Colony Constructions Pty Ltd v Zain Homes Pty Ltd & Ors [2023] VSC 529, Ginnane J.

This short case is an illustration of the importance, when faced with a serious breach of contract by the other party, of either accepting the breach and thereby terminating the contract or declining to accept the breach and asserting your intention to go on with the contract.  Confusion between these options possibly contributed to this caveator claiming the wrong interest and grounds.  The first defendant was a purchaser under a contract which did not settle on the due date, following which the vendor served a 14 day Notice of Default and Rescission and the third defendant (invalidly because it was the nominee transferee) served a 14 day Default Notice based on alleged deterioration to the premises and an inadequate planning permit.  Following expiry of both Notices the first defendant: wrote stating that the alleged breach had not been rectified and that the contract was at an end; and caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust.  On the plaintiff vendor applying under the Transfer of Land Act s. 90(3) to remove the caveat the purchaser adopted conflicting positions: its director deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”; its counsel submitted that its conduct demonstrated that it wished to settle the contract; and in written submissions the purchaser relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962.  Ginnane J. held it arguable that the vendor had breached the contract, raising an arguable issue of whether it had the right to serve its Notice, but as the caveat had not claimed an interest as a purchaser the caveator only arguably had asserted an equitable lien for the return of the deposit.  Accordingly, appropriate relief was removal of the caveat with the deposit to be held in the vendor’s solicitor’s trust account.   His Honour stated –

“I have noted and considered the emphatic submissions of the defendant’s counsel that if the caveat is removed it will lose its right to settle the property, a right which may be later established.  However, … I can only consider the claims described in the caveat and they do not rely on the contract of sale …”

The facts were –

• On 18 February 2022 the plaintiff entered a contract to sell a property to the first defendant for $727,270, with a deposit of $77,000 which was paid, due for settlement on 18 February 2023. The conditions included that: the “contract is subject to the vendor providing the purchaser endorsed plans and permits” (Special Condition 6); the vendor must deliver the property to the purchaser at settlement in the same condition as it was in on the day of sale, except for fair wear and tear (General Condition 24.2).
• The first defendant nominated the third defendant as transferee.
• A planning permit was issued allowing partial demolition of a building and erection of six units.
• The contract did not settle on the due date. On 20 February 2023 the vendor served a 14 day Notice of Default and Rescission describing the default as “failure to settle per the terms of the contract”.   On the same day the nominee served a Default Notice describing the default as “non-compliance of general condition 24.2 & special condition regarding endorsed planning permit” and stating that the purchaser intended to exercise its rights unless within 14 days the default was remedied and legal costs were paid.
• On 9 March the first defendant by its lawyers emailed the plaintiff’s conveyancer stating that the alleged breach had not been rectified and that the contract was at an end.  It also caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust.
• The plaintiff resold the property and applied under the Transfer of Land Act s. 90(3) to remove the caveat. The first defendant’s director deposed to damage to the property alleged to have occurred after the date of the contract.  The first defendant submitted that the plans provided did not contain a valid planning permit as stipulated in Special Condition 6 so as to enable performance of the building works.
• The plaintiff argued that the first defendant had adopted conflicting positions concerning whether the contract was still on foot. The first defendant submitted that its conduct demonstrated that it wished to settle the contract, but its director also deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”.  In written submissions the first defendant also relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962.

Ginnane J. ordered removal of the caveat on condition that the deposit was held in the vendor’s solicitor’s trust account until final determination of the proceeding or further order and on condition that the purchaser counterclaimed to substantiate its claim to the deposit –

1. The third defendant’s Notice was invalid because it was a nominee who could not exercise rights under the contract. [7]
2. The first defendant’s contentions that the plaintiff had breached the contract in failing to provide a valid planning permit and because of damage to the property raised an arguable issue as to whether the plaintiff had the right to serve its Notice. [8]
3. Although the caveat had not claimed an interest as a purchaser (the claim of an implied, resulting or constructive trust did not claim an estate or interest arising under the contract) the caveator had established a serious question to be tried of an interest in the land in the form of an equitable lien for the return of the deposit – the caveat asserted such an interest when it referred to the first defendant’s interest as a chargee. [10]-[11]
4. The first defendant’s arguable interest in the $77,000 deposit could be protected by a removal of the caveat on condition as stated above. The balance of convenience favoured that course.  This removal would deprive the first defendant of its right (which may later be established) to settle the contract but the caveat had not relied on the contract. [12]-[13]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 19, 2023