Arkbay Investments Pty Ltd (in liquidation) (receivers and managers appointed) v Tripod Funds Management Pty Ltd

Judgment 1This application by the first and second plaintiffs for an order against the defendant for compensation under s 74P of the Real Property Act 1900 (NSW) (the "Act") comes before the court in the Applications List. 2The plaintiffs, Arkbay Investments Pty Ltd (in liquidation) (receivers and managers appointed) and McEvoy Street Alexandria Pty Ltd (in liquidation) (receivers and managers appointed), are both in liquidation. The third plaintiff, Australian and New Zealand Banking Group Ltd, appointed receivers and managers over both of the other plaintiffs on 24 April 2013. 3The first and second plaintiffs were, until on or about 14 April 2014, the registered proprietors of the properties in folio identifier 1/732095 and folio identifier 2/243107. Those properties have been called for the purposes of these proceedings the "Bowden Street property". The first and second plaintiffs owned the Bowden Street property as tenants in common in the shares 7/8 and 1/8. 4The first and second plaintiffs are indebted to the third plaintiff under loan agreements. The debt was secured by registered mortgage over the Bowden Street property, and also charges over the first and second plaintiffs' assets and undertakings. 5On 30 July 2013 the receivers and managers caused the first and second plaintiffs to enter into a contract with Alexandria 1 Pty Ltd (the "purchaser") for the sale of the Bowden Street property for $14.8 million (the "contract"). The deposit of $1,480,000 payable under the contract was paid on that day. Completion of the contract was initially due on 15 November 2013. 6On 14 November 2013 a Mr Ngu caused a caveat to be lodged against the title to the Bowden Street property that prevented completion taking place on 15 November 2013. The three plaintiffs to the present proceedings obtained an order from White J on 6 December 2013 that Mr Ngu's caveat be withdrawn. 7The plaintiff's' solicitors proposed to the purchaser's solicitors that completion of the contract take place at 2 PM on 11 December 2013. Completion could not take place at that time because on 10 December 2013 the defendant lodged a caveat against the title to the property. A director of the defendant, Mr Ian Lazar, was responsible for causing the lodgement of the caveat. Mr Lazar swore the statutory declaration required to support the lodgement of the caveat. 8The nature of the estate or interest in the Bowden Street property claimed by the defendant was as referred to in Annexure A, which provided: "Equitable interest pursuant to an oral agreement on or around the 3rd of December 2013 between Bilal El-Cheikh of 9 Mitchell St, Condell Park, NSW 2200 and the Caveator given (sic) rise by a Subrogation of debt between the Caveator and Bilal El-Cheikh for which the Caveator By (sic) way of Subrogation has been granted its interest within the equitable interest by the proprietor granting such an equitable interest through or by the appointed receivers and managers appointed under the corporations act (sic) pursuant to a contract of sale dated 30 July 2013 and deposit paid $1,460,000 for which the Caveator makes claim by way of Subrogation and is securing such a Subrogation by way of caveatable interest. Refer to Deed of Guarantee document dated 30th of July 2013 between the Parties Bilal El-Cheikh and the proprietor Arkbay Investments Pty Ltd (Receivers and Managers)." 9The plaintiffs commenced these proceedings by summons filed in court on 16 December 2013, by which they initially sought an order under s 74MA of the Act that the caveat be withdrawn. 10The defendant withdrew the caveat before the return date of the summons before White J on 18 December 2013. The solicitor who appeared for the defendant on that day readily acknowledged that the defendant did not have a caveatable interest. The solicitor stated that the defendant was not legally represented in relation to its actions prior to the commencement of the proceedings by the plaintiffs. His Honour ordered the defendant to pay the plaintiffs' costs on an indemnity basis. 11His Honour also made an order standing the matter over to the Registrar's list on 14 February 2014. The only claim outstanding was the first and second plaintiffs' claim in par 6 of the summons for an order for compensation under s 74P of the Act. Thereafter the first and second plaintiffs filed affidavit evidence in support of their compensation claim. On 16 May 2014, when all parties were represented, the Registrar stood the matter over into the Applications List for hearing on 13 June 2014, with an estimate of 2 hours. 12At the hearing Mr M Tyson of counsel appeared for the plaintiffs and Mr D Allen of counsel appeared for the defendant. 