Category: Nominee – caveat by

Blog 48. On being charged $11,828 for the “experience” of applying for a loan.

Skymation Pty Ltd v ALS342 Pty Ltd& Anor [2021] VSC 386 (20 July 2021), Daly AsJ. concerns a caveat based on a term in a contract constituted by a letter of offer of a loan.  The loan never proceeded but to the surprise of the registered proprietor the caveator claimed certain preliminary expenses, a solicitor asserting “your client cannot decide not to lend the money then charge our client $11,828.00 for the experience”.  Reading this case stirred my memory of reading a Victorian decision about 15 years ago in which a financier was attempting to recover its “up front” funds for another abortive loan.  I remembered the name of counsel, David Robertson QC, and he said it was Gippsreal Ltd v Kurek Investments Pty Ltd [2006] VSC 115 at first instance and Gippsreal Ltd v Registrar of Titles (2007) 20 V.R. 157, [2007] VSCA 279 on appeal.  He said that the successful argument for the “borrower” in that case was that the contract contained so many possible let-outs for the financier that the consideration provided by it was illusory.

Skymation also concerns whether a nominee “lender” becomes a party to the contract of loan.  By contrast Blogs 8 and 28 concern caveats lodged by a purchaser who had nominated a substitute purchaser.

The facts were –

  • The plaintiff (Skymation) was the registered proprietor of a property in Toorak.   Its director (Negri) had a long-running dispute with his son Richard about control of Skymation and beneficial ownership of the property.   Richard had been a director and secretary of Skymation, then resigned, then in 2019 clandestinely removed his parents and appointed himself director and secretary.   This was rectified but in the words of Daly AsJ he did not “resign”.  Richard also caveated over the property in February 2020, which caveat a judge on 15 September 2020 directed him to remove.
  • Negri enquired of a company (Assetline) about Skymation borrowing $400,000 secured by the property.  On 18 September 2020 he received a letter of offer from Assetline.  Later that day he executed and returned the Borrower Declaration included in the letter of offer with a non-refundable payment of $2,860.   The letter of offer was executed by directors of the first defendant (ALS342) and by Negri as the director of Skymation and as guarantor.
  • The letter of offer included:
    • “Assetline Investments Pty Ltd and/or its designated nominee (Assetline or Lender) are pleased to advise you that your application for finance has been approved on the terms detailed within this Offer Sheet and the attached Offer Terms.”;
    • Under the heading “Parties”: “Lender(s) Assetline Investments Pty Ltd and/or its designated nominee”;
    • Under the heading “Security”: “Other Security Such agreements, certificates and acknowledgements, securities and other documents as we or our solicitors may reasonably require”;
    • In the Offer Terms: “Any reference to “we”, “us” and “our” means the Lender”. The rest of the Offer Terms used the first person plural to describe the Lender;
    • That the Lender would instruct the solicitor to prepare and issue loan documents after the valuation and due diligence were completed;
    • That the Lender could withdraw from the proposed loan without liability;
    • Under cl. 25, that if Skymation withdrew from the proposed loan it was liable to pay what is referred to below as the ‘secured sum’, a charging clause attaching to this. The Lender was permitted to lodge a caveat to secure its interest as chargee over any real property owned by Skymation or Negri.
  • A director of ALS342 deposed that upon receipt of the executed letter of offer he instructed solicitors to prepare the loan and security documents.  On 25 September the solicitors provided a letter and these documents.  This letter described the lender as ALS342.
  • This letter also enclosed a “Checklist of required settlement documents” which included: a statutory declaration from Richard enclosing a certified copy of the executed company minutes of meeting resolving that he had resigned from Skymation and a resignation letter executed and dated by him.
  • On 30 September ALS342 lodged a caveat imposing an absolute prohibition on dealings and claiming an interest as chargee pursuant to an agreement dated 18 September 2020.
  • Negri could not obtain the resignation letter from Richard, no money was lent and the security documents were not executed.
  • In November ALS342’s solicitors wrote claiming $11,828.00 (‘secured sum’) comprising a legal fee, a 50% establishment fee and a costs of fund fee.  Skymation’s solicitors replied that:
    • ALS342 had not advised Skymation that documentation was required from Richard after completing its due diligence, and it should not have instructed preparation of loan documentation if unsatisfied with the due diligence;
    • Skymation had not withdrawn from the loan, rather ALS342 had decided not to provide it because of its insistence on documentation from Richard.  It could not do this and then “charge our client $11,828 for the experience”.

Skymation commenced this proceeding under the Transfer of Land Act s. 90(3) to remove the caveat.  ALS342’s director deposed that the proposed loan did not proceed because of the matters referred to in solicitors’ correspondence and because the security documents were unexecuted.  Negri deposed that Skymation desired to sell the property.  Skymation argued that it had no contract with a caveator and if there was a contract it did not owe the caveator anything.

ALS342 applied for leave to amend the caveat: to state the date of its interest as being 25 September 2020, and; if the court held that it had no rights, but Assetline did, to name Assetline as caveator.

