Blog 56. No contract of sale, no caveatable interest – Undertaking as to damages?

Wright & Ors v Insert Pty Ltd & Ors [2022] VSC 1, M. Osborne J (11 January 2022)

In this case M. Osborne J. comprehensively dispatched a caveat based on an alleged contract of sale.  His Honour’s thorough reasoning was: no arguable case of a contract (Holdings 1 – 3); non – compliance with s. 126 of the Instruments Act (Holding 4); no part performance (Holding 5); no estoppel (Holding 6); even if there was a prima facie case of an enforceable contract, there was not a prima facie case that a court would grant specific performance of that contract, because the vendors had, after the alleged contract with the caveator, entered a contract with an innocent purchaser, and the caveator arguably would have lost priority to that innocent purchaser (Holdings 7, 8, 10); the caveator would not have been defeated by the doctrine of laches (Holding 9); if the caveator had established a sufficient prima facie case the court would, in assessing the balance of convenience, have required an undertaking as to damages of substance (Holding 11); in any event the caveator failed on the balance of convenience (Holding 12).

This case is interesting for two reasons.  First, where there is no prima facie case of a contract of sale, a court will normally cease its analysis at this point.  M. Osborne J. went further, stating ([87])–

“It is also something of an oversimplification to characterise the critical question as whether the Purchaser has a prima facie case that it has an enforceable contract of sale; in fact, the Purchaser must establish that it has a prima facie case that it has an enforceable contract of sale in respect of which the Court will order specific performance.

The second interesting point is that, if the balance of convenience had been decisive, his Honour would have required, as part of the caveator attaining a credit balance, an undertaking as to damages.  As part of the exercise of judicial discretion the court can require such an undertaking from a caveator – his Honour notes this in footnote 22 of his judgment.  However, whereas undertakings as to damages are universally required from applicants for interlocutory injunctions, they are uncommon in caveat cases.  In Boensch v Pascoe [2019] HCA 49, the subject of Blog 29, the plurality of the High Court noted that, although a caveat was conceived as “a statutory injunction to keep the property in statu quo until [the caveator’s] title shall have been fully investigated”, unlike an application for interlocutory injunction it did not at least in the first place have to be supported by an undertaking as to damages.

 Footnote 22 to M. Osborne J.’s judgment continues that “invariably such an undertaking is required” citing a 1995 text and Harvey v Emery [2021] VSC 153.  That this statement is limited to where there are third party rights is elucidated by the following passage in Harvey v Emery (the subject of Blog 36) at [48] –

“Thirdly, neither by their affidavit, nor their submissions, did the defendants offer any undertaking as to damages, notwithstanding that such an undertaking is invariably required when a caveator is permitted to maintain a caveat in circumstances where third party rights will be detrimentally affected.”

In the instant case the facts were –

  • The four plaintiffs were the registered proprietors of a residential property.  The sole director of the first defendant (Insert) was Shaw.  In 2020 the plaintiffs entered into a contract of sale with Shaw.  He did not pay the balance of purchase monies, the vendors rescinded in July/August 2021 and the deposit was forfeited.
  • Although the vendors had an estate agent, one vendor, Nicholas Wright (Wright), continued with their authority to negotiate directly with Shaw, generating a proposed sale with settlement on 4 October 2021.  However, between 1 and 4 October Wright requested Shaw to do various things, with little response.
  • On 7 October Wright texted Shaw asking whether he was in or out and that a sale could occur possibly that day.  Shaw replied within 30 minutes ‘In’.  Some hours later Wright texted that he was taking it that Shaw was out “unless I get a commitment today”.  A conversation then occurred in which Shaw assured Wright that he was serious about purchasing and had finance, to which Wright responded that there was no contract until a deposit was paid and a contract signed.
  • At 3:50pm on 7 October a conveyancing clerk (the conveyancer), associated with the solicitors acting for Insert and Shaw, emailed the vendors’ solicitor stating her understanding that the clients had been communicating, that the purchase by Shaw was to proceed, and requesting that the vendors’ solicitor advise his clients’ instructions.
  • On 8 October at 6.51pm the vendors’ solicitor emailed in substance that: no contract existed but his client would enter a new contract if put in the same position as if the previous contract had been substantially performed; a draft contract and vendor statement prepared by him could be downloaded from the internet; ‘Our client is prepared to consider entering into a contract with your client on the following terms’ then setting out a price of $4,838,500 and how it was calculated, the deposit and when payable, settlement date, and that a director’s guarantee was required; and ‘this email is not an offer capable of acceptance’.
  • Between 11 and 22 October the parties communicated, including as to clarification of the email of 8 October and communication between Shaw and his financier (the financier).   On 19 October the financier offered a 6 month loan of $3,881,250 subject to verification by it and due diligence.
  • Shaw deposed that on 25 October he stated to Wright that Insert accepted the terms contained in the 8 October email, that the purchase would proceed on that basis, and that Wright agreed that if the financier accepted those terms the financier would issue a PEXA invitation for settlement on 28 October.
  • Shaw also deposed that later on 25 October the financier informed him that it would fund the purchase on the terms of the 8 October email.  He also deposed that later that day he informed Wright that the financier had confirmed finance, and Wright replied that if a PEXA settlement appointment was not set up that day he would sell to someone else next day, and in consequence he (Shaw) requested the financier to open a PEXA transaction that day for settlement on 28 October.  (In fact a PEXA workspace was established on 26 October by Insert’s lawyers).  Wright deposed that he had one telephone discussion with Shaw that day in which Shaw promised that a PEXA transaction would be set up, but he denied that he agreed to sell the property to Shaw in the event that the financier accepted the terms and he denied that Shaw said that a PEXA workspace would be set up for settlement on 28 October.
  • On 25 October, after emails about the terms of any contract, the conveyancer at 3:33pm advised that Shaw was agreeable to proceed on the terms set out in the 8 October email, and she sought a written contract and vendor statement.  At 4:21pm the vendors’ solicitor replied asking when Shaw proposed to settle, noting that the proposed settlement date in the 8 October email was that very day.  The email also stated the solicitor’s statement of the process to be followed, including that he would provide a contract of sale once the details of Shaw’s proposal were confirmed, and that on receipt of the signed contract and a 5% deposit he would submit the ‘offer’ to his client, and that a contract would be formed when he returned the fully signed contract to the conveyancer by way of exchange.
  • On 27 October Insert executed a mortgage to the financier and a PEXA invitation was given for a settlement proposed for 28 October.  The vendors’ solicitor did not accept the invitation and on 27 October advised that the vendors had signed a contract of sale with a third party.  This contract was due for settlement on 17 January 2022.
  • On 28 October Insert caveated on the ground that it had an interest as purchaser pursuant to a contract dated 25 October.
  • Following an application by the vendors under Transfer of Land Act s. 89A(1) Insert commenced, but did not serve, a County Court proceeding seeking a declaration that it had an equitable interest in the property under a contract of sale.  The vendors commenced a proceeding under s. 90(3).