13Mr Allen advised the court that he had only received his brief the day before the hearing, and had been advised that it was the defendant's understanding that the matter had only been listed for directions. The court informed Mr Allen that the Registrar had clearly listed the matter for hearing, and it was not the ordinary practice of the court to list matters in the Applications List merely for directions. The defendant had not served any affidavit evidence before the date fixed for the hearing. It had served the plaintiffs with a notice to produce documents, and when that notice was called a number of documents were produced. The defendant had caused a subpoena to be issued by the court for the production of documents by National Australia Bank Ltd, which is the purchaser's bank. That subpoena had been made returnable some time after the date fixed for the hearing of the plaintiff's claim for compensation. Mr Allen made an unsuccessful application to adjourn the proceedings before the hearing commenced, and also a number of unsuccessful applications for adjournment at various stages during the hearing. The court gave separate reasons for declining to adjourn the matter. 14Section 74P of the Act relevantly provides: "(1) Any person who, without reasonable cause: (a) lodges a caveat with the Registrar-General under a provision of this Part, ... (c) being the caveator, refuses or fails to withdraw such caveat after being requested to do so, is liable to pay to any person who sustains pecuniary loss that is attributable to an act, refusal or failure referred to in paragraph (a), (b) or (c) compensation with respect to that loss. (2) Compensation referred to in subsection (1) is recoverable in proceedings taken in a court of competent jurisdiction by the person who claims to have sustained the pecuniary loss." 15The first and second plaintiffs claim that they suffered pecuniary loss because of the lodgement of the caveat by the defendant and its failure to withdraw the caveat when requested to do so. 16Since s 74P of the Act was amended by the Real Property Amendment Act 1996 (NSW) (which took effect on 1 February 1997), which deleted the words "wrongfully and" from the section where they had previously appeared before the words "without reasonable cause", the entitlement to compensation in respect of pecuniary loss has depended only upon proof that the lodgement or failure to withdraw the caveat was without reasonable cause. The meaning of "without reasonable cause" is as stated by Wootten J in Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106: see Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 per Clarke JA at 472, with whom Kirby P at 462 agreed; Collingridge v Sontor Pty Ltd (1997) 141 FLR 440 at 452; Lee v Ross (No 2) [2003] NSW SC 507 at [21]-[23]; and Truefilm Pty Ltd v J R Investment Holdings Pty Ltd [2004] NSW SC 372 [15], [16]. 17The onus is on the plaintiffs to show that the caveator acted without reasonable cause. For there to be reasonable cause it is not necessary that the caveator actually have a caveatable interest, but it is necessary that the caveator have an honest belief based upon reasonable grounds that the caveator has such an interest. Wootton J in Bedford Properties noted at 108 that an honest belief on the part of the caveator based on reasonable grounds may not be sufficient to provide a reasonable cause for lodging or maintaining a caveat, if the caveat is lodged "not for the protection of his interest but for an ulterior motive and without regard to its effect on transactions to which the caveator had agreed." 18It is salutary to record the further observations made by Wootton J at 109 in the following terms: "The drastic nature of the power is relevant in considering what is "reasonable cause" for its use, just as the dangerous character of a thing is relevant to deciding what is reasonable care in handling it. Before exercising such a power, a person can reasonably be expected to get proper advice, and be reasonably sure of his ground. If he does not, he may find that he has acted at his peril. This is all the more so when he knows, as Mr Richards knew, and indeed intended, that his action will prevent an important transaction involving a large sum of money." 19The plaintiffs claim that the lodgement of the defendant's caveat caused them to suffer damage over the period 11 to 19 December 2013, the defendant having withdrawn its caveat on 18 December 2013. 20After the defendant withdrew the caveat on 18 December 2013, the plaintiffs' solicitors sought to arrange for completion of the contract to occur at 3:30 PM on 20 December 2013. Completion did not take place at that time because it was discovered that another caveat had been lodged by a new caveator other than the defendant. Eventually Brereton J made an order for the withdrawal of that caveat, and made an order under s 74P of the Act against the new caveator, Echelon Property Management Pty Ltd, for the payment of compensation in the amount of $327,758.53. Mr Lazar is a director of that company. That compensation was in respect of pecuniary loss suffered by the first and second defendants over the period 20 December 2013 to 14 April 2014. 21Brereton J gave judgment on 11 April 2014 that the caveat be withdrawn, and the purchaser completed the contract on 14 April 2014, 3 days later. 