Category: S. 90(3) Application – Originating motion or Summons?

Blog 73. Appeal against Blog 63 allowed.

Hooper v Parwan Investments Pty Ltd & Anor (recs apptd) [2023] VSC 227, Forbes J.

This case was an appeal from the decision of Matthews AsJ ([2022] VSC 285) noted in Blog 63.  Before considering Forbes J.’s decision it is helpful to repeat the gist of the original decision commencing with the facts relevant to the appeal –

  • In 2015 Parwan Investments (Parwan) entered a contract to purchase a residential property (the Property) with funds obtained from a bank pursuant to a loan agreement with a facility amount of $850,000. On 16 December 2015 it became registered proprietor of the Property subject to a registered mortgage securing the loan.
  • On 21 October 2016 Parwan and the plaintiff (Hooper) entered into a contract of sale of part of the land (Purchased Area) for $900,001, with settlement due on 21 March 2018 unless the Purchased Area was a lot on an unregistered plan, in which case settlement was due on the later of 21 March 2018 or 14 days after notice of registration of the plan. Special Condition 7.1 of the contract made settlement conditional on Parwan subdividing the Property within 18 months from the day of sale and required that it use its best endeavours to achieve this.
  • The contract of sale also provided that it was subject to a lease between Parwan and Hooper. That day Parwan agreed to lease the Purchased Area to Hooper for 24 months and thereafter, unless terminated in accordance with the Residential Tenancies Act, to continue as a periodic tenancy.
  • In 2017 Hooper caveated over the Property claiming an interest as purchaser under the contract of sale.
  • In 2018 Parwan executed a deed of charge in favour of Hooper creating an equitable charge over the Property securing payment of $350,000, said to reflect the value of Hooper’s improvements to the Property. In 2018 Hooper caveated over the Property claiming an interest as chargee based on this document.
  • On Parwan falling into default of mortgage repayments the bank in 2020 appointed receivers of the Property. Thereafter Parwan acted through the Receivers.  In 2021 the Receivers applied to the Registrar of Titles under the Transfer of Land Act s. 89A for a lapsing notice to remove the caveats.
  • Subdivision had not occurred. The bank and Receivers did not consent to sale of the Purchased Area to Hooper.  As at 3 December 2021 the mortgage debt was over $1.1m.
  • Hooper commenced a proceeding seeking specific performance of the contract of sale and certain declarations. Parwan filed a Defence and Counterclaim.  Parwan also issued a Summons applying for summary judgment under the Civil Procedure Act ss. 61, 62 and 63 on certain aspects of its pleading, which effectively mirrored the relief sought by Hooper, seeking a declaration concerning the lease, and alternative relief in the form of removal of the caveats.

Relevantly Matthews AsJ held –

  1. The Receivers had standing to counterclaim and press the Application contained in the Summons in the name of the registered proprietor Parwan.
  2. Although the contract of sale was binding Hooper’s claim for specific performance turned on whether the Property could be subdivided and on whether the sale could be settled given the bank’s attitude and in particular whether it would discharge its mortgage.
  3. As to whether the Property could be subdivided the weight of evidence was that because the Receivers and the bank did not consent to the sale Parwan was unwilling to, and could not effect, subdivision or transfer whereby it refused to perform its contractual obligations. In such circumstances the remedy of specific performance would probably require supervision by the court, which was usually a reason not to grant specific performance.  Further even if Parwan took steps towards subdivision, its achievement was outside its control.
  4. As to the bank’s attitude, Parwan could not deliver clear title to Hooper by redeeming the mortgage, which had priority over Hooper’s interest as purchaser and the mortgage debt now exceeded the purchase price.
  5. When the foregoing barriers, particularly impossibility of settlement because the mortgage would not be discharged, were combined there was no real prospect of Hooper obtaining specific performance.
  6. There was a prima facie case of the interest claimed in the purchase caveat. On the balance of convenience –
    1. neutral factors were: (a) that, although the bank desired sale, no contract of sale to a third party yet existed; (b) Hooper’s claim that he remained in possession of the Purchased Area, which in light of the evidence was questionable; (c) possible VCAT enforcement proceedings by the local municipality, on which there was a paucity of evidence; (d) Parwan’s offer to pay the net proceeds of sale into court or a trust account pending determination of Hooper’s claims.
    2. Hooper’s proposed undertaking to pay the difference between the price for the Purchased Area and the mortgage debt did not affect the balance of convenience because it was ambiguous and failed to articulate relevant factors including Hooper’s capacity to pay.
    3. However, the balance of convenience favoured removal of the caveat because of strong evidence of fundamental barriers to specific performance (and so any remedy for breach of contract would be for damages in lieu of specific performance).
  1. Although there was a prima facie case of the interest claimed in the charge caveat Hooper would retain the protection of the charge even without the caveat, there being no evidence that it could not be satisfied out of net proceeds remaining after payment under the bank’s mortgage. Accordingly, the balance of convenience overwhelmingly favoured removal of this caveat on condition that the net proceeds of sale were paid into court or a trust account.

