Blog 77. No prima facie case of a contract of sale.

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 –

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]
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]
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]

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]

In conclusion John has not established a prima facie case at a sufficient level of certainty to justify the maintenance of the caveat. [78]
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

Wednesday, November 22, 2023

Blog 76. A collection of claims, none amounting to a caveatable interest.

SJM v PMD & Anor [2023] VSC 349, Daly AsJ.

This case concerns a persistent user of the court system with sundry claims, none caveatable. Interestingly Daly AsJ essays a definition of what is an estate or interest in land (this being the basis of a caveatable interest under the Transfer of Land Act s. 89). Lawyers find it easier to say whether, in the particular circumstances of a case, an interest in land exists, than to define one. Relying on Victorian authority her Honour stated –

“An estate or interest in land required to support a caveat must be an interest in respect of which equity would give specific relief against the land itself, either by way of requiring the provision of a registrable instrument or in some other way, for example, ordering a sale to enable a charge to be satisfied out of the proceeds.”

This is a comprehensive definition though not complete, because, for example it does not cover the interest of an adverse possessor, held caveatable in Nicholas Olandezos v Bhatha & Ors [2017] VSC 234 at [35], [37], nor rights of a legal not equitable nature. In that case Derham AsJ stated at [18] –

“First, the Caveators must establish that there is a prima facie case – there is a probability on the evidence before the Court that the Caveators will be found to have the asserted legal or equitable rights or interest in the disputed land by adverse possession.”

Any general statement of what is an estate or interest in land also depends on context. So in Stow v Mineral Holdings (Australia) Pty Ltd (1979) 180 CLR 295, which concerned the requirement that permitted objectors to the grant of a mining licence claim an estate or interest in land, Aickin J. stated at [21] –

“In my opinion the ordinary meaning of the compound expression “estate or interest in land” is an estate or interest of a proprietary nature in the land. This would include legal and equitable estates and interests, e.g., a freehold or a leasehold estate, or incorporeal interests such as easements, profits a prendre, all such interests being held by persons in their individual capacity. It does not embrace interests in which the person concerned has no greater claim than any other member of the public.”

The facts were as follows –

The plaintiff and the first defendant (defendant) were in a de facto relationship for about a decade until 2010. In 2003 the plaintiff purchased a property at Hoddles Creek of which she was sole registered proprietor and where they cohabited until she moved interstate in 2010, returning, she alleged, in 2012 to retake exclusive possession. In 2012 the defendant caveated claiming an implied, resulting or constructive trust, the grounds of the claim being an alleged constructive trust.
On 15 August 2012 the Federal Magistrates’ Court made final consent orders in a proceeding commenced by the defendant including providing three alternatives for disposal of the property. The first alternative (in paragraph 2 of the orders) was that the defendant pay the plaintiff $110,000 by 15 November 2012 in exchange for a transfer of her interest in the land with him discharging the mortgage and performing certain other obligations. Failing this alternative being taken, the second alternative gave her an election to retain the property and to pay him $50,000 in exchange for withdrawal of the caveat. Failing both the foregoing alternatives the property was to be sold and proceeds distributed in a particular manner. Other orders included (in paragraph 5.2) that the parties would hold their respective interests in the land on trust pursuant to these orders. The orders concluded that pursuant to s. 81 of the Family Law Act the parties intended them to, as far as practicable, finally determine their financial relationship and avoid further proceedings.
Due, the defendant alleged, to the plaintiff’s non-co-operation with his pursuit of the first alternative, he filed an application returnable on 31 October 2012 to enforce the final orders (the enforcement application) chiefly to require the plaintiff to give effect to the first alternative. The case was not reached, but on that day the plaintiff’s solicitor deposed to holding the required completed Transfer document and that his client was ready, willing and able to settle the sale in accordance with the first alternative on 15 November.
Although the orders of 15 August required payment by 15 November the parties agreed to extend the time for settlement to 11.30am on 16 November. The enforcement application was relisted at 10am on 16 November and stood down pending settlement of the transfer. However, the transaction did not settle at 11.30am due to a discrepancy between the Transfer and a mortgage, the defendant’s lender Westpac requiring the parties to execute a new Transfer to conform with the terms upon which it had agreed to advance finance. The defendant and his solicitors then took steps to remedy this and planned to be able to settle at 3:30pm. However, at about 1.40pm the plaintiff elected to take the second alternative. When the hearing resumed at around 2.30pm counsel for the defendant sought orders compelling the parties to attend settlement at 3:30pm. The Federal Magistrate dismissed both this application and the enforcement application on the basis that both parties had complied with their obligations but the bank had prevented settlement, and that to order the parties to attend settlement at 3.30pm would conflict with the orders of 15 August.
In December 2012 and February 2014 the defendant refused the plaintiff’s tender of $50,000.
In January 2014 an application for leave to appeal against the dismissal of the enforcement application was itself dismissed but the judge commented in substance that instead of appealing the defendant should have commenced proceedings under s. 90SN(1)(c) of the Family Law Act which provided that if, on application by a person affected by an order in property settlement proceedings, the court was satisfied that a person had defaulted in carrying out an obligation imposed by the order and it was just and equitable, the court had a discretion to vary or set aside the order and if appropriate substitute another order. An application to the High Court for special leave to appeal against the judge’s decision failed.
In February 2014 the defendant filed a contravention application in the Federal Circuit Court directed at the plaintiff and her solicitors. This was dismissed in September 2014, and an application to the Family Court for leave to appeal against this dismissal was itself dismissed except as to a question of possession of chattels which was remitted to the Federal Circuit Court, and an application to the High Court for special leave to appeal against the Family Court decision was itself dismissed. On the remitted question the defendant failed as did an appeal against this dismissal.
The plaintiff applied for removal of the caveat under the Transfer of Land Act s. 90(3), for an injunction restraining the defendant from further caveating, and for compensation under s. 118. The defendant argued that he had an equitable interest in the land by reason of being the beneficiary of a trust created by the final orders dated 15 August 2012 and having the potential to bring an application to have the orders dismissing the enforcement application and/or the contravention application varied or set aside for fraud. He also contended that failure of the transaction to settle at 11.30am on 16 November 2012 was not attributable to the action of his bank but to the plaintiff’s actions.

Daly AsJ ordered removal of the caveat on condition that on any sale or refinancing $50,000 be set aside to meet the defendant’s entitlements under the final orders, holding –

An estate or interest in land required to support a caveat must be an interest in respect of which equity would give specific relief against the land itself, either by way of requiring the provision of a registrable instrument or in some other way, for example, ordering a sale to enable a charge to be satisfied out of the proceeds. [67]
The allegation that there was fraud arising from the solicitor for the plaintiff’s affidavit sworn on 31 October 2012, or by counsel’s statements during the hearing on 16 November, was untenable. However, any claim to set aside an order for fraud, which in the case of the orders in the enforcement and contravention applications was accordingly very weak (the strength of the caveator’s claim being relevant to whether the caveat should be maintained), was a mere equity, not a proprietary interest, and so did not found a caveatable interest. [72]-[74], [86]-[90]
Section 91(1) of the Evidence Act 2008 provided that evidence of a decision, or a finding of fact in another proceeding was inadmissible to prove the existence of a fact that was in issue in that proceeding. However, it was doubtful that s. 91(1) excluded evidence contained in reasons for judgment of admissions or concessions made by a party in the course of the other proceeding. The defendant had made such admissions or concessions to the effect that the plaintiff’s bank could discharge its mortgage by the scheduled date. And the defendant or his counsel had in previous proceedings repeatedly acknowledged that the defendant’s bank was responsible for the failure to settle on 16 November 2012. [82]-[84]
Any claim under the Family Law Act s. 90SN(1) was a statutory claim incapable of giving rise to an equitable interest. [90]
The interpretation of the final orders and of the plaintiff’s entitlement to elect to take the second alternative had been litigated extensively. The defendant was estopped from further litigating either his entitlements under the final orders or the validity of this election. Even if the question of the alleged fraud had not yet been expressly raised in previous court proceedings, then they should have been so raised having regard to the principles of Port of Melbourne Authority v Anshun (1981) 147 CLR 589. It was unreasonable for the defendant not to have raised allegations of fraud in the actual enforcement and contravention applications. [90], [93]
The court had considered whether the defendant had any caveatable interest, not just that claimed in the caveat (a claim to the constructive trust having been subsumed in the final orders). And, although in the final orders of 15 August 2012 paragraph 2 gave the defendant an equitable interest in the property akin to that of a purchaser (which alternative had not however been taken) and paragraph 5.2 created a trust, that trust did not survive one of the alternatives in the orders being taken. [71], [94]-[96], [99]
The balance of convenience overwhelmingly favoured removal of the caveat because of the plaintiff’s financial circumstances. [100]
Given the history of litigation and circumstances of the case the defendant was restrained from lodging any further caveats over the land. [103]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, August 30, 2023

Blog 75. Masters v Cameron

Stathopoulos v Cremin & Anor [2023] VSC 238, Barrett AsJ.

