These proceedings concern a contract for the sale of land entered into on 5 March 2018 in respect of a property in First Avenue, Blacktown. The plaintiff is the purchaser under the contract. The defendant, exercising a mortgagee's power of sale, is the vendor. The purchase price is $10 million. A deposit of $650,000 was paid.
Shortly after the contract was entered into the plaintiff lodged a caveat on the title to the property (AN200749) claiming an interest as purchaser under the contract.
The parties thereafter fell into dispute concerning the Completion date under the contract, and the meaning and operation of Special Condition 49(d) which bears upon that matter. On the front page of the contract it is stipulated that the Completion date is "four months after the Date of provision of documents in DWG format in accordance with Special Condition 49(d)".
Special Condition 49(d) provides:
Notwithstanding, the parties acknowledge that the Vendor will use a portion of the deposit paid at exchange to pay all outstanding fees and disbursements of the Architect in relation to the Development Approval and all other outstanding fees and disbursements to all parties that provided services and or reports pertaining to the Development Approval. The Vendor undertakes to make these payments within 48 hours of exchange and shall within 48 hours thereafter, or sooner if possible, provide all documents pertaining to, and supporting, the relevant Development Approval, in DWG format and all design consultant's documentation relating to the procurement of the Development Approval, together with written transfer of ownership in the copyright of all such documents to the Purchaser.
In brief, the defendant vendor contends that by about 27 March 2018 it had provided documents as required by Special Condition 49(d) such that the Completion date under the contract had been set, yet the plaintiff purchaser failed to acknowledge that position and wrongfully maintained that the defendant was obliged under the Special Condition to provide further documents such that the Completion date under the contract had not been set.
The defendant contended that the plaintiff's conduct in this regard amounted to a repudiation of the contract. On 31 May 2018 it terminated the contract based on its acceptance of the alleged repudiation. The defendant served a lapsing notice in respect of the caveat on 6 June 2018. Absent an order extending the operation of the caveat it will lapse after today.
The plaintiff commenced these proceedings by Summons filed on 19 June 2018. It obtained orders ex parte for short service. The matter returned to Court on 21 June 2018, when directions were made to have the plaintiff's claim for extension of the operation of the caveat ready for hearing on 25 June 2018. At the conclusion of the hearing on that day the decision of the Court was reserved and it was indicated that the decision and reasons would be provided today.
The plaintiff's application is made pursuant to s 74K(2) of the Real Property Act 1900 (NSW). The sub-section provides, in short, that the Court may, if satisfied that a caveator's claim has or may have substance, make an order extending the operation of the caveat. The plaintiff seeks an order that the operation of the caveat be extended until the determination of the proceedings, or further order of the Court. The plaintiff claims, by its Summons, a declaration that the defendant's termination of the contract is ineffective, and a declaration that the contract remains on foot. No claim for specific performance of the contract, or any particular obligation under it, has yet been made.
It is clear, and not in dispute, that upon an application under s 74K(2) for an order extending the operation of a caveat the principles to be applied are akin to those that apply on applications for interlocutory injunctions. That is to say, the Court considers whether there is a serious question to be tried (or a prima facie case in the sense described by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [65]) as to the existence of the interest claimed by the caveator, and if so, whether the balance of convenience favours the continued operation of the caveat. The Court may also consider any discretionary matters that may be relevant to the exercise of the power.
The existence of the interest claimed by the plaintiff in its caveat depends upon whether the contract has been validly terminated by the defendant. It is thus necessary to consider whether there is a serious question to be tried that the termination was invalid such that the contract remains on foot. That task calls for consideration of the proper construction of Special Condition 49(d) and whether the conduct of the plaintiff in relation to the meaning and operation of the Special Condition was at least arguably not such as to amount to a repudiation of the contract.
It seems to me reasonably clear that whilst Special Condition 49(d) requires the vendor to do various things (including the making of payments and the provision of certain classes of documents) the Completion date under the contract is defined only by reference to the provision of documents in DWG format in accordance with Special Condition 49(d); that is, the provision of "all documents pertaining to, and supporting, the relevant Development Approval in DWG format". That expression would seem to encompass all documents of that description that are in DWG format.
