Solicitors:
Western Sydney Legal Practice (Plaintiff)
John C Mackey & Co Solicitors (Defendant)
File Number(s): 2016/361471
[2]
Judgment (EX TEMPORE REVISED 15 DECEMBER 2016)
HIS HONOUR: The plaintiff occupies premises at 403 Guildford Road, Guildford, for the purpose of conducting its laundry business. More accurately, it occupies the ground floor shop forming part of those premises. The flat above the shop is occupied by the defendant and his family. The defendant is the registered proprietor of the property.
The plaintiff claims that it is, in truth, the beneficial owner of the whole of the property. It says its beneficial ownership arises out of arrangements made at the time the property was bought, back in 1999. The defendant disputes that.
The dispute has come to a head because the defendant has entered into a contract for the sale of the property. That caused the plaintiff to lodge a caveat. Since the contract requires delivery of vacant possession on completion, the defendant will need to evict the plaintiff before he can complete.
In form, the matter before me today is an interlocutory application for extension of a caveat. However, the drafting of the caveat is hopeless. The estate or interest claimed is "equitable interest": nothing more; nothing less. There is no need to go to the stream of authorities that illustrate that this is an insufficient description of the interest claimed. Those authorities make it clear, equally, that the defect is not one that can be cured by amendment.
In those circumstances, very sensibly, Mr Thomson sought and was granted leave to amend the plaintiff's notice of motion so that it sought relief under s 74O of the Real Property Act 1900 (NSW). Equally sensibly, Mr Sleight argued the matter on the basis that what was in issue was the substance of the plaintiff's claim to have a beneficial interest and not the technicalities of the drafting of the caveat.
The interest is claimed by reason of an alleged resulting trust said to arise from the fact that the plaintiff (so it says) paid the purchase price. A little bit of background is necessary.
The plaintiff's business is conducted by Mr Amit Jain. The defendant, Mr Rajil Jain, is his brother. There is a third brother, Mr Vinay Jain. Without being disrespectful, I will refer to them by their given names.
Amit was the person who originally conducted the laundry business. He did so in his own name. He caused the plaintiff to be incorporated and to take over the business. He held and holds all the ordinary shares in the plaintiff. Rajil and his wife hold E and F class shares, which entitle them to dividends but not to vote and not to participate in any surplus on a winding-up.
The plaintiff has conducted the business since 1996. At the time it acquired the business, and up until the acquisition of 403 Guildford Road, the plaintiff conducted that business from adjoining premises at 401 Guildford Road.
Amit's case is that he negotiated the purchase of 403 Guildford Road so that the company could move its business into that larger space. He says that by a family arrangement, it was decided to put the property into the name of Rajil and Vinay. However, he says, this was done on the basis that the company would be responsible for the purchase price.
Amit says, further, that a bank officer suggested that the loan should be made to Amit, Rajil and Vinay, and that the plaintiff should provide a guarantee and security by way of mortgage over land owned by it. Amit also provided security over land owned by him. However, Amit says, the arrangement made at the time was that the loan would be taken out on behalf of the company and that the company would repay the loan.
Those arrangements are in dispute. This being an interlocutory application, I am in no position to inquire into the merits of that dispute.
What is not in doubt is that the company did repay the loan, to the last dollar. What is also not in doubt (I think) is that since the property 403 Guildford Road was purchased in 1999, the plaintiff has paid all rates and other outgoings except for electricity for the flat, at least up until some time in 2007.
Rajil and his family have occupied the flat since 2003. As Mr Sleight submitted, that is consistent with Rajil's having a beneficial interest in the property.
Since 2007, the plaintiff has paid rent to Rajil. Amit's case is that this was done by way of providing financial assistance to Rajil, who was then in need of it. That explanation is in dispute. The rent is not insubstantial: approximately $500 per week. Whether or not that represents a market rent or anything like a market rent is not explained by the evidence.
In 2007, Vinay transferred his legal interest in the property to Rajil. That was done for nil consideration. As Mr Thomson submitted, a transfer of a one half legal interest for nil consideration is consistent with the plaintiff's case that in fact the legal owners had no beneficial interest in the property.
Another curious feature of the evidence is that when the dispute erupted, the solicitor acting for Rajil wrote to the solicitors acting for the plaintiff. The letter said, among other things, that Mr Mackey (Rajil's solicitor) had had a discussion with Vinay, who, Mr Mackey said, was:
...prepared to confirm that the then family company paid for all the purchase monies when he and our client [Rajil] purchased the subject property for $185,000 in 1999, ...this fact is not disputed by our client.
As Mr Thomson submitted, that statement is consistent with Amit's view of the world, although it may involve no more than a lax use of language on the part of the solicitor.
As I have said, Rajil has caused the property to be sold. Contracts were exchanged on 2 November 2016. Settlement was due yesterday, 14 December 2016.
On 4 November 2016, Rajil's solicitor gave what purported to be a notice of termination of the plaintiff's lease and notice to quit. Unfortunately, that notice was terminally defective. Apart from anything else, it alleged that the tenant was Amit (not the plaintiff). There is also at least a doubt as to whether it gave one month's notice, although since it is said to have been personally served on 4 November 2016, that point may not have much going for it.
