Allam Homes v Vocata

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3743/03 ALLAM HOMES PTY LTD V VOCATA PTY LTD JUDGMENT 1 HIS HONOUR: This proceeding began on 10 July 2003, when the plaintiff sought leave to file a statement of claim with abridgement of service, and moved for interim relief in terms of paragraph (5), or in the alternative paragraph (9), of the statement of claim. Paragraph (5) seeks an order that the operation of a certain caveat be extended until further order, and paragraph (9) seeks an order that until the determination of the proceeding or further order, the defendant be restrained from dealing with the land to which the caveat relates. The defendant appeared on the application, to resist the claim for interim orders. 2 The hearing of the application was comparatively lengthy, for a Duty List matter, and I granted leave for further written submissions to be provided to me on 11 July 2003. I was informed that the caveat was due to expire on 11 July. I therefore made an order by consent extending the operation of the caveat until further order, so as to preserve the position of the plaintiff until I could make my decision. 3 At all material times the defendant has been the registered proprietor of approximately 20 acres of land originally known as Lots 14 and 15 Sparks Road, Woongarrah ("the Land"). On 12 April 2002 the plaintiff and the defendant executed a Deed of Put and Call Option ("the Deed"). Under the Deed the defendant agreed to lodge development applications with Wyong Shire Council to permit subdivision of the Land, in the manner set out in Plan A and Plan B attached to the Deed. Plan A was for a subdivision of part of the Land into 27 proposed lots, to be used for the development of display homes. Plan B was for a subdivision of another part of the Land for residential development, having 41 proposed lots. 4 The Land originally comprised Lots 14 and 15 in Deposited Plan 7738. The boundaries of those lots were adjusted by the registration of Deposited Plan 1042739, which divided the land into Lot 1 and Lot 2. Then another Deposited Plan, No 1045448, was registered under which Lot 2 in Deposited Plan 1042739 became known as Lot 4 in Deposited Plan 1045448. On 19 June 2002 the Council granted consent to Development Application 2184-00B, being a development consent in respect of what was then Lot 2 Deposited Plan 1042739, corresponding approximately with the part of the Land identified in Plan A. On 13 November 2002 the defendant gave written notice to the plaintiff of the granting of that development consent in respect of Plan A. There is now no relevant dispute concerning the operation of the Deed with respect to the Plan A subdivision. 5 On 12 December 2001 the Council refused Development Application 3059/00B, described in Council's notification as an amended application in respect of a 41 Lot residential subdivision. This was, in substance, the subdivision in accordance with Plan B annexed to the Deed. The reasons for refusal related to the creation of undersized lots in a rural holding zone, the encroachment of lots into a proposed drainage corridor, and failure to supply a "high-quality residential environment and attractive streetscape with good solar access". Council's notification of its refusal of the application was dated 15 May 2002. 6 According to its solicitors, subsequent to that refusal the defendant attempted "to obtain a review by Council". Then on 20 December 2002 the Council gave its consent to Development Application 3059/00C, described in Council's notification as an amended application for a 33 lot residential subdivision. One of the conditions of the development consent (condition 18) was that "lots 101, 105, 121, 137, 138 and 139 and those marked as red on the approved plan are to be created as residue lots and not to be developed until consolidated with adjoining lots and further subdivided". Council's notification of its decision is dated 20 December 2002. 7 Under the terms of the Deed, the defendant had a right of termination if the Plan B Development Consent was not issued by the Council within 12 months from the date of the Deed, namely 12 April 2002. On 9 April 2003 the plaintiff's solicitors wrote to the defendant's solicitors asserting, in effect, that approved Development Application 3059/00C constituted Council's consent to Plan B for the purposes of the Deed. On 14 April 2003 the defendant's solicitors replied, denying that claim, essentially on the ground that the Plan approved by Council was not Plan B as envisaged by the Deed. The plaintiff's solicitors of replied on 28 April 2003, referring (inter alia) to a provision of the Deed which permitted the alteration of Plan B in certain circumstances. The letter also alleged actionable misrepresentations and failure by the defendant to use its best endeavours to secure approval and registration of Plan B. On 21 May 2003 the plaintiff lodged a caveat in respect of the whole of the Land, claiming an equitable interest as grantee under the call options in the Deed. 8 On 12 June 2003 the defendant's new solicitors wrote to the plaintiff's solicitors purporting to give notice pursuant to the Deed terminating the option in respect of the lots in Plan B. Under cover of their letter dated 18 June 2003, the defendant's solicitors served on the plaintiff a Notice to Caveator Proposing Lapsing of Caveat, prepared by Land & Property Information NSW ("LPI (NSW)"). 