On appeal Forbes J. held –

  1. As the appeal was from a discretionary judgment the principles of House v The King (1936) 55 CLR 499 applied. [62]
  2. The grant of summary judgment was attended by error in the finding that relief in the nature of specific performance had no real prospect of success. In particular –
    1. As to whether the Property could be subdivided, the contractual requirement to subdivide to create the Purchased Area did not, as a matter of principle, render specific performance unavailable and was as a matter of fact contested. It was for Parwan to show that the Melton Planning Scheme did not permit such subdivision and it had not led evidence (only assertion) on this.  The evidence rose no higher than that it had taken no step to subdivide and was refusing to do so (submitting it would be futile because of the bank’s intention to withhold consent), demonstrating only a breach of contract.  Although Parwan’s unwillingness to commence these steps was a significant barrier to settlement this was irrelevant to whether subdivision could occur – Parwan could not rely on its own non-performance as a barrier to specific performance.  Caution in concluding that subdivision could not occur was dictated by both the factual contest on this question and the discretionary nature of the relief sought, especially given the absence of evidence before the court.
    2. The proposition that Hooper lacked a real prospect of obtaining specific performance because of the bank’s refusal to consent to the sale unless its mortgage was discharged, because the sale proceeds of the Purchased Area would be insufficient for discharge, was based on the false premise that these proceeds were the only means of discharge. However, the mortgage was secured by the whole of the Property. [82]-[84], [87]-[95]
  1. The orders removing both caveats under s. 90(3) of the Transfer of Land Act were not rendered erroneous by the fact that the Summons did not seek this relief. The manner in which the hearing was conducted made it clear that these orders were sought to enable Parwan to sell the Property.  The absence of an originating procedure specifying relief pursuant to s. 90(3) was explicable by Hooper’s proceeding seeking declaratory relief, the effect of which would be to maintain the caveats. [98], [99]
  2. The only issue for Matthews AsJ to consider was where the balance of convenience lay in maintaining or removing the caveats. The factor most influencing her Honour, and indeed the only factor weighing against removal, was her conclusion that the contract was not specifically performable, notwithstanding that the validity of the contract of sale was to be determined at trial. [97], [100]

Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, June 21, 2023

Blog 59. Mother and Son.

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

These cases concern the same piece of land.  The first case deals with the uncommon points of an application under the Transfer of Land Act s. 90(3) being brought by Summons in an existing proceeding, rather than by Originating Motion and Summons, and with abuse of process.  The second case is more routine, there being a dubious caveatable interest but the balance of convenience favouring removal of the caveat, nonetheless raising two interesting points not explicitly touched on by Gorton J.  First, the solicitors lodging the caveat could not decline to accept service: Transfer of Land Act ss. 89(4) and 113(3) (Blog 49).  Second, in weighing the balance of convenience his Honour could have considered whether, as there was also a purchaser, the caveator was able to give the undertaking as to damages (Blog 56).

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

The facts were –

  • The plaintiff was the mother of the defendant.
  • In August 2018 the son purchased a property for $650,000 after obtaining a bank loan secured by a mortgage guaranteed by his mother. Work started to construct townhouses on the property.
  • Loan repayments fell into default, the bank took steps to enforce the mortgage, and with its agreement the son in November 2021 entered into a contract for sale for $865,000, with a 10% deposit that was paid, with settlement due on 21 January 2022.
  • On 17 January 2022 the mother lodged a caveat. The son applied for its removal under s. 90(3) of the Transfer of Land Act.  The mother produced a 2018 declaration of trust to the court which she alleged, and he denied, was signed by him.
  • On 17 February after an opposed hearing a judge ordered removal of the caveat.
  • On 21 February the mother commenced a proceeding seeking, inter alia, a declaration that the proceeds of the sale were held on trust for her and equitable compensation.  She made an interlocutory application to restrain the distribution of the proceeds of sale.  The selling agent deposed that the value of the property was $850,000 – $900,000 and that the sale was for market value.   The mother produced a valuation that the underlying unencumbered value of the property was $760,000 but that it was worth $1 m. with the planning permit and settlement of sale of three dwellings before the end of 2022.   She also produced an affidavit in which the deponent swore that he would lend money to her and otherwise assist her completing the development, and lend money to her ‘to repay any outstanding home loans’.
  • The hearing of the interlocutory application on 25 February (the caveat not yet being removed) expanded from one seeking restraint of distribution of the proceeds of sale to one seeking restraint of the sale until trial. The judge however only ordered that the net proceeds of sale to be held in the son’s solicitor’s trust account until trial or further order.
  • On 27 February the mother lodged another caveat asserting the same interest as the previous one. The son made a further application under s. 90(3), by Summons in the proceeding commenced by his mother.

