Eathorne & Ors v Araya-Marvin

Background 5On 10 September 2008 the first, second and third plaintiffs, and the defendant, completed their purchase of the property as co-owners for the price of $1,940,000. Their common intention was to develop the property and subdivide it into four lots. 6Funds for the purchase and development of the property were provided by St George Bank Ltd (the Bank) under a facility agreement with a limit of $3,840,000, and a commercial overdraft facility with a limit of $50,000. The security provided to the bank by the first, second and third plaintiffs, and the defendant, included a first mortgage over the property which was registered on about 10 September 2008. 7In about September 2008 the parties, and Mr Brent Anthony Marvin (the defendant's husband) and Smarts Crescent Pty Limited (the company) made an agreement dated 28 October 2008 entitled "Property Development Deed" (the Deed). The terms and conditions thereof relate to the acquisition and development of the property, and to the engagement of the company as the project manager to manage and complete the project in accordance with the development consent. It is common ground that the development has now been completed. 8It is accepted that upon fulfilment by the parties of their obligations under the Deed, the parties would do what was necessary (including executing and lodging for registration a strata plan for the subdivision and executing any necessary transfers) to enable the subdivision to be registered and for newly created lots 1 to 3 to be transferred to the first, second and third plaintiffs, with lot 4 (the Heritage lot) to be transferred to the defendant. 9Relevantly, the Deed includes the following provisions: "8. Partition 8.1 The Parties agree that it is the intention of the Parties that on registration of the Draft Strata Plan a partition transfer will also be registered, so that Claudia will become the sole registered proprietor of the Heritage Lot. .... 8.2 Upon registration of the partition transfer, Claudia will continue to remain a registered proprietor of the Remainder Lots, however Claudia acknowledges and agrees that she has no right to any of the proceeds of sale of those Remainder Lots and the other Parties agree that Claudia has no obligation in relation to the Sale Costs. .... 10. Entitlements in the Property 10.1 The Parties agree that on completion of the Development, Claudia will retain the Heritage Lot. 10.2 The Parties agree that on completion of the Development the Remainder Lots will be sold and all sale proceeds will be applied to the repay Purchase Loan and the Construction Loan (and any unpaid Purchase Loan Costs or Construction Loan Costs) and to obtain a discharge of the Mortgage. Once the Purchase Loan and the Construction Loan have been repaid in full, any additional proceeds of sale will be apportioned in one third shares to Nicole & Scott, Paula and Greg & Carol, subject to Clause 11. .... 10.6 In the event that, prior to registration of the Draft Strata Plan and the partition transfer, the Parties agree not to proceed with the Development and decide to sell the Property, the Parties agree that all proceeds of that sale are firstly to be applied to discharge the Mortgage and to pay any legal, agent's and associated sale costs. Once the Mortgage is discharged, if there are any remaining proceeds from that sale, the Parties will each be entitled to a one-quarter share of those proceeds. .... 13.7 Further acts Each party must do everything reasonably necessary (including executing or producing documents, getting documents executed or produced by others and obtaining consents) to give effect to this Deed." 10Since about January 2010 the defendant and Mr Marvin have occupied that part of the property comprised in Lot 4 in the proposed strata plan and known as the "Heritage" lot. 11On 14 February 2011 the proposed strata plan of subdivision of the property was executed by the first, second and third plaintiffs, and the defendant. The relevant parties have now signed the instrument required under s 88B of the Act. 12The borrowers are in default under their loan agreement with the Bank. By letter of 9 June 2011 the Bank demanded repayment of the amount of $4,055,345.77. Interest is accruing at the rate of about $43,932.90 per month. No payment has been made. 13On 27 June 2011 the Bank served notice under s 57(2)(b) Real Property Act 1900 on the borrowers following failure to comply with the demand made on 9 June 2011. The notice demanded payment of the outstanding amount within one month, failing which it was proposed to exercise the power of sale under the mortgage. As at the date of the hearing of these proceedings there has been no compliance with the notice. The giving of notice by the Bank caused the urgent commencement of these proceedings. 14It is common ground that the draft strata plan referred to in clause 8.1 has not been registered and, accordingly, a partition transfer has not been registered whereby the defendant would become the sole registered proprietor of the Heritage lot. It is also common ground, as it must be, that as completion of the development has not yet been achieved, the application of clauses 10.1 and 10.2 has not been triggered. 15Furthermore, the evidence shows that at the present time the question whether completion of the development in accordance with the Deed will take place at all is a matter of speculation. This is because the parties have been in a state of disagreement about their rights and obligations under the Deed for a considerable time. The situation is exemplified by the notice of dispute served on the defendant and Mr Marvin on about 24 January 2011 purportedly pursuant to clause 13.10(a) of the Deed which requires the submission to arbitration of any dispute arising under it. The disputes of which notice was given include: "1. The meaning and effect of the Property Development Deed; 2. The rights duties and obligations of Claudia Araya-Marvin under the St George Bank Loan; .... 4. The use and occupation of the Heritage Lot described as 27 Smarts Crescent Burraneer by Claudia Araya-Marvin and Brent Anthony Marvin and each of those persons; 5. Calculations of "Land Acquisition Costs" under Clause 4 and calculations of the Final Amount under Clause 9 of the Deed; .... 10. Occupation of part of the land being 27 Smarts Crescent Burraneer by Brent Anthony Marvin and others and the fiduciary and other obligations of Claudia Araya-Marvin arising therefrom..." 16Relevantly, by letter of 24 January 2011 to the plaintiffs, the defendant's solicitors challenged the validity of the notice on various grounds. It appears that on 17 February 2011 an informal conference to resolve the disputes was held attended by the first, second and fifth plaintiffs and Mr Marvin but not the defendant. It was unsuccessful. The fact that many issues remain unresolved is evidenced, inter alia, by the correspondence between the defendant and the plaintiffs' solicitors between 1 and 8 July 2011 (Exhibit B). It also appears that the plaintiffs and the defendant have been unable to agree on proposed arrangements for refinancing, as referred to in the letter of 17 June 2011 from Gibson Howlin Lawyers, to the defendant.