Although the caveat stated that the contract was made on 25 October counsel for the caveator argued that it was made on 7 October 2021.

The vendors deposed that the extent of authority given by them to Wright was to negotiate on their behalf, not to bind them to sell.  The caveator argued that any non-compliance with the Instruments Act s. 126 was overcome by part performance, namely: it executing the mortgage to the financier; it incurring liability to pay the financier $330,878 for fees and prepaid interest; and the opening of the PEXA transaction workspace.

Shaw deposed that if he did not obtain specific performance he would lose the ability to make a profit of $4.2m. in developing the land.

M. Osborne AsJ held –

  1. No contract was made on 7 October 2021.  At its highest, Shaw’s evidence that he was ‘in’ evidenced that he wanted to purchase.  To determine whether an agreement had been reached it was permissible to have regard to subsequent communications: those post 7 October were all inconsistent with such an agreement – in particular the conveyancer’s emails of 11 and 25 October and the caveat itself. [73]
  2. The email chain did not evidence a contract made on 25 October, and in fact contradicted it, particularly the emails of 8 October at 6:51pm and 25 October at 3:33pm and 4:21pm. [70]
  3. As to Shaw’s evidence that, notwithstanding these emails, by their conversations on 25 October he and Wright agreed on a sale for $4,838,500, with no deposit, and with settlement on 28 October subject to the financier agreeing to finance the purchase on the terms of the 8 October 2021 email:
    1. although on an interlocutory application the court would not definitively reject this evidence yet an assessment of it was relevant to whether there was a prima facie case;
    2. in this regard Shaw’s evidence was: disputed by Wright’s evidence; in disconformity or inconsistent with emails that day; uncorroborated in any significant way by contemporaneous documentary evidence; not adverted to by Insert’s solicitors in their email of 29 October; and entailed (notwithstanding Shaw having defaulted under the 2020 contract) Wright agreeing to sell subject to a condition wholly for Shaw’s benefit, which was then satisfied by establishment of a PEXA settlement appointment three days later with no deposit or signed contract, with the consequence that the property was taken off the market despite negotiations with other purchasers. [71]
  4. Even if there was an agreement, s. 126 of the Instruments Act was not complied with.  Even if (which the court did not decide) the co-vendors had cloaked Wright with ostensible authority to bind them to sell on terms negotiated by him, this was not in writing and so did not comply with s. 126. [75]-[77]
  5. Non – compliance with s. 126 was not in this case overcome by part performance.   The doctrine of part performance permitted enforcement of an oral contract where there were acts undertaken which of their own nature were unequivocally referable to a contract of the kind alleged.  Such acts must be such as to change the relative positions of the parties in relation to the subject matter of the contract.   Each act relied on here, particularly the mortgage and opening of the workspace, was a unilateral act of the supposed purchaser, readily explicable as preparatory to the making of an agreement and not changing the purchaser’s relative position to the property.  It was also difficult, the loan not having been drawn down, to accept that Insert had incurred a liability of $330,878.  The evidence at most suggested possible payment of a non-refundable application fee of $5,000. [78], [79], [81]-[83]
  6. For related reasons the purchaser’s argument that the vendors were estopped from denying the enforceability of the alleged contract was rejected.  Even on the most favourable view of the evidence for the purchaser, there was no clear and unequivocal representation that a legally binding contract of sale existed, no detrimental reliance (unless, of which the court was not satisfied, substantial fees had been incurred to the financier), and no evidence of the vendors knowing that such fees were being incurred on the faith of a representation by them.  Moreover, the period of any detrimental reliance was two days at most, such that the equity said to arise was wholly disproportionate to the minimum equity necessary to ameliorate the detrimental reliance. [84]-[86]
  7. It was an oversimplification to characterise the critical question as whether the purchaser had a prima facie case of an enforceable contract of sale of land: it must establish such a case in respect of which the court would order specific performance.  Ordinarily such a prima facie case sufficed to establish a prima facie case for specific performance, land being of a sufficiently unique character as to make damages an inadequate remedy, even land purchased as part of the business of a property developer. [87], [89]
  8. However, here the basic position (set out in the holding 7) was complicated by the third party contract, rendering this in essence a priority dispute between Insert and that purchaser (there being no evidence of that purchaser having notice of any interest of Insert’s in the land).  As to this –
    1. priority was accorded to the competing equitable interest created first in time, save where conduct by the holder of the prior interest rendered this inequitable;
    2. the failure to lodge a caveat may in certain circumstances constitute postponing conduct;
    3. although Insert alleged that the contract was made on 7 or 25 October, the caveat was not lodged until 28 October, being the day after the third party contract, and from 7 October onwards not only, while knowing that vendor’s agent was negotiating with other parties from at least 4 October, did Insert fail to assert that it had an enforceable agreement, the solicitors’ communications were to the contrary effect.  If Insert had made this assertion there was every reason to believe that the vendors would not have entered into the third party contract.  There might therefore have been considerable force in the proposition that any interest of Insert was postponed to that of the third party, in which case, specific performance would not have been ordered. [90]-[93]
  9. Further, the doctrine of laches required that those seeking equitable remedies, such as specific performance, use due diligence, where on notice or otherwise knowing that prejudice could arise to a defendant or third party if the claim was not pursued.  However, mere delay not occasioning prejudice was insufficient.  Any prejudice here was most likely to have occurred in the periods from 7 October onwards and from 25 October onwards.   Accordingly, the delay in initiating legal proceedings and prosecuting the claim for specific performance was insufficient to establish laches (but was relevant to the balance of convenience). [94]-[96]
  10. For the foregoing reasons, the caveator had not established a prima facie case of the existence of a legally enforceable agreement for sale with sufficient likelihood of specific performance to justify the maintenance of the caveat and the preservation of the status quo pending trial. [97], [105]
  11. In assessing the balance of convenience, had the court been minded to maintain the caveat this would have only been on the basis of an undertaking as to damages of substance, ie by Shaw not Insert. [99]
  12. Even if the caveator had established a prima facie case it would have failed on the balance of convenience because:  Shaw was open to a monetary solution; Insert’s pursuit of the claim for specific performance was marked by lack of urgency; Insert could sue for damages.  This was particularly so when assessed in light of the weakness of Insert’s claim and (as the effect of not removing the caveat would be to equivalent to enjoining the vendors from settling the third party contract) interference with the third party’s rights. [96], [100]-[105]

   Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, May 25, 2022

 

Blog 47.  No contract of sale – No caveatable interest

In Hazelwood v Mercurio & Ors [2021] VSC 362 (22 June 2021) Daly AsJ –

  • primarily deals with an agent lacking authority to conclude a binding contract on behalf of a vendor (similar to the lack of authority of a solicitor: Leahy v Javni [2020] VSC 680 at [122]);
  • notes that, if a document existed whereby the vendor expressly authorised the agent to execute the contract on her behalf, it would be a breach of the Civil Procedure Act not to disclose it;
  • distinguishes English authority on whether an exchange of emails can comply with the Statute of Frauds;
  • held that if the caveators had established a binding contract the balance of convenience would have favoured them;
  • stayed the removal of caveat for 7 days to enable the caveators to apply for an injunction restraining completion of a further sale based on an alleged estoppel.

The facts were –

  • The plaintiff vendor gave an Exclusive Sale Authority to an agent (whose employee was Campbell) to market an apartment and two separately titled car parking spaces in the Melbourne CBD.  The Authority provided that the agent would advertise, market and sell the property and that “sold” meant (in normal circumstances) “the result of obtaining a binding offer”.  Clause 13 also authorised the agent to –
    • instruct a legal practitioner or conveyancer to prepare a section 32 statement, contract of sale, agree the content of either document and advise and agree on other amendments or additions to either document;
    • fill-up a standard form contract or contract to record the sale as permitted by statute;
    • negotiate and, with the vendor’s approval, agree and record, or have the legal practitioner or conveyancer record, the final terms of, and obtain signatures to, the contract;
    • attend to contract exchange; receive the price and certain advice or notices; and make public certain information.
  • The caveators deposed that on about 11 February they made an unconditional offer to purchase the apartment and one car space for $750,000, with settlement within seven days. Campbell deposed that caveators imposed a very short deadline on the offer and that he conveyed it to the vendor.
  • The caveators deposed that on 16 February Campbell said that he had found a purchaser for the other space and that the vendor had accepted their offer.  Campbell disputed this, deposing that although he could not remember his exact words he had no intention of conveying that a sale had been completed until signing of a written agreement. 
  • The vendor deposed that Campbell told her that he had located a potential purchaser of the apartment and one car space and another purchaser of the second space, and that she instructed him to amend the documents accordingly.    
  • On 18 February Campbell emailed the caveators: stating that if they could “confirm the below points for me” he would start the paperwork.  The points were: whether they had a conveyancer; their full names and address; price $750,000 with a 10% deposit; as to time for settlement; solicitors’ details.  The email concluded: “New paperwork is getting drawn up at our end so nothing for you to do at this stage”.
  • The caveators provided full names, address, lawyer’s details, and stated that settlement would be on 12 March.  
  • On 24 February Campbell emailed an unsigned section 32 statement and contract.  His email stated that he had just received these documents and not yet reviewed them “so let me know any questions you have and I’ll work through them”.   The unsigned contract named the vendor, referred to the apartment and to particulars of title of one space, but omitted purchasers’ names, price and settlement date.  When a caveator queried this Campbell replied that he had “just hit send as soon as I received and so you could have your people quickly review it before signing”.
  • On being informed by Campbell that someone else had purchased the apartment and both spaces the defendants on 2 March caveated on the grounds of a “part performed oral agreement” with the plaintiff.   On 4 March this contract was executed.  The vendor issued a notice under s. 89A of the Transfer of Land Act (TLA), leading to the caveators issuing a Proceeding with a Statement of Claim.  The vendor issued this proceeding under s. 90(3).  Campbell deposed that on average more than ten apartments in the building would be marketed and sold in any year.