The mother among other things: stated that the property was hers and that she intended to appeal against the decision of 17 February; relied on material which had been before the court on 25 February; and referred to her recent proposal to the bank to repay the arrears, finish the development, and sell the property, not yet eliciting the bank’s substantive response.

Gorton J. held –

  1. Although an application under s. 90(3) was normally made by Originating Motion and Summons it could be made by Summons in an existing proceeding. The filing of the Summons amounted to the bringing of ‘proceedings in a court against the caveator for the removal of the caveat’ as those words in s. 90(3) were to be understood.  This outcome was supported by s. 8(1) of the Civil Procedure Act 2010.  It was significant that the Summons was brought in a proceeding between the two relevant parties relating to their rights. [5]
  2. A second interlocutory application for the same relief was an abuse of process if it would be unjustifiably oppressive to the other party, or would bring the administration of justice into disrepute. Ordinarily, an abuse of process was associated with commencement of a proceeding or application, rather than its defence.  However although an application under s. 90(3) was not commenced by the caveator, the caveator was treated as if the caveator were the moving party seeking an interlocutory injunction.  Accordingly, in substance, it was the caveator who was potentially abusing the process of the court by supporting a second caveat identical to a removed caveat.  The maintenance of this caveat was an abuse of process. [13]-[15]

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

Another caveat was lodged on 13 April 2022, ie nine days after the previous decision, by the first defendant Madappilly claiming a freehold estate based on an agreement with the son dated 5 August 2020.  Further –

  • On lodgment of the caveat Madappilly’s solicitors wrote to the son’s solicitors stating their instructions that the son was attempting to sell the property in breach of the Constructive Trust Agreement and Construction Contract both dated 5 August 2020, under which agreements approximately $300,000 was owed to Madappilly.
  • They provided copies of these documents. The ‘Construction Contract’ was undated and purportedly signed on 5 August 2020.  It was a contract between the son, one of two other alleged joint venturers (see further below), and a company associated with Madappilly, in which the son and one of the other parties declared that they intended to enter a contract to build townhouses on the property and appointed the company as building supervisor.  It provided that the company would be paid a deposit of $300,000 upon execution of the agreement, and that it could charge for services at an hourly rate left blank.  It then stated that the son and the joint venturer would ‘permit’ the company ‘to have equitable and beneficial interest in the land, pending making the deposit of $300,000’ and would when requested transfer the land “to [the company] to [the company’s] interest”.
  • In the ‘Constructive Trust Agreement’, dated and purportedly signed on 5 August 2020, the son declared that he intended to enter into a contract to purchase the property and that he confirmed that he held Madappilly’s interest in the property and/or benefits accrued or to accrue in respect of that interest upon trust for Madappilly absolutely subject to the terms and conditions set out in this deed. Madappilly’s interest was defined to mean ‘full interest in the… Property as tenants-in-common’.
  • The son’s solicitors stated that he denied having signed these documents and that ‘[t]he builder who actually was doing the construction on the property is not aware of your client’.
  • The son sought an order under the s. 90(3) for removal of the caveat. Madappilly’s solicitors advised that they were not instructed to accept service and did not hold instructions to continue to act.
  • Madappilly, who described himself as building supervisor, deposed that –
    • In around mid-2019 he entered into an oral joint venture agreement with the son and two others; and the son undertook and represented to them that the son would pay the mortgage and other outgoings, would provide $150,000 towards the completion of the joint-venture, and that when the development was completed it would be sold;
    • In reliance on those promises, he and the other two people jointly invested ‘around $500,000’ in the joint-venture in work and materials, and implicitly that the four persons were to share the net profits of sale.
  • The son identified the builder he had dealt with, deposed that he did not know who Madappilly was, and denied entering any joint venture agreement.
  • Madappilly produced to the court a valuation that the property was in its current state worth approximately $1 m. and that if $209,500 was spent completing the project the property could be sold for $1.635 m.
  • The net sale proceeds were under $140,000.

