Break Fast Investments Pty Ltd v C & O Voukidis Pty Ltd

Supreme Court of NSW|2011-08-01|Before: Black J, Pembroke J

Nature of application 1In these proceedings, the Plaintiff ("Break Fast") seeks an order pursuant to s 74K of the Real Property Act 1900 (NSW) that the operation of caveat number AF [number omitted] ("Caveat") be extended until further order of the Court. 2Break Fast initially registered the Caveat over two properties ("Properties") on 8 June 2010. On 12 July 2010, Break Fast commenced proceedings seeking substantive relief against the defendant, C&O Voukidis Pty Limited ("COV"), and numerous other defendants in the Supreme Court of New South Wales. These proceedings were transferred to the Supreme Court of Victoria on 6 August 2010 by order of this Court. On 20 December 2010, Break Fast received a notice of lapsing of caveat from solicitors for Mr Voukidis, a director of COV, in respect of the Caveat. On 23 December 2010, Pembroke J made orders pursuant to s 74K of the Real Property Act that the operation of the Caveat be extended until further order of the Court. 3Break Fast does not, in its Summons filed in these proceedings, seek substantive orders for relief. However, Break Fast seeks substantive relief in the proceedings to which I referred in paragraph 2 above which have now been transferred to the Supreme Court of Victoria ("Victorian proceedings"). There are several cases in which the Court has expressed the view that an application to extend the operation of a caveat must include a claim for final relief, reflecting the principle that a caveat should only remain on the title pending an application by a person claiming an equitable or other interest to vindicate that interest: Iaconis v Lazar [2007] NSWSC 1103; Wu v Dardaneliotou [2008] NSW SC 1319 at [2]; Waco Kwikform Ltd v Jabbour [2010] NSWSC 1379 at [62]. 4I do not regard those cases as necessarily requiring that the application for substantive relief be made in the same proceedings as those in which orders extending the caveat are sought. The policy underlying those decisions, namely that a caveat should only remain on the title pending an application for substantive relief, is satisfied where other proceedings exist which will determine the caveator's entitlement to that relief. Break Fast's entitlement to the interest claimed will ultimately be determined in the Victorian proceedings and I do not consider that any useful purpose would be served by requiring Break Fast to amend these proceedings to claim the same relief as is sought in the Victorian proceedings, on the basis that that claim would presumably then be stayed pending the outcome of the Victorian proceedings which would then create a res judicata or issue estoppel between the parties. 5Both parties accept that the proceedings before me are interlocutory in character and that the ultimate question for the Court is whether the order previously made by Pembroke J should now be extended until further order of the Court, on the basis that the substantive dispute between the parties will be determined in the Victorian proceedings. An application to extend a caveat is analogous to an application for an interlocutory injunction, and Break Fast must satisfy the Court that its claim for an interest in the property raises a seriously arguable case for final relief and that the balance of convenience favours extension of the Caveat. 6The issues before me are essentially as follows:

Whether the interest claimed by Break Fast in the Caveat has or may have substance 7Section 74K(2) of the Real Property Act empowers the Court, if satisfied that a caveator's claim "has or may have substance" to make an order extending the caveat for such a period as is specified in the order or until further order, or to make such other orders as it thinks fit. The section also requires the Court, if not so satisfied, to dismiss the application. The first issue which was argued before me was whether the interest claimed by Break Fast in the Caveat is properly sustainable, so far as Break Fast bases that claim on the existence of a constructive trust claimed in the Victorian proceedings. This question must be determined by reference to the relevant statutory provisions. 8Section 74F of the Real Property Act deals with lodgement of caveats against dealings etc. Clause 7 of the Real Property Regulation 2008 (NSW) in turn requires that a caveat specify the particulars set out in Sch 3 in relation to the estate or interest to which a caveator claims to be entitled. Schedule 3 in turn requires those particulars to describe, inter alia,

