Category: Court of Appeal

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 –

  1. 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]
  2. 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]
  3. 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]
  4. 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]
  5. 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]
  6. 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]
  7. 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]
  8. 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]
  9. 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]
  10. In summation, the 9 July Particulars raised a serious question to be tried of whether Jade had the interest claimed. [43]
  11. 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]
  12. 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

Blog 52. Court of Appeal upholds registered proprietor’s appeal on balance of convenience ground.

Lee v Yap [2021] VSCA 297 (3 November 2021), Court of Appeal (Kyrou, McLeish and Walker JJA) is interesting because it deals with the scope of balance of convenience considerations.  In particular the court clarified that the two-stage test (ie interest in land and balance of convenience) only informed how the court should exercise its discretion under the Transfer of Land Act s. 90(3) and did not subsume or restrict the power conferred by s. 90(3).

Before proceeding to the case, however, I welcome my first international follower Dr Jan Halberda of the Jagiellonian University, Krakow, Poland, founded in 1364. I met Jan at a Conference  in 2016. I have sent him excerpts of the Transfer of Land Act with an explanation of the caveat procedure. I am reminded that Oliver Cromwell described English Law as a “tortuous ungodly jungle” and trust that Jan will  not find that an apt description of this area of law.

This case is difficult to understand without listing the parties in connected proceedings –

This appeal –

Applicant                              Ms Lee (registered proprietor).

Respondents                         Eng Hock Yap, Sau Lin Kam, Eng Hing Yap (caveators),

     Registrar of Titles.

The substantive proceeding (issued 2017) –

Plaintiffs                               Eng Hock Yap, Sau Lin Kam and Chin Huat Yap,

   (Adam Yap was formerly the second plaintiff).

Defendants                          Ms Lee, Yap Brothers Holdings Pty Ltd, Eng Seng (Vincent) Yap, Eng Hing Yap.

2019 application in the substantive proceeding for appointment of receiver –

Applicants                               Eng Hock Yap and Adam Yap

Respondents                          As in substantive proceeding.