9 To demonstrate its entitlement to the injunction, which is one of the two alternative forms of relief sought, the plaintiff must show that there is a serious question to be tried as to its asserted entitlement, and that the balance of convenience favours the making of the order. The matters to be demonstrated for extension of the caveat are no more onerous. The case law has been adequately summarised for present purposes by Peter Butt, Land Law (4th edition, 2001), paragraph [2033]. Other formulations, some of which suggest that the standard for extension of a caveat is not as demanding as the interlocutory injunction standard, are summarised by S Lindsay, Caveats Against Dealings in Australia and New Zealand (1995) pp 181-2. It is unnecessary to provide any more refined analysis for the purposes of this case. Counsel did not take me to the authorities or otherwise invite me to do so. 10 Sometimes it is appropriate, in a hearing for an interlocutory injunction or for extension of a caveat, to decide the issues between the parties as if on a final hearing. There is a discussion of the applicable case law, in the context of extension of a caveat, in S Lindsay, op cit at p 175. During the course of argument I entertained and invited submissions on the notion that this may be such a case. The defendant agreed, but the plaintiff submitted that I should decide the matter only to the interlocutory standard. On reflection, I have decided that the plaintiff's approach is the right one in this case. Although there is no substantial issue of fact to be tried, I am not satisfied that all matters of law, and all matters going to the proper construction of the Deed, have been fully argued. The drafting of the Deed is complex in some respects. The matter was brought to court the day before the lapsing of the caveat, and there was limited time available for the hearing even though the Court said after 4pm. Although I received some supplementary written submissions on the next day, my overall impression was that there had not been time for the presentation of such fully developed and considered submissions as one would expect at a final hearing. 11 The defendant contends that, when the approved plan is compared with Plan B and the terms of the Deed are carefully considered, it is apparent that there is no arguable basis for plaintiff to sustain the caveat or obtain equivalent injunctive relief. Therefore the first of the two requirements to be established by the plaintiff for interim relief (which I shall call for convenience the "serious question to be tried" issue) has been hotly contested. There are also, however, some issues about balance of convenience that need to be considered. A comparison of Plan B with the approved plan 12 Counsel for the plaintiff tendered a copy of Plan B and a copy of the subdivision plan for project No SY01.0189, which was identified in Council's notification of consent. They became exhibits A4 and A5 respectively. They are broadly similar plans of subdivision. The location of the proposed drainage reserve which is a substantial part of the overall plan is approximately the same, as are the locations of the proposed roads. The principal differences between the plans appear to be: · lots 106 to 121 in A4 have become lots 106 to 120 in A5, as a result of adjustments to the measurements and areas of many of the individual lots, under which some lots have become smaller and others larger, producing an overall reduction of one in the number of subdivision lots; · most of lot 126 and part of lot 131 in A4 have become an unsubdivided residue marked "Residue Lot 3" in A5, producing another reduction of one in the number of subdivision lots; · lots 132, 133 and 134 in A4 have been substantially re-shaped and rearranged with the result that in A5, lot 131 is approximately similar in area to lot 134 in A4, while lots 137 and 138 (roughly comparable in location though not in shape or size to lots 132 and 133 in A4) now extend substantially over the external boundary of the Land; · lots 139 and 140 in A4 have also been re-shaped and rearranged, the lots roughly comparable in location in A5 being lots 136 and 139, and lot 139 in A5 extends substantially over the external boundary of the Land; · lot 141 in A4, located wholly within the external boundary of the Land, has become lot 121 in A5, and partially extends over the external boundary of the Land. 13 The subdivision approved by Council gives the defendant two fewer subdivision lots, and four of the lots (lots 121, 137, 138 and 139 in A5) cannot be utilised unless adjoining land is acquired. The same is true with respect to lots 101 and 105, although that outcome appears to have been contemplated in A4. Thus, instead of being in a position to receive $130,000 multiplied by 39 (allowing for the need to