Particulars of the nature of the estate or interest in land claimed by the caveator.
The facts on which the claim is founded, including (if appropriate) a statement as to the manner in which the estate or interest claimed is derived from the registered proprietor of the estate or interest or the primary or possessory applicant against which the caveat is to operate. Section 74H(1)(b) of the Real Property Act provides that a caveat does not prohibit the recording of dealings except to the extent that the recording of such a dealing would affect the estate, interest or right claimed in the caveat. 9In Fuller v Invincible Life Assurance Ltd [1995] ANZ ConvR 197, Gallen J observed, in respect of the corresponding New Zealand provisions, that: "In the end it can be said that whether or not the provisions of the Act relating to the obligations to describe the nature of the interest claimed and the requirement of the Regulations to show how the interest was derived have been met, are questions of fact. They are to be considered in the light of the right of a registered proprietor to know with some certainty the basis of claims which so substantially affect the rights of that proprietor and also in the light of the particular transaction on which the caveat depends. 10In Multi-Span Constructions No 1 Pty Ltd v 14 Portland St Pty Ltd [2001] NSWSC 696, (2001) 10 BPR 19,253, Barrett J noted that "[a] caveat is not an ambulatory or flexible means of maintaining a blocking position in aid of whatever interest, if any, the caveator may have from time to time". His Honour also observed that it was central to s 74F of the Real Property Act that a party lodging a caveat asserted an entitlement to a particular estate or interest, with the caveat prohibiting the recording of any dealing affecting that estate or interest. In Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997; (2005) 12 BPR 23,403 at [21], Brereton J noted that these provisions "make clear that the characterisation and description of the nature of the estate, interest or right claimed by a caveator is more than a mere formal requirement of the provisions of the Act relating to caveats, but goes to the heart and substance of the operation of these provisions." 11Mr Cook, who appears for COV, submits that the interest claimed by Break Fast in the Caveat can only sensibly be read as that of the alleged beneficiary of a resulting trust arising out of contributions made to the purchase of the Properties, and argues that interest cannot be supported where COV now makes clear that it seeks to establish a constructive trust which does not extend to amounts contributed to the purchase of the Properties. Mr Cook also contends that a stricter approach should be applied to a construction of the Caveat where COV's solicitor gave the relevant declaration. Mr Cook contends there is a significant difference between an interest as a beneficiary under a resulting trust and an interest as a beneficiary under a constructive trust, because the elements which give rise to those trusts are different, and additional defences will be available in respect of a constructive trust which would not be available in respect of a resulting trust. Mr Young, who appears for Break Fast, submits that the interest claimed by Break Fast is fairly described in the Caveat. 12By the Caveat, Break Fast claimed an estate or interest over the Properties described as follows: "Beneficial interest in land held by registered proprietor as trustee for [Break Fast] in a share proportionate to [Break Fast's] contributions to the land." The facts giving rise to the claimed estate or interest were identified as follows: "[Break Fast] contributed to the purchase of the property and made loan payments in reduction of the loan over the land and paid rates and made other capital contributions over the land ("contributions") and accordingly has a beneficial interest in the land which is held by the registered proprietor as trustee for [Break Fast] in a share proportionate to [Break Fast's] contributions over the land." 13Break Fast leads evidence in these proceedings which is sufficient to establish at least an arguable claim that at least $2,210,000 was paid by Break Fast to COV as trustee of the Voukidis Family Trust and that those payments were unauthorised, although the latter question is in dispute between Mr Voukidis on the one hand and Mr Baker (who gives evidence on behalf of Break Fast) on the other. The hearing before me was conducted on the agreed basis that COV was: "... prepared to concede for the purposes of the hearing ... only and without any admissions of liability, that [Break Fast] is able to demonstrate an arguable basis for the imposition of a constructive trust over the relevant properties ... In making this concession [COV] does not concede that the caveat in question claims such an interest and would argue that the caveat does not protect such an interest and for that reason falls to be removed." 