The Victorian Statute of Frauds provision, contained in the Instruments Act s. 126, provides that –

“An action must not be brought to charge a person … upon a contract for the sale … of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is 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”.

In their Statement of Claim the caveators alleged, in the alternative to breach of contract, that the vendor represented that she would sell the apartment to them, such that she was estopped from resiling from that representation. 

Daly AsJ held –

  1. Accepting, for present purposes at least, that –
    • to comply with s. 126 a contract of sale need not be contained in a single, self-contained document; [33]
    • a sender of an email, by identifying themselves as the sender, can be considered to have “signed” the email; [33]
    • section 126 should be construed as to accommodate “accepted contemporary business practices”; [34]

nonetheless, the vendor had not signed anything.  The only signatory was Campbell, who was authorised to market the apartment but not to enter a contract on behalf of the vendor.  In the Authority there was a material difference between the definition of “sell” and the phrase “endeavour to sell”.  More importantly, cl. 13 did not authorise the agent to sign any contract on behalf of the vendor, but contemplated personal execution by the vendor and purchaser. [35]-[39]

  1. What was stated in the foregoing holding was based on the non-existence of a document in which the vendor not only confirmed her acceptance of the caveators’ offer but also expressly authorised the agent to execute the contract on her behalf. If such a document existed, it should have been disclosed by the vendor in accordance with s. 26 of the Civil Procedure Act headed “Overarching obligation to disclose existence of documents”. [46]
  2. The English decision in Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltdas to whether an exchange of emails between parties to a negotiation can constitute an agreement in writing for the purpose of the Statute of Frauds, was distinguishable.  There was a material difference between English and Victorian legislation. [40]-[44]
  3. If it had been necessary to consider the balance of convenience, this would have favoured the caveators because:
    • notwithstanding Campbell’s evidence that the sale of properties equivalent to the apartment was not rare, this apartment was particularly suitable to the caveators’ needs;
    • while the vendor not unreasonably considered that, absent an executed contract, she was free to deal with the apartment, and was now exposed to claims by the new purchaser, she entered this contract knowing that the caveators asserted that they had a contract with her and so she assumed the risk of this being established. [47]
  1. The caveators had not argued that their estoppel claim created an immediate equitable interest supporting a caveat. However this estoppel claim might found injunctive relief.  Accordingly the order for removal of the caveat would be stayed for 7 days to enable the caveators to apply for an injunction as they may be advised. [24], [48] – [50]

Philip H. Barton

Owen Dixon Chambers West

Friday, September 17, 2021

30. Vendors agreeing to extend settlement date through act of agent with actual or ostensible authority – Not a formal variation of contract of sale required to comply with Instruments Act s. 126 but a waiver or estoppel – However caveator by withdrawing previous caveat had elected not to sue for specific performance but only to claim damages or was estopped from asserting the contrary – Caveat removed.

Chan & Anor v Liu & Anor [2020] VSCA 28 (25 February 2020) was a successful appeal from a decision of Forbes J [2019] VSC 650 upholding a caveat.  The facts were –