acquire further land to make lots 101 and 105 complete) under A4, the defendant would receive under A5 $130,000 multiplied by 33, with a greater area of residue not available for subdivision unless additional land were acquired. If all lots were sold, the gross receipts would be reduced by $780,000. Relevant provisions of the Deed 14 The Deed is between the defendant as Grantor and the plaintiff as Grantee. It relates to "Lots", defined in clause 1.2(n) to mean Lots 101-141 (inclusive) and Lots 201-227 (inclusive) as shown in the Plan of Subdivision. The "Plan of Subdivision" is defined in clause 1.2(u) to mean the plans of subdivision of the Land comprising Plan A and Plan B as amended pursuant to clauses 7.5 and 8.3 of the Deed, or one of them as the context requires. "Plan B" is defined in clause 1.2(w) to mean the plan of subdivision of part of the Land to create lots 101-141 inclusive, annexed to the Deed and marked "B". Thus, by these definitions the Deed identifies the "Lots", as regards Plan B, as the 41 numbered lots in the plan annexed to the Deed. But the definition of "Plan of Subdivision", to which the definition of "Lots" refers, contemplates amendment of the plan pursuant to clause 7.5 (clause 8.3, which relates to the display village in Plan A, is not relevant here). 15 By clause 2.1, in consideration of payment by the Grantee of the Call Option Fee, the Grantor granted to the Grantee a Call Option in respect of each of the Lots for the Grantee or its Nominee to purchase each of the lots for the Purchase Price, on the terms set out in the Contract. 16 The definitions relevant to clause 2.1 show that the clause creates a separate option in respect of each Lot. Thus, "Call Option" is defined to mean the call options granted by the Grantor to the Grantee to require the Grantor to sell the Lots to the Grantee. The Call Option Fee and the Purchase Price are defined in respect of each Lot. The Call Option Fee is $100 per Lot, and that amount has been paid in respect of each of the 41 Lots. The Purchase Price is defined in respect of each Lot by reference to the Schedule, which lists each of Lots 101 to 141 and sets out the figure of $130,000 adjacent to each Lot. The "Contract" means the contract for sale of each of the Lots a copy of which is annexed to the Deed. 17 Clause 3.1 provides: "A Call Option in respect of each of the Lots may be exercised after the expiry of the later of:- (a) 42 days after the date of this Deed; or (b) the date the Grantor notifies the Grantee in writing that the relevant Development Consent for the Plan of Subdivision containing that Lot has been issued by the Council to the Grantor." 18 There are provisions (subclauses 3.1 to 3.4) about the lapsing of the Call Options regarding Lots in Plan A and Plan B, upon which nothing depends in the present case. Clause 3.5 makes it clear that the Grantee exercises the Call Option by giving a notice of exercise for each Lot in respect of which the option is to be exercised. At the same time the Contract must be executed by the Grantee or its Nominee and the deposit must be paid. Clauses 5 and 6 have the effect that the Grantor has a put Option with respect to unsold Lots, enabling it to require the Grantee to accept those Lots. 19 Clause 7 is important in the present case. Clause 7.1 obliges the Grantor diligently and expeditiously to make and pursue applications to the Council for development consent to subdivide the Land into the Lots in accordance with the Plan of Subdivision, and the use its best endeavours to obtain, inter alia, the Plan B Development Consent. "Plan B Development Consent" is defined in clause 1.2(b) to mean development consent issued by the Council on terms and conditions that are acceptable to the Grantor acting reasonably, consenting to the subdivision of part of the Land in accordance with Plan B. It is not relevant for me to determine whether the defendant complied with its obligations under clause 7.1 in procuring development consent issued by Council on 20 December 2002, although it is relevant to consider whether that consent was "Plan B Development Consent". 20 Clause 7.1 also obliges the Grantor to give notice to the Grantee of the issue by the Council of the Plan B Development Consent, together with a copy of terms and conditions of that consent, within seven days of its issue by the Council. One of the questions in this case is whether the consent issued by the Council on 20 December 2002 was the Plan B Development Consent of which notice should have been given under clause 7.1. 21 Clause 7.3 provides: "If the Plan B Development Consent is not issued by the Council within 12 months from the date of this Deed either party may thereafter by notice in writing to the other terminate this Deed in respect to the Lots comprised in Plan B and the Call Options and Put Options in respect to the Lots in Plan B shall lapse and neither party should [sic] have any rights or obligations in respect thereto but this Deed shall continue to operate in respect to the Lots in Plan A unless this Deed is otherwise rescinded or terminated pursuant to the provisions of this Deed."