Unlike most previous Blogs this Blog does not concern an Application under the Transfer of Land Act (TLA) s. 90(3) but rather concerns a proceeding commenced following a notice by the Registrar of Titles under s. 89A(1), the plaintiff having caveated over the first defendant’s land claiming an equitable interest as purchaser under a contract of sale. The registered proprietor applied for summary dismissal of the proceeding with consequential removal of the caveats.

Barrett AsJ considers at length principles of contractual interpretation, the law on the Instruments Act s. 126, and in particular the law where parties reach agreement on terms of a contractual nature but also agree that the matter of their negotiation shall be dealt with by a formal contract. The foundational law is contained in the High Court judgment in Masters v Cameron (1954) 91 CLR 353 at 360 – 362 as follows –

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. …

Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: … The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, … or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. …

The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape: … Nor is any formula, such as “subject to contract”, so intractable as always and necessarily to produce that result: … But the natural sense of such words was shown by the language of Lord Westbury when he said … “if to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation”. …

This being the natural meaning of “subject to contract”, “subject to the preparation of a formal contract”, and expressions of similar import, it has been recognized throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract.”

There is arguably a fourth category, being a variation upon the first category, ie a class of case in which the parties are content to be bound immediately and exclusively by the agreed terms whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.

The facts were –

The first defendant (the vendor) was registered proprietor of Lots 1 and 2, 343 McGlone Road, Drouin. On 3 September 2018 she and the plaintiff (Stathopoulos) entered into a contract of sale of, according to the document, Lot 2 but Stathopoulos pleaded it was of Lot 1 (the First Contract). $5,000 was paid under this contract, which however did not proceed.
Stathopoulos deposed that between 30 March and 9 April 2020 he dealt with a Mr Shnall, who, in the week beginning on 30 March telephoned him saying that he was an estate agent calling on behalf of the vendor and in this conversation Stathopoulos offered $8m. for both lots. (The vendor did not allege that Schnall was not acting for her, but deposed that on 9 April she received an offer in draft under cover of a letter from Schnall stating that his company was instructed to present this offer on behalf of a significant investor etc, without naming that investor). Stathopoulos deposed that on 7 April Schnall told him that the vendor had rejected this offer to which he orally responded with four alternate offers.
Stathopoulos alleged: that later on 7 April Schnall emailed that these offers had been presented to the vendor, and Schnall sought four separate letters of offer in the terms set out in Schnall’s email, saying that, if these letters were provided by midday the next day, he would have the offer that the vendor selected signed off on the following Monday. Schnall concluded “[l]ook forward to executing this deal for you George next week”.
Four letters of offer in the terms set out in Schnall’s email were emailed by Stathopoulos. Offer 3 was in substance: the property to be purchased was 343 McGlone Road including the 1 acre lot improved by the vendor’s house; the price was $9m. payable as to $1.8m. on execution and the balance on 1 September 2021; it included a condition requiring the purchaser to pay $10,000 to cover the costs of contract preparation, refundable if the vendor did not execute the contract of sale and non-refundable if the purchaser did not execute it.
On 9 April Stathopoulos advised Schnall that his details were as on the First Contract, ie “George Stathopoulos and or nominee”. Stathopoulos alleged that later that day Shnall contacted him, saying that he was with the vendor at her house, and that she accepted offer 3 for both Lots 1 and 2 and Schnall said:

“he would draw it up and get [the first defendant] to sign it, and that he would then meet me to get me to sign it. He also told me that [the first defendant] wanted $20,000.00 for the contract preparation costs, which I communicated that I agreed to, to Mr Schnall, while he was in [the first defendant’s] presence. In response to this, he then informed me that [the first defendant] said ‘Congratulations!”

On 9 and 10 April 2020 the parties respectively signed a short document headed ‘Offer to Purchase – Key Terms and Conditions’, which Stathopoulos alleged was the “Second Contract”. Its substantive terms included: the “Properties” were both Lots; the price was $9m. payable as to $1.8m. “on the execution of the Contract of Sale” and the balance on 1 September 2021; “Contract This offer is subject to the purchaser and vendor executing a legally enforceable Contract of Sale”; “Exclusivity The vendor confirms that they will immediately upon acceptance of this offer cease any other negotiations and will not start any new negotiations in respect of the property [whilst] contract negotiations with the Purchaser are underway”; “Contract Preparation Payment” being in substance as in Offer 3 with the amount increased to $20,000; a term imposing confidentiality on the vendor. The vendor signed this document under the words, headed “Acknowledgment by the Vendor”, “I, the undersigned, agree to the above-mentioned purchase details, key terms and conditions”.
Stathopoulos deposed that between 12 and 29 June 2020 the vendor congratulated him on completing the deal, enjoyed discussing his development plans, stated that she was particularly happy that the Precinct Structure Plan allowed for a school to be part of the development, and on 23 June said that she would tell her solicitor Mr Bridge to “hurry up” with the contracts and send them to him.
On 24 June the vendor emailed Stathopoulos that she had forgot to mention that she wanted the contract to include terms permitting her to continue living in the house for a year after settlement rent free and requiring him to pay rates until settlement. Stathopoulos deposed that later that day he told Bridge that he agreed to these requests and that the vendor wanted Bridge to “hurry up” with issuing the contracts (Bridge replying that he knew what she wanted), and that in answer to Bridge’s question he confirmed that his details were the same as in the First Contract.
On 30 June 2020 the vendor’s solicitors emailed Stathopoulos stating –

“The Vendor Statement and Contract of Sale are ready to be finalised.
In order to proceed, can you please provide me with your full name and/or entity purchasing the property and your lawyer details.”

Stathopoulos replied “I am waiting on a GST ruling from the ATO”.

In April 2021 a dispute erupted between Stathopoulos and the vendor’s solicitors as to whether any contract existed. Stathopoulos had not by this time paid the $20,000 for preparation of the contract.
In May 2021 the vendor entered a contract to sell Lot 2 to another purchaser due for settlement in May 2023. In March 2022 Stathopoulos caveated over the land described in the Second Contract claiming an equitable estate in the land as purchaser. The vendor applied under s. 89A(1) for removal of the caveats and in due course Stathopoulos gave notice to the Registrar of commencing this proceeding for specific performance of the alleged Second Contract. The vendor counterclaimed seeking removal of the caveats. She also issued a Summons seeking summary dismissal of the proceeding.

Barrett AsJ dismissed the application for summary dismissal, holding –

There was a real question to be tried whether the Second Contract was a binding agreement, and the plaintiff had a real not merely fanciful prospect of success. While there was force in the argument that the facts fell within the third category of Masters v Cameron it was open to the plaintiff to argue that the words “subject to contract” were not decisive and that circumstances both before and after the alleged contract supported its existence. Consideration of those matters would probably involve consideration of the parties’ relationship through negotiations and at least one signed contract and of discussions post-dating the alleged Second Contract. Further what occurred in the lead up to the signing of the Second Contract, including the dealings of the parties with Schnall, was somewhat obscure and could be relevant to questions of agency and attribution of knowledge. Finally, immediately before Schnall took the four offers to the vendor he stated that he looked forward “executing this deal for you … next week” and shortly after this the vendor signed a document in which she agreed “to the abovementioned purchase details, key terms and conditions”. The terms of the alleged Second Contract headed “Exclusivity” and “Contract Preparation Payment” did not detract from the conclusion that there was a real question to be tried whether the Second Contract was a binding agreement. [37], [50], [51]
Section 126 of the Instruments Act required that the agreement on which the action was brought, or a memorandum or note of the agreement, was in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note. The vendor carried the onus of establishing non-compliance with s. 126. If Schnall was acting as her agent then it was arguable that, on 9 April 2020, she by her agent received the four offers under cover of an email that specifically identified the plaintiff as the purchaser. There were significant questions whether the Second Contract contained a sufficient description of the purchaser, either directly by reason of Stathopoulos’ signature, or by the description as purchaser, or having regard to extrinsic evidence that accompanied the four offers, or other evidence. On this the plaintiff had a real as opposed to fanciful prospect of success and that there was a real question to be tried. [54], [59], [65]
As the question involved an interest in land the balance of convenience favoured the status quo. [52]
Accordingly the caveats would remain. [67]

Barrett AsJ set out at length the law related to: contractual construction including the admissibility of post-contractual conduct ([35], [45]); the Masters v Cameron categories ([36]); and the Instruments Act s. 126 ([55], [58], [60]-[63]).

