Demondrille Nominees Pty Ltd v Shirlaw, Kevin R & Anor & Shirlaw, Kevin R v Cornelis Holdings Pty Ltd (in liq) & Anor [1997] FCA 1220

REASONS FOR JUDGMENT THE COURT: INTRODUCTION The appellant ("Demondrille") appeals from an order of a judge of the Supreme Court of the Australian Capital Territory made on 25 June 1997 by which his Honour declared that Demondrille has no caveatable interest in Unit 3 in Units Plan 1226 in respect of Block 33, Section 100, Division of Narrabundah, in the Australian Capital Territory ("Unit 3" and "the Land" respectively) and ordered Demondrille to withdraw caveats 940993 and 950516. The second respondent ("Cornelis") is the registered proprietor of the lease of Unit 3 and the first respondent is its liquidator. Cornelis and Mr Shirlaw cross-appeal. By the notice of cross-appeal, they contend that if his Honour erred (for which they do not contend) in making certain specified findings, then his Honour erred in failing to make other findings and they seek orders in addition to those orders made by his Honour to which we have already referred. BACKGROUND FACTS The following account of the background facts is based on the Reasons for Judgment of the learned trial Judge, uncontroversial evidence in the Appeal Book, and matters which were common ground before us. Cornelis was incorporated in December 1992 by Kees Veraar and his wife Robyn Veraar who were its directors. On 22 January 1993 Cornelis contracted to purchase the Land, in order to subdivide and develop it. Cornelis intended to erect fourteen single unit private dwellings on the Land. Graham Gerard Joseph Potts was one of two directors of Demondrille, was its secretary and held four of its five issued shares. Mr Potts referred to Demondrille in evidence as his "personal company". Its principal activity was to act as trustee of the Potts Family Trust. On 7 February 1994, Cornelis agreed to sell and Demondrille agreed to purchase proposed Unit 3 by an agreement in the form of the Law Society of the Australian Capital Territory's standard form of "Agreement for Sale (Unit Title)" ("the Agreement"). The Agreement contained special conditions. Because the Agreement is important for the resolution of the appeal, we find it necessary to give a somewhat detailed account of it and of the background to it. The trial Judge characterised the Agreement as "peculiar". We agree. At the date of the Agreement, Cornelis had not completed its purchase of the Land. Consistently with this, the Agreement was for the "sale and purchase" of all the unexpired residue of a Units Lease yet to be registered in respect of Unit 3 in a Units Plan yet to be lodged for registration, depicting fourteen units of a development to be known as "Fairways" or another name to be chosen by Cornelis and to be erected on the Land, being the unit shown on the plans annexed to the Agreement. The Agreement contained undertakings by Cornelis to complete the erection of Unit 3, to obtain necessary approvals, and to use its best endeavours to have the necessary Units Plan registered by 30 December 1994. The purchase price was $180,000 which was stated to be payable as to $120,000 by way of deposit and as to the balance of $60,000 on completion. Completion was to take place on the date fourteen days from notification by Cornelis's solicitors to Demondrille's solicitors of registration of the Units Plan. For present purposes, the Agreement's provisions relating to the deposit are of most interest. Special condition 13 was: "13. The Seller hereby acknowledges that it has received the sum of $120,000 by way of deposit." It was common ground that Demondrille did not pay that amount or any amount by way of deposit and it is clear that the parties did not intend that it should do so. Against the background of special condition 13, the standard printed conditions read oddly indeed. Standard printed clause 2 was as follows: "2. Terms of Payment: (1) The Buyer upon signing this agreement shall pay as a deposit to [Cornelis] the sum [of $120,000] which shall vest in the Seller upon and by virtue of completion and which shall be accounted for to the Seller upon receipt of a written order from the Buyer or the Buyer's solicitor authorising such accounting. The deposit may be paid by cheque, but if the cheque is not honoured on first presentation the Buyer shall immediately and without notice be in default within the meaning of clause 22. (2) The balance of purchase money shall be paid by the Buyer to the Seller in cash in Canberra on completion. . . ." Standard printed clause 22 provided that, subject to clause 21, if Demondrille should default in observance or performance of any obligation imposed on it, Cornelis might forfeit the deposit paid, except so much of it as should exceed 10 per cent of the price, terminate the Agreement, and subsequently either sue Demondrille for breach of contract, or resell Unit 3 as owner, and, in the latter event, recover any deficiency as liquidated damages. There were other provisions within clause 22 dealing with the fate of the amount "paid" as deposit. Clause 21 provided, relevantly, that Cornelis could give to Demondrille a notice to pay, within not less than seven days, the amount of an unpaid deposit, and that upon the giving of such a notice, Demondrille was to pay the amount of the deposit within the time stipulated in the notice, in which respect time was to be of the essence of the Agreement. In accordance with the general law relating to the sale of land, the "time of the essence" reference signified that if Demondrille did not comply with the notice, upon expiry of the period of the notice Cornelis would be entitled to terminate the Agreement and Demondrille would have lost the right to relief against that result that the equitable remedy of specific performance might otherwise have offered. The standard printed cl 21 was consistent with this position under the general law, but gave as an alternative to the action for damages under the general law, the right to recover liquidated damages noted earlier, and otherwise provided for termination of the Agreement and the sequelae of termination. The trial Judge noted the following explanation of special condition 13 given by Mr Veraar in his evidence. Valdivia Holdings Pty Ltd ("Valdivia"), another company controlled by Mr Veraar, owed Demondrille $120,000. During the second half of 1993, Mr Veraar told Mr Potts that the only source of funds for payment of this debt was the proceeds of Cornelis's project in relation to the Land. Accordingly, Mr Potts and Mr Veraar agreed on a scheme for "payment" of the debt by which Demondrille should become entitled to purchase a Unit from Cornelis in the Fairways