentified and unclear, seemed to suggest settlement at an undefined point not linked to registration of the plan; [46]
      4. the allegation in paragraph 62 that the alleged vendors had breached the contract by failing to convey Lot 1 to John upon payment of $1.2 m.: did not reflect that the obligation to convey was dependent on registration, did not plead tender of this sum, and did not clarify how reference to this sum was reconciled with the sale on the ‘vendors terms’, whatever they might be; [46]
      5. The pleas concerning the deposit and its payment were unclear; [47]
      6. The relevance of the allegations in paragraph 57 were unclear: they appeared to set the scene for pleas of estoppel or part performance without following through; [48]
      7. A fair, but not the only, reading of the Statement of Claim was that the deposit of $800,000 was to be paid in kind. However, the question of who was to own the Braybrook property was left unsaid, much less how the purchase of a property otherwise than for the couple could amount to part performance of an obligation to pay them $2 m. for Lot 1; [49]
      8. The relevance of the provision of the later written contract to the claim for specific performance was unclear, and that document contained myriad inconsistencies with the alleged 2015 contract. [50], [53]
   2. John’s evidence of a conversation with their mother in which he offered her $2 m. for the front half of the Property was inconsistent with his pleading that $1.2 m. was be paid to the couple. [57]
   3. In broad terms, the emails exhibited by John supported an interpretation of the 2015 contract as containing a term that payment the deposit of $800,000 was to be effected in some way by the purchase of a property for their mother. [58]
   4. Notwithstanding the purchase of the Braybrook property for their mother and its registration in the names of the brothers’ siblings the plaintiffs received the proceeds of sale. Although the Statement of Claim sought an order in effect requiring the transfer of Lot 1 to John upon his payment to the couple, he had deposed that “‘as part of the relief, [he] will also need to pay over the ‘deposit’” from this sale, thus implicitly recognising that the couple were entitled to the $2 m., which was not the same as part of the $2 m., namely the $800,000 ‘deposit’, being paid to their mother to buy the Braybrook property and was inconsistent with the plaintiffs’ ultimate receipt of the proceeds of sale.  On the case that John now sought to advance, the couple, not John (or his mother’s estate), were entitled to the $800,000. [59]
   5. It was undisputed that responsibility for obtaining registration of the plan of subdivision, fell on John not, as was usual, on the vendors. And, although John deposed to an agreement to change the proposed two lot to a three lot subdivision, he had not pleaded this agreement nor one to share the costs equally on the basis of a contemplated two lot subdivision. [60]
   6. In summary, even if the court was to assess the question of a prima facie case by reference to the alleged admissions in the Defence, there were significant impediments to the establishment of a legally binding contract in the form of the alleged oral 2015 contract. In particular:
      1. The alleged 2015 contract failed sufficiently, arguably at all, to take account of the sale being conditional because dependent upon certification and registration and was entirely unclear on the date of payment of the price or whether this payment was conditional. [62]
      2. The only form of written contract in evidence was quite inconsistent with the alleged 2015 contract, or with the parties becoming legally bound before its execution, and as John had not deposed that the document in evidence was not the document proffered no weight could be attributed to his instructions conveyed from the Bar table to the contrary. [63]
      3. As to the deposit, the Statement of Claim was most unclear. It was ambiguous as to whether John would pay $800,000 to the vendors (suggested by the pleading and the relief which John now accepted he would be entitled to at final hearing) or whether (as pleaded in paragraph 57(c)) it be paid in kind by John purchasing a property for their mother (and so suggestive of the $800,000 being paid in effect to their mother) which was consistent with the version in John’s affidavit.  Whatever the true interpretation, it was difficult to see how John could have paid the $800,000 deposit, whether to his mother, or to the couple by being used to buy a house for their mother  (which presumably meant that the couple did not have to do so), but still somehow received the proceeds of sale of the Braybrook Property. [64]

      [42], [61], [65]

5. The question of the prima facie case was not confined to whether there was a binding sale agreement for Lot 1 but extended to whether specific performance would be granted for the sale of a lot in a plan of subdivision which remained unregistered some 8 years after the date of the alleged contract. As to this:
   1. Contracts for the sale of lots in unregistered plans of subdivision were amenable to orders for specific performance because of the normal implied term requiring the vendor to do everything reasonably necessary to procure registration. However, here John bore the burden of obtaining registration. [67]
   2. Even if the court was to accept for the purposes of this Application that (although unpleaded) the contract had been varied to change the proposed two lot to a three lot subdivision with the one third/two thirds arrangement, there was uncertainty about the costs, nature and extent of the required tasks. The report tendered was long and required performance of a range of measures to attain certification of the plan of subdivision.  And it appeared in 2023 that further works would be required.  In sum, the works required were complex, unidentified, and at some indeterminate and potentially large cost, to be met on John’s case as to one third by him and two thirds by the couple. [68], [70], [71]
   3. Accordingly, a series of further orders for their performance and payment would be required antecedent to any order for specific performance. Although a court would supervise a contract the performance of which required costs to be met in agreed proportions, in this case the costs related to, at least in part, performance of building works of uncertain scope. A building agreement was one requiring continual supervision in respect of which a court was reluctant to grant orders for specific performance.  If specific performance were granted the court would  likely have to supervise potentially significant building works not yet identified or delineated by the alleged 2015 contract. [72], [73], [78]
   4. John had also failed to establish a prima facie case that he was ready, willing and able to perform the obligations imposed on him by the alleged 2015 contract. Even assuming in his favour that his non-payment of a deposit in the traditional sense was not itself a disentitling breach of contract, he had led insufficient evidence of ability to meet future necessary payments. [74]-[78]

   [66]

6. In conclusion John has not established a prima facie case at a sufficient level of certainty to justify the maintenance of the caveat. [78]
7. The balance of convenience also favoured removal of the caveat. Ordinarily, because contracts for the sale of land were the subject for orders for specific performance, land being of a unique character such that damages were not an adequate remedy, the balance of convenience favoured a caveator with a prima facie case and priority over any relevantly competing interest.  However here the balance of convenience was against John because:
   1. Of his Honour’s concerns about the adequacy of the undertaking as to damages offered by Ritz Bitz and John – the insufficiency of an undertaking as to damages being a powerful discretionary factor against the grant of an interlocutory injunction – there being a very real possibility that the couple would suffer significant losses by reason of their inability to settle the third party contract; [82]-[84]
   2. If the caveat remained in place the Property would likely deteriorate or the couple would have to finance rectification works in order to deal with the building order and the emergency order or face prosecution; [88]
   3. Talevski’s interests would be effected; [89]
   4. Notwithstanding John’s emotional connection with the Property he had not pursued his claim with alacrity and if his assessment that Lot 1 was worth substantially more than $2 m. this would sound in damages. [90]

   [80], [91]

   Philip H. Barton

             Owen Dixon Chambers West

           Tuesday, December 5, 2023