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 8, 2023

Blog 74. Leave to appeal against Blog 65 refused

Dolan v Dolan [2023] VSCA 136, Court of Appeal.

In this case the Court of Appeal refused leave to appeal from the decision of Ierodiaconou AsJ ([2022] VSC 543) the subject of Blog 65. The Court of Appeal decision is particularly helpful because the court summarises a number of basic caveat litigation points arising under the TLA s. 90(3), namely:

An application under s. 90(3) is interlocutory in nature, requiring application of the two-stage test of serious question to be tried and balance of convenience, not ordinarily requiring final determination of disputed factual issues or claims, and not giving rise to an issue estoppel or res judicata (although an application under s. 90(3) may amount to an abuse of process).
Where an arguable case is established the caveator is generally required to commence a proceeding with a Writ and pleadings.
As to admissibility of evidence.
That an order removing a caveat to permit sale, with part of the sale proceeds being held on trust pending final determination of the dispute, may be appropriate where the caveator was not in possession or where the claimed interest conferred no possessory right, but may be inappropriate where the claimed interest, of which there was a serious question to be tried, conferred possessory rights or represented the whole or a substantial proportion of the beneficial proprietary interest.

It is helpful first to set out the original decision, commencing with the facts particularly relevant to the appeal –

In about 1998 the first defendant (Christine) and other persons purchased land at Lorne (the parent title) for $105,000 with Christine being registered as to a half interest. They agreed to subdivide it into two blocks, with her taking one. She deposed that she contributed $52,500 towards the purchase. The plaintiff (Shannan), who was Christine’s daughter, deposed that she (Shannan) contributed $20,000 towards the purchase.
Due to her age and income Christine could not obtain a loan to fund construction of a house. However, a Bendigo Bank employee advised that if she transferred her interest in the parent title to Shannan an acceptable loan could be secured in Shannan’s name. Christine deposed that Shannan accepted her proposal to make this transfer so that Shannan could obtain a loan on Christine’s behalf, but that both before and after subdivision she (Christine) would continue as beneficial owner, and that Shannan also accepted other proposed terms relating to the transfer. Shannan denied accepting this proposal.
In 2001 Christine transferred her moiety in the parent title to Shannan, the consideration stated in the Transfer being as “An Agreement to Transfer”. Following subdivision, one block (the property) was transferred to Shannan, the consideration in that Transfer being stated as “In pursuance of an Agreement between the Transferors for partition of the said land …”, and Shannan in 2003 became registered proprietor of this block. The bank established a loan account in Shannan’s name with an overdraft limit of $140,000 secured by a mortgage.
Christine deposed that the costs for acquisition of the parent title and construction and fit‑out of the house were funded primarily from her personal resources and from the loan account, Shannan only contributing about 7% of overall build costs. Christine also deposed to making mortgage repayments and that she paid all outgoings including council rates, home insurance, and for maintenance and improvement. Shannan deposed that the overall build costs were largely drawn down from the loan account, that from 2004 to 2006 she made loan payments, and that Christine did not use her personal resources to fund overall build costs.
Upon completion of the house in 2003/2004 Christine, Shannan, and another family member took up residence. Shannan left in 2006. In 2021 Christine caveated on the ground of ‘implied, resulting or constructive trust’. Shannan applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

Ierodiaconou AsJ dismissed the application, holding –

There was a serious question to be tried that Christine was the beneficiary of a common intention constructive trust (she alleged as to 93% of the equitable title). This was supported by: her deposing to the required common intention or agreement; reference to an agreement in the Transfer (her Honour appears to state in the Transfer to Shannan of the subdivided block, but quaere this is a slip for the Transfer to Shannan from Christine); and Christine’s contribution to loan repayments. Moreover, it appeared to be common ground that Christine contributed most of the purchase price of the parent title and that for many years she made payments into the mortgage loan account and resided on the property.
There was a serious question to be tried that Christine was the beneficiary of a resulting trust (she alleged as to 65% of the equitable title) arising from her contributions to the purchase price of the parent title and to construction and fit-out.
The balance of convenience favoured maintenance of the caveat because of: Christine’s long residence; her age being elderly; evidence of her investing her life savings into the property; the fact that Shannan proposed to sell the property with vacant possession with only $20,000 from the net proceeds being distributed to Christine pending resolution of the dispute; Christine’s claim of a substantial interest in the property; and Christine’s inability to buy another property or rent one in Lorne. Any hardship for Shannan could be met by Christine’s undertaking to maintain mortgage and property expense payments, which would maintain the status quo of many years, and Christine being required within 7 days to commence a proceeding to establish her interest in the property.

The Court of Appeal refused leave to appeal, holding –

The decision at first instance was discretionary and to impugn it the applicant must establish an error of a kind explained in House v The King (1936) 55 CLR 499. [83]
The proposed ground of appeal that the Associate Judge had conducted a “trial” of the Originating Motion (without the applicant being aware of it) and had not just heard the Summons, whereby the final orders created an issue estoppel or res judicata that Christine had a caveatable interest, was misguided and a distraction. The true issue was that the nature of the order made, ie to refuse to order removal of the caveat, reflected in the conclusion in the order dismissing the summons, was interlocutory in nature, in the sense that it did not finally determine any rights in the property. It was interlocutory because the relief sought was under the Transfer of Land Act s. 90(3) requiring the caveator to establish a serious question to be tried of an estate or interest in the land and that the balance of convenience favoured the maintenance of the caveat until trial. An application for removal of a caveat did not ordinarily present an occasion for the final determination of disputed factual issues or claims. Not only was it usual for an application under s. 90(3) to be by Summons or Originating Motion, and for it to be determined by the two-stage test, but where an arguable case was established the caveator was generally required to commence a proceeding to have the claim to an interest in the land determined in a properly constituted suit with a Writ and pleadings. An Originating Motion was ill-suited to such a dispute and there may be no utility in keeping it on foot. [47]-[55]
The Associate Judge had applied these principles. She had not determined whether the applicant had any equitable interest in the property, but done no more than dismiss the Summons. No issue estoppel or res judicata [56], [57], [60], [61]
However, in the absence of a relevant change in circumstances, an application to remove the caveat may be an abuse of process. [62]
The submission that the Associate Judge was not entitled to rely on matters stated in a draft Statement of Claim exhibited to and repeated in a paragraph of an affidavit, and in particular the pleading of an agreement between Christine and Shannan, was rejected. The fact that a paragraph in an affidavit was in the same form as a pleading was inconsequential. Admissibility of the paragraph was determined by reference to the Evidence Act 2008. Although the form of the paragraph was open to the criticism that it was conclusionary it was admissible because the evidence was relevant and on its face came from the deponent’s personal knowledge. The evidence was capable of reasonably bearing upon whether there was a triable issue of an agreement or understanding reflecting a common intention as to the beneficial ownership of the property. The other evidence of an agreement included the change in title, the payment by Christine of part of the purchase price of the parent title and construction costs, and the fact that she continued to occupy the property without paying rent. In any event, counsel had conceded before the Associate Judge that he was ‘not going to argue that there isn’t a prima facie case here in relation to the caveat’. [65], [71]-[75]
The proposed ground of appeal that the Associate Justice should have determined that at best Christine was entitled to a lesser equitable remedy, ie an order requiring Shannan to hold some of the sale proceeds on trust pending final determination of the dispute, was not established. The Associate Justice was correct in concluding that Christine had raised a serious question to be tried that she held a beneficial interest in the property. As to the balance of convenience, the caveat itself did not confer any rights on Christine to occupy the property for the purpose of the caveat nor (although likely to affect the ability to sell and price) prevent sale. [42], [84]-[89]
In considering whether the balance of convenience favoured the retention of the caveat, it was necessary to consider the nature of the claimed interest and what the caveat was designed to protect. In cases where the caveator was not in possession or where the claimed interest conferred no possessory right, the claimed proprietary interest may be adequately protected by removing the caveat, allowing the property to be sold and, by orders or undertakings, for the proceeds or part of them to be secured until the respective interests in the property can be determined. Conversely, where the claimed interest conferred possessory rights or represents the whole or a substantial proportion of the beneficial proprietary interest, it may be appropriate to maintain the caveat and so not alter the registered title pending trial. In this context two points required examination –