development at, in effect, an undervalue of $120,000. This scheme was consummated by Cornelis and Demondrille entering into the Agreement. The subsequent occurrence of three events obviated certain potential problems. First, Cornelis completed its purchase of the land in March 1994. Secondly, Cornelis completed construction of the 14 units, including Unit 3, and the Units Plan was registered on 12 December 1994. Thirdly, Colliers Jardine valued the completed Unit 3 at $180,000, the very amount of the purchase price. On the face of the matter, one might have expected Cornelis's solicitors, on or shortly after 12 December, to have given notice to Demondrille's solicitors of registration of the Units Plan with a view to completion of the Agreement fourteen days later by a transfer of title to Unit 3 in return for payment of $60,000 in accordance with the special conditions of the Agreement. However, the events of and after December 1994 were not to be so straightforward. The difficulty arose from the fact that by 12 December 1994 Cornelis was, to use the words of the trial Judge, "in desperate financial straits". St. George Bank Limited ("the Bank") had provided a substantial part of the purchase price and construction costs on the security of a first mortgage over the Land. Apparently Cornelis was anxious to sell as many units as possible as soon as possible. It had received an offer to purchase units 1 to 7 en bloc which it wished to accept. But the existence of the Agreement, relating, as it did, to Unit 3, was an obstacle. Accordingly, Graeme Nettle of Barrads, the solicitors for Cornelis, prepared a "Deed of Rescission" for execution by Cornelis and Demondrille. The form of this deed recited the Agreement and a wish of the parties to rescind it. Importantly, the operative provision was as follows: "NOW WITNESS THIS DEED by their execution hereof Cornelis and Demondrille hereby evidence the rescission by consent of the Agreement to become effective only on the receipt by Demondrille at the direction of Cornelis of the sum of ONE HUNDRED AND TWENTY THOUSAND DOLLARS ($120,000.00) being the return of the deposit deemed to have been paid pursuant to Special Condition 13 of the Agreement." Mr Potts' response was not to accede to Cornelis's request but to make a counter-offer comprised of two parts: (a) that a company with which he was associated named Primary Personal Services Pty Limited ("PPS") would purchase Units 1 to 7 en bloc at the price which had been offered by the other prospective purchaser; and (b) that his "personal company", Demondrille, would execute the deed of rescission. This counter-offer was accepted. On 15 December 1994, seven contracts for sale were entered into by Cornelis and PPS, one in respect of each of Units 1-7, which provided for completion on 22 December. The completion of each was expressed to be interdependent with completion of the others. Demondrille and Cornelis also executed the deed of rescission on 15 December ("the Deed"). The significance of the new arrangement made in December needs to be explored. In the first place, there is the question of the association of Demondrille and PPS. A special condition in the seven contracts disclosed that PPS was "constituted by persons, one or more of whom may have an interest or interests in Independent Group Pty Limited ["Independent Group"] or one or more of its regulated companies". In fact, Mr Potts was a director of Independent Group and he said that he was its managing director. The deposit ($10,000) provided for in each of the seven contracts was paid as part of a cheque for $70,000 drawn on Independent Group's bank account and signed by, inter alia, Mr Potts. Independent Group was described by Mr Potts in evidence as "a group company". He said that PPS was one of a number of companies in the group. He also said that he had shares in Independent Group and that it was the company through which he conducted his real estate business. A company search which was in evidence shows the directors of Independent Group as Mr Potts, Stewart Norman Petersen and Geoffrey Victor Thomas; its secretary as Jeffrey Paul Wade; and its shareholders (one share each) as Richard Tindale, Geoffrey Victor Thomas and Peak Pty Limited. Perhaps Mr Potts' interest as a "shareholder" was through Peak Pty Limited. Another company search in evidence before the trial Judge showed the directors of PPS as John Christopher Runko, Stewart Norman Peterson (sic) and Graham Bernard O'Brien; its secretary as Jeffrey Paul Wade; and its shareholders as Gupp Gupp Pty Ltd (thirty-one shares) and Dysitro Pty Limited (forty-six shares). There was a company search in evidence before the trial Judge in relation to Gupp Gupp Nominees Pty Limited but not in relation to Gupp Gupp Pty Limited. The search relating to Gupp Gupp Nominees Pty Limited showed its directors as Mr Potts and Mr Petersen; its secretary as Mr Petersen; and its shareholders as Mr Potts (one share) and Mr Petersen (three shares). Mr Potts also said that he was a director of Gupp Gupp Pty Limited. In the agreement dated 15 December 1994 for Unit 3, the price was $135,714.29. This was $45,000 less than its value as established previously by Colliers Jardine. Mr Potts was cross-examined about the contemporaneous exchange of the seven contracts and execution of the Deed. He insisted that he had been willing to have Demondrille complete the Agreement by paying $60,000. He said that his interest in PPS was a "minority" interest. On the other hand, he agreed that it was because he had introduced PPS and because of his "interest" in PPS, that he was prepared to have Demondrille execute the Deed. The Bank now held a registered first mortgage over the Units. Mr Nettle, on behalf of Cornelis, proposed that at settlement on 22 December, $120,000 be paid to Demondrille ahead of the Bank. The Bank would not agree. Notwithstanding the special condition requiring contemporaneous completion, the sales of only units 1, 2, 4, 5, 6 and 7 were completed on 22 December 1994. Cornelis's agreement to sell Unit 3 to PPS remained uncompleted. The net proceeds of the sales of the other six Units were paid to the Bank. The amount paid was insufficient to discharge its Mortgage and no money was paid to Demondrille. Accordingly, in relation to Unit 3, two agreements for sale were on foot: the Agreement itself by which Cornelis had agreed to sell to Demondrille; and the agreement dated 15 December 1994 by which Cornelis had agreed to sell to PPS. On 9 January 1995, Mr Shirlaw was appointed administrator of Cornelis. On 9 February 1995, several things happened. First, Cornelis's creditors resolved that Cornelis be wound up and that Mr Shirlaw be appointed