  • By a contract dated 21 July 2018 the first respondent Zhenzhu Liu agreed to purchase a property in Burwood Highway, Burwood, from the applicants for $2,450,000 with settlement due on 22 July 2019.
  • Most of the discussions concerning the sale were between Mr Liu’s wife Yumei Feng and Xuehang Cheng who was a sales consultant employed by the selling agents.  Soon after the contract was entered into she asked through him whether the vendors would agree to extend settlement to 15 September 2019 without penalty.  After speaking to the second vendor he conveyed that the vendors would only agree to an extension to 22 August 2019.  Ms Feng again sought an extension to 15 September, Mr Cheng again sought the vendors’ consent and again confirmed that the vendors would extend settlement to 22 August 2019.  Further interaction to similar effect then occurred between the purchaser’s solicitors and the agents, and on 10 August 2018 the agents again stated that the vendors had agreed to extend the settlement date to 22 August 2019.
  • Mr Liu deposed that he and Ms Feng believed that the extension to 22 August 2019 was confirmed and that only the further request to extend settlement to 15 September 2019 was not, and that they were preparing their finances for settlement on 22 August 2019 in reliance on the agent’s representation.
  • On 10 August 2018 Mr Liu caveated claiming an interest in the property pursuant to the contract of sale.
  • In late 2018 the vendors requested the purchaser to temporarily ‘lift’ the caveat so that they could refinance.  The caveat was accordingly withdrawn and on 21 December 2018 a second caveat was lodged.
  • Between 12 June and 22 July 2019 the solicitors for both parties engaged in manoeuvres and negotiations including: the purchaser’s solicitor asserting that the vendors had previously agreed to a penalty free extension to 22 August 2019 and the vendors’ solicitor disagreeing; the vendors’ solicitors seeking more money; the purchaser’s solicitor stating his client had difficulty obtaining finance and asking that the vendors consider an extension of the settlement date and a deferred payment of part of the price.
  • On 22 July, following no settlement by 4.00 pm, the vendors’ solicitor at 5.19 pm served a 14 day notice of default and rescission.
  • On 9 August the vendors’ solicitor wrote to the purchaser’s solicitor confirming termination of the contract and forfeiture of the deposit.  No response was received.
  • On 20 August the vendors’ solicitor wrote again noting that as a result of the purchaser’s default his clients needed to re-sell and demanding withdrawal of the second caveat.  In response, on 22 August the purchaser withdrew the second caveat and his solicitor advised the vendors’ solicitor of this.  However, next day the purchaser’s solicitor wrote again stating that the withdrawal of the caveat was ‘without prejudice to any of the [respondent’s] rights under the contract or at all, which rights are fully reserved’.  The vendors’ solicitor responded that day stating that his clients were attempting to re-sell quickly and requesting that the purchaser not jeopardise or delay this re-sale.
  • On 27 August the vendors entered into a contract of re-sale to a third party.
  • On 3 September 2019 the purchaser lodged a third caveat claiming an interest in the property pursuant to the (original) contract of sale and next day his solicitor sent a notice to complete by 19 September 2019.  The vendors subsequently disputed the validity of these actions.  They subsequently applied under the Transfer of Land Act s. 90(3) to remove the caveat.

The court (Beach, Kyrou and Kaye JJA) gave leave to appeal and allowed the appeal, holding –

  1. The power of the court under s. 90(3) was discretionary and so to obtain leave to appeal the applicants must establish material error by the judge in the exercise of that discretion of the kind described by the High Court in House v The King (1936) 35 CLR 499. [41]
  2. The principles applicable under s. 90(3) were as stated by Warren CJ in Piroshenko v Grojsman [2010] VSC 240, (2010) 27 VR 489, ie that the caveator must persuade the court that:

(1)  there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and

(2)  that probability is sufficient to justify the caveat’s practical effect on the ability of the registered proprietor to deal with the property in accordance with normal proprietary rights.

But that these propositions were qualified by the fact that the discretion conferred by s. 90(3) was expressed broadly and enjoined the court to make such order as it thinks fit, and so the test adopted by the court ought not to restrict the statutory power.   Further, (1) and (2) are not mutually discrete: the exercise of the court’s discretion ultimately involved a synthesis of the Court’s conclusions on each. [42], [43], [75], [76]

  1. Where a purchaser had a right, in equity, to specifically enforce a contract of sale the purchaser thereby had an interest in the land, akin to an equitable interest, which may be protected by a caveat. [53]
  2. The parties had agreed that the specified settlement date be extended to 22 August 2019. Even if the vendors had insisted that the agent Mr Chan impose a condition on the extension of time, which he failed to do, for the purpose of the summary application under s. 90(3) it was appropriate to proceed on the basis that he had, at least, ostensible if not actual authority to enter into such an extension arrangement on behalf of the applicants.  Accordingly there was a serious issue to be tried that that ‘arrangement’ did not constitute a formal variation of the contract of sale (which would have been required to comply with s. 126 of the Instruments Act) but, rather, was a waiver of the stipulated settlement date of 22 July 2019 or founded an estoppel precluding the vendors relying on that date (instead of 22 August 2019). [55], [56]
  3. However, as to whether there was a serious issue to be tried that the purchaser, when he lodged the third caveat, had and continued to have the right to specifically enforce the contract, notwithstanding failure to pay the balance of purchase monies on 22 July 2019, as a consequence of which the vendors purported to rescind the contract –

(a)  Under the doctrine of election, a party confronted by two truly alternative or inconsistent rights or sets of rights (such as the right to avoid or terminate a contract and the right to affirm it and insist on performance of it) may lose one of those rights by election by acting in a manner which is consistent only with that party having chosen to rely on the other alternative or inconsistent right; [60]

(b) Ordinarily, a caveat removal application, being in the nature of an application for an interlocutory injunction, was not an occasion for the final determination of disputed factual issues, or of the substantive claims which the caveat sought to protect, and so it was not appropriate or necessary for the court to determine conclusively whether there was a binding election.  In the circumstances of the case, it was sufficient that there were strong grounds for concluding that the purchaser had made an unequivocal election not to retain his right to specific performance but, rather, to treat the contract of sale at an end, and pursue a claim for damages ([57], [59], [63], [67], [71]) for the following reasons –

(i)       the purpose of the lodgement of the second caveat was to protect the right of the purchaser to specific performance; [64]