This is the provision under which the defendant's solicitors purported to act, in giving notice of termination on 12 June 2003. 22 Clause 7.5(a) obliges the Grantor to use its best endeavours to procure registration of the Plan of Subdivision with LPI (NSW) before the Plan Registration Date. Clause 7.5(b) provides: "The Grantor may make alterations to the Plan of Subdivision which the Grantor, acting reasonably, considers necessary or desirable in order to obtain and/or comply with the conditions of the relevant Development Consent or the requirements of LPI (NSW) for registration of the Plan of Subdivision." 23 Clause 7.5(c) requires the Grantor to give written notice of registration of Plan A and Plan B, and clause 7.5(d) provides: "If there is any variation made by the Grantor to the Plan of Subdivision in respect of any Lot or Lots which: (i) reduces the area of a Lot by more than two and a half percent (2.5%); or (ii) reduces any one dimension of a Lot by more than two and a half percent (2.5%); or (iii) materially and adversely affects the Grantee's or Purchaser's use and enjoyment of a Lot; or (iv) adversely affects the Grantee's ability to construct upon a Lot a dwelling which may be the subject of a Building Agreement between the Grantee and a Purchaser, or a four bedroom double garage concrete slab on ground dwelling from the Grantee's range of residential dwellings usually constructed by the Grantee; the Grantee may by notice in writing given to the Grantor at least 7 days prior to the relevant Call Option Expiry Date for that Lot terminate this Deed in respect to that Lot and neither party shall have any rights or obligations created under this Deed in respect to that Lot except the rights and liabilities created under clause 10 [which relates to the rights of Purchasers] which will not merge in or be extinguished by such termination but which will continue to bind the parties." 24 The Contract annexed to the Deed contains a provision (clause 34) which states that completion is conditional upon the registration of the Plan by the Registrar General. It states that if registration is not effected by the Plan Registration Date the Purchaser can rescind, and that if registration is not effected three months after the Plan Registration Date, either party can rescind. Clause 34.3 states that "the Vendor may make alterations to the Plan which the Vendor acting reasonably considers necessary or desirable in order to obtain/or comply with the conditions of the consent of the Local Council or the requirements of the Registrar General for registration of the Plan". Clause 34.4 says that the total number of lots, the numbering of lots, the dimensions of lots and the position of lots shown on the Plan are provisional and subject to those matters shown on the Plan as registered by the Registrar General, and, subject to clause 34.4.2, the Purchaser cannot make claims, objections or requisitions, or rescind or terminate in respect of any such alterations. Clause 34.4.2 (incorrectly numbered 34.4.2.1) permits the purchaser to rescind where there are variations of certain kinds, not materially different from the variations listed in clause 7.5 (d) of the Deed. Construction of the Deed 25 The part of the Deed relating to call options creates a separate call option in respect of each Lot. The definition of "Lots" relates in specific terms to the lots in Plan B. Were not for the provisions of the Deed and Contract about variation, I would regard it as unarguable that the development consent given by the Council on 20 December 2002 was a development consent to subdivision in accordance with Plan B, or that it was the "Plan B Development Consent" as defined in clause 1.2(b), because the subdivision that was approved was substantially different from Plan B. 26 However, clause 7.5(b) permits the Grantor to make alterations to the "Plan of Subdivision", an expression defined in clause 1.2(u), which refers to Plan B as amended pursuant to clause 7.5. Although clause 7.5(b) appears between provisions directed to the registration of the Plan with LPI(NSW) rather than approval of the subdivision by the Council, it is plausibly arguable that clause 7.5(b) authorises alterations which the Grantor acting reasonably may consider necessary or desirable in order to obtain the relevant Development Consent. As counsel for the plaintiff pointed out, if the word "obtain" does not relate to obtaining development consent it is difficult to give that word any meaning in clause 7.5(b), notwithstanding that the surrounding subclauses relate to registration of the plan. 27 The proper construction of the Deed is not an easy matter. An argument against the plaintiff's position is that the right of termination in clause 7.3, and the obligation to notify in clause 7.1, both depend on the definition of "Plan B Development Consent" which refers to development consent to the subdivision of part of the Land in accordance with Plan B. The definition of "Lots" does not appear to figure in the definition of "Plan B Development Consent". Therefore the definition of "Plan of Subdivision" (which brings in the prospect of variation under clause 7.5) arguably does not become relevant to the definition of "Plan B Development Consent", and therefore to the defendant's obligation to notify in clause 7.1 and right to terminate in 7.3. 