liquidator. Secondly, Demondrille, through its solicitors Hill & Rummery, lodged the first of two caveats against the title to Unit 3. In this first caveat, the estate or interest claimed by Demondrille was shown as: "EQUITABLE ESTATE AS BUYER PURSUANT TO AGREEMENT FOR SALE DATED THE 7TH FEBRUARY 1994" The "dealings permitted by caveator" were stated to be: "DISCHARGE OF MORTGAGE RN 889231 OTHERWISE NIL" Mortgage RN 989231 was the Bank's mortgage. The caveator's address for service stated in the caveat was the address of Hill & Rummery. This first caveat was given the number 940993. Thirdly, Hill & Rummery wrote on behalf of their client Demondrille to the solicitors for Cornelis and Mr Shirlaw, informing them that they had instructions to lodge the caveat. Fourthly and finally, on behalf of their other client, PPS, they signed a notice to complete addressed to Cornelis and its solicitors, Barrads, calling for completion of the agreement dated 15 December 1994, at 2:30 pm on 27 February 1995. Clearly, they were hoping to achieve the result that on 27 February, PPS would acquire title upon payment of a further $125,714.29 (the price of $135,714.29 minus the deposit of $10,000 already paid) plus or minus adjustments, and that out of that sum $120,000 would be paid to their other client, Demondrille, whereupon the Deed would work a rescission of the Agreement and Demondrille's caveat would be withdrawn. On 24 February, Mr Shirlaw's solicitors wrote to Hill & Rummery asking that Demondrille withdraw the caveat. The request was refused. On 27 February 1995, Hill & Rummery wrote on behalf of PPS to Barrads on behalf of Cornelis, advising that on settlement at 2:30 pm that afternoon, PPS would require the withdrawal of Demondrille's caveat. In the very same letter, they asserted that their other client, Demondrille, had on foot the Agreement, pointed out that the Agreement preceded PPS's agreement, and asserted that Demondrille had a caveatable interest and would not be withdrawing its caveat! Hill & Rummery wrote a separate letter to Barrads on 27 February on behalf of Demondrille, advising that it was not prepared to relinquish its rights under the Agreement and would not withdraw its caveat until Cornelis performed the Agreement or some other settlement of the matter was reached. Mr Shirlaw arranged for Mr Nettle to attend at the time and place appointed for completion in PPS's notice to complete on 27 February. PPS declined to complete unless Cornelis gave it a withdrawal of Demondrille's caveat. Of course, Cornelis was unable to do so and completion was not effected. On 29 February 1995, PPS commenced a proceeding in the Supreme Court of the Australian Capital Territory (SC 206 of 1995) against Cornelis seeking specific performance of the agreement dated 15 December 1994 for the sale of Unit 3. On 20 April 1995, Demondrille lodged a second caveat against the title to Unit 3, although Mr Shirlaw did not learn of this until some time later (see below). The estate or interest claimed in this second caveat was: "AN EQUITABLE LIEN in favour of the caveator in the sum of $120,000.00" The "dealings permitted by caveator" were again stated to be: "DISCHARGE OF MORTGAGE RN 889231 OTHERWISE NIL" The address for service on the caveator was again the address of Hill & Rummery. This second caveat was given the number 950516. On 5 May 1995, Cornelis and Mr Shirlaw launched against Demondrille the proceeding which gave rise to the judgment below from which the present appeal is brought. They sought relief which fell into two classes: relief under the Corporations Law ("the Law") in relation to the Agreement and relief in respect of the first caveat (Mr Shirlaw was not yet aware of the lodgment of the second caveat). The former comprised declarations that the Agreement was an "unfair preference" for the purposes of s 588FA of the Law and that it was an "uncommercial transaction" for the purpose of s 588FB of the Law, and an order pursuant to s 588F of the Law declaring the Agreement void. The heads of relief sought in relation to the caveat were founded on the claim that Demondrille had no estate or interest in Unit 3. On 12 May 1995, in PPS's proceeding for specific performance, Master Hogan made consent orders in favour of PPS, subject to conditions relating to the withdrawal of the caveat. The application by Cornelis and Mr Shirlaw was then amended on 14 June 1995 so as to seek removal of both caveats and to claim compensation under s 108 of the Real Property Act 1925 (ACT) ("the "Act"). REASONING OF THE TRIAL JUDGE Cornelis and Mr Shirlaw submitted that the Agreement constituted an "uncommercial transaction" within the meaning of s 588FB of the Law. His Honour held that it was not. Central to his Honour's view was his construction of the Agreement as imposing a continuing obligation on Demondrille to pay the full amount of the deposit to Cornelis. Since the value placed on Unit 3 by Colliers Jardine was $180,000 and, according to his Honour, Demondrille was obliged to pay that full amount notwithstanding special condition 13, the Agreement was a sale for full value. This view rendered it unnecessary for his Honour to consider related provisions of the Law relied on by Cornelis and Mr Shirlaw. Their case, in so far as it depended upon them, was rejected. In relation to the second caveat, counsel for Demondrille conceded before his Honour that since Demondrille had paid no money under the Agreement, it was not entitled to an equitable lien. Accordingly, counsel for Demondrille accepted that the second caveat had to be removed. This position has been maintained on the hearing before us. His Honour decided that the first caveat fared no better. He gave two reasons why it should be removed. The first was that Demondrille had not commenced a proceeding for specific performance of the Agreement. His Honour's reasoning in this respect is found in the following passage: "Demondrille's caveat operates as an injunction against registration of a transfer to PPS, and Cornelis's inability to procure the withdrawal of that caveat precludes it completing the contract of 15 December 1994 with PPS. The purpose of a caveat is to enable a determination of conflicting claims. Demondrille has had plenty of time to bring suit. It has not done so and the caveat should now be removed: Gasiunas v Meinhold (1964) 6 FLR 182; Elliott v Blanshard (1970) 17 FLR 7; Mihalic v Mihalic (1987) 73 ALR 304 at 307-308; Bacon v O'Dea (1989) 25 FCR 495 at 506." The second reason given by his Honour was that a suit for specific performance would be doomed to fail because Demondrille was in default of its fundamental obligation to pay the deposit of $120,000 ever since the