There is also a question as to the operation of the Retail Leases Act 1994 (NSW) in the circumstances of this case, but counsel did not explore that in any detail in the course of their submissions.
It is plain that even if Rajil is correct in saying he is the beneficial owner of the property, he is not now in a position to complete with vacant possession, and will not be in a position to do so until at least he gives a proper notice to quit to the plaintiff as tenant of the downstairs shop. To that extent, any further delay is a matter that Rajil has in effect brought upon himself.
The real question is whether there is a serious issue to be tried as to whether the plaintiff has some beneficial interest in the property. The summons articulates that beneficial interest as one arising by way of resulting trust. It is said the resulting trust arises because the plaintiff provided the consideration for the purchase back in 1999. That is correct as to some amount by way of deposit and as to payment for stamp duty and legal expenses. However, as Mr Sleight submitted, on the face of things the balance of the purchase price was provided by the three brothers equally, because they borrowed the money from the bank and that money was applied towards the purchase. If that argument succeeds, the end result would appear to be that the beneficial owners may be the plaintiff, Amit and Rajil (Vinay having disposed of whatever interest he had to Rajil some years ago).
The plaintiff answers that argument by saying that the loan was taken out for the company, but in the name of the brothers at the suggestion of the bank officer.
It may very well be that there is another way of characterising the trust alleged: namely, as one arising either expressly or by implication from the facts and circumstances (including the agreements or arrangements made) between the brothers back in 1999 when the property was bought. That basis has not been articulated, and Mr Sleight complained, with some justification, that he was not here to meet such a case. Nonetheless, this being the penultimate day of the court term, s 56 of the Civil Procedure Act 2005 (NSW) suggests very strongly that I should try to deal with the issues that arise on the evidence that the parties have put before me, rather than provoke a further dispute a month or so down the track.
It seems to me there is material that tends either way. I have identified some of that, tending in the plaintiff's favour, already. As against that, there is the undoubted fact of payment of rent by the plaintiff to Rajil: something consistent with Rajil's having the beneficial interest in the property.
In all the circumstances, it does seem to me that there is a serious question to be tried as to the beneficial interests in the property. In any event, there is at least a serious question to be tried as to the validity of the notice to quit.
It must follow, from the latter conclusion, that the plaintiff is entitled to relief preventing Rajil from acting on the purported notice to quit. Clearly enough, Rajil can resolve that by giving a notice to quit proper in form and adequate as to time.
Turning to the more substantial dispute, the question is really whether the triable issue is such as to justify interference with Rajil's purported exercise of his rights as at least the legal owner, or whether that should be left to proceed, with the consequences to be sorted out later.
A significant factor in this latter exercise is that there appears to be at least an inference available on the evidence that the property 403 Guildford Road was bought to enable the plaintiff to carry on its laundry business. If that is proved at a final hearing, it would provide a very strong discretionary reason in favour of relief preventing the exercise of the power of sale that, as legal owner, Rajil has, at least until whatever requirements of the Retail Leases Act that may apply are satisfied. Regardless, it provides a substantial discretionary reason in favour of the grant of relief of the kind that, by amendment, the plaintiff seeks.
I accept that if the plaintiff is permitted to lodge a caveat that adequately particularises its interest claimed, Rajil will suffer some (maybe considerable) inconvenience, because he will not be able to complete the contract that he has made. To an extent, so it seems to me, Rajil has brought that upon his own head, by entering into a contract for sale without giving any prior notice to his brother and to the plaintiff company. It is difficult to imagine why, as between family members, such precipitate and unfamiliar action was taken.
I accept that if the contract is not completed and the purchaser rescinds, Rajil may be exposed to a claim in damages. If that is the outcome, and if ultimately it is shown that the plaintiff's case fails and Rajil's succeeds, the plaintiff will be liable on its undertaking as to damages.
Some concern was expressed as to the worth of the plaintiff's undertaking. That was not explored. So far as the evidence goes, the plaintiff would appear to have been running the business successfully; apart from anything else, it was able to repay the loan of $185,000 within three or four years of its being taken out.
In any event, Amit has agreed personally to give the same undertaking, and that would seem to me to be sufficient to alleviate any concern that can be bruited as to the value of the undertaking.
Balancing all the factors as best I can, I am satisfied there is a sufficiently serious question to be tried, and that the balance of convenience is very much in favour of maintaining the present position. I say that because, among other things, I am not satisfied that Rajil's exposure to damages (should he ultimately succeed) is likely to be such that he will be left lamenting through the plaintiff's and Amit's inability to meet their obligations.
For those reasons, I will grant relief under s 74O. I will leave it to the parties to draft the appropriate form of orders. The orders should include directions for the matter to proceed on pleadings. They should also provide directions for a motion for expedition to be filed, so that a hearing date can be granted as soon as the dispute appears to be capable of being (or becoming) triable.
That would leave the question of costs. In circumstances where the issues were interlocutory only, it seems to me the appropriate order is that the costs of the interlocutory application be costs in the proceedings. I say that because to order costs one way or the other might prove to be unjust if that goes against the final resolution of the dispute.
[3]
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Decision last updated: 20 December 2016