The facts were –

  • The applicant (Ms Lee) was a director of Yap Brothers Holdings Pty Ltd (the ‘trustee’).  In 2005 the trustee transferred a property in Glen Iris to her for no consideration.   This property was subject to a mortgage and to caveats lodged by the above caveators.
  • In the substantive proceeding it was alleged that this transfer was in breach of trust and held by Ms Lee on a resulting trust for the contributors of funds to the trustee, ie for the plaintiffs.  They also claimed that this transfer, after the loss of the trust deed had been discovered by Ms Lee in 1998, occurred in breach of her duties to the trust.
  • In 2019 an application was made in the substantive proceeding for appointment of a receiver to the trust to secure the trust property.  On this application Ms Lee deposed that the trust assets included cash, shares, and properties in Carlton and Balwyn.   The trustee’s directors also offered undertakings as to the assets of the trust.   The defendants also filed proposed orders including a proposed undertaking not to deal with the Balwyn and Carlton properties and the shares, and an undertaking (the Proposed Undertaking) by Ms Lee not to sell or otherwise deal with the Glen Iris property, pending resolution of the substantive proceeding.
  • At the receivership hearing, counsel for the applicants only sought that “the title deeds” (ie the duplicate certificates of title) of the Carlton and Balwyn properties be taken into control to prevent their use by way of mortgage deposit (ie, although the court does not say it, to prevent creation of an equitable mortgage).  (Because the Glen Iris property was subject to a mortgage and its “title deeds” were not in the defendants’ possession).  The application was abandoned on the defendants’ undertaking to lodge with the Prothonotary the title deeds to the Carlton and Balwyn properties and Ms Lee’s counsel giving an acknowledgement concerning trust distributions.  The undertakings included in the defendants’ proposed orders were not sought, the Proposed Undertaking having been rejected.
  • Later in 2019 the Court declared in the substantive proceeding that the trust had failed for uncertainty and the trustee held all its assets on resulting trust for those who had contributed property to the trustee at any time.
  • In April 2021 Ms Lee entered into a contract to sell the Glen Iris property with settlement due in June. This required removal of the caveats.  Correspondence between solicitors ensued, the upshot of which was that the caveators did not object to a sale for proper market value with the only outstanding issues being where the net proceeds of sale were to be held and what deductions were to be made before this pay in, in particular were agent’s fees and commission to be deducted?  (The agent was the third defendant in the substantive proceeding).
  • Following the breakdown of discussions Ms Lee sought removal of the caveats pursuant to the Transfer of Land Act s. 90(3). She offered an undertaking to the court at first instance and to the Court of Appeal to pay the net proceeds of sale, after discharge of the mortgage and usual sale expenses, into a solicitor’s trust account or into court.
  • At the hearing before McDonald J. it was was common ground that the caveators had an arguable case of a caveatable interest. However, before considering the balance of convenience, the judge observed that: the reason why there was no undertaking at the receivership hearing to lodge the Glen Iris title deeds was because the bank had them; the Proposed Undertaking was designed to address the applicants’ concern that there was a risk that the trust property would not be preserved; and it had not been suggested at the receivership hearing that there was any risk of Ms Lee selling the property.  His Honour also observed that her subsequent conduct in entering a contract of sale was therefore inconsistent with the basis upon which the application for the appointment of a receiver had not been pressed.
  • Counsel for Ms Lee submitted that a significant balance of convenience consideration was her preparedness to pay the net proceeds of sale into court. The judge stated that viewed in isolation this submission had force but that it was necessary to include in the assessment her conduct in entering into a contract of sale in light of the resolution of the receivership application.  He observed that it was extremely unlikely that the applicants would have abandoned the receivership application if there was any prospect of Ms Lee being free to sell the Glen Iris property.
    His Honour stated that the “gravamen” of the resolution of the receivership application was that the three properties would not be dealt with until the determination of the substantive proceeding (the “gravamen finding”).  Accordingly his Honour stated that the balance of convenience strongly favoured the maintenance of the status quo.
  • As to a submission that it was relevant that Ms Lee would suffer financial prejudice if the sale did not proceed the judge stated in substance that any adverse financial consequences were of her own making.
  • Ms Lee sought leave to appeal.

The Court of Appeal granted an application for an extension of time to appeal, granted leave to appeal and allowed the appeal, holding –