(ii)   on 9 August the purchaser was placed on clear notice that the vendors took the position that the contract had been terminated.  Then, in the context of neither seeking to rebut nor respond to that position, he on 22 August withdrew the second caveat in response to the demand that he do so that the vendors could re-sell.   At this point it was strongly arguable that, in those circumstances, the purchaser’s conduct in withdrawing the caveat was an election no longer to claim a right to specific performance, which was an essential pre-condition to maintaining the second caveat.  That proposition was reinforced by the email of 23 August reiterating that the vendors were attempting to re-sell the property.  There was no assertion by the purchaser at any time before the re-sale on 27 August that the vendors were precluded from doing so because the purchaser had a right to specific performance; [65]

(iii)  the context in which the purchaser’s solicitor emailed on 23 August stating that the withdrawal of the caveat was done ‘without prejudice’ etc militated strongly against the proposition that the purchaser thus preserved his right to specific performance.  The only purpose served by the removal of the second caveat was to enable the applicants to re-sell the property, which re-sale would be directly inconsistent with any potential right of the purchaser to specific performance, and the email of 23 August did not suggest that the rights sought to be preserved included a right to specific performance or that the vendors could or should not re-sell. [66]

(c) For the same reasons there was a strong basis for concluding that the purchaser, by his conduct between 9 August and 27 August 2019, was estopped from contending that he continued to have a right to seek specific performance of the contract of sale.  He represented that he did not seek to maintain a caveatable interest in the property, so implying that he no longer sought to pursue a right to specific performance; by his withdrawal of caveat on 22 August, and his conduct at that time, he enabled the vendors to re-sell; if he was now permitted to depart from this representation the vendors would suffer detriment, namely, the loss of the contract of re-sale and exposure of them to a claim in damages (or other relief) by the new purchaser. [69], [71]

6.   The degree of likelihood of success in the proceeding was relevant to evaluation of the balance of convenience.  The above conclusions on election and estoppel were  of critical significance in an assessment of the balance of convenience against the fact that retention of the caveat would prevent completion of the contract of re-sale.   The balance of convenience accordingly favoured removal of the caveat. [73], [74], [77]

7.    The vendors’ further argument that, insofar as the parties had arranged, in August 2018, for the settlement date to be extended to 22 August 2019, nevertheless the conduct of the respondent between June 2019 and 22 August 2019 in some way rendered the extension of time nugatory, raised a question of fact which the court could not determine. [79]-[82]

Comment:

This case is interesting for the following reasons –

1.     In cases of contracts of sale the caveator/purchaser will often win or lose depending on whether there was a contract at all or if there had been whether it had been repudiated.  In this case the caveator lost because by the withdrawal of the second caveat he had given up the right to specific performance by affirmation or by estoppel.

2.    The court (paragraph 3 above) states that the right to specific performance is an “interest in land, akin to an equitable interest”.  The words “akin to” are interesting and are based mainly on Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332–3.  Older cases simply said that a specifically enforceable contract of sale confers an equitable interest on the purchaser (eg Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd. R. 712, based on earlier authorities). 

3.   The principle that on a caveat removal application it is not appropriate or necessary for the court to determine conclusively whether a particular legal event would happen (see paragraph 5(b) above) is normally applied in favour of caveators, ie that the caveator has only to show a serious question to be tried.  In this case the Court of Appeal turned this principle on its head by applying it in favour of the registered proprietor, ie it was sufficient that the registered proprietor showed only “strong grounds” for there being a binding election. 

Philip H. Barton
Owen Dixon Chambers West
7 April 2020

28. Contracts of sale – No caveatable interest.

Gold Road No. 3 Pty Ltd v Platt [2019] VSC 714 concerned a completed contract of sale as to which the erstwhile vendor caveated on the ground of no consideration, repudiation, and misleading or deceptive conduct.  Jovanovski & Anor v T Square Investments Pty Ltd & Anor [2019] VSC 641 concerned a caveat lodged by a purchaser who had nominated a substitute purchaser.  The caveats were removed.

Gold Road No. 3 Pty Ltd v Platt [2019] VSC 714, Ginnane J (17 October 2019)

The facts were:

·        In March 2017 Mr and Mrs Platt entered a contract of sale of their bayside property to Evergrande Properties Pty Ltd, controlled by Michael Elliott.  The contract did not proceed, Evergrande sued for specific performance and the Platts counterclaimed. 

·     The proceeding was settled.  The settlement documents included a deed which inter alia: substituted the plaintiff, being another company controlled by Elliott, as purchaser, and affirmed the 2017 contract; and contained mutual releases.  The Platts had legal advice.  The proceeding was subsequently dismissed without any right of reinstatement.

·      On 27 September 2018 the sale settled including by Gold Road paying approximately $2 m. to a bank to discharge its mortgage, Gold Road having borrowed this from AusFinance Group Pty Ltd, who it must now repay.  Evergrande also advanced the Platts approximately $100,000 to repay money owing to another company.  Gold Road became registered proprietor.

·   The parties also entered into a Development Rights Agreement (‘DRA’).  Its recitals included that the Development Manager (Gold Road) and the Platts had agreed that the Development Manager would develop the land and that the Platts would have the right to purchase a lot in the development. 