22The amount of the compensation claimed by the first and second plaintiffs is $40,815.53. That sum is made up of additional interest of $34,794.07 that accrued on the loan made by the third plaintiff over the period, plus additional liability for land tax of $4604.42 and council rates of $1822.52, less $405.48, which was the vendors' share of the interest on the deposit that accrued over the period. 23On the basis of the evidence that was admitted at the hearing, the defendant did not challenge the quantum of the compensation claimed by the first and second plaintiffs. 24In his submissions, Mr Allen said there were two issues, the first one being whether the defendant had a reasonable belief that it was entitled to lodge the caveat, and the second being what he described as "the causation issue". As to the first issue, Mr Allen merely said that he would move on to the second issue. As I understood his submission, he did not seriously submit that the defendant had an honest belief on reasonable grounds that it had an interest in the Bowden Street property that justified the lodgement of the caveat in the terms that were lodged. In my view it was proper for Mr Allen effectively to abandon this aspect of the defendant's defence, as there was no evidence to support the honesty or reasonableness of the defendant's belief, and it seems self-evident from a consideration of the terms of the caveat that it was unreasonable for the defendant to lodge it. 25The real ground upon which the defendant relied in opposing an order for compensation was that the evidence did not establish that the purchaser would have completed at 2 PM on 11 December 2013, or that it would have been able to complete before the end of the period on 20 December 2013. Mr Allen relied, first, on the argument that the communications between the solicitors for the plaintiffs and the purchaser, following the withdrawal of the Ngu caveat, do not establish that the purchaser was in a position to complete at 2 PM on 11 December 2013, and secondly, Mr Allen submitted that the evidence did not prove that the purchaser had the funds to complete during the closed period for which the plaintiffs seek compensation in these proceedings. 26On 22 November 2013, after the lodgement of the Ngu caveat was discovered, the purchaser's solicitors, Madison Marcus, wrote a letter to the plaintiffs' solicitors, Allens, in which they said that the plaintiffs would be unable to settle that day, as agreed, and put the plaintiffs on notice that the purchaser was suffering loss, as it was a developer, and had entered into the contract for the purpose of redevelopment or resale. 27By email communications, on 10 December 2013, it was established that the Ngu caveat had been withdrawn, and at 4:16 PM Allens advised Madison Marcus that settlement was expected the next day, and requested confirmation that the purchaser agreed to settlement at Allens' offices at 2 PM on 11 December 2013. At 6:57 PM, in a further email, Allens requested confirmation as soon as possible that the purchaser would attend settlement. Allens sought confirmation again at 10:31 AM on the 11 December 2013. Confirmation of settlement was not given on behalf of the purchaser, before the lodgement of the defendant's caveat came to light. However, at 12:07 PM on 11 December 2013, Madison Marcus sent an email to Allens, which referred to a telephone discussion between representatives of the two firms that morning, and noted that a "caveat has subsequently been lodged by [the defendant]". Consequently, settlement did not occur at 2 PM on 11 December 2013. 28The defendant asks the court to find that the purchaser was not ready, willing and able to complete the contract at 2 PM on 11 December 2013, because the purchaser did not confirm settlement at that time, notwithstanding that its solicitors received three requests for confirmation. The force of that argument is diminished by the fact that Madison Marcus's 12:07 PM email on 11 December 2013 referred to a discussion between the two firms before the lodgement of the defendant's caveat was discovered. It is true that the email is silent as to whether the purchaser confirmed in the earlier conversation that settlement would take place later that day, but the fact of the discussion tends to neutralise the apparent significance of the failure by the purchaser to confirm settlement on 10 December 2013. The purchaser was given little time, after the withdrawal of the Ngu caveat, to make arrangements for settlement, and in the circumstances I would not be prepared to place much significance on its failure to provide an immediate confirmation. 