Gorton J. held –

  1. The interest asserted by the caveator in his affidavit sat uneasily with any interest based on the agreements purportedly signed on 5 August 2020. The arrangements contained in the Construction Contract were entirely inconsistent with the affidavit evidence and at best gave a caveatable interest to the company not Madappilly.  The Constructive Trust Agreement was unusually worded, and read strictly did not give Madappilly an equitable interest but confirmed that the son held Madappilly’s interest on trust for Madappilly.  It was difficult to reconcile the two documents.  Madappilly could not explain caveating asserting an interest based on an agreement reached on 5 August 2020 but now relying on an oral joint venture arrangement entered into the previous year.  Turning to Madappilly’s evidence: he did not identify to what extent he contributed to the ‘around $500,000’, and so, even if his evidence was accepted did not establish the extent of his beneficial interest; and he produced no documents supporting provision of work and materials.  Because of the inconsistency between what had been advanced by his solicitors and what was now advanced in court there was   reason to doubt his version of events. [8]-[10], [15]-[17]
  2. The court inferred that Madappilly either through his previous solicitors or now advanced arrangements known by him to be incorrect. However, in light of the affidavit material filed there was an issue to be tried that Madappilly had an equitable interest in the property, albeit one difficult to establish. [5], [17]
  3. The balance of convenience favoured removal of the caveat ([25]) –
    1. The alleged sum required to complete the project was said to be pursuant to the unproduced Building Contract and was unclear whether inclusive of landscaping expenses. [18]
    2. It the contract of sale was completed the son could discharge the mortgage and stop interest running. [18], [24]
    3. The contract of sale was on its face unimpeachable (note that his Honour states that the contract price was $850,000, but this seems to be a slip). [19]
    4. The property was not the residence of either party and if the caveat was removed and the sale completed Madappilly would retain a cause of action against the son for damages. [20]
    5. There was no evidence that the purchaser was other than bona fide for value without notice of the caveator’s alleged interest, the contract of sale being apparently specifically enforceable giving the purchaser an equitable interest and giving a claim for damages against the son if the sale did not proceed. Madappilly had not offered to indemnify the purchaser or the son against any liability in damages if the caveat remained.  In one sense, the same issues arose as in a priority dispute between Madappilly and the purchaser, it being relevant that Madappilly had not caveated until after the contract of sale. [19], [22], [23]
    6. There was no evidence that Madappilly or the other alleged joint venturers had the means to complete the development. [21]

       Philip H. Barton

       Owen Dixon Chambers West

       Friday, October 13, 2022

 

27. Caveat removal procedure – whether originating application for removal of the caveat required or just a summons in the proceeding sufficed?

 

Walters v Perton (No 2) [2019] VSC 542 (16 August 2019) Derham AsJ.

The facts were:

·      Mr Warring was Mrs Perton’s father and Mrs Walters’ domestic partner.  Mrs Perton, as trustee of a trust, was the registered proprietor of certain land.  

·    The Supreme Court had previously granted judgment in favour of Mrs Perton for possession but in the current proceeding Mrs Walters sued Mrs Perton claiming that the property was held on trust for her.  She had also lodged a caveat grounded on this claim. 

·    In this proceeding Mrs Perton made no claim by counterclaim or otherwise for removal of the caveat but nonetheless filed a summons seeking its removal. 

·    The hearing of the removal application was fixed for hearing with the hearing of an unrelated application.  Two months before the hearing date the defendant notified the Court that she no longer pressed the hearing of the caveat removal application but would seek a speedy trial of all issues in the proceeding including the caveat removal.

·       The plaintiff applied for costs of the caveat removal application, including submitting that it had been incompetent because the defendant had not filed an originating application for such removal.

Derham AsJ held –

1.   Having regard to the Civil Procedure Act 2010, the requirement set out in s. 90(3) of the Transfer of Land Act that the person “bring proceedings in a court against the caveator” for the removal of the caveat, if it meant commence a proceeding by writ, originating motion or possibly a counterclaim, must yield, if necessary and appropriate, to give effect to the overarching purpose of facilitating the just, efficient, timely and cost-effective resolution of the real issues in dispute.  Shaw v Yarranova Pty Ltd [2005] VSC 94 was accordingly distinguishable because it preceded the Civil Procedure Act. [13]

2.   Accordingly if the caveat removal application were otherwise well founded in fact and law it could have been brought by summons in the proceeding.  But in a case such as the present, the caveat removal application amounted in substance to an application summarily to dismiss the plaintiff’s claim that she had an equitable proprietary interest in the land sufficient to sustain the caveat.  The matters relevant to determination of the validity of the caveat were intimately wrapped up with the plaintiff’s claims for a declaration that she had an equitable interest in the land.  Because of the operation and effect of the Civil Procedure Act the Court looked to the substance of the application rather than its form – if that would further the overarching purpose.  The defendant had accordingly in this case employed the wrong procedure to remove the caveat. [14], [16], [17]

3. The defendant was ordered to pay the plaintiff’s costs thrown away by the abandonment of its caveat removal application. [19]

 

Comment: A decision on an unusual point, and subtle in the sense that it holds that a summons may suffice in some proceedings but not in others.