28 All I am able to decide, and prepared to decide at this stage, is that the plaintiff has satisfied the interlocutory standard on the question of construction. 29 On the plaintiff's construction, the Grantee's position, once an amended subdivision had been approved, would be protected by clause 7.5(d), under which it would be entitled to terminate the Deed in respect of those Lots materially affected. That may mean, in the present circumstances, that the Grantee could terminate in respect of the two Lots that have disappeared and the six Lots that now overlap onto the adjoining land outside the external boundary of the Land. There is no right of termination for the Grantor in the event of material variations. This may be logical, given that the Grantor is the applicant for development consent, with control over the content of the application subject to the requirement of reasonableness in clause 7.5(b). 30 The plaintiff submitted that the construction of clause 7.6 (b) that I regard as arguable is reinforced by the comparable wording in clause 34 of the Contract. While the Contract is intended for use by Purchasers, is it is also available to be used upon exercise of the Call Option in respect of any Lot by the Grantee or its Nominee. It is annexed to the Deed and, the plaintiff submitted, may be taken into account for the purpose of construing the overall contract between the parties represented by the Deed and its annexures. Counsel for the defendant challenged this construction, submitting that clause 34 deals with the respective rights of vendor and purchaser after development consent but before registration of the Plan with LPI (NSW). On balance, I think there is an arguable case for the plaintiff's contention. 31 It is therefore arguable that the Plan the subject of Council's development consent on 20 June 2002 was the Plan B Development Consent notwithstanding the differences between that plan and Plan B annexed to the Deed. If that were so, the Plan B Development Consent would have been issued by the Council within 12 months from the date of the Deed (12 April 2002), and consequently the defendant's right of termination under clause 7.3 would not have arisen and its purported termination on 12 June 2003 would have been ineffective. Consequently such interest as the plaintiff may have had in the Land before 2 of June 2003 would continue after that date. Caveatable interest 32 The grant of an option creates an equitable interest in land, in the sense that the grantor is bound to sell the land to the grantee if and when the option is exercised, and then the grantee has the right to call for the transfer of the legal estate: Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 75-76; the case law was recently summarised and considered by Barrett J in Forder v Cemcorp Pty Ltd (2001) 10 BPR 18,615, esp at page 97871. 33 Counsel for the plaintiff properly drew my attention to a potential weakness in his client's case. It arises out of clause 3.1. That clause makes the plaintiff's call options in respect of each of the Lots exercisable only when the Grantor notifies the Grantee in writing that the relevant Development Consent has been issued. Counsel's concern, arising out of some observations by Young J (as the Chief Judge in Equity then was) in Piper Industries Pty Ltd v Hemphill (unreported, 8 June 1989) was that arguably a caveatable interest does not exist if a call option is subject to a condition not yet fulfilled. 34 In the Piper Industries case, Young J said: "Although the option may confer an interest in land from its inception, that will only occur if the option is exercisable from the date of its creation. If an event has to occur before the option is exercisable then, no matter what may be the juristic nature of an option, in my view, no interest in land is created in the grantee until the time the condition occurs and the option becomes presently exercisable." 35 In the present case, there is some evidence to suggest that the Grantor has notified the Grantee in writing of the Development Consent, thus satisfying the condition. In their letter dated 14 April 2003, the defendant's solicitors referred to the "s 96 modification that our client has obtained for 33 Lots", impliedly acknowledging Council's determination of 20 December 2002, while asserting that it did not constitute Plan B Development Consent for the purposes of the Deed. Additionally, in its written submissions, the defendant said: "If the Court should find that what has issued from Council is 'the Plan B Development Consent' then the defendant's election to terminate on 12 June 2003 would have been ineffective and the plaintiff would now have an exercisable option and therefore a caveatable interest." 