  1. The court reiterated caveat removal principles in standard terms (see eg Blog 1). [78]-[80]
  2. 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 error of the kind identified in House v The King (1936) 55 CLR 499. [78]
  3. In dealing with the Proposed Undertaking the judge was aware that it was never given but that it was relevant to understanding how the receivership application came to be resolved. It was not legally irrelevant to the caveat removal application.  The judge had not treated it as decisive, rather the judge treated as significant the manner in which the receivership application had been resolved. [83]-[84]
  4. The proposition that the judge erred in giving substantial weight to a factor which did not on proper analysis bear upon the balance of convenience, namely the Proposed Undertaking, was erroneous. This argument proceeded on a mistaken understanding of what matters a court could permissibly consider when dealing with an application under s. 90(3).  Although the courts had adopted the two stage test (ie that the caveator must estate a serious question to be tried of an interest in the land and that the balance of convenience favoured maintenance of the caveat) s. 90(3) was drafted broadly and enjoined the court to make such orders as it thought fit.  The two-stage test could only inform the court in considering whether to exercise the discretion conferred on it in any particular case and, if it chose to do so, what form that exercise should take.  This test did not subsume or restrict the power conferred by the statute.  What a court may consider as going to the balance of convenience was unconfined.  Thus, in assessing the balance of convenience it was open to the judge to have regard to the manner in which the receivership application was resolved and the assumptions that underpinned that resolution. [85]-[86]
  5. The gravamen finding, which was based in part on the Proposed Undertaking, was erroneous. On its face that finding could potentially be understood as either a finding: that the parties had agreed to resolve the receivership application on the basis that the Glen Iris property would not be dealt with, or; (a somewhat strained reading of the finding) that Ms Lee’s conduct of the receivership application had induced the applicants to believe that the Glen Iris property would not be dealt with, based on which they agreed not to pursue their application.   Neither finding was open on the evidence.  There was no evidence suggesting an agreement of that kind and the rejection by the receivership applicants of the Proposed Undertaking suggested to the contrary.  The receivership hearing was conducted in a way suggesting that the concern was not with the Glen Iris property, but with the Carlton and Balwyn properties.  The gravamen finding treated Ms Lee as being constrained in the manner she would have been constrained had she given the Proposed Undertaking. [91]-[99]
  6. The gravamen finding plainly played a significant if not determinative role, infecting the judge’s assessment of the balance of convenience. [6(c)], [99]
  7. As to the judge’s reliance on the proposition that Ms Lee was the author of the circumstances she faced, a statement of that kind could be made in any case where the registered owner entered a contract of sale before removal of a caveat, and it was not a significant factor. It could also be said that the receivership applicants were authors of their circumstances because they had rejected the Proposed Undertaking. [100]
  8. As the Court of Appeal had before it the submissions and evidence that were before McDonald J, and as the matter was urgent, it was appropriate for it to make the orders that his Honour ought to have made, ie exercise afresh the s. 90(3) discretion, and not remit the matter. Ms Lee would plainly suffer immediate financial prejudice if the caveats were not removed and there was no real evidence that the caveators would suffer prejudice if the caveats were removed.  The balance of convenience favoured the removal of the caveats provided appropriate steps were taken to preserve the proceeds of sale.  The undertaking proferred by Ms Lee’s counsel sufficed. [104]-[109]

 

 

Philip H. Barton

  Owen Dixon Chambers West

  Thursday, February 17, 2022

40. B acquires monies from A by mistake or in breach of trust, which B passes on to a third party, who uses them to purchase land of which third party becomes registered proprietor – Monies held on constructive trust for A – Not mere equity – Caveat by A based on constructive trust upheld – AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235. No purchaser’s lien and so no caveatable interest because purchaser in breach of contract of sale – Ironbridge Holdings Pty Ltd v O’Grady [2020] VSC 344.

AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235 (11 September 2020) was an unsuccessful application for leave to appeal from the case of that name covered in Blog 32, in which Ginnane J dismissed an application under the Transfer of Land Act s. 90(3) for caveats to be removed.  The facts are now restated from that Blog and supplemented –

  • Esposito Holdings Pty Ltd (Esposito Holdings) agreed to sell and the first defendant (UDP) agreed to purchase the issued shares in a company. An arbitration occurred related to disputes arising under that agreement.  The arbitral Award stated that Esposito Holdings had engaged in misleading and deceptive conduct contrary to s. 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) and that its sole shareholder and director Mr Antonio Esposito was involved in the contravention within the meaning of s. 2(1) and for the purposes of s. 236 of Schedule 2.  The Award also declared that on and from 31 January 2014 Esposito Holdings held the purchase price on constructive trust for UDP which had suffered loss of $54,144,847.
  • The plaintiff (AE Brighton) purchased and became registered proprietor of four properties.
  • There was prima facie evidence that, when Mr Esposito was also sole shareholder and director of AE Brighton, part of the purchase price received from UDP under the share sale agreement was paid by Esposito Holdings, possibly through another company controlled by Mr Esposito, to AE Brighton to purchase the properties, possibly in the case of one purchase through repayment of an earlier loan used for that purchase.
  • In 2017 UDP caveated over the properties on the grounds of an implied, resulting or constructive trust.
  • In 2018 the Supreme Court gave UDP leave to enforce the Award and ordered that it be given effect as a judgment of the Court (‘Award recognition judgment’).
  • In 2019 AE Brighton entered contracts to sell two of the properties.

After the decision of Ginnane J in October 2019 UDP took an assignment of a mortgage registered on the properties, took possession, as mortgagee in possession rescinded the contracts of sale, and sold the properties with settlement due on 4 September 2020.  Its solicitor swore that the net proceeds of sale would be paid into court pending resolution of a proceeding.