·   On the ground, disputed by the Platts, that the development was commercially unviable and that a condition precedent was not met, Gold Road terminated the DRA and asserted the right to deal with the land at its discretion. 

·    The Platts caveated claiming a freehold estate and an absolute prohibition on Gold Road dealing with the land.  The Platts contended that the consideration for the transfer had been illusory, that Gold Road had repudiated the DRA, and that Elliott and his company may have engaged in misleading or deceptive conduct.  As to the consideration argument the Platts argued inter alia that: the DRA effectively enabled the Development Manager to acquire land for an undervalue; the DRA did not require the Development Manager to attempt to develop the land; that the settlement was a ‘hoodwink’ of Mrs Platt’s rights;

·        Gold Road applied under s. 90(3) for removal of the caveat.

Ginnane J. held –

1.    The settlement deed was supported by consideration in the form of mutual releases and the payment by Gold Road on behalf of the Platts. [14], [31]

2.    The Platts’ case, if proved, would probably provide a remedy in damages for breach of the DRA or other agreements based on their repudiation by Gold Road or for damages caused by misleading or deceptive conduct.  This did not create a prima facie case of a caveatable interest: the possibility of a remedy under the Australian Consumer Law, particularly under s 243, did not create an estate or interest in land. [28], [29], [32]

3.   The balance of convenience also favoured removal of the caveat, in particular Gold Road needed to repay the loan to AusFinance and the fact that it was registered proprietor normally carried the right to sell the property. [34]-[35]

 

Jovanovski & Anor v T Square Investments Pty Ltd & Anor [2019] VSC 641,
Cameron J (20 September 2019).

The plaintiffs and first defendant entered into a contract of sale under which the price was payable in four instalments.  The first defendant caveated.  It failed to pay the third instalment and did not comply with a rescission notice.  About a year before the third instalment was due it nominated a nominee purchaser and her Honour stated that from that date the nominee “became exclusively liable for the due performance of all the obligations of the First Defendant pursuant to the Contract”.  Her Honour held that as the first defendant had nominated another purchaser there was no serious issue to be tried that the first defendant had a caveatable interest. 

Comment: The fact that the first defendant no longer had a caveatable interest appears to hinge on the form of the nomination, ie that the nominee became “exclusively liable”. By contrast in Six Bruce Pty Ltd v Milatos and Ors [2017] VSC 784 (Blog 8) the plaintiff contracted to sell a property to the first defendant Milatos. He nominated a substitute purchaser AM Land. The first defendant eventually rescinded the contract and caveated on the ground of a lien to secure repayment of money paid under the contract. The caveat did not name the substitute purchaser. An argument that the caveat was defective, at least as to part of the monies paid because the nominee was not named was rejected by Keogh J: after nomination A M land did not acquire rights as purchaser against Six Bruce. The rights and obligations as purchaser remained with Mr Milatos. Keogh J. referred to: Tonelli v Komirra Pty Ltd [1972] VR 737 at 739; Commissioner of State Revenue v Politis [2004] VSC 126, [11]; 428 Lt Bourke St Pty Ltd v Lonsdale St Cafe Pty Ltd & Ors [2009] VSC 133, [24]-[25].


Further, General Condition 18 in the REIV/LIV contract of sale provides that despite nomination the name purchaser remains personally liable for the due performance of all the purchaser’s obligations under the contract.

 

 

6. Three County Court Cases

Today’s blog looks at three County Court cases from 2017, one on whether a contractual right to caveat created a charge/caveatable interest, one on whether a contract of sale existed so giving rise to an equitable and thus caveatable interest, the third on costs.

  • A mere contractual right to caveat, insufficient in this case: Tannous and Anor v Abdo [2017] VCC 304 (31 March 2017) Judge Macnamara.

The plaintiffs alleged that they agreed with Mr Abdo to purchase an interest in a bakery and paid money towards this, which went into the purchase of land by Mrs Abdo. At one point in the litigation to recover the sum paid towards the bakery the parties entered a document which included an undertaking by the Abdos not to sell this land and to permit the plaintiffs to lodge a caveat over it. They caveated claiming “an equitable interest as chargee”. His Honour held that whether, absent an express charging clause, an equitable interest in the nature of a charge was created by a contractual entitlement to lodge a caveat depended on the interpretation of the particular contractual provision: there was no principle establishing what implication must be drawn in all cases from authority to lodge a caveat in connection with an obligation to pay money. No charge was created here: for the plaintiff to succeed here there must be implied not just a charge but also a guarantee by Mrs Abdo of Mr Abdo’s alleged debt. The contractual language did not support creation of a charge. The agreement created at best a negative covenant not the deal with the property, creating no caveatable interest. 

  • No contract, no caveatable interest: Matthews v Knight & Anor [2017] VCC 1537 (27 October 2017) Judge Anderson.

 The facts of this case could be used in a University Exam Paper on whether or not a contract existed. The facts broadly were: delivery by an agent of three contracts (one for each of three properties) to a prospective purchaser; receipt by the agent of $1,000 partial deposit for each contract; the creation of three further contracts, partially reusing the former contracts, signed by the parties, requiring payment of a full 10% deposit by 15 September 2017, if necessary enforceable by reason of part performance; the solicitors acted as though there were enforceable contracts; the purchaser caveated; the balance of deposit was not paid; the vendor’s solicitors rejected a proposal to vary the contract and issued a rescission notice which was not complied with; the erstwhile purchaser engaged in an “opportunistic ploy” to suggest that contracts were still on foot; a further caveat.