1. Did the interest claimed by Christine give her a possessory right to the property? On her primary case, she claimed to own 93% of the beneficial interest based on a common intention constructive trust. She had also been in possession since the construction of the house. In those circumstances it was arguable that the equitable interest would follow the legal interest and give her a right to possession. Alternatively, establishment of her right to equitable relief may arguably also found an order restraining Shannan from evicting her.
2. In her draft pleading and in her submissions at first instance Christine accepted that the property should be sold but only after determination of the respective equitable interests. Shannan’s submission that, in circumstances where both parties sought sale and distribution of proceeds, it was (necessarily) wrong for the caveat to remain was invalid. It was open to the Associate Judge to conclude that the caveat should not be removed before the determination of equitable interests because the practical effect this would be a sale and transfer of title with the real risk of an order for possession against Christine. Christine’s ability to secure alternative accommodation was heavily dependent on her knowing the extent of, and being able to realise, any interest she may have in the property, accordingly the status quo plainly favoured retention of the caveat. And if Christine was successful on her primary claim and Shannan has no more than a 7% beneficial interest Shannan’s interest may possibly be satisfied without sale. [90]-[93], [96]-[99]
The Associate Judge was alive to possible prejudice to Shannan from maintenance of the caveat including exposure to mortgage repayments. She correctly decided that the undertakings proffered by Christine to pay certain amounts were adequate to meet any prejudice. An application to lead fresh evidence to the effect that the mortgage had been in arrears was refused. [100], [102], [103]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 25, 2023

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 –

The Receivers had standing to counterclaim and press the Application contained in the Summons in the name of the registered proprietor Parwan.
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.
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.
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.
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.
There was a prima facie case of the interest claimed in the purchase caveat. On the balance of convenience –

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).

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 –

As the appeal was from a discretionary judgment the principles of House v The King (1936) 55 CLR 499 applied. [62]
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. 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]

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]
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

Blog 72. Caveat lapses under Section 89A(5) but caveator obtains injunction

Luna v V & A Luna Pty Ltd & Anor [2023] VSC 126 (22 March 2023), Derham AsJ.

This case is interesting for disparate reasons. First it affirms that the time for a caveator to give notice under the Transfer of Land Act s. 89A(3)(b) to the Registrar of Titles that proceedings had commenced is strict. Secondly it shows that the erstwhile caveator may still be able to obtain an injunction having similar effect to the caveat (albeit at the price of an undertaking as to damages). Thirdly, evidence of the agreement or understanding underlying an alleged constructive trust being weak, his Honour reflected –

“At present, the agreement or understanding, or even assumption, upon which Pasquale provided this assistance is not fully spelled out in his evidence. But I remind myself after long experience of Australians of Italian origin, that a patriarchal feature of their family arrangements often results in the father, and perhaps the mother as well, holding the family’s wealth either personally or through companies and trusts, with the intention of sharing that wealth either equally or according to the deserts of the members of the family who have contributed to it.”

The Transfer of Land Act s. 89A provides –

(1) … where a recording of a caveat … has been made … any person interested in the land affected thereby … may make application … to the Registrar for the service of a notice pursuant to subsection (3).
…
(3) Upon receiving any such application … the Registrar shall give notice to the caveator that the caveat will lapse … on a day specified in the notice unless in the meantime either—

…
(b) notice in writing is given to the Registrar that proceedings in a court or VCAT to substantiate the claim of the caveator in relation to the land and the estate or interest therein in respect of which the application is made are on foot.

…
(5) Upon the specified day, unless—

…
(b) notice in writing has been given to the Registrar that proceedings as aforesaid are on foot—

the caveat shall lapse …

The facts were –

The first defendant (the company) was the registered proprietor of a 20 acre farm at Wollert. In 2018 the plaintiff (Pasquale) caveated claiming a freehold estate in it based on an implied, resulting or constructive trust.
On about 12 December 2022 Pasquale received a notice under s. 89A(3) dated 8 December stating that the caveat would lapse on the first moment of 17 January 2023 unless before that date he gave notice satisfying the requirements of s. 89A(3).
The solicitor for Pasquale deposed that on 16 January she telephoned the Land Registry Services – Secure Electronic Registries Victoria (SERV) and was informed by Tiffany in the specialist registration team that, notwithstanding the clear terms of the notice, the final day to respond to it was 17 January.
On 17 January (after the first moment) the solicitor filed a generally indorsed Writ and the notice under s. 89A(3)(b) was given. The basis of the claim as indorsed (observed by his Honour to “have only a slight conformity with the facts as later revealed”) was largely related to an alleged partnership between Pasquale and his late parents Arturo and Vincenza. Pasquale’s brother, the second defendant (Antonio), was sued as executor of their estate.
On 18 January the solicitor was informed by an employee of SERV that the caveat had lapsed.
On 23 January 2023, Pasquale issued a Summons. The Summons sought, first, a declaration that the notice under s. 89A(3)(b) filed on behalf of Pasquale was valid and substantiated his interest in the land and so remained in force, alternatively that 50% of the net proceeds of any sale be held for his benefit pending the determination of the proceeding.
On 24 January a judge granted an interlocutory injunction in substance enjoining the defendants from dealing with the land pending final hearing and made further directions. After the hearing the solicitor for the defendants informed the plaintiff’s solicitors and the court by email that the land had been sold pursuant to a contract of sale some time ago, but that completion of the sale was 24 months hence.
Shortly before the hearing on 17 March (see below) the plaintiff’s solicitors learnt of transactions which they alleged were in breach of the injunction, in particular a mortgage and issue of a new electronic title with different title particulars. The plaintiff filed a Summons seeking that the defendants be dealt with for contempt of the January Order.
At that hearing before Derham AsJ on 17 March counsel informed his Honour that the land had been sold by a contract dated December 2022 for about $15 m. This apparently required a mortgage to be lodged with a countervailing Bank Guarantee to secure the sale.
Pasquale deposed in substance that:
- he worked with his parents from the time of a partnership in a delicatessen in 1969 to build their wealth for the benefit of the whole family. His contributions over the years enabled his parents to acquire properties that ultimately fed the purchase price of the land. In 1989 he arranged for a family trust to be established with the company as trustee, being a discretionary trust of which the primary beneficiaries were Arturo and Vincenza. Thus, his efforts and work over a lengthy period contributed indirectly to the purchase price of the land in 1989 and those contributions were made either (not fully spelled out) with the agreement, or on the understanding, that he would share equally with the other members of the immediate family in the wealth accumulated.
- he contributed directly both his labour and money in establishing a house on the land, and maintaining it, on the assumption that he would retain an equal share in the ultimate wealth created through his and his family’s efforts.
Antonio filed an affidavit substantially disputing Pasquale’s affidavit. This included that Pasquale had been made bankrupt (in fact in 2003) and discharged in 2006.

Counsel for Pasquale submitted inter alia that: it was reasonable for Pasquale’s solicitors to rely upon the representations of Tiffany in lodging the material required by s. 89A(3) on 17 January 2023; the Registrar should be estopped from lapsing the caveat; the court had an inherent jurisdiction to make orders ‘voiding the lapsing of the caveat’.

