Coleman v Hart-Hughes [2017] NSWSC 656 | Case summary

Determination

I will deal first with the first defendant's challenges to the validity and enforceability of the Deed.
The first defendant submitted, as I understood it, that the Deed was affected by illegality because it was a joint venture agreement yet it failed to provide for the equal sharing of losses as well as profits, which is "innate to a joint venture agreement unless expressly stipulated otherwise". Reference was made to Muschinski v Dodds (1985) 160 CLR 583 and to the unreported decision of Cohen J in Industrial Equity Ltd v Lyons (Supreme Court of New South Wales, 15 October 1991). The first defendant submitted that the plaintiff, in enforcing the Deed, was "seeking to avoid any ongoing contribution to losses".
I do not see any illegality in relation to the Deed. It is not said that the contract embodied in the Deed is expressly or impliedly prohibited by any statute, whether in its formation or in its performance. Neither is it said that the contract is rendered void by statute. The argument seemingly rests upon considerations of public policy. However, the contract is not one for the commission of any legal wrong, or any immoral act, and is not associated with or in furtherance of any illegal purpose. In my opinion there is no reason based on public policy why the parties, who freely entered into the Deed, should not be able to enforce it in accordance with its terms. Those terms provided for the parties to make various contributions to the Project. The absence of a specific provision dealing with losses does not offend public policy. Nothing said in the cases referred to supports that conclusion. The first defendant's submission must be rejected.
I am also unable to accept the first defendant's submission that the contract has been terminated by frustration. Frustration of a contract occurs by operation of law when an unexpected event occurs which renders performance of the contract radically different from that which was undertaken under the contract (see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729; Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 357, 376-7 and 408).
The first defendant was unable to clearly identify the unexpected event (or events) that brought about the frustration of the Deed. In her submissions, the first defendant referred in general terms to delays in the project caused by the Council, but the nature of the delays, and when they occurred, was not spelt out. In any case, the first defendant seemed to contend that the contract was frustrated in 2014 when the second defendant contributed funds towards the development. This was said to have occurred because the parties to the Deed were not themselves capable of providing further funds.
I do not regard those matters as sufficient to frustrate the contract. In my view they do not render performance radically different from that which was promised under the Deed. It remained open to the parties to perform their unperformed obligations in respect of the Project, notwithstanding the involvement of the second defendant and its contribution of funds. The second defendant was a mortgagee in possession when the Deed was entered into. It was always the case that the development of the property might be impinged upon by the second defendant which had its own interests to consider. After 2014, the development has in fact proceeded, albeit slowly. The altered plan of sub-division (supported by the second defendant) was registered in July 2016, and two lots were subsequently sold. In the meantime, a further development application was lodged to allow the construction of twenty dwellings on the property. The Court was informed that the development application was recently approved by the Council. This is a matter for the parties to consider when deciding how best to proceed in accordance with the Deed and their obligations under it, including the duties they owe to each other pursuant to cl 9.
The first defendant's challenges to the validity and enforceability of the Deed have not been made out.
I turn now to the question whether the first defendant, by entering into the Deed, granted a charge over the property in favour of the plaintiff.
The terms of the Deed do not expressly provide for any charge in favour of the plaintiff. The plaintiff submitted, however, that on a proper construction of the Deed as a whole, it should be implied that the first defendant granted an equitable charge over the property to secure payment to the plaintiff of the monies payable to him under the Deed. In that regard, the plaintiff referred to: 1. clause 15 by which the first defendant (and Hartington Pty Ltd) acknowledged that the plaintiff has a caveatable interest in the property, and consented to registration of a caveat on the title; 2. clause 34, read with cl 49, whereby it was agreed that the monies advanced by the plaintiff for the Project would be repaid out of the revenue of the Project including from the sale proceeds of Houses 1 to 4; and 3. the warranties given by the first defendant (and Hartington) pursuant to cl 33 which included warranties not to increase or vary the current level of borrowings and not to sell the property or dispose of any interest in it, without the written approval of the plaintiff and his son.
The plaintiff submitted that the provisions of the Deed indicated that the plaintiff was to have more than a mere right to lodge a caveat. He was to have a caveatable interest which was in the nature of a charge given that the plaintiff was given rights of repayment out of the revenue of the project, being the proceeds of sale of the property.