Agreement had been signed and had never indicated that it was ready, willing and able to pay it. Clearly, this ground also depended on his Honour's construction of the Agreement as obliging Demondrille to pay. His Honour expressed the view that Cornelis's claim for compensation under s 108 of the Act should be the subject of a separate proceeding. After hearing submissions on costs on a separate occasion, his Honour ordered that Demondrille pay the costs of Cornelis and Mr Shirlaw, not only of the hearing before himself, but, as well, of an earlier hearing before Higgins J. In making that order, however, he rejected a submission by Cornelis and Mr Shirlaw that they should have their costs on an indemnity basis. REASONING ON THE APPEAL We shall deal in the first place with the issues raised in the appeal, reserving consideration of the cross-appeal until later. The caveat system A caveat under the Torrens Title regime can be conveniently regarded as akin to an ex parte statutory interlocutory injunction. The statute permits the caveator to protect, on an interim basis, the estate or interest claimed pending determination of such questions as may be in dispute as to the existence of that estate or interest, the threat to it from a proposal to register an instrument, and the entitlement to priority as between the estate or interest and that instrument. The caveator is permitted to attain that protection merely upon "claiming" an "estate or interest", without having to persuade a court that there is a serious question to be tried as to the three matters mentioned and that the balance of convenience favours the granting of interlocutory relief against the caveator's rival pending trial. But the price of maintaining a caveat is that the caveator is required, where the caveat is under challenge, to attempt, promptly and with diligence, to establish on a final basis the existence and prevalence of the estate or interest claimed. The caveator may be, and often is, required to give an undertaking to the court to do so as a condition of the caveat's survival. Where, as in the present case, the registered proprietor applies for an order that a caveat be removed, the court is faced with considerations of a kind otherwise generally similar to those which affect a decision whether to discharge an ex parte interlocutory injunction. A statutory discretion is involved. The question arises whether there is a serious issue to be tried that the estate or interest claimed by the caveator exists. It appears that in most Australian jurisdictions, the question of the balance of convenience will also arise, even if it will ordinarily be resolved in favour of a caveator who has succeeded on the former issue (cf Lindsay, Caveats Against Dealings (Federation Press, 1995) at 206-8). Not only may the registered proprietor bring matters to a head: so may the caveator's competitor, by lodging for registration its instrument affecting the land. Notice of lodgment is given to the caveator and if the caveator does not, within fourteen days after service of the notice, obtain injunctive relief, the caveat no longer prohibits registration of the instrument (s 106 of the Act). Construction of the Agreement Although we agree with the learned trial judge that the caveat must be withdrawn, our reasoning differs from his. We respectfully differ from his Honour as to the construction of the Agreement. Although we agree that the acknowledgment of payment of the deposit in special condition 13 did not estop Cornelis from proving that payment had not in fact been made (Petersen v Moloney (1951) 84 CLR 91 at 100 referred to by his Honour is one authority that supports this view), we think that when the Agreement is construed, as it should be, against the factual background to the making of it, special condition 13 has a different effect in any event, with the result that no question of estoppel arises. The Agreement must be construed in a way that gives effect to the parties' intention as expressed in their words. To this end, it is necessary to read printed clause 2 and special condition 13 in the light of each other so as to produce a workable result. To construe the Agreement, as his Honour did, as imposing a continuing obligation on Demondrille to make actual payment of the sum of $120,000, denies effect to special condition 13. The parties knew that the sum of $120,000 had not in fact been paid, yet included special condition 13, intending it to have some effect. To ignore it, results in Demondrille's having undertaken a contractual obligation which neither party to the Agreement intended it to undertake and which the evidence does not suggest that it was ever prepared to undertake, that is to say, to pay $120,000 in addition to $60,000. We agree with the trial Judge that the construction that he adopted signified that Demondrille was in default, from the making of the Agreement, of a fundamental obligation (cf Brien v Dwyer (1978) 141 CLR 378) (although standard condition 21 may have controlled the right of termination for breach of it which would ordinarily have arisen). According to his Honour's construction, the default would have entitled Cornelis immediately to various remedies: perhaps, to sue Demondrille for the amount of the deposit or of so much of it as did not exceed 10 per cent of the purchase price, with or without first terminating the Agreement (cf Lindgren and Nicholson, "The Problem of Recovery of an Unpaid Deposit" (1985) 59 ALJ 11); certainly, to give a seven-day "notice to remedy default" pursuant to printed standard clause 21 of the Agreement and, after non-compliance by Demondrille, to terminate the Agreement and then to sue Demondrille for damages for breach of contract, or, after re-sale, to sue it for liquidated damages. The availability to Cornelis of such remedies sits ill with special condition 13 and, we are satisfied, was not intended by the parties. In sum, in our respectful opinion, Demondrille did not undertake an obligation to make actual payment of the sum of $120,000 at all. In our view, the proper construction of the Agreement, when read against the background that both parties knew that the deposit of $120,000 had not been paid, is to the effect that completion was to be effected by a transfer of title by Cornelis to Demondrille and payment in exchange by Demondrille to Cornelis of only $60,000, and that at that time, if not previously, Demondrille was to be treated as if it had paid a further sum of $120,000 as a deposit under printed clause 2 of the Agreement. Whether the proper construction of the Agreement is also to the effect that the parties were agreeing that Demondrille was to be treated from the time of the making