Derham AsJ in substance continued the injunction (while altering its wording), holding –

The caveat lapsed at the commencement of 17 January 2023 by reason of the operation of s. 89A(3) and (5). The court had no power to reverse this. [15], [49], [55], [56]
The evidence in support of the plaintiff being the beneficiary of a constructive trust of the land was, at present, rather frail and somewhat sketchy: the prima facie case was not strong. It sufficed, however, that the plaintiff show a sufficient likelihood of success that in the circumstances justified the practical effect of the injunction on the defendants. His Honour doubted as a matter of principle the defendants’ argument that the plaintiff could not take an interest pursuant to a constructive trust where he was also a beneficiary of the family trust: if it was unconscionable in the circumstances for the trustee of the family trust to deny that he had a proprietary interest in the land, why would his being a beneficiary of that trust, particularly one with no vested interest in its assets, be a barrier? This argument required further elucidation. [26], [75], [77]
With respect to the plaintiff’s bankruptcy and the possibility that his interest in the land had vested in his trustee in bankruptcy, it would be in the parties’ power to inform the trustee and give him an opportunity of being joined as a party. It was not, in his Honour’s preliminary view, satisfactory for the defendants to use this vesting as a defence without joining the trustee as a party. [76]
On the balance of convenience, in the current circumstances where the plaintiff’s proof of his rights was not strong, an interlocutory injunction may be granted because to withhold it would do him irreparable harm while (the contract of sale having a 24 month settlement date) to grant it would not greatly injure the defendants. Maintenance of the status quo would not harm the defendants but to deny the injunction could injure the plaintiff by denying him protection against dissipation of the value of the land. [78]
The further continuation of the interlocutory injunction would be subject to the plaintiff complying with the requirement to file further evidence in support of his claim. [79]

Philip H. Barton
Owen Dixon Chambers West
Thursday, April 20, 2023

Blog 71. Caveat based on alleged Baumgartner constructive trust fails.

Sandich v Fasoulis & Anor [2023] VSC 65 (17 February 2023), John Dixon J.

The plaintiff, Ms Sandich, and her former husband were registered proprietors of a property in Kew. The first defendant, Mr Fasoulis, married Ms Sandich in 2017 but they later separated.
Mr Fasoulis deposed that –
- At the start of their marriage Ms Sandich solely occupied the Kew property and he shared his time between it and his property in Murrumbeena with his children.
- The financial burden of supporting her and his children and running two households, quickly became untenable and he fell into serious financial difficulty. He sold property including the Murrumbeena property and used the proceeds to pay debts including debts of Ms Sandich.
- He and his children then moved to the Kew property until its sale by Family Court order, the contract of sale being dated 27 July 2022 and due for settlement on 20 February 2023. He financially assisted in preparing the property for sale, undertaking substantial refurbishments costing an estimated $20,000, Ms Sandich having no money.
- On 6 February 2023 Mr Fasoulis commenced family law proceedings against Ms Sandich seeking financial orders pursuant to s. 79(1) of of the Family Law Act. The next day he through a solicitor lodged a caveat claiming an ‘Implied, resulting or constructive trust,’ the estate or interest claimed being a ‘freehold estate‘ and the prohibition on dealings being ‘absolutely.’
Ms Sandich applied under the Transfer of Land Act s. s. 90(3) for removal of the caveat.
Mr Fasoulis argued that there was a serious question to be tried that he was a beneficiary of a constructive trust based on Baumgartner v Baumgartner (1987) 164 CLR 137. He deposed that: he discussed with Ms Sandich the benefit of undertaking substantial refurbishment of the Kew property so as to realise its maximum value; they discussed that getting the highest sale price would benefit both of them financially; and for this reason his funds were invested in the Kew property. He did not depose that she said, or agreed, that such expenditure would entitle him to an interest in the property.

John Dixon J. ordered removal of the caveat with costs –

The first defendant had not established a serious question to be tried of a caveatable interest because –
1. The grounds of claim could not be made out against the joint-registered proprietor Ms Sandich’s former husband. There was no evidence that he was party to a joint endeavour or relationship. [21], [30]
2. The claim was overstated in the form of a trust affecting the whole freehold estate. [30]
3. There was no joint relationship or endeavour for improvement of the Kew property. The first defendant had only contributed some $20,000 to tidying up the property for sale, which did not improve the property nor was a significant amount, in return for a promise that he be repaid out of the sale proceeds. There was no evidence of any specific discussion or agreement that he would have any interest in the property. He had conflated what he alleged to be contributions to the marriage with what he described as an agreement that he finance the cost of preparing the property for sale on the basis that he would be repaid out of the proceeds of sale. [20], [22], [24]-[26], [28], [30]
4. If there was any pooling of resources to the parties’ common benefit it was in the circumstances of the marriage and not in relation to the improvement of the Kew property. [28]
5. There was no unconscionability in not recognising that the first defendant had an equitable interest in the property, particularly where he contended that his expenditure was on the basis of a promise that he be repaid. [26]
Claims under the Family Law Act s. 79 did not create caveatable interests in any land that may be part of the matrimonial assets. [27]
Although the caveat was lodged as a bargaining chip in the Family Law proceedings the circumstances were not such as to warrant an order for indemnity costs against the caveator. [34], [37], [39], [42]

Philip H. Barton
Owen Dixon Chambers West
Tuesday, April 4, 2023

Blog 70. Solicitor disciplined concerning caveat – is lodgment of improper and baseless caveats by legal practitioners endemic?

Legal Services Commissioner v Souki [2022] VCAT 663 (17 June 2022)

This case was a proceeding by the Legal Services Commissioner against a solicitor including for drafting baseless caveats. The solicitor pleaded guilty to a number of charges. The form of Senior Member E. Wentworth’s decision was first to set out the Findings, second the Orders, third the Senior Member’s Reasons (27 paragraphs), and finally, occupying most of the decision, an “Appendix: Relevant Extracts from the Parties’ Submissions”. The Appendix included agreed proposed penalties and the solicitor’s explanations. The Senior Member stated (paragraph 20) –

“The Commissioner’s submissions noted that the lodging of such [improper or baseless] caveats by legal practitioners is ‘endemic’. If that is so, it is a shameful matter for the legal profession.”

Last October I gave a paper on caveats at the Commercial Law Discussion Group Conference (being a Discussion Group of Victorian solicitors) and at least one experienced solicitor, without demur from the other solicitors present, disputed the word ‘endemic’, regarding it as unjustified.

The solicitor acted for three clients in a Supreme Court proceeding in which they were seeking to recover their investment in a gold bullion firm. The facts related to the caveat charge (including the solicitor’s explanations) were –

The solicitor was a young practitioner who was in her early years of practice as a principal of her own law practice.
Her clients requested her to caveat over a property owned by a defendant in the Supreme Court proceeding. They had no estate or interest in the property and were at most prospective judgment creditors.
The solicitor informed her clients that caveating was not possible as they had no caveatable interest, the clients were reluctant to accept that advice, the solicitor sought advice from counsel in conference with the clients, and counsel also told the clients that they had no caveatable interest.
The property was listed for sale and again the clients insisted on caveating. The solicitor had a number of discussions with the clients about the issue, reiterating that no caveatable interest existed.
The clients then asked the solicitor to provide them with a pro forma caveat form. Accordingly on 24 May 2017 the solicitor provided them with caveat forms she had prepared which: claimed that the clients had an ‘interest as chargee’ based on an agreement with the registered proprietor of that date; sought an absolute prohibition on dealings with the property; and erroneously listed the address for notices under the caveat as the property itself not the address of the clients (this error was attributable to the LEAP system and occurred without the foreknowledge of the solicitor).
The solicitor continued to reiterate to the clients that there was no basis for the caveats.
In July 2017 the clients lodged the caveats.

The solicitor was charged with professional misconduct in that she prepared and facilitated the lodgment of erroneous and defective caveats in the knowledge that the caveators had no estate or interest in the property capable of supporting a caveat. She admitted that she facilitated this lodgment and that her conduct involved a substantial failure to reach or maintain a reasonable standard of competence and diligence which amounted to professional misconduct. (The solicitor’s explanation included that, although she acknowledged that the provision of the pro forma caveat form was improper, changes to the LEAP and caveat process now meant that a pro forma caveat form could no longer be provided to clients).

The parties agreed that a reprimand, and an order that the solicitor complete an additional three CPD units on substantive property law and ethics, was an appropriate remedy. The Tribunal imposed this penalty and also suspended the solicitor’s practising certificate for a month to be served concurrently with a suspension ordered in respect of another charge. The Tribunal stated ([10]) that this suspension was in the interests of general deterrence and to signal the seriousness of the conduct. It added ([22]) that if the matter had involved a more experienced practitioner or a higher degree of culpability, a more substantial interference with the right to practise would be have been warranted.