The plaintiff referred to Troncone v Aliperti (1994) 6 BPR 13,291, Coleman v Bone (1996) 9 BPR 16,235, and Nudd v Official Trustee in Banruptcy (2002) 11 BPR 20,163; [2002] NSWSC 399.
The first defendant did not address this issue in her submissions.
Troncone v Aliperti (supra) is a decision of the Court of Appeal. It was considered by McLelland CJ in Eq in Coleman v Bone (supra). His Honour there said (at 16,239): So far as the "caveat" is concerned, it has been held by the Court of Appeal (in Troncone v Aliperti (1994) 6 BPR 13,291) that if in a contract between A and B, A grants B authority to lodge a caveat in respect of property of A, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised. Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money (Troncone at BPR 13,293-4 per Meagher JA).
That summary of Troncone v Aliperti (supra) was recently cited with apparent approval by Gleeson JA (with whom Meagher and Leeming JJA agreed) in Aged Care Services Pty Ltd v Kanning Services Pty Ltd (2013) 86 NSWLR 174; [2013] NSWCA 393 at [83]. Gleeson JA considered that the summary given by McLelland CJ in Eq illustrated the point that any implication of a grant of a charge must be derived from the facts of the particular case. Gleeson JA expressly agreed with the observation made by Bryson AJ in Taleb v National Australia Bank Ltd (2011) 82 NSWLR 489; [2011] NSWSC 1562 (at [60]) to the effect that Troncone v Aliperti (supra) did not establish any principle that the implication of an intention to create a charge must be drawn in all cases from an authority given to lodge a caveat in connection with an obligation to pay money.
It is thus necessary in any particular case to consider the terms of the relevant instrument as a whole in order to determine whether, on its true construction, a grant of a charge ought be implied.
Clause 15 of the Deed provides that the first defendant and Hartington Pty Ltd will consent to the registration by the plaintiff of a caveat on the title to the property. Inherent in that promise is the conferral of authority to lodge a caveat. However, the Deed does more than merely authorise the lodgement of a caveat over the property (cf Taleb v National Australia Bank Ltd (supra) at [61]; Complex Scaffolding Solutions Pty Ltd v Doueihi (2014) 17 BPR 32,753; [2014] NSWSC 230 at [30]). The Deed further contains an acknowledgment that the plaintiff has a "caveatable interest" in the property. Whilst that is not necessarily decisive (see, for example, Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260 at [11]-[18]) I consider it to be an indication that the plaintiff was intended to have a proprietary interest in the land. In addition, cll 34 and 49 provide for repayment to the plaintiff out of the revenue of the Project in circumstances where such revenue was envisaged to consist of proceeds of sale of the land or parts of it (such as "Houses 1 to 4"). That is an indication that the plaintiff was to have an interest in the nature of a charge.
The warranties given by the first defendant impose restrictions wider than those that would arise from the existence of a caveat. They thus suggest that the plaintiff was to have more than a mere right to lodge and maintain a caveat. They do not, however, provide additional support for the implication of a charge. The warranties provide additional protection to the plaintiff as a lender or investor regardless of whether he has an equitable charge. The warranties are equivocal in this respect.
Overall, I consider that the terms of the Deed do support the implication of an intention that the plaintiff have an equitable charge over the property to secure repayment of the monies he advanced. The Deed does not seem to contain any indication to the contrary sufficient to overcome the implication.
I therefore conclude that, by entry into the Deed of 4 July 2012, the first defendant granted an equitable charge to the plaintiff over the property to secure repayment to the plaintiff of monies payable to him under the Deed. At present, those monies consist of the $781,233.90 the plaintiff invested into the Project, and the outstanding loan of $100,000 referred to in the agreement of 25 June 2013 concerning La Chinoiserie. That loan was not repaid within two years and no stock was sold to reduce the debt. The parties agreed that the outstanding balance of the loan would be treated as a loan under the Deed. I do not think that any further amounts lent by the plaintiff for the purposes of the business can, on the evidence before the Court, be treated in that way.
The Court will give declaratory relief to the effect that the plaintiff has an equitable charge over the property, and that the amount currently secured by the charge is $881,233.90.