36 This appears to imply an admission that the plaintiff would have a caveatable interest notwithstanding clause 3.1, presumably on the basis that the condition stipulated in that clause would have been satisfied. 37 My conclusion is that, on the facts available to me, the plaintiff has an arguable case for a caveatable interest notwithstanding clause 3.1 of the Deed. 38 The plaintiff submitted that if, contrary to its contention, the Court were to conclude that the Call Option was not presently exercisable because of clause 3.1, the defendant would nevertheless be not entitled to exercise the power of termination in clause 7.3 because of its failure to give written notice of the issue of the development consent under clause 7.1. Reliance was placed on some observations by Latham CJ, Williams and Fullagar JJ in Suttor v Gundowda Proprietary Ltd (1950) 81 CLR 418 at 441, that "if one party has by his default brought about the happening of the event, the other party alone has the option of avoiding the contract". I do not regard this contention as relevant. If the plaintiff has an arguable case that the plan consented to by the Council is the "Plan B Development Consent" for the purposes of the Deed, then the right of termination does not arise and the plaintiff has a duty to give notice under clause 7.1; but if there is no such arguable case, the defendant has a right of termination under clause 7.3 but there is no duty to notify the plaintiff under clause 7.1. Balance of convenience 39 The plaintiff did not adduce any evidence going specifically to the balance of convenience, and the defendant did not adduce any evidence at all. Most of the argument before me was directed towards whether there was a serious question to be tried or whether the Court should decide for or against the existence of a caveatable interest on a final basis. 40 Nevertheless, there are some obvious considerations relevant to the balance of convenience. Counsel for the defendant informed me that his client wished to re-finance the development project. If the caveat were allowed to lapse and no injunction were to be granted to prevent that course of action, there would be an obvious risk that third party interests would be created inconsistent with the plaintiff's claim. The plaintiff would then suffer prejudice if it were able to establish, at the final hearing, that it was entitled to exercise the call options in respect of Plan B. 41 Counsel for the defendant pointed out that if the plaintiff's construction of the Deed were correct and it had the caveatable interest that it claims, the defendant would be left in the position of receiving, in terms of gross entitlement, $780,000 less than it would have expected to receive under Plan B. Of course, the variation of the plans for the purpose of obtaining development approval was a decision made by the defendant, but I would not accept the admission that by taking that decision, the defendant has voluntarily exposed itself to that loss of overall revenue, because its decision may have been taken on the basis that the varied plan would not be a Plan B Development Consent for the purposes of the Deed, and consequently it would be entitled to terminate the Deed. 42 It seems to me, however, that the principal disadvantage to the defendant is a disadvantage that would flow from adverse determination on a final basis. The best way to address the point is to take steps for the expedited final hearing of the proceeding, rather than to expose the plaintiff to the risk of irreversible prejudice, should it be able to make out its case on a final basis, by allowing the caveat to lapse prior to the final hearing. 43 The plaintiff's counsel informed me during the hearing that his client would make an application for expedited final hearing of the proceeding if interim relief were granted. I think the appropriate course is to stand the proceeding into the Expedition List for that purpose, while making an order extending the plaintiff's caveat until further order. Conclusions 44 In my opinion there is a serious question to be tried on the plaintiff's contentions; that is, there is arguable case that the plaintiff has a caveatable interest in respect of the part of the Land reflecting Plan B, sufficient to support its caveat in respect of that part of the Land. 45 As I have said, I made an order last Friday extending the caveat until further order, so as to prevent it from lapsing on that day. Since that order has been made, nothing further is needed except to stand the proceeding into the Expedition List so that the plaintiff may pursue its application for expedition, presumably with support from the defendant, and to deal with the question of costs of the application. **********

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