The caveats were removed under TLA s. 90(3). The purchaser failed to satisfy the onus of demonstrating a serious issue to be tried that a contract and so an equitable interest in the land existed. There was no contract following the second contracts because: the second contracts were not intended as offers but if they had they were revoked or had lapsed; the purchaser’s purported acceptance of an alleged offer constituted by the delivery of the second contracts (ie the “opportunistic ploy”) did not accept the terms offered but proposed variation which variation the vendor never accepted.

  • Indemnity costs: Hooi & Anor v Lim & Anor [2017] VCC 949 (13 July 2017) Judge Cosgrave.

The first defendant caveated over land of which the plaintiffs were registered proprietors.  He alleged a constructive trust.  He subsequently stated that the basis of the caveat was wrongful diversion of monies and work from a partnership, but also acknowledged that he had no evidence that these monies (or what monies) had been used to purchase the land.  The plaintiffs requested removal of the caveat, asserted that the caveator had no caveatable interest, and foreshadowed indemnity costs.  Subsequently they applied for removal under the TLA s. 90(3).  The first defendant removed the caveat on day before hearing.    

Judge Cosgrave reiterated the legal principles for caveatable removal in conventional terms (roughly as set out in Blog 1) and noted that there was never any serious question to be tried that the defendant had the interest in land claimed.  As to costs his Honour held:

1. Awarding costs involved a discretionary exercise of the court’s powers. The relevant factors to consider in this context included: :

·   whether the caveat was maintained in circumstances where the defendant, properly advised, should have known there was no chance of success;

·    whether the caveat was being used as a bargaining chip;

·    whether the party lodging the caveat was a lawyer.

2.  Indemnity costs would be awarded for several reasons:

·  The first defendant had lodged the caveat without any proper basis, and knew or should have known this;

·  Unjustified allegations of fraud, in this case that land had been purchased with allegedly misappropriated funds, attracted liability for indemnity costs.  One solicitor should not make such an allegation against another without proper basis, exacerbated here because the defendant believed that the plaintiffs had to consent to the lodgment yet had lodged unilaterally.  This increased the likelihood that lodgment was for a collateral or improper purpose; 

·   The first defendant had ignored warnings to remove the caveat; 

·    The interest claimed in the caveat was exaggerated.  

 

4. Antidotes to repeat caveats: enjoining the caveator and Registrar of Titles.

Andrews Family Holdings Pty Ltd v Yellow Tractor Pty Ltd [2017] VSC 682 (8 November 2017); Andrews Family Holdings Pty Ltd v Yellow Tractor Pty Ltd (No 2) [2017] VSC 695 (14 November 2017).  Ginnane J.  

Mr Annesley entered a contract to purchase land from the plaintiff (“Andrews”).  In purported payment of the balance of price he tendered a document entitled ‘Promissory Note’ which was neither a permitted method of payment nor indeed in law a promissory note.  Andrews rescinded the contract.  The defendant (“the company”), of which Annesley was a director and which he had intended to nominate as purchaser, subsequently caveated, the caveatable interest being based on the rescinded contract.  The company was subsequently deregistered.  Andrews applied to remove this caveat under the TLA s. 90(3).  Ginnane J:

  1. Found no serious question to be tried that the company, even if still registered, had a caveatable interest: it was not a party to the contract and had no legal or equitable interest in the property.
  2. Also enjoined Annesley from lodging further caveats in respect of the land without leave. He noted that there was both authority for this course in the caveat context, ie Maryvell Investments Pty Ltd v Velissaris [2008] VSC 19, and the general curial power to grant injunctions given by the Supreme Court Act 1986 s. 37.  This case merited an injunction because Annesley had already lodged two caveats and did not foreswear lodging more.

Undaunted, on the day after this decision Annesley caveated in his own name claiming a purchaser’s lien.   The Titles Office had a copy of the court order but accepted the caveat albeit apparently issuing a requisition requiring Annesley to establish within 14 days that he had the court’s leave.   On an application for removal if this caveat Land Use Victoria argued that it had justifiably given Annesley ‘the benefit of the doubt’, the Registrar having a duty to accept a caveat for lodgment.   Ginnane J:

  1. Held this practice of giving the benefit of the doubt inappropriate for caveators whose previous caveats had been removed or had lapsed or were now subject to injunction. The Registrar’s statutory obligations included giving effect to directions of the Supreme Court (TLA s. 103).
  2. Permanently enjoined Annesley from lodging caveats in respect of the property, with indemnity costs.
  3. Enjoined the Registrar of Titles so that must forthwith reject and not record any caveat by Annesley over the property.

Commentary: This case is a rare case of the Registrar registering a caveat after an injunction was granted.  Otherwise, it succeeds previous cases such as where: the court orders the Registrar not to register any caveat without its leave or further order (Westpac Banking Corporation v Chilver [2008] VSC 587), or any caveat by any person other than a purchaser from the successful plaintiff without its leave for a certain period (Lettieri v Gajic [2008] VSC 378) or enjoins the lodging of further caveats (Marchesi v Vasiliou [2009] VSC 213; Wells v Rouse & Ors [2015] VSC 533).