In that regard, the evidence establishes the following:
1. on 13 March 2018 the defendant paid an amount to the architect involved with the development approval and received in return a USB stick containing various plans in DWG format;
2. the USB stick was provided to the plaintiff's solicitors on the same day;
3. on 16 March 2018 the plaintiff's solicitors stated that some of the plans on the USB stick were provided only in PDF format, and further stated that a number of documents were missing from the "DA Package" including some that were said to be in DWG format;
4. by 26 March 2018 the missing documents said to be in DWG format had been provided to the plaintiff's solicitors (i.e. the stormwater engineering plans, and files A205 and A611), save for the survey plan which the defendant's solicitors asserted was never provided in DWG format;
5. the defendant's solicitors asserted on 26 March 2018 that the four month period for settlement (i.e. for the setting of the Completion date) had commenced, such that settlement was due on 26 July 2018;
6. on 27 March 2018 the plaintiff's solicitors disputed that the four month period had commenced as they had not yet received all documents pertaining to the development approval. Three documents said to be in DWG format were referred to, including the survey plan;
7. later on 27 March 2018 two of the three documents were provided in DWG format. Again the defendant's solicitors stated that the survey plan did not exist in that format. They further stated that the defendant was not able to provide anything further in satisfaction of Special Condition 49(d), and that the defendant considered that it had complied with its obligations in that regard;
8. on 28 March 2018 the plaintiff's solicitors stated that the plaintiff was only seeking to exercise its rights under Special Condition 49(d). The defendant's solicitors retorted "but if the documents don't exist how can my client provide them?". In an email sent later that day, the defendant's solicitors requested the plaintiff's solicitors to identify exactly what the plaintiff thought was not provided;
9. in subsequent communications the plaintiff's solicitors maintained that a survey report in DWG format must have existed to lodge the development application. However, on 13 April 2018 those solicitors stated that the main issue concerning the "Commencing Date" (presumably the date the four month period commences) was the vendor's failure to provide an assignment of the copyright in the architectural drawings. It was also stated "that any existing survey may be converted to the DWG format";
10. on 18 May 2018 the plaintiff's solicitors stated that the four month period cannot commence until Special Condition 49(d) had been complied with by the provision of documents including consents in relation to copyright and an Aboriginal archaeology report. The only document in DWG format said to be outstanding was the survey report;
11. the defendant's solicitors responded on 25 May 2018 stating that all of the design consultant's reports being the plans in DWG format had been provided. Confirmation that the four month period had commenced (by 10 May 2018) was sought, failing which the plaintiff's conduct would be considered to be repudiatory;
12. on 28 May 2018 the plaintiff's solicitor responded, stating that they were instructed that until the requirements of Special Condition 49(d) are satisfied, the settlement period of four months cannot commence; and
13. as stated earlier, on 31 May 2018 the defendant purported to terminate the contract.
The defendant submitted that the plaintiff's conduct:
1. evinced an unwillingness to render substantial performance of the contract by completing it within four months of the date when all of the architect's plans had been provided in DWG format;
2. evinced an intention to no longer be bound by the provisions of the contract that define the Completion date;
3. conveyed a renunciation of the fundamental obligation to complete on the Completion date; and
4. insisted upon a performance of Special Condition 49(d) which the contract did not entitle it to.
In summary, it was submitted that the conduct showed that the plaintiff was not willing to proceed with performance of the contract in accordance with its terms properly construed, and the plaintiff had thus repudiated the contract. The defendant submitted that there is no serious question to be tried on that matter.
There is considerable force in the contention that the plaintiff was in error in maintaining that the four month period had not commenced even though it appears that all of the DA supporting documents that were in DWG format had been provided. The plaintiff seems to have taken the erroneous view that the time period did not commence until certain other documents were provided to it. Moreover, the plaintiff did not shift its position even after the defendant pointed out that it had provided all the documents that were in DWG format (compare DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 432). It seems to me that there is a strong argument that the conduct of the plaintiff was such as to amount to a repudiation of the contract.
Nevertheless, I do not think that there is no serious question to be tried on that matter. Contractual repudiation is a serious matter, not something lightly found or inferred (see DCT Projects Pty Ltd v Champion Homes Sales Pty Ltd [2016] NSWCA 117 at [39]). In this regard it is relevant to note that on any view the Completion date had not arrived at the time of the termination. In circumstances where the parties were advancing different interpretations of what the contract meant and what it required, I think that a serious question arises as to whether the conduct of the plaintiff was such as to convey to a reasonable person, in the situation of the defendant, renunciation of the contract as a whole or the plaintiff's obligation to complete in accordance with the contract (see Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115; [2007] HCA 61 at [44]). The plaintiff's case (as disclosed by the evidence presently before the Court) is in my view not a strong one, but it does rise high enough to raise a serious question to be tried as to the validity of the defendant's termination of the contract. The plaintiff's claim has or may have substance within the meaning of s 74K(2) of the Real Property Act.
I turn then to the balance of convenience.