The first defendant submitted that the declaratory relief sought should not be given because it amounted to an order for specific performance, and specific performance was not appropriate because the Deed required her to provide personal services. However, the declaratory relief is not in the nature of an order for specific performance. It does not itself command performance under the Deed. It does not itself compel the first defendant to provide personal services. Of course, as the Deed remains on foot, the parties to it remain bound to perform their obligations under it.
I understood the first defendant to also submit that the declaratory relief was inappropriate because it would produce no foreseeable consequences for the parties. She referred to Ainsworth v Criminal Justice Commission (1992) 175 CLR 564. There is no substance in the argument. The declaratory relief concerns real questions of controversy between the plaintiff and the first defendant, namely, whether the plaintiff has an equitable charge over the first defendant's property and, if so, the amount presently secured by the charge. The making of declarations to that effect plainly produces legal consequences for the parties (see Ainsworth v Criminal Justice Commission (supra) at 582 and 596).
I have not overlooked various other arguments raised by the first defendant in opposition to the giving of the relief sought by the plaintiff. In my opinion, none of those arguments warrant the withholding of relief. In particular, I reject the submissions made by the first defendant to the effect that the plaintiff has not come to Court with "clean hands". The defects in the service of the Summons and supporting material prior to the first return date has not been shown to be relevantly improper conduct, and it is in any case not sufficiently linked to the relief claimed. Further, I do not accept that the conduct of the plaintiff in relation to the adducing of evidence concerning the Deed and any attachments to it involved any attempt to mislead the Court. I do not accept that the plaintiff otherwise attempted to mislead the Court so as to obtain an order extending the operation of his caveat. Those serious allegations (which were not put to the plaintiff) are not supportable.
The first defendant also alleged that the plaintiff was guilty of breaches of the Deed, including delaying registration of the revised plan of sub-division. No breaches were established on the evidence. Even if the first defendant might have grounds to sue the plaintiff for breach of contract she has not done so, and the existence of breaches of contract would not in any event preclude or render inappropriate the giving of declaratory relief concerning the equitable charge.
The final issue to determine is the plaintiff's claim to an injunction restraining the first defendant from registering any varied plan of sub-division of the property without first obtaining the written agreement of the plaintiff.
This claim rests upon cl 4 of the Deed which provides that the parties may agree to vary the sub-division and development but any such variation "must be agreed in writing and signed by all parties to this agreement". Whilst the Deed remains in force, all parties, including the first defendant, remain bound by that obligation. Nevertheless, I do not think that it would be appropriate to grant the injunction sought by the plaintiff.
The obligation under cl 4 is not absolute. It must be read together with the other provisions of the Deed, including cl 9 which obliges the parties to at all times act in good faith towards one another in the best interests of the Joint Venture and the Project. It is thus not necessarily the case that the first defendant would be in breach of the Deed by proceeding to register a varied plan of sub-division without first obtaining the written agreement of the plaintiff. Whether that would be so, or whether the plaintiff would be entitled to prevent registration, would depend upon the circumstances existing at the time. For these reasons, even if grounds for an injunction were otherwise made out, it would not be appropriate to grant an injunction in the terms sought by the plaintiff.
I should add, in this context, that the plaintiffs' rights under the Deed, including the equitable charge as found by the Court provide a basis for a caveat over the property. To the extent that a caveat is maintained which would prevent the registration of a plan of sub-division, the plaintiff would thereby have some protection against a wrongful attempt to register a varied plan of sub-division.
The Court will make the following orders: 1. Declare that by Deed entered into on 4 July 2012 the first defendant granted an equitable charge to the plaintiff over Lot 2 in Deposited Plan 1086364 to secure repayment to the plaintiff of monies payable to him under the Deed; 2. Declare that pursuant to the said charge, and in the events that have happened, the land identified in Folio Identifier 3/1220608 presently stands charged to secure repayment to the plaintiff of $881,233.90; and 3. The Amended Summons is otherwise dismissed.
The following directions will be made to enable the question of costs (including as between the plaintiff and the second and third defendants) to be determined. Unless any party submits that a further oral hearing is necessary, the question of costs will be dealt with on the papers. Any further affidavit concerning costs must be served by 9 June 2017. Each party must serve and provide to my Associate a written submission concerning costs by 23 June 2017. The written submissions provided to my Associate must be accompanied by any affidavit sought to be relied upon, unless the affidavit has already been filed.

Coleman v Hart-Hughes

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