Philip Barton

Owen Dixon Chambers West

Tuesday, March 28, 2023

Blog 69. Claim for compensation under TLA s. 118 fails.

187 Settlement Road v Kennards Storage Management [2022] VSC 771, Gorton J., (14 December 2022)

Note: In this case Gorton J. dismissed a claim for compensation under s. 118 for alleged lodgment of a caveat “without reasonable cause”. His Honour conducted an intricate analysis of the law. In particular:

His Honour pointed out that the commonly judicially approved test for “without reasonable cause”, ie whether the caveator did not have an honest belief based on reasonable grounds that it had a caveatable interest: sat comfortably with the text of s. 118 where there was some factual uncertainty but where the legal consequences were otherwise straightforward; but did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest. In the latter case it was preferable simply to ask: was the caveat lodged “without reasonable cause”?
His Honour dealt with the situation whether, even if a caveat was lodged without reasonable cause, it was just to order compensation if there was no causal connection between the caveat and any loss, or if by the time the caveat became a source of loss there was a proper basis for its lodgment.
His Honour also dealt with the consequences, for the purposes of s. 118, of the prohibition on any dealings with the property and the claim of a freehold estate.
His Honour considered complex issues of contractual interpretation and in what circumstances a right of first refusal, ie a conditional right to purchase under the contract, gave rise to a caveatable interest.

The facts were –

187 Settlement Road Pty Ltd (187SR) was registered proprietor of land in Thomastown (the property). GDM Self Storage Group Pty Ltd (GDM) owned the self-storage business conducted there. Leslie Smith controlled both companies. Kennards Storage Management Pty Ltd (KSM) was associated with Sam Kennard.
On 1 September 2015 187SR and KSM executed an agreement with a term of 5 years commencing that day, renewable at the option of either party. Under the agreement: the “Centre” was defined to be the self-storage centre at the property and the “Business” was defined to be the operation of the Centre; 187SR agreed to develop and then maintain the Centre and KSM agreed to provide management services there and 187SR agreed to pay fees including a “performance incentive fee” if the property were sold. Clause 16, headed “First and Last Right of Refusal”, provided that during and for 2 years after the end of that agreement the Owner (ie 187SR) must not, without first making the same offer to KSM (Offer), inter alia, sell Centre or the property (cl. 16(a)). Under cl. 16(b) the Offer to sell was required to be in writing accompanied by a contract of sale specifying the purchase price, deposit, settlement date and any other material terms and KSM had 14 days to accept it. Clause 16(c) provided that: “The Owner must not … sell … the Centre except at a … price not less than and on terms and conditions not more favourable to KSM than as specified in any Offer made pursuant to sub-clauses (a) and (b) above, provided that before offering to grant on such lesser terms to another party, those terms must be first offered to KSM, so KSM has the last … right to purchase all or any part of the Property or the Centre”.
Following construction the Centre commenced operation shortly thereafter in August 2019. KSM operated the Business. However, due to complications attributable to 187SR being a trustee company, Smith and Kennard then deemed it preferable for GDM (not 187SR) to own the Business (as occurred at certain premises in Cheltenham). More particularly:
- After KSM raised the potential problem of the trusteeship the chief financial officer of KSM emailed Smith on 27 November 2019 saying: “I see the new Mgmt agreement [that is, the agreement for the premises in Cheltenham] was signed with GDM Self Storage – could we adjust the Thomastown agreement to this ABN and then we should be sorted?”
- On 2 December 2019 Smith responded: “We are OK for the TT [Thomastown] management agreement to be under GDM Self Storage as well”.
- On 12 December 2019 a financial controller at KSM emailed Smith attaching a document (“the 2019 agreement”) and saying:
  “As discussed … please find attached new management agreement for Thomastown …. This is between KSM and GDM Self Storage and this agreement supersedes the old SSAMA dated 1^st September 2015 with 187 Settlement Road. Please sign and return, thanks.”
Smith then signed and returned the 2019 agreement. This was in the same terms as the 2015 agreement (even being dated and applying from 1 September 2015) with an additional clause providing that it superseded “Self Storage Asset Management Agreement dated 1^st September 2015 between Kennards Storage Management Pty Ltd … and 187SR Pty Ltd …”. This document also provided for “performance incentive fee” if the property were sold payable by GDM, calculated by reference to the EBITDA of the business.
In late September 2020, in response to Smith’s invitation, Kennard expressed interest in purchasing the property and the Cheltenham property. Smith provided valuations, the valuation for the property being $19 m.
On 28 October Kennard emailed an offer to purchase the property for $16.2 m. The email included: “This offer is made separately to the terms of the Management Agreement and does not forfeit any rights and obligations outlined by Clause 16 of the agreement”.
On 4 November 187SR obtained a signed “offer to purchase” the property for $18.5 m. from a third party. On 5 November Smith informed Kennard of this and of his belief that the deal would be done with the third party at $19 m. and asked Kennard to consider his position. On 6 November Kennard emailed: “I guess we should revert to the mechanism in the Management Agreement”.
On 6 November Smith signed and returned the offer to purchase to the third party, altering the price to $19 m., but stating that it was subject to his obligations to Kennard or KSM.
On 9 November Smith informed Kennard that he had received an offer at $19 m., that he had instructed solicitors to prepare contracts, and asked Kennard to advise his position. Kennard replied, saying: “Thanks Les. Send it to us when its ready.”
On 10 November Kennard advised Smith that his company would not buy the Cheltenham property.
On 13 November Kennard instructed his solicitors to caveat over the property, leaving it to them to prepare the caveat documentation. The solicitors lodged a caveat by KSM prohibiting registration of any dealings with the property and claiming a “Freehold Estate”.
On 8 December Smith emailed Kennard that the third party had now also offered to purchase the Cheltenham property, also advising the gross offer for both properties, and stating “It is extremely important to the company to deal with both assets ….”, and “please advise what you would like to do in regards both properties”.
On 10 December Kennard sought the sale contract for both properties and stated
“We should follow the process agreed and in accordance with the Right of Refusal outlined in the management agreement. …”
Smith did not provide to any contract to Kennard but on 23 December 187SR and GDM respectively agreed to sell the property and Business to the third party.
On 24 December Smith asked Kennard to remove the caveat. KSM alleged that it was a willing buyer for the property at $19m. and sought a written offer from 187SR in accordance with the 2015 agreement. Dispute then arose about whether 187SR was required to make this offer, or whether any offer would require KSM to purchase both properties. Then contracts were provided by 187SR and GDM, KSM raised whether it was being offered terms identical to those offered to the third party, KSM purported to accept the offers, argument erupted over whether acceptance was too late, and on 10 February KSM removed the caveat. The sale to third party was completed on 19 February 2021.
187SR sued KSM claiming compensation under the Transfer of Land Act s. 118. It contended that the caveat was lodged without reasonable cause and delayed the completion of the sale to the third party giving rise to additional amounts it had to pay to its financier.

The Transfer of Land Act s. 118 provided:

Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.

KSM contended that because the “first and last right of refusal” granted by 187SR in the 2015 agreement was expressed to apply for 2 years after its end, it remained operative in 2020, because the 2015 agreement was only superseded by the 2019 agreement in December 2019, thereby giving it a caveatable interest.

His Honour accepted Kennard’s evidence that he believed that KSM had a right of first refusal and that it had not been complied with.

GDM paid to KSM, under sufferance, the performance incentive fee claimed by KSM. This did not account for rent payable by GDM to 187SR, but if this rent was to be taken into account in determining the EBITDA, then no performance incentive fee was payable. GDM sued KSM for return of the performance incentive fee. The proceedings were heard together.