29Mr Bilal El-Cheik, the principal of the purchaser, gave evidence in the proceedings. He said that the purchaser was ready, willing and able to complete the contract from, and including, 10 December 2013. He said that the purchaser did not need to rely upon bank funding to complete the purchase of the property. I admitted evidence to the effect of the preceding sentence, with the observation that I would give little weight to a bare assertion in that form. Mr El-Cheik gave evidence of a deed of variation that the purchaser entered into with the plaintiffs on 21 February 2014. He entered into a guarantee of the purchaser's obligations under the deed of variation. Pursuant to the deed, the plaintiff paid the sum of $5 million to the plaintiffs on 21 February 2014, as an instalment of the purchase price. The purchaser made a further payment of $7,265,479.18 on 28 February 2014 into its solicitors' trust account. That payment was financed by "companies associated with me". Also on 28 February 2014 a further sum of $3,522,493.04 was paid into the solicitors' trust account by Ace Demolition & Excavation Pty Ltd, a company controlled by an associate of Mr El-Cheik. While the making by the purchaser or its associates of these substantial payments on dates in February 2014 does not directly prove that these amounts were available to the purchaser on 11 December 2013, they do show that the purchaser had access to those substantial amounts. Furthermore, the fact that Mr El-Cheik was prepared to guarantee the obligations of the purchaser to raise and pay those amounts provides considerable objective support for his assertion that the purchaser had ready access to sums of money of that magnitude. 30Mr El-Cheik stood by his evidence during cross-examination by Mr Allen. 31As I have noted above, the caveat lodged by Echelon Property Management Pty Ltd, that prevented settlement of the contract on 20 December 2013, was ordered to be removed by Brereton J on 11 April 2014. The evidence does not establish precisely when the caveat was withdrawn, but the purchaser settled the contract on 14 April 2014, only 3 days later. 32I find that the evidence establishes on the balance of probabilities that, if the defendant had not lodged its caveat, settlement of the contract would have taken place on or about 2 PM on 11 December 2013. 33I base this finding on the collective effect of a number of aspects of the evidence. I place some weight on the substantial value of the purchase price, and the fact that the purchaser paid a deposit of $1,480,000 on 30 July 2013. Settlement was originally agreed to take place on 15 November 2013. It is unlikely that the purchaser would have risked the amount of the deposit by not having in place arrangements to pay the balance of the purchase price on the agreed date for settlement. Further, the purchaser was able to settle within 3 days of Brereton J's order that the final caveat be removed. It is unlikely that the purchaser would have known with certainty, when the matter was listed to be heard by Brereton J, that an order for the withdrawal of the caveat would have been made that day, so that the evidence establishes that the purchaser was able to complete the contract relatively quickly. Of course, by reason of the deed of variation entered into on 21 January 2014, the purchaser had already paid, or paid into its solicitors' trust account, substantially the whole of the balance of the purchase price. The fact of those payments suggests on the balance of probabilities that the purchaser did have reasonably ready access to the funds necessary to complete the contract. I also place weight on the totality of the evidence given by Mr El-Cheik concerning the capacity of the purchaser to settle the contract at any time from, and including, 10 December 2013. In my view the finding is justified, even though the plaintiffs did not tender positive evidence that the funds to complete the contract were sitting readily available in particular bank accounts as at 2 PM on 11 December 2013. 34Accordingly I find that the plaintiffs have established an entitlement to compensation in the amount of $40,815.53. 35I will make the following orders: (1)Order pursuant to s 74P of the Real Property Act 1900 (NSW) that the defendant pay to the plaintiffs compensation in the amount of $40,815.53. (2)Order the defendant to pay the plaintiffs' costs of the proceedings. 36I will also make the following order concerning the return of exhibits and subpoenaed materials: (3)Order pursuant to UCPR r 31.16A and r 33.10, and Practice Note No S C Gen 18 par 26: (a)that the exhibits be returned forthwith to the parties who tendered the exhibits to be held by them in compliance with Practice Note No S C Gen 18 par 28; (b)that the parties return any exhibits that were produced to the Court by any person in answer to a subpoena or notice to produce to the person who produced the document forthwith upon the expiry of any time for which the party to whom the exhibit is returned is required to retain the exhibit; (c)that all material produced directly to the Court by any party in answer to any notice to produce that has not become an exhibit be returned forthwith to the party who produced the material; and (d)that the Registry should forthwith return, or otherwise deal with in accordance with Practice Note No S C Gen 18 par 27, all material produced to the Registry in answer to any subpoena or notice to produce.