The plaintiff submitted that the balance of convenience favours the continuation of the operation of the caveat. It pointed to the fact that it has paid a deposit of $650,000, and says that it is evident that it wishes to complete the contract. The plaintiff submited that if the caveat lapses and the property is sold it will lose its purchase and any profit it might make upon a development of the property. It was further submitted that there is no evidence that the defendant could make good such losses. It was further put that the caveat does not itself preclude the defendant from exchanging contracts.
The plaintiff conceded that it is not in a position to proffer an undertaking as to damages that has substance. Further, no offer of any security is made by the plaintiff or anyone standing behind the plaintiff in order to give substance to any undertaking that is proffered. The plaintiff submitted that provision of an undertaking as to damages is not invariably required when the operation of a caveat is sought to be extended, although it is accepted that it is only in exceptional circumstances that an undertaking is not required (see Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at 478).
The defendant submitted that the balance of convenience was against the continuation of the operation of the caveat. It submitted that it should not be prevented from dealing with the property in circumstances where the mortgage debt greatly exceeds the apparent value of the property, and is escalating rapidly due to a high rate of default interest. The defendant pointed to some evidence of interest in a purchase of the property at a price of $11 million, $1 million more than the price under the contract entered into with the plaintiff. The defendant also submitted that delay in realising the property will cause it loss in the conduct of its money lending business. The defendant submitted that in these circumstances it was significant that the plaintiff is unable to proffer a meaningful undertaking as to damages.
In my opinion the balance of convenience is against the continuation of the operation of the caveat. The proceedings would likely be able to be heard and determined by the end of this year. Nevertheless, as shown by the evidence adduced by the defendant, there is a likelihood of substantial loss being suffered by the defendant in the meantime if it is unable to sell the property. There is also a prospect (although the evidence concerning the offer of $11 million is rather thin) that the defendant could miss an opportunity to sell at a higher price. In these circumstances the absence of an undertaking as to damages that has substance assumes considerable importance.
I have not overlooked that the plaintiff has paid a deposit, although it must be said that following the payment of a portion of the deposit to the architect (apparently about $150,000) the remaining deposit is only about 5% of the price. Moreover, the losses against which a forfeited deposit might be put are not co-extensive with the losses for which compensation may be recovered pursuant to an undertaking as to damages. The deposit, which is paid as an earnest of the bargain, cannot simply be regarded as a form of security for an undertaking as to damages.
I have also taken into account on the balance of convenience the strength of the plaintiff's claim. As I have said, the plaintiff's case is not a strong one, and indeed there is a strong argument that the plaintiff's conduct amounted to a repudiation that would justify the defendant's termination of the contract.
I note that the plaintiff says that it wishes to complete the contract. I am prepared to assume that, although, as I have said, there is presently no claim for specific performance of the contract or any particular obligation under it. There is no evidence of the plaintiff's ability to complete the contract, but this is of relatively little moment in circumstances where on any view completion would not have been required until late July at the earliest.
It is true that the defendant has not adduced evidence of its own ability to compensate the plaintiff for any losses it may suffer if it is precluded from completing the contract. However, the defendant is the operator of an existing money lending business and there is no particular reason to doubt its financial wherewithal. Further, it is not the defendant who seeks what is in effect an interlocutory injunction.
Finally, whilst it is true that the caveat itself does not preclude the defendant from selling to another purchaser, in practical terms the existence of the caveat inhibits the defendant's ability to freely deal with the property.
Taking all of the circumstances into account I have come to the conclusion that the risk of injustice to the defendant if the caveat is extended exceeds the risk of injustice to the plaintiff if the caveat is not extended.
I do not regard this as a case where it would be appropriate to dispense with the usual requirement that an undertaking as to damages be proffered. That the plaintiff is not in a position to proffer an undertaking of substance, and no other security is offered in order to give substance to any undertaking, is significant in reaching my conclusion as to the balance of convenience.
The plaintiff suggested that the Court could extend the operation of the caveat and stipulate that some security be provided. However, in the absence of evidence as to the capacity of any person or entity to provide security, I do not think it is appropriate to take that course. The plaintiff was on notice from at least 21 June 2018 that the lack of a substantial undertaking as to damages was an issue relied upon by the defendant. The plaintiff adduced further evidence, but not on that issue.
For the above reasons, the Court has decided that it will not exercise the power under s 74K(2) of the Real Property Act to extend the operation of the plaintiff's caveat. The plaintiff's application will be dismissed. The Court will further order that the plaintiff pay the defendant's costs of the application.
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Decision last updated: 27 June 2018