14The question which then arises is whether Break Fast can support an interest described in that way by its claim, acknowledged as arguable, for a constructive trust advanced in the Victorian proceedings. In the Victorian proceedings, Break Fast alleges that Mr Voukidis, a former secretary and director of Break Fast, made a series of payments in breach of fiduciary and other duties out of bank accounts of Break Fast to various entities including COV. Break Fast seeks various orders in those proceedings, including orders for account, declaratory relief, damages or equitable compensation, and orders in respect of various assets. Break Fast pleads that COV had actual or constructive knowledge of Mr Voukidis' alleged breach of fiduciary duties and of a dishonest and fraudulent design and that COV was on notice that payments it received were trust property belonging to Break Fast (defined in the Victorian proceedings as "the BF/COVPL trust moneys"). Break Fast also pleads that COV knowingly assisted Mr Voukidis in the alleged breach of fiduciary duty. 15Break Fast's pleading in respect of the Properties in the Victorian proceedings depends on the allegations of knowing receipt noted above and proceeds as follows: "64 Voukidis and/or C&O Voukidis P/L renovated and/or paid the mortgage over the Wyatt Ave property using the BF/COVPL trust moneys. 65 Voukidis and/or C&O Voukidis P/L renovated and/or paid the mortgage over the Belmore Street property using the BF/COVPL trust moneys. ... 67 By reason of the matters set out in paragraphs 65 - 66 above: (a) C&O Voukidis P/L holds: (i) the Wyatt Ave property; and/or (ii) the Belmore St property; as constructive trustee for Break Fast as beneficiary; and (b) the Wyatt Ave property and the Belmore St property are subject to a charge in favour of Break Fast - to the extent of the amount the BF/COVPL trust moneys were used to renovate and/or pay/discharge the mortgage over it." 16Reading the Caveat as a whole, as required by Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 at 674, I have concluded that Break Fast has not established that the claim to the estate, interest or right which is described in the Caveat "has or may have substance" for the purposes of s 74K(2) of the Real Property Act . The Caveat is precise in its terms and, as Mr Cook has contended, the description of the interest and facts giving rise to it in the Caveat would be apt to describe a resulting trust derived from contributions made by Break Fast to the purchase price of the properties and other associated payments in respect of the properties. However: (a) Break Fast does not now seek to sustain a trust arising from contributions to the purchase price of the Properties and it appears that both Properties were purchased prior to the conduct in issue in these proceedings. (b) The description of the interest claimed and the facts supporting it in the Caveat does not refer to moneys used to renovate the Properties on which reliance is placed to establish the constructive trust in the Victorian proceedings. (c) The words " made loan payments in reduction of the loan over the land and paid rates and made other capital contributions over the land " in the Caveat do not disclose the key facts on which Break Fast relies to establish a constructive trust, which involve Mr Voukidis' alleged breach of fiduciary duty and COV's knowing receipt of funds provided to it derived from that breach as pleaded in the Victorian proceedings. 17Counsel for Break Fast contends, in the alternative to his contention that the interest arising under the constructive trust claimed in the Victorian proceedings is properly described in the Caveat, that any deficiency in the Caveat is such that it is protected by s 74L of the Real Property Act . That section provides that, if any question arises as to the validity of a caveat in any legal proceedings, the Court shall disregard any failure of the caveator to strictly comply with the requirements of Pt 7A of the Real Property Act and of any Regulations made for the purposes of that Part with respect to the form of the Caveat. 18In Jones v Baker [2002] NSWSC 89 at [31], Young CJ in Eq noted that: "Although s 74L of the Act now commands the Court 'to disregard any failure of the caveator to comply strictly' with the requirements of the Act and regulation as to form of a caveat, there is a point after which the departure is so far removed that the Court cannot disregard the non-compliance." His Honour also noted that the Court may treat a caveat more strictly "when the caveator is a solicitor who should know the rules and when the defects in the Caveat may cause great inconvenience to people wishing to consider granting finance to the registered proprietor." Section 74L of the Real Property Act has been applied where a caveat fails to state the amount secured by a charge or where there is a misdescription of the person to whom an equitable charge was given: Business Acquisitions Australia Pty Ltd v Renshall [2006] NSWSC 1238 at [32]; FTFS Holdings Pty Ltd v Business Acquisitions Australia Pty Ltd [2006] NSWSC 846 ; Allen Taylor & Co Pty Ltd t/as Boral Timber v Harrison [2010] NSWSC 1021. However, that section is not sufficient to save a caveat which substantially fails to disclose the nature of the caveatable interest claimed: Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd (2006) 12 BPR 23,355; NSW ConvR 56-137; Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd above at [16]. 19I do not consider that s 74L of the Real Property Act can save the Caveat where, for the reasons noted above, the description of the interest claimed, and the facts arising from it in the Caveat do not disclose the essential facts underlying the claim for a constructive trust in the Victorian proceedings. In my view, this is a failure of substance. 20Given the conclusions I have set out above, I am required by s 74K(2) of the Real Property Act to dismiss the application for an order extending the operation of the Caveat. The concession made by COV that Break Fast has an arguable case for a constructive trust indicates that Break Fast would, in fact, have a caveatable interest but not one which it has at this stage effectively claimed.