Determination 20For the defendant it was submitted that an order for sale should be refused as it would be inconsistent with her present entitlements under the Deed. 21In my opinion, any contractual limitation upon the plaintiffs' entitlement to an order under s 66G depends upon the application of clauses 8.1 and 10.1 of the Deed. Such limitation cannot arise unless and until, in this case, the draft strata plan and a partition transfer have been registered. This has not happened. 22For the purpose of these proceedings it is unnecessary to descend into the detail of the disputes between the parties arising under the Deed, or to attempt to resolve them. However, the evidence establishes, and I find, that the parties as co-owners have reached an impasse in their relationship which constitutes a substantial impediment to completion which, under clause 10, is the event which crystallises property entitlements under the Deed. Furthermore, the terms of clause 10.6 indicate recognition by the parties that their entitlements in the property will not arise prior to registration of the draft strata plan and the partition transfer. On the evidence it is a matter for speculation whether and when the defendant's entitlement to the Heritage lot will ever arise. In my opinion, no such right presently exists or is enforceable. In any event, on the present state of the evidence, I find it highly unlikely that completion will take place before the Bank recovers possession. These considerations are sufficient to justify the exercise of discretion in the plaintiffs' favour. 23It is also relevant to have regard to the circumstances that, as a high probability, default under the mortgage will continue, and the Bank will exercise its rights to possession and sale. The parties remain in default and there is no likelihood that this situation will change, or that the Bank will decline to exercise its rights whereupon the co-owners' interests in the property will be lost. The plaintiffs fear that it is probable that the Bank will soon take proceedings for the recovery of possession, and that liability for interest at the rate of $43,932.92 per month will continue until the proceedings are determined and the property sold. They also expect that additional liability will be incurred to the Bank for related costs and expenses. 24Continuation of the present state of affairs is obviously detrimental to all parties. An order appointing trustees for sale may enable the property to be put on the market without delay thereby, to some extent, alleviating this detriment. A sale conducted by trustees would also avoid liability to the Bank for its costs and expenses in relation to a sale conducted by it. 25In all of the circumstances, and with regard to common sense and practical reality, the discretion under s 66G(1) should be exercised in the plaintiffs' favour. It follows that I am left entirely unpersuaded that the making of the order sought by the plaintiffs would be inconsistent with any entitlement the defendant claims under the Deed.

At a glance

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Judgment (6 paragraphs)

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