The Court of Appeal (Kyrou, Kaye and Sifris JJA) held or stated –

  1. The law related to applications under s. 90(3) in conventional terms (eg see Blog 1). [25]-[26]
  2. A successful challenge to the exercise of judicial discretion by Ginnane J required establishment of an error of the kind identified in House v The King (1936) 55 CLR 499 at 505. [27]
  3. Only a legal or equitable interest in land could sustain a caveat and accordingly, as stated by the High Court in Boensch v Pascoe [2019] HCA 49 (Blog 29), a mere statutory right to take steps to avoid a transaction did not suffice – the interest asserted must be in existence when the caveat was lodged. A mere equity, defined in various ways including ‘a right, usually of a procedural character, which is ancillary to some right of property, and which limits it or qualifies it in some way’, was not a proprietary interest. [28]-[29]
  4. The constructive trust of the type upon which UDP relied was an institutional trust arising from the retention of funds known to have been paid by mistake. More particularly –

(a)        This trust arose at the time when the person who received the funds acquired knowledge of the mistake, if the moneys paid could still be identified at that time.  The recipient’s conscience was then bound and it would be against conscience for the recipient to use the funds as his or her own. [30]

(b)      “Knowledge” meant the payee having actual knowledge, or wilfully shutting his or her eyes to the obvious, or wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make, or having knowledge of circumstances which would indicate the facts to an honest or reasonable person. [31]

  1. A third party may be liable to account as a constructive trustee where it received trust property with notice that it was being dealt with in a manner involving a breach of trust. In accordance with the equitable principle of tracing, the beneficial owner of misappropriated property could recover it or its traceable proceeds from someone holding the asset, subject only to the defence of bona fide purchaser for value without notice.  Where a trustee wrongfully used trust money to provide part of the cost of acquiring an asset, the beneficiary was entitled at his or her option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his or her personal claim against the trustee for the amount of the misapplied money. [32]-[33]
  2. This case had two features usually absent from cases where a caveator claimed an interest under a constructive trust –

(a)     There was a declaration, recognised by the Award recognition judgment which itself had the effect of declaring as a matter of law, that Esposito Holdings held the purchase price paid by UDP on constructive trust for UDP from 31 January 2014;

(b)    Secondly, the sole director of the corporate registered proprietor of the properties (Mr Esposito) had given sworn evidence at a public examination that funds subject to the constructive trust were used to purchase the properties.  He was aware of all the facts giving rise to the constructive trust.  As he was its sole director his knowledge was attributable to Esposito Holdings.  It was its knowledge of those facts, which operated on its conscience, that could give rise to an institutional constructive trust without the need for a court order and which enabled the arbitrator to declare the existence of a constructive trust from 31 January 2014.  Importantly, as Mr Esposito was also the sole director of the plaintiff, his knowledge was attributable to the plaintiff.

The combination of those two features established a prima facie case that the beneficiary of the constructive trust had an equitable interest in the properties, in accordance with the principles of tracing. [55], [56], [58].

  1. The Evidence Act 2008 s. 91 provided that evidence of the decision, or of a finding of fact, in an Australian or overseas proceeding was inadmissible to prove the existence of a fact that was in issue in that proceeding. However, s. 91 did not preclude Ginnane J from relying on the Final Award and the evidence adduced in the arbitration, as they were not being used to prove the existence of any fact but were being considered in assessing whether there was sufficient evidence to enable UDP to establish a prima facie case of the existence of a caveatable interest. [45], [59]-[60]

In Ironbridge Holdings Pty Ltd v O’Grady [2020] VSC 344 (11 June 2020), Ginnane J, the facts and relevant holdings were –