Gorton J. dismissed the application under s. 118 and ordered the return of the performance incentive fee, holding –

Smith was acting on behalf of both 187SR and GDM when he participated in the exchanges preceding the 2019 agreement. Conceptually, these communications, together with the signing of the 2019 agreement and the subsequent management of the Business by KSM, revealed that an agreement was reached that included Smith on behalf of 187SR agreeing that the 2015 agreement would be wholly discharged and replaced by the 2019 agreement. This conclusion was compelled by: the change in the entity that was to own the business; the communications preceding the 2019 agreement; the text of the 2019 agreement, in particular the expression that it “supersedes” the 2015 agreement and the backdating of the 2019 agreement to 1 September 2015 and expressing that it was to commence from that date. [15], [20], [21]
Accordingly from the time of execution of the 2019 agreement the parties were discharged from all obligations under the 2015 agreement, including any obligations imposed on 187SR by the 2015 agreement expressed to survive its termination. [20]-[22]
Accordingly, although as at December 2020 GDM was obliged to give KSM a “first and last right of refusal” if it wished to sell the business, 187SR was not so obliged as regards sale of the property, whereby KSM did not have a caveatable interest. [23], [24]
The test whether the caveat was lodged “without reasonable cause” within the meaning of s. 118 was often re-expressed as whether the caveator did not have an honest belief, based on reasonable grounds, that it had a caveatable interest. The re-expressed test sat comfortably with the text of s. 118 where, although there was some factual uncertainty, the legal consequences were otherwise straightforward. However, it sat less comfortably where there was, as here, a complex legal dispute as to whether a first and last right of refusal, that the parties believed existed, was legally sufficient to give rise to a caveatable interest: it did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest. If the caveator believed that he or she probably had a caveatable interest, but recognised that the position was uncertain, was that an honest belief in a caveatable interest? In these circumstances, it was preferable to return to the text of the statute: was the caveat lodged “without reasonable cause”? The fact that a caveat might be lodged with reasonable cause yet to protect an uncertain interest was apparent from previous authority. [25], [28], [29]
Both parties believed that there was a contractual right of first refusal exercisable against 187SR, and through Smith 187SR incorrectly believed that it had complied with its obligations. [26], [27], [32]-[34], [37]
If, however, contrary to his Honour’s view but nonetheless believed to be so by the parties, 187SR had still contractually been bound to make KSM an offer of first refusal, this right would not per se give rise to an equitable interest because it did not, of itself, give the holder the right to call for a conveyance. No interest would arise if the owner was still absolutely free to sell or not. [39]
However, if a right of first refusal was expressed in positive terms that applied when a contingency was satisfied, then equity would ordinarily intervene once the contingency was satisfied. 187SR’s argument that cl. 16 of the 2015 agreement did not impose a positive obligation on it, on the satisfaction of a contingency, to make an offer to KSM, but merely prevented it from selling to anyone else unless it first made an offer to KSM, had force but the position was not without difficulty. It was, at least, well arguable that if 187SR were to make an offer to sell the property, then it was positively obliged to make an offer on those terms also to KSM. It was at least arguable that by signing the 6 November 2020 offer and manifesting a clear intention to sell the property on those terms, or by signing the 23 December 2020 agreements, both in circumstances where 187SR had informed the third party that KSM had a right of first refusal, 187SR fell under an enforceable contractual obligation to make an offer in those terms to KSM. On balance, if the 2015 agreement had applied, a court probably would have ordered 187SR to offer to sell the properties to KSM on the terms contained in the 23 December 2020 intertwined agreements. However, the matter was not straightforward. [27], [39], [40], [42]-[46]
For the reasons set out above, by the time the caveat was lodged, having regard to the complexity of the legal argument as to whether cl. 16 would give rise to a caveatable interest, his Honour was not satisfied that KSM lodged the caveat without reasonable cause. It had reasonable cause. [47], [48], [52]
Not detracting from this conclusion was that the caveat precluded all dealings with the property and claimed a freehold interest. If KSM was entitled to lodge a caveat, it was entitled to lodge one that precluded any dealings. As to claiming a “freehold estate”, the right that KSM was asserting was the equitable right to obtain the freehold on a sale, and although perhaps it would have been more precise to claim a conditional right to purchase under the contract, this imprecision was insufficient to establish lack of reasonable cause. [49]
Although it may be correct, as the caveat was lodged by KSM’s solicitors, to consider that KSM’s solicitors’ mind that was the mind of KSM for the purpose of determining reasonable grounds, even so, and even on the basis that the person preparing and lodging the document had legal training, the caveat was not lodged without reasonable cause. [50]
Further, even if the interest asserted or wording used in the caveat rendered the caveat not lodged with reasonable cause, it would not be “just” to award 187SR any compensation unless it could be shown that this assertion or use caused any loss that would not have been caused anyway if the “right” interest were asserted or wording was used. This was not proved. [50], [65]
The caveat was also not lodged prematurely. But in any event, by the time that the caveat interfered with 187SR’s intentions and, as 187SR alleged caused it loss, 187SR had signed the offers. In reality, it was probably the maintenance of a caveat at a time when someone tried to register an instrument that caused loss, rather than the “lodging” of the caveat. In any event, it would not be “just” for the purposes of s. 118 to order that a party pay compensation because a caveat was lodged prematurely if, by the time the caveat became a source of loss, there was a proper basis for its lodgement. [51], [65]
Accordingly, 187SR’s claim for compensation under s. 118 failed. But, if this was incorrect, the process of determining compensation involved two steps: first to ascertain a date by which, but for the caveat, the sale of the business would have been completed; second to ascertain what loss KSM suffered, if any, by reason of the delay between that date and 19 February 2021 being the date of completion of the sale. If there had been no caveat settlement would have taken place by 22 January 2021 and the loss from delay would have been $274,658 being the increased amount that 187SR had to pay to its financier. [52]-[54], [60], [63], [64]
GDM was entitled to return of the “performance incentive fee” because it was not payable under the terms of the 2019 agreement. [79]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, March 22, 2023

Blog 68. Court of Appeal allows appeal by caveator on ground of arguable contract of sale.

Ek v Red Eagle International Pty Ltd (atf Chunan Bai Hybrid Unit Trust) [2022] VSCA 254, Niall and Kennedy JJA., (18 November 2022)

The facts were –

The respondent (Red Eagle) was registered proprietor of three adjoining buildings at 7 – 13 Carrington Road, Box Hill (the Properties). Ms Cherry Pai was a director of Red Eagle. In 2021 and early 2022 she negotiated with the applicant (Jade) concerning their sale. Jade received a draft contract of sale and s. 32 Statement. She later paid $3,000 to Red Eagle.
At a meeting between Cherry and Jade on 14 June 2022 a price of $12.15 m. was proposed and a ‘particulars of sale’ page was used to write down the discussion. Jade subsequently texted Cherry a photo of the completed particulars which included that price and a handwritten amendment by Jade of the address, from ‘7 – 13 Carrington Road Box Hill’ to ‘7 – 15 Carrington Road, Box Hill’ (the ‘first particulars’). However, Cherry subsequently explained that shop 15 was not on the title and so not for sale.
On 9 July 2022 Jade and Cherry met at Jade’s dental clinic. Notwithstanding conflicting evidence of what occurred at this meeting it was undisputed that a revised ‘particulars of sale’ dated 9 July 2022 (the ‘9 July Particulars’) came into existence. This recorded the following, with two handwritten notes (denoted NB)–
Vendor: Red Eagle International Pty Ltd
Purchaser: Jade Ek & or Nominee
Street Address: 7 – 13 15 Carrington Road Box Hill 3128
Purchase price: $11,850,000.00
Deposit: $355,500.00 3 – 5% or ($592,500 @ 5%)
Balance: $11,494,500.00 (9 – 12 months)
N/B 3 – 5% Due 10/10/2022
N/B On Market Value 2 yrs after settlement if Property appreciate (Jade) will give 300k

The amounts recorded for price, deposit and the balance were in Jade’s handwriting over whiteout. Jade’s initials also appeared proximate to the entries of purchaser, street address, ‘3 – 5%’, and the notes. At its bottom Jade’s signature appeared next to the Chinese characters for ‘purchaser’ (next to a date of 9 July 2022) and Cherry’s signature appeared next to the Chinese characters for ‘vendor’.