of the Agreement and for all purposes as having actually paid the deposit of $120,000 is a more difficult question that we need not resolve. Its resolution would involve consideration of the issue whether, by virtue of the making of the Agreement (as distinct from completion of it), Valdivia's indebtedness to Demondrille was discharged. Consequence of our construction of the Agreement It was not in issue before us that once the Units Plan was registered on 12 December 1994, it became possible for Demondrille to seek specific performance of the Agreement in the form of an order that Cornelis transfer title to Unit 3 to Demondrille upon payment by Demondrille of $60,000. We shall proceed on that assumption in favour of Demondrille and, accordingly, shall address the situation only after that date. According to our construction of the Agreement Demondrille was not in breach of it and became entitled, after 12 December 1994, to specific performance of the Agreement by Cornelis, upon paying to Cornelis only $60,000. However, through Mr Potts, Demondrille consented to Cornelis's entering into an unconditional contract on 15 December to sell Unit 3 to PPS. Demondrille has never sought to withdraw that consent. In particular, Demondrille has never sought specific performance of the Agreement and we agree with the trial Judge that any attempt by it to do so would be doomed to fail. This is so because, through Mr Potts, it acquiesced in, and indeed encouraged, the undertaking by Cornelis of an unconditional obligation to transfer title to Unit 3 to PPS, another company with which Mr Potts had an association. It would have been unconscionable after 15 December 1994 for Demondrille to have insisted upon performance of the Agreement by Cornelis, and, concomitantly, non-performance by Cornelis of its agreement of that date with PPS. After that date, it could no longer do so. We need not stay to discuss whether the operative principle is properly characterised as postponement, waiver or equitable acquiescence. What we have said does not signify that the Agreement came to an end upon the happening of the events of 15 December 1994, that is to say, the execution of the Deed and the making of the agreement for sale between Cornelis and PPS in respect of Unit 3. It does signify, however, that Demondrille then lost any equity which it would otherwise have had to obtain an order for specific performance. The "estate or interest" claimed by Demondrille under the first caveat was, as noted earlier, an "equitable estate as buyer pursuant to" the Agreement. Demondrille's equitable estate or interest as purchaser under the Agreement after 12 December 1994 was commensurate with its right to obtain specific performance of the Agreement. We agree with the trial Judge that Demondrille's failure, in the circumstances referred to above, notwithstanding the availability of time, to seek specific performance of the Agreement is a ground on which specific performance would have been refused. However, it will be clear from what we have said earlier, that in our view, more fundamentally, such a suit would have been doomed to fail immediately the documents of 15 December 1994 were executed. On the hearing before us, Demondrille submitted that it was not necessary in order for it to establish an estate or interest in the land, that it be entitled to specific performance of the Agreement. It referred, in support, to Hewett v Court (1983) 149 CLR 639 at 650 (Gibbs CJ), 666 (Deane J). But the proposition which was there accepted that an equitable lien and an equitable interest between parties in a contractual relationship might arise notwithstanding the unavailability of specific performance, is distinct from the proposition, for which Demondrille contends but which we reject, that the availability of specific performance is not the test of the existence of the "equitable estate as buyer" under the Agreement. Such an equitable estate is dependent upon, and commensurate with, the availability to Demondrille of specific performance. The only estate or interest claimed by Demondrille in its first caveat was that of a purchaser under an unconditional contract for the purchase of property that was in existence and title to which was transferable. The measure of Demondrille's right to maintain its caveat was its prospect of obtaining an order for transfer of that title to it. Demondrille submitted during the hearing of the appeal that if it was not entitled to an equitable estate as purchaser, it was, in the alternative, entitled to an equitable interest consisting of a right to compel Cornelis to sell Unit 3 and to pay $120,000 to it out of the proceeds of sale. This submission was not fully argued. It raises several issues. These include, at least, the questions whether, upon the proper construction of the Deed Cornelis did promise Demondrille to sell Unit 3 and to pay $120,000 to it out of the proceeds of sale; whether, if it did, Demondrille thereby acquired a caveatable estate or interest in Unit 3; and whether, if it did, this could have any implications for the present proceeding in view of the fact that the first caveat did not claim that interest. We will discuss only the second of these issues. We need not decide whether Demondrille's alternative case raises, in accordance with general principle, an "estate or interest" in Unit 3: cf Hammon v O'Brien (1990) DFC 95-091; 5 BPR 11,163 (NSW/McLelland J); Dykstra v Dykstra (1991) 22 NSWLR 556 (McLelland J). The promise hypothesised gave Demondrille an equitable interest only if a court would grant it "specific relief against the land" (cf Composite Buyers Ltd v Soong (1995) 38 NSWLR 286 (Hodgson J) at 288G). In order to maintain, against Cornelis's opposition, a caveat against the title to Unit 3, Demondrille would need to establish a triable issue that it was entitled to an estate or interest which was inconsistent with registration of a transfer to PPS. There is a clear reason why the caveat contemplated could not have been maintained. This arises from the kind of specific relief which it would have been open to Demondrille to seek. Any specific relief obtainable by Demondrille would be in the form of an order that Cornelis sell Unit 3 and pay $120,000 out of the proceeds of sale to Demondrille. Such an order would require Cornelis, as a first step, to transfer a clear title to a purchaser. Yet this is precisely what its sale to PPS required it to do. Demondrille might seek interlocutory injunctive relief directed to preserving intact the sum of $120,000 out of the proceeds of sale, but that is another matter. What is important for present purposes is that the kind of specific relief against Unit 3 necessarily