  • In 2006 the plaintiff entered a contract of sale to purchase land from vendors of which the defendant was the survivor.  The settlement date was no later than 7 years but was extended.
  • A deposit and certain instalments of purchase money were paid, but the final instalment was not.  Part of the land was transferred.  The vendor rescinded the contract.
  • The purchaser caveated on the basis of an alleged equitable (purchaser’s) lien over the untransferred land to secure repayment of instalments of purchase money and interest.
  • The purchaser succeeded in a claim for restitution.  However the purchaser was held not to have a caveatable interest.  His Honour observed that where title was not conveyed the purchaser’s lien secured the repayment of monies paid by the purchaser, to whom it gave a right to sell the property and take a share of the proceeds of sale in an amount equal to the debt.  But there must be a debt which the lien could secure.  Here there was no lien because the purchaser was in default of its obligations under the contract: the purchaser was only entitled to the lien where the contract went off through no fault of its own. [307], [309], [310], [312]-[314]

Philip H. Barton

Owen Dixon Chambers West

21 September 2020

 

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

5. Caveatable Interests

  • Charges giving rise to caveatable interests.

  • The indirect ability of the Court of Appeal to remove a caveat.

  • A competition between cash in a solicitor’s bank account and a caveat supporting a charge for potentially a greater amount.

Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSC 335 (16 June 2017) Sifris J.

Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSCA 345 (17 November 2017) Tate and McLeish JJA.

The plaintiff/appellant (“Sim”) provided services under a consultancy and management agreement for a proposed development on land of which the defendant/respondent (“Greenvale”) was registered proprietor.  Greenvale notified Sim of its intention to terminate the agreement at a specified date.  Sim caveated to secure moneys allegedly owed under the agreement and sued to recover $380,280 and for other relief.  Greenvale counterclaimed and commenced a separate proceeding under the TLA s. 90(3) seeking removal of the caveat.

Sifris J held Sim to be entitled to payment of $152,600.03 and Greenvale to be entitled to some payment on the counterclaim.  His Honour dismissed the caveat proceeding on the ground of a clause providing that on termination of the agreement before completion of the project Greenvale gave Sim “the right to register a charge over the property … and any other property owned by [Greenvale] and such charge is to be applied to the payment in full of any money owed to [Sim Development]”.  Sifris J held that the contractual right to register a charge, in the event of termination, supported the existence of a caveatable interest; and while the clause did not specifically adopt the language of lodging a caveat, its reference to the concept of registration, and lack of sufficient indication to the contrary, supported the conclusion that it gave rise to a caveatable interest.

Sim applied for leave to appeal, seeking orders in substance as sought at first instance. Greenvale did not seek leave to appeal against the caveat proceeding order.  However, desiring to be rid of the caveat, it made an interlocutory application in the application by Sim for leave to appeal, seeking an order directing Sim to withdraw its caveat on Greenvale paying $152,600.03 into an interest-bearing account of Greenvale’s solicitors and undertaking not to sell the land pending determination of the application for leave to appeal and any appeal.

Tate and McLeish JJA held:

  1. The application by Greenvale was competent, being permitted by s. 10(3) of the Supreme Court Act 1986.
  2. Sim would not be ordered to withdraw its caveat, because:
  • the caveat was supported by its right under the agreement to a charge over the land. The withdrawal of the caveat would in effect remove the protection of the security interest the parties provided for in the agreement;
  • if Sim succeeded in any appeal Greenvale may be ordered to pay $380,280. In those circumstances, the amount offered, $152,600.03, would be inadequate and Sim would have lost the protection of the caveat supporting its entitlement to monies owed.  This could render any appeal effectively nugatory;
  • Greenvale had not adequately specified how the caveat would impede the development’s progress. Accordingly, applying a test of balance of convenience, Sim had discharged its onus of establishing that the prejudice that would flow to it from an order directing it to withdraw the caveat outweighed any demonstrable prejudice to Greenvale.

Commentary: A novel case of a creative attempt to get rid of a caveat pending an appeal.  As to caveats supporting charges see also: Evans v Advertising Department Pty Ltd [2009] VSC 587; West Coast Developments Pty Ltd v Lehmann [2013] VSC 617, also [2014] VSC 293.