On 9 July Jade made a further payment of $12,500 to Cherry, and ultimately paid a total of $45,500 between June and 1 August (which she asserted was part payment of the deposit).
On 24 July 2022 Red Eagle entered into a contract of sale of the Properties with a new purchaser, Jun Chen, with settlement on 24 October 2022. Cherry gave evidence that a 10% deposit was paid. That contract was not in evidence, nor did Jun Chen give evidence.
On 2 August 2022 Jade caveated relying on an agreement with the registered proprietor dated 9 July 2022.
In September the net deposit paid by Jun Chen was released to Red Eagle and it used $62,750 of it to pay consulting fees related to the sale to Jun Chen.
Red Eagle applied to the County Court under the Transfer of Land Act s. 90(3) for removal of the caveat. Cherry deposed that: at the 9 July meeting she and her husband insisted on a price of $12.15 m.; ‘we signed’ at the bottom of the first particulars of sale next to the Chinese character meaning vendor (which showed her intention to sell at $12.15 m.) and Jade signed the bottom of the page next to the Chinese character for purchaser; Jade then took the signed document back to her office and amended it in handwriting including the price and the deposit, then initialled the changes, and added the handwritten notes; after this Jade presented the amended page to Cherry who refused the amendments.
Jade deposed that while she was initially prepared to pay $12.15 m., this altered on realizing that Red Eagle could not sell 15 Carrington Road. She deposed that: on 9 July she met with Cherry and Cherry’s husband; Jade said to Cherry that she was initially prepared to offer $12.15 m. for “the Carrington Properties” but that after discussions with her son, who was investing with her, we would only pay $11.85 m.; Cherry asked if she would consider paying her $300,000 if the Carrington Properties increased in value of at least that amount, to which Jade agreed; Cherry wanted Jade to sign that day; she told Cherry they could meet again later to sign a clean copy as the copy Jade had contained her previous offer; Jade then remembered she had electronic access to the one page she had sent to Cherry previously by sms, and so they went to her office and arranged for her staff to print it out; Cherry whited out the details and asked Jade to complete the price and other details, which she did except for the Chinese writing appearing at the bottom, which was done by Cherry; she asked Cherry what that writing was and she said it was “buyer” and “seller”; Jade signed where the buyer appeared and wrote the date “9/7/2022”; Cherry signed where the seller appeared; Jade believed that they had reached a concluded agreement.
Jade undertook to the court to pay 5% of $11.85 m. (in addition to amounts already paid).
On 21 October a County Court judge ordered Jade to remove the caveat by 4 November. The judge reasoned inter alia: she reached her conclusion on a consideration of the particulars of sale, and so was not required to resolve disputed facts or matters of credit; the indicia of objective intention available from a consideration of the face of the particulars of sale did not support the argument that the parties intended the document to be a binding contract; these indicia included the absence of Cherry’s initials, including against changes to the price and deposit; at trial the caveator would have to establish that the amendments were agreed to by Red Eagle and in view of this lack of initialling Jade’s prima facie case in this regard was weak; the submission that it was left to the purchaser to decide whether to pay a deposit of 3%, 4%, 5% or something in between was not supported on the face of the document – there was nothing to indicate at whose election the amount of the deposit within that range can be decided – so the prima facie case on certainty in this regard was weak; as to the time for payment of the balance of price, a range was provided but without indication of who decided when; she rejected the contention that the terms were agreed but it was simply that the mechanism was not; it was objectively apparent from the existence of unresolved matters on the face of the document that the argument that the document was a final enforceable agreement was weak.
Jade filed an application for leave to appeal. Her proposed grounds included first that the judge erred in finding that her prima facie case of an interest in land arising from an enforceable contract of sale was weak. The particulars of this ground included that the judge erred by considering that the strength of the prima facie case was diminished by: (a) the term specifying the deposit as 3–5% of the price; (b) the term fixing settlement as 9 – 12 months after entry into the contract; (e) the fact that handwritten notations on the agreement had only been initialled by the purchaser and not on behalf of the vendor.
The Court of Appeal stayed the County Court order.

The Court of Appeal gave leave to appeal, allowed the appeal and dismissed the application under s. 90(3), holding –

Because the court’s power under s. 90(3) was discretionary an applicant for leave to appeal against an exercise of that discretion must establish an error of the kind identified in House v The King (1936) 55 CLR 499. [22]
The critical issue was whether the parties signed the 9 July Particulars (which include a revised price of $11.85 m.) or the (earlier) first particulars. This could only be resolved at trial. [16]
The judge hearing the caveat removal application was not required to consider that a trial judge might consider the absence of Cherry’s initials in determining whether Cherry had really executed the 9 July Particulars. Not only was this not required, it was ordinarily inappropriate for a judge to enter into resolution of the underlying factual dispute on this sort of application, particularly where this turned on findings on credit of witnesses. Accordingly, the judge was not in a position to assess the key issue of whether the parties signed the 9 July Particulars or the first particulars. The judge had endeavoured to reach a finding about the strength of the key issue in the case and in so doing had considered the absence of Cherry’s initials without regard to the other evidence. [25]-[26]
Even if the judge was in a position to assess the merits of the key issue, there could be no assessment on a prima facie basis, or otherwise, by only having regard to one isolated piece of evidence. The judge thereby erred in her treatment of the evidence that the 9 July Particulars had only been initialled by the purchaser. [27]
The judge’s reasoning that the ranges for the deposit (3% – 5%) and settlement date (9 – 12 months) meant that the prima facie case on certainty was ‘weak’, because there were ‘unresolved matters’, was also flawed. A contract was only uncertain if the court could not put any definite meaning on it. The objection that one party was left to choose whether to perform a contract was distinguishable from the situation where the contract gave one party choice of or discretion in the manner of performance. The identification of the person given the choice to determine the figure within the range specified for the deposit or time of settlement was capable of resolution, consistent with the general approach of upholding contracts: there was authority, for example, that it is the promisor who usually had the right to elect which of the methods of performance to choose (although this may need modification as regards time for settlement, given this depended on mutual obligations). Issues of contractual construction of the 9 July Particulars were ultimately to be determined by the trial judge, but this said nothing about whether the 9 July Particulars gave rise to a binding contract in the first place. [28], [29], [33], [34]
Each of the absence of Cherry’s initials and the specification of the deposit and time of settlement ranges played a significant, if not determinative, role in the judge’s assessment of the prima facie case. They also affected the judge’s assessment of the balance of convenience. Accordingly grounds 1(a), (b) and (e) were sustained. [36]-[37]
Given the urgency of the case and the Court of Appeal having before it the evidence and submissions that were before the judge, it was appropriate for the Court to exercise afresh the discretion under s. 90(3). [39]
For the reasons given in holding number 5 Red Eagle’s submissions concerning failure to agree on the deposit and settlement date were unmeritorious. Also unmeritorious was its submission that there was a failure to agree on the mechanism for determining market value to ascertain whether the additional $300,000 was payable. Courts were routinely called upon to determine the market value of properties and would readily supply machinery when parties failed to state the basis for determining value. [40]-[41]
As to any argument about reliance on material which post-dated the contract, post-contractual conduct could in limited circumstances be admissible on whether the parties intended a contract to be binding. There was conflicting material which could only be tested at trial. [42]
In summation, the 9 July Particulars raised a serious question to be tried of whether Jade had the interest claimed. [43]
The balance of convenience favoured maintenance of the caveat having regard to: evidence that available properties of this nature in this location were very rare; evidence of Jade’s business needs; an assessment of the interests of the other purchaser; the vendor dissipating part of the released deposit to third parties (to which Jade’s undertaking as to damages was relevant); Jade’s undertaking to pay an amount equal to 5% of $11.85 m. and to prosecute a proceeding for specific performance. [44], [45], [47], [48]
Accordingly, although the matter was finely balanced, the lower risk of injustice was to maintain the caveat. [49]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, March 14, 2023

Author: Philip Barton

Blog 77. No prima facie case of a contract of sale.

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Blog 76. A collection of claims, none amounting to a caveatable interest.

SJM v PMD & Anor [2023] VSC 349, Daly AsJ.

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Blog 75. Masters v Cameron

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Blog 74. Leave to appeal against Blog 65 refused

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Blog 73. Appeal against Blog 63 allowed.

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Blog 72. Caveat lapses under Section 89A(5) but caveator obtains injunction

Luna v V & A Luna Pty Ltd & Anor [2023] VSC 126 (22 March 2023), Derham AsJ.

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Blog 71. Caveat based on alleged Baumgartner constructive trust fails.

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Blog 70. Solicitor disciplined concerning caveat – is lodgment of improper and baseless caveats by legal practitioners endemic?

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Blog 69. Claim for compensation under TLA s. 118 fails.

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Blog 68. Court of Appeal allows appeal by caveator on ground of arguable contract of sale.

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SJM v PMD & Anor [2023] VSC 349, Daly AsJ.

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Luna v V & A Luna Pty Ltd & Anor [2023] VSC 126 (22 March 2023), Derham AsJ.

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