propounded by Demondrille in its alternative case is inconsistent with the maintenance of a caveat preventing completion of the sale to PPS. Demondrille could not, therefore, maintain its caveat to protect that interest. It is also not amiss to note that a charge over the proceeds of sale of Unit 3 would not prevail over the Bank's rights which arise from its registered first mortgage which, both caveats acknowledge, remains in force. Demondrille submits that his Honour decided against it on grounds that were not argued. As noted above, his Honour decided that the caveats should be withdrawn because Demondrille had not sought specific performance, and because, if it had done so, its own failure to pay the deposit would have doomed it to failure. The latter ground was apparently not argued before his Honour. The former was not argued in terms, although Cornelis and Mr Shirlaw put the following closely related submission in their written submissions to the trial Judge: "2.4.1 Demondrille executed the deed of rescission and in substance agreed to stand aside and allow another PPS to enter into an agreement for sale. In these circumstances the Court would decline specific performance of the Demondrille agreement for sale or injunctive relief to prevent the PPS sale being completed." We think that this submission of "standing by" was sufficient to raise the ground of a failure to seek specific performance on which the trial Judge relied. In any event, the submission is squarely in line with the reasons which we have propounded. What we have said leads to the conclusions that the trial Judge's declaration and order for withdrawal of the caveats are soundly based and that the appeal should be dismissed. We would add that any application by Demondrille for equitable relief touching the land might well have faced discretionary bars. For example, the "pincer attack" mounted by Demondrille and PPS, well illustrated by the letters dated 27 February 1995 from their common solicitors, Hill & Rummery, to Barrads, noted earlier, might be thought unlikely to have attraction in a jurisdiction to which one must come "with clean hands". REASONING ON THE CROSS-APPEAL General The dismissal of the appeal has the result that although Demondrille has no caveatable interest and its caveats are ordered to be withdrawn, both the Agreement and the Deed remain in force. In their cross-appeal, Cornelis and Mr Shirlaw seek to deal with them by propounding the following grounds and seeking the following orders: "2. If His Honour erred (for which the cross-appellant does not contend) in finding: (a) that the acknowledgement in special condition 13 of the contract for sale dated 7 February 1994 between the appellant and the second respondent did not create an estoppel against the second respondent; (b) that the appellant remained obliged to pay the deposit to the first respondent; (c) that unless and until the whole of the purchase price was paid, the second respondent was not obliged to complete the agreement. then His Honour erred: (a) in failing to consider and to find that the contract for sale dated 7 February 1994 was an uncommercial transaction, and an insolvent transaction; (b) in failing to consider and to find that the deed of rescission dated 15 December 1994 was an uncommercial transaction, and an insolvent transaction. Orders sought 3. That the judgement and orders be varied by the addition of further orders: (a) declaring that the contract for sale dated 7 February 1994 was an uncommercial transaction, and an insolvent transaction; (b) declaring that the contract for sale dated 7 February 1994 was unenforceable; (c) declaring that the deed of rescission dated 15 December 1994 was an uncommercial transaction, and an insolvent transaction; (d) varying the deed of rescission dated 15 December 1994 by deletion of the condition as to payment, with effect from the date of execution of the deed; (e) costs to be assessed on an indemnity basis." As noted earlier, while we do not think that his Honour erred in making the "finding" that special condition 13 did not give rise to an estoppel against Cornelis, we have concluded that he erred making the "findings" that Demondrille remained obliged to pay the deposit to Cornelis and that until the whole of the price of $180,000 was actually paid Cornelis was not obliged to complete the Agreement. In the light of those conclusions, the notice of cross-appeal propounds errors of the trial Judge in failing to consider whether, and to find that, the Agreement and the Deed were each both an uncommercial transaction and an insolvent transaction. It is necessary, therefore that we consider the provisions of the Law and counsel's submissions in respect of them. His Honour found against Cornelis and Mr Shirlaw on this part of the case because of his view as to the effect of the Agreement. Relevant provisions of the Law Part 5.7B, headed "RECOVERING PROPERTY OR COMPENSATION FOR THE BENEFIT OF CREDITORS OF INSOLVENT COMPANY" and comprised of ss 588D-588Z, was inserted in the Law by Act No 210 of 1992 with effect from 23 June 1993. Division 2 (ss 588FA-588FJ) in that Part is headed "Voidable transactions". Sections 588FB and 588FC within that Part assume particular importance in the present case. They are as follows: "588FB(1) A transaction of a company is an uncommercial transaction of the company if, and only if, it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to: (a) the benefits (if any) to the company of entering into the transaction; and (b) the detriment to the company of entering into the transaction; and (c) the respective benefits to other parties to the transaction of entering into it; and (d) any other relevant matter. (2) A transaction may be an uncommercial transaction of a company because of subsection (1): (a) whether or not a creditor of the company is a party to the transaction; and (b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. 