Her Honour removed the caveat, holding –

  1. Where a contract permitted a party to nominate another party in substitution for the original contracting party, the substituted party did not acquire the rights and obligations of the original contracting party absent “compelling language” in the relevant agreement. Thus on the one hand in one previous case reference to “and/or nominee” in a contract of sale of shares was construed not to permit the substitution of another person as a purchaser, but on the other hand in another case a nomination clause in a contract of sale of land was construed as rendering the nominee as the purchaser, ie to effect a novation of the agreement, the vendor having known of the intended nominee before the contract was made.  [31]-[35]
  2. There was a prima facie case that the caveator was a party to the loan contract, by reason of the nomination clause in the letter of offer, and as such had assumed the rights and obligations of Assetline under the Offer Terms, because –
    • although the letter of offer referred to Assetline in the singular tense, there was a reference to Assetline’s “designated nominee” and repeated references to the lender’s obligations and rights using the first person plural;
    • of general commercial practice in the finance industry and the nature of the transaction;
    • of evidence that Skymation consented to this. [28], [43], [44]
  1. It was doubtful whether Skymation was indebted to ALS342 because –
    • the instructions to the solicitors to prepare the security documents may well have been premature because the checklist included documents which might ordinarily be required as part of a due diligence process (but, that said, cl. 14.1 of the Offer Terms may amount to Skymation’s agreement to immediately authorise ALS342 to instruct its solicitors to prepare the security documents before completion of due diligence);
    • it was at least arguable that ALS342 withdrew from the proposed loan. [28], [45]-[48]
  1. The balance of convenience favoured removal of the caveat.   In favour of the caveator was no sale being imminent and reduction in its ability to recover the alleged debt.  This was, however, outweighed by: Negri’s intention to sell; the impact of the caveat on prospective purchasers; the guarantor (ie Negri) being a man of substance; real doubt about the existence of the debt, and; because the charging clause permitted ALS342 to caveat over other property of Skymation or Negri. [28], [49]-[51].
  1. If it had been necessary to decide the matter leave would only have been granted to amend the caveat to substitute 25 September 2020 as the agreement date. [28], [52]

 

     Philip H. Barton

     Owen Dixon Chambers West

     Tuesday, September 28, 2021

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.

 

 

8. RECENT SUPREME COURT CASES DEC 2017 – FEB 2018 (2 of 6)

A caveat removed on the balance of convenience to permit refinancing.

Six Bruce Pty Ltd v Milatos and Ors [2017] VSC 784, 19 December 2017, Keogh J. 

The chronology was –

19 February 2016      Plaintiff becomes registered proprietor of a property using funds secured by registered first mortgage. It subsequently defaults under the mortgage.

20 May 2016              VCAT orders that a permit issue allowing construction of a four-storey apartment building on the property.

5 February 2017        Plaintiff contracts to sell the entire property to first defendant.  Deposit paid.   

20 March 2017          Purchaser nominates substitute purchaser.

3 July 2017                 Settlement date extended to 4 August 2017 on the basis that purchaser pay an additional deposit which it (not the nominee) does.   

31 July 2017               Purchaser learns of undisclosed drainage easement

affecting the property.

8 August 2017            Vendor serves rescission notice based on non-payment of balance of price.

14 August 2017          Purchaser services rescission notice based on alleged

non-disclosure of the easement in the vendor’s statement.  Vendor retains

deposit.

September 2017        Vendor enters joint venture agreement to develop the property. 

3 October 2017         Purchaser caveats on ground of lien to secure repayment of money paid under the contract.  Caveat does not name the nominee substitute purchaser.  Two registered mortgages and two previous caveats exist.  There is a subsequent caveat.

10 October 2017        Purchaser sues for return of deposit or declaration re caveat.

12 October 2017        Mortgagee sues vendor for repayment under mortgage. 

20 November 2017    Vendor receives refinance offer from other lenders.

27 November 2017    Vendor files Defence to purchaser’s proceeding substantially disputing the claim. 

The vendor commenced a proceeding under s. 90(3) to remove the purchaser’s caveat to permit refinance.  

Keogh J removed the caveat subject to conditions.  His Honour held –  

1.      There was a prima facie case that the caveator had the interest claimed.  The prospects of the vendor being excused under the Sale of Land Act s. 32K(4) for breach of the law in the section 32 statement were entirely uncertain.

2.      The caveat was not required to name the nominee. The effect of the nomination clause was to empower the purchaser to require the vendor to complete the contract by transfer of the property to the name of the nominee.  After nomination the nominee did not acquire rights as purchaser.

3.      However the balance of convenience favoured removal of the caveat because: most of the deposit had been released, presumably by agreement; the trial of the purchaser’s proceeding was distant; without the refinancing a mortgagee’s sale was likely; the vendor undertook not to deal with the property pending determination of the purchaser’s proceeding; the vendor agreed to charge the property to secure the amount of any judgment thus then enabling a further caveat; accordingly the purchaser’s position would probably be improved by the refinancing.