Balance of convenience 21I should also deal with the question of balance of convenience. On 12 July 2010, Pembroke J made a freezing order in relation to certain assets of, inter alia, COV which remains in effect. On 6 August 2010, that freezing order was extended. That freezing order was further extended by the Supreme Court of Victoria on 8 December 2010. 22COV points out that the extension of a caveat is an interference with its right, as registered proprietor, to deal with the Properties as it sees fit and is prejudicial to COV, and submits that the continuance of the Caveat will give rise to difficulty in refinancing and points out that its previous lender has terminated its facility in circumstances where that lender has been joined as a defendant in the Victorian proceedings. COV points to a risk that, if the Properties cannot be refinanced, they will be sold by that lender. COV also contends that there is little prospect for cooperation between the parties in respect of any application to remove the Caveat for the purposes of refinancing. 23Mr Voukidis gave evidence, in somewhat general terms, which implied that the continuance of the Caveat would involve difficulty in refinancing, as follows: "[Break Fast] has also instituted proceedings against [COV's] bank ... This is designed to force the mortgage over [COV's] properties into default, and the caveat is intended to prevent [COV] re-financing, whereas the freezing orders do not prevent [COV] re-financing. The prejudice that will be suffered by [COV] if it cannot refinance will be immense and place at risk of loss the properties purchased and owned by my family for 25 and 18 years respectively, the purchase of which [Break Fast] could not and did not contribute to." A further affidavit of COV's solicitor stated that she was instructed and believed that "whilst the caveat remains on the properties, [COV] is unable to apply for finance, as it is [Mr Voukidis'] belief that any bank, upon discovering the caveat and making inquiries, will not wish to provide finance (in light of the allegations of theft which he denies)." 24I do not regard this evidence as sufficient to establish that the Caveat will prevent any refinancing which would otherwise be feasible. In particular, I should proceed on the basis that COV would properly disclose the circumstances of the proceedings to any potential lender considering a refinancing irrespective of whether the Caveat is extended and that lender would have regard to the fact that the Court may make orders removing the Caveat if it is necessary to do so in order to implement appropriate refinancing. 25COV also contends that, notwithstanding its concession that Break Fast has an arguable case for a constructive trust in respect of the two properties, I should have regard to the difficulties which Break Fast may have in making good that case, so far as it will be required to conduct a complex case in the Victorian proceedings. Accepting that the pleading in the Victorian proceedings is lengthy and that there are likely to be complexities in tracing the proceeds of moneys acquired by COV into particular assets, I do not regard these matters as weakening Break Fast's claim to an extension of the Caveat if it were otherwise sustainable. 26COV contends that Break Fast is adequately protected by the freezing orders made by the Court on 12 July 2010. Break Fast responds that the freezing order previously made by Pembroke J is not sufficient to protect its interests since it would be open to COV and Mr Voukidis to disregard that order. Break Fast points out that the risk of COV and Mr Voukidis doing so should be regarded as greater than in the ordinary course, because findings have previously been made by the Supreme Court of Victoria in other proceedings that Mr Voukidis disregarded conditions on the use of money imposed by a consent order made in those proceedings, and he conceded in cross-examination in those proceedings that he did so knowingly. Break Fast points out that, notwithstanding that the Court has substantial remedies available to in respect of a knowing breach of an undertaking given to it, those remedies will not restore the economic position of Break Fast if, for example, the caveat is removed and COV further encumbers the Properties in favour of a person who acquires an interest without notice of Break Fast's claim. 27COV places reliance on an offer which it made to Break Fast on 28 July 2011, which included terms that: (1)[COV] will provide [Break Fast] with the identity of the Bank/s from which refinance will be sought. (2)[COV] and Mr Voukidis, upon acceptance of this offer, will give an undertaking to the Court that: (a)the refinance will only be for an amount sufficient to: (i)pay out the existing mortgagee; (ii)pay for expenses directly related to the properties the subject of the caveat; (iii)pay any other amount consented to by the plaintiff in writing or allowed by the Court. (b)before paying out any amount in respect of (ii) above, [COV] will give the [Break Fast's] solicitors 7 days notice in writing of the amount to be paid, the payee and the purpose of the payment; (3)[Break Fast] consents to an order that the caveat be removed immediately. (4)... (5)Pending the application for refinance and settlement of the refinance, [COV] and Mr Voukidis undertake to the Court that the caveat properties will not be dealt with or encumbered in any manner other than for the purposes of the refinancing. 28Break Fast in turn relies on an offer which it made to COV on 29 July 2011 to the effect that the existing orders for the extension of the Caveat until further order would remain on foot and Break Fast would agree to the registration on title of the Properties of such mortgages or other dealings as would give effect to any arrangement for refinance of the mortgages currently registered over the Properties, provided that the terms of a proposed refinancing arrangement satisfied specified criteria. 29In my view, the terms of the existing freezing order or the proposal put by COV by Break Fast would not be sufficient to protect Break Fast's interest, having regard to the evidence of Mr Voukidis' knowing non-compliance with the conditions of consent orders previously made by the Supreme Court of Victoria. In my view, notwithstanding the very serious sanctions which could be imposed by the Court for contempt, the fact of non-compliance with such conditions by Mr Voukidis in the past raises a risk of non-compliance with an undertaking given by the Court which is not sufficiently addressed by the proposal put by COV. 30COV also contends that there is an issue as to Break Fast's ability to comply with an undertaking as to damages and that, if the Caveat is extended, that should only be done in terms that Mr Baker, who is a director of Break Fast, should give a personal undertaking as to damages. Break Fast produced documents in respect of its financial position under notice to produce, which indicate it owns a commercial property which, on a valuation made in November 2010, has equity of at least $5 million in excess of the amounts borrowed on it. Counsel for Break Fast also points out that substantial amounts are claimed in the Victorian proceedings. COV has conceded, for the purposes of this application, that Break Fast has an arguable case against it in respect of the constructive trust claims. In my view, Break Fast's assets are sufficient to support its undertaking as to damages and I would not have declined to extend the Caveat or required further security having regard to these matters.