588FC A transaction of a company is an insolvent transaction of the company if, and only if, it is an ... uncommercial transaction of the company, and: (a) any of the following happens at a time when the company is insolvent: (i) ... (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or (b) .............................................................................................................. ." [emphasis supplied] As will appear, we have come to the view that for the purpose of these sections the transaction expressed in the Agreement was an uncommercial transaction and also that it was an insolvent transaction because, on 15 December 1994 when Cornelis was insolvent, an act, namely, the act of entering into the Deed, was done for the purpose of giving effect to the Agreement. The word "transaction" as used in Part 5.7B is defined in s 9 of the Law to mean a transaction to which, relevantly, Demondrille, is a party. The definition gives "example[s] (but without limitation)". The first example given is "a conveyance, transfer or other disposition by [Demondrille] of property of [Demondrille]". The expression is defined to include a transaction that has been completed or given effect to or that has terminated. It was not, and could not have been, disputed by Demondrille that the contract expressed in the Agreement was a "transaction". On the hearing of the appeal, Cornelis and Mr Shirlaw eschewed a submission that Cornelis was insolvent at the date of the Agreement. On the other hand, Demondrille did not dispute that Cornelis was insolvent as at the date of the Deed, 15 December 1994. The critical issues debated on the appeal were whether the Agreement was "an uncommercial transaction of [Demondrille]" and whether, if it was, Demondrille's entering into the Deed was "an act ... done ... for the purpose of giving effect to the [Agreement]". In addressing these issues, it is essential to bear in mind the context in which ss 588FB and 588FC appear. It will be recalled that they appear in a Division headed "Voidable transactions". Voidable transactions are the subject of subs 588FE(1) of the Law which provides that where a company is being wound up, a transaction of the company that was entered into after 23 June 1993 may be voidable because of any one or more of the succeeding subsections of s 588FE. Relevantly, the transaction embodied in the Agreement is voidable if it is an insolvent transaction of Cornelis and an act was done for the purpose of giving effect to it during the period of six months ending on 9 January 1995 (subs 588FE(2), definition of "relation-back day" in s 9, s 513B(b), s 513C). Again, the transaction embodied in the Agreement is voidable if it is an insolvent transaction and also an uncommercial transaction and was entered into or an act was done for the purpose of giving effect to it during the period of two years ending on 9 January 1995 (subs 588FE(3), definition of "relation-back day" in s 9, s 513B(b), s 513C). These provisions are clearly the current attempt by the legislature to balance the interests of the unsecured creditors of a company being wound up and those who would otherwise would be the beneficiaries of pre-winding up transactions entered into by the company; cf par 1034 of the Explanatory Memorandum which accompanied the Corporate Law Reform Bill 1992. Uncommercial transaction By the Agreement, Cornelis contracted to sell Unit 3 for $180,000 but to forego receipt of $120,000 of this amount. Although there may have been a benefit to Valdivia or to Mr or Mrs Veraar or to both of them in Cornelis's having done so, there was no benefit to Cornelis or, indirectly, to its unsecured creditors, in its having done so. To support Valdivia in the way in which it did, did not, for example, assist Cornelis to continue in business. Put simply, Cornelis incurred a detriment to the extent of $120,000 in order to benefit Demondrille and Valdivia. Even if one takes a generous view that the relief of financial pressure on Mr Veraar or the placation of Mr Potts, a potentially useful marketer of Cornelis's units, or both, would provide some commercial benefit for Cornelis, nevertheless Demondrille had, at Cornelis's expense, obtained "a bargain of such magnitude that it could not be explained by normal commercial practice". Using those words, the Explanatory Memorandum stated that it was transactions of such a kind at which s 588FB was aimed (Explanatory Memorandum, par 1044).On the facts found by the trial Judge, the conclusion was inevitable that the transaction embodied in the Agreement was an uncommercial transaction. Although we think that this conclusion is required by the plain terms of s 588FC, support for it is also to be found elsewhere. Section 109H of the Law is as follows: "109HIn the interpretation of a provision of this Law, a construction that would promote the purpose or objects underlying the Law (whether that purpose or object is expressly stated in the Law or not) is to be preferred to a construction that would not promote that purpose or object." The purpose or object of the provisions with which we are concerned is to prevent a depletion of the assets of a company which is being wound up by, relevantly, "transactions at an under-value" entered into within a specified limited time prior to the commencement of the winding up (see Explanatory Memorandum, par 1014). To construe the expression "uncommercial transaction" to catch the Agreement in the way in which we have done promotes the purpose or objects of the provisions to which we have referred. Insolvent transaction - "giving effect to" We turn next to s 588FC, the relevant subsections of which were referred to earlier. The issue which arises for decision under s 588FC is whether Cornelis's act in entering into the Deed "was for the purpose of giving effect to" the transaction to be found in the Agreement for the purposes of that section. Prior to the making of the Agreement, Demondrille had no relevant rights against Cornelis. By the Agreement, it acquired contractual rights and became subject to contractual obligations. Relevantly, it acquired the right, upon payment of $60,000, after 12 December 1994 to receive a transfer of the title to Unit 3 and to be credited with having paid a total purchase price of $180,000. That right subsisted at the time when the Deed was entered into. Demondrille's right, upon paying $60,000, to be treated as having actually paid $180,000 when it had not in fact done so, was a valuable right. The subsistence of that right when the Deed was entered into is recognised in the Deed's reference to: " ... ONE HUNDRED AND TWENTY THOUSAND DOLLARS ($120,000.00) being the return of the deposit deemed to have been paid pursuant to Special Condition 13 of the Agreement." Demondrille's right to be treated as having paid $120,000 which it had not in fact paid explains the Deed and makes commercial sense of it. We think that for the purpose of subs 588FB(2), the acts of Cornelis and Demondrille in entering into the Deed in fact "gave effect", within the meaning of s 558FC, to the "transaction" constituted by the Agreement, because it gave effect to the "credit" in favour of Demondrille which the Agreement created. It was argued that because the Deed provided for the rescission, or undoing, of the Agreement, it could not be said to "give effect to" it. There may be some cases where that can be said of a rescission agreement. But this is not one of them. The Deed here set out to secure for Demondrille the payment of $120,000 to which it became entitled by virtue of the Agreement and not otherwise. To the parties this was clearly the most commercially important effect of the Agreement. It is true that the Deed did not give effect to the entirety of the earlier transaction, but we do not think that this matters: it gave effect to a substantial part of it and the "uncommercial" part at that, namely, the agreement to transfer property at an undervalue of $120,000 to the detriment of Cornelis and to the benefit of Demondrille. It is with the giving of effect to an uncommercial transaction that the statutory provisions are concerned. Insolvent transaction - "for the purpose of" It was also argued for Demondrille that the phrase "for the purpose of" in s 558FC would accommodate only an act whose sole or dominant purpose was to give effect to the earlier transaction. Counsel rightly acknowledged that the cases dealing with cognate questions under other legislation could have only analogical force. This, indeed, is a case, in our opinion, where analogy provides limited assistance. Commercial transactions may have many purposes; it may be no easy matter to determine that a transaction had a "sole" or "dominant" purpose. Nothing in the present legislation compels such an inquiry. The legislation was plainly aimed at improving the position of the unsecured creditors of the company. It should be given a beneficial construction. In our opinion, it should not be read down in the manner suggested in Demondrille's submission and it suffices that a purpose of the doing of the act or of the making of the omission is to give effect to the uncommercial transaction. If it matters, we record that in our opinion that purpose was a "significant" or a "substantial" purpose of Cornelis's and Demondrille's execution of the Deed. In the result, the Agreement is a voidable transaction. Section 588FF empowers the Court to make any one or more of the orders set out in that section on the application of a company's liquidator. One is an order declaring that an agreement constituting, forming part of, or relating to, the transaction in question, to have been void at and after the agreement was made. It should be declared that the Agreement was void at and after the time when it was made. Indemnity costs Cornelis and Mr Shirlaw complain that his Honour erred in failing to order that Demondrille pay their costs on an indemnity basis. Before the trial Judge, they sought costs on that basis by reference to certain correspondence which passed between the solicitors for Demondrille and the solicitors for Cornelis and Mr Shirlaw. On 24 February 1995, Phillips Fox, who acted for Cornelis and Mr Shirlaw, wrote to Hill and Rummery, the solicitors for Demondrille, a letter which included the following: "It is clear that the sole purpose of the lodging of the caveat is to attempt to force the liquidator to pay $120,000.00 to Demondrille, by placing the liquidator in a position where he must either pay that sum to Demondrille or default on the agreement with PPS. Given all the circumstances, and particularly the fact that Demondrille has taken no steps towards completion of the agreement, that the caveat was lodged on the same day as the notice to complete was served, and that that was done by yourselves acting for both PPS and Demondrille, it is difficult to reach any other conclusion." Later, on 6 June 1995, Phillips Fox again wrote to the solicitors for Demondrille who, by that time, had become Demondrille's present solicitors, namely, Phelps Reid. In this letter, which was headed "without prejudice except as to costs", Phillips Fox proposed a "commercial compromise" which included the following: "1. PPS settle on unit 3 for the sum of $110,000.00. We understand that a deposit of $10,000.00 has already been paid, so this will amount to a saving of approximately $25,000.00 in favour of your client. Indeed, we understand from your client that the unit could be sold for approximately $145,000.00, giving a further benefit to your client. 2. PPS waive its rights to any alleged damages and that Demondrille not seek to specifically perform its contract or claim any damages. 3. That each party bear their own costs to date of the various court proceedings commenced involving PPS and Demondrille. Please advise if the terms of the above proposal are acceptable. Our instructions are that our client will not compromise any further because of its strong confidence of success in this matter. Our client has also sought and obtained approval by the major creditor for the course undertaken against Demondrille. Please note that this offer is open for acceptance for a period of seven days from today's date. We note the matter is returnable in the Supreme Court on 9 June 1995. On the last occasion, Master Hogan indicated that he would require the parties to request directions on the next return date. Subject to your client's attitude to our client's proposal, we can prepare consent directions if you like for your approval. We look forward to hearing from you." The learned trial Judge refused the application for indemnity costs. On the hearing of the appeal, Cornelis and Mr Shirlaw did not point to any misapprehension of fact or error of principle in his Honour's decision to refuse them indemnity costs. In substance, they asked us to re-exercise his Honour's discretion. Clearly, we cannot do so. A particular submission that they made was that since Cornelis is in liquidation, it is unfair that its unsecured creditors should have to bear the differential between party and party costs and indemnity costs. This consideration, however, would apply to every proceeding in which a company in liquidation succeeds and it does not persuade us to disturb his Honour's exercise of discretion. If Demondrille lodged its caveats "without reasonable cause" (see s 108 of the Act) it may be liable to pay compensation to Cornelis in respect of the differential between solicitor-client costs and party and party costs which Cornelis has incurred. This issue has not arisen on the present hearing and we say no more of it. CONCLUSION The appeal will be dismissed and the appellant will be ordered to pay the respondents' costs of the appeal. On the cross-appeal there will be a declaration that the Agreement was void at and after the date when it was entered into, namely 7 February 1994, and the cross-respondent will be ordered to pay the cross-appellants' costs of the cross-appeal. I certify that this and the preceding twenty-five (25) pages are a true copy of the Reasons for Judgment herein of the Court.

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