Leave under Real Property Act s 74O 31Counsel for Break Fast contends that, if the Court does not accept his submissions that the interest arising under the constructive trust claimed in the Victorian proceedings is properly described in the Caveat or alternatively that any deficiency in the caveat is protected by s 74L of the Real Property Act , then the Court would not extend the Caveat but would grant leave under section 74O of the Real Property Act for a new caveat to be lodged, to the extent that such leave is necessary. Counsel for COV did not seek to resist an order granting leave to Break Fast to lodge a new caveat if I found the Caveat should not be extended. 32In order to obtain leave under s 74O of the Real Property Act to lodge a further caveat over the Properties, Break Fast must show that there is a serious question to be tried that it is presently entitled to an interest as constructive trustee in those properties. The concession made by COV for the purpose of these proceedings establishes this matter. Break Fast must also show that the balance of convenience favours the grant of leave to lodge a fresh caveat. The matters to which I have referred above establish, in my view, that the balance of convenience favours the grant of such leave. 33In my view, leave under section 74O of the Real Property Act is not strictly required for Break Fast to lodge a further caveat over the Properties, because a caveat relying on a constructive trust in the manner pleaded in the Victorian proceedings would not be based on the same facts as the Caveat. This proposition necessarily follows from the conclusions that I have reached above. However, for more abundant caution, I will grant leave to Break Fast to lodge a further caveat in respect of the Properties claiming an interest as constructive trustee, to the extent that such leave may be required.

Orders 34I direct the parties to bring in Short Minutes of Order to give effect to these reasons. I expect those orders will provide for the Plaintiff to withdraw the Caveat by a specified date; for the grant of leave to the Plaintiff to lodge a further caveat in respect of the Properties claiming an interest as constructive trustee; and for the Plaintiff's Summons otherwise to be dismissed. I will hear the parties as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 August 2011

Real Property Regulation 2008(NSW)

At a glance

Court

Decision date

Before

Source

Judgment (6 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (9)