EDPI PTY. LIMITED v. RAPDOCS PTY. LIMITED & ANOR [2005] NSWSC 644

Woodward v. Page (1989) 7 BPR 14 CASES CITED : Appleton Papers Inc. v. Tomasetti Papers Pty. Limited (1983) 3 NSWLR 208 Patrick Stevedores Operations No. 2 Pty. Limited v. Maritime Union of Australia (1998) 194 CLR 1

EDPI PTY. LIMITED v. PARTIES : RAPDOCS PTY. LIMITED & ANOR

Plaintiff: D. Barren/P. Castley COUNSEL : Defendant: I. Roche

Plaintiff: Barclay Benson SOLICITORS : Defendant: Hancock Alldis & Roskov

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

EDPI PTY. LIMITED v. RAPDOCS PTY. LIMITED & ANOR JUDGMENT 1 HIS HONOUR: On 17 June 2005, I made orders in terms of MFI 1. At that time I indicated that I would publish my reasons at a later date. These are those reasons. 2 On 26 May 2005, the plaintiff filed a notice of motion in which the following orders were sought:- " 2. An order that Caveat No. AA922102 be removed from Lot 3 of Deposited Plan 752053 corresponding to land situated at 470-472 Pennant Hills Road, Pennant Hills. 3. An order that the Registrar of the Supreme Court of New South Wales deliver up to the plaintiff the Certificate of Title of Lot 3 of Deposited Plan 752053." 3 The premises 470-472 Pennant Hills Road, Pennant Hills consists of three lots of which Lot 3 is one. All three lots are in the name of the plaintiff. 4 The substantial issues in the proceedings arise from the cross-claim filed by Rapdocs Pty. Limited on 14 October 2004 in which the cross-claimant claims declaratory and other relief in respect of what is termed the EDPI Trust. In particular, Rapdocs seeks a declaration that it is the beneficial owner of 20 units in the EDPI Trust, alternatively, a declaration that the First Cross-Defendant as Trustee of the EDPI unit trust (EDPI Pty. Limited) holds the land upon trust for Rapdocs as to two-thirds shares and Nader (a reference to Mr. Nader Zoljalali) as to a one-third share as tenants in common. It is unnecessary to set out the other alternative forms of relief claimed in the cross-claim. 5 A defence has been filed to the cross-claim and the Certificates of Title, the subject of the application of the proceedings brought by the plaintiff for delivery up of them, have been lodged with the Registrar of the Supreme Court and are being held in the Registrar's custody pending the outcome of the proceedings.

Factual background 6 For the purposes of this interlocutory judgment, it is sufficient if I record the factual background based upon the plaintiff's written outline of submissions. "4. On or about 2 December 2003, Nader Zoljalali, a developer and director of EDPI Pty. Limited, entered into an agreement or arrangement with David Smith and John James who are individuals who are involved in the development of land for retirement homes and nursing homes. 5. EDPI Pty. Limited was the Trustee of the Hybrid Trust designed to attract investments in the development of property that came into the control of another company, Parisi Homes Pty. Limited, which had the same directorship as EDPI. Parisi had bought the land at 470 to 472 Pennant Hills Road, Pennant Hills for the sum of $3,250,000.00. In the course of that transaction, an agreement was struck between EDPI Pty. Limited, as trustee of a trust, David Smith and John James whereby David Smith and John James would operate as trustees for a group of investors to provide funds for the purchase of the land, then secure construction funding for project management which would involve the completion of a construction of units over the four lots but in particular units for a 55 resident nursing home in respect of Lot 4. The agreement involved EDPI Pty. Limited owning Lots 1, 2 and 3 with Lot 4 to revert to John James and David Smith after the completion of the project. The agreement between the parties was partly oral and partly in writing. 6. On or about 7 February 2003, contracts were exchanged over the property with:- (a) The property to be purchased by a company whose directors were David Smith and John James, namely Lifestyle Retirement Projects No. 2 Pty. Limited. (b) St. George Bank would supply the balance of funds not fully realised by Lifestyle's investors. (c) The loan from St. George Bank would be secured against the property with personal guarantees by all directors of Lifestyle and EDPI. (d) Upon the registration of the subdivision St. George Bank would release EDPI and its directors from their corporate and/or personal guarantees, release the Title Deeds for the subdivided Lots 1, 2 and 3 which were single dwelling allotments and deliver them unencumbered to EDPI Pty. Limited. (e) St. George Bank would maintain a mortgage over Lot 4 and all guarantees by Lifestyle and its directors with a view to funding the facility in due course. 7. On or about 15 April 2003, written confirmation was received from Lifestyle of the completion of the purchase as tenants in common being a purchase of the property as tenants in common of Lots 1, 2 and 3 held as 30% by EDPI and Lot 4 at 70$ by Lifestyle. 8. On or about June 2004, David Smith and John James retained the Certificates of Title for Lots 1, 2 and 3 in a safe. When a demand was made by the plaintiff for the Certificate of Title to be released in accordance with the agreement to the plaintiff, that was met with a refusal. 9. Accordingly, the plaintiff has sought urgent relief in the Supreme Court for delivery up of the Certificates of Title for Lots 1, 2 and 3 which are presently held with the court. 10. By its cross-claim filed 15 October 2004, an agreement was made between Lifestyle and Nader Zoljalali in respect of the Pennant Hills property and was made partly oral and partly in writing. 11. According to the cross-claimant, the terms of the agreement were that Lifestyle would provide capital to complete the purchase of the land, carry out the necessary works for a subdivision into four allotments with land being purchased by EDPI and Lifestyle in shares as tenants in common in proportions of 30% to 70% with Lifestyle acting as Trustee for the Lifestyle Retirement Projects No. 2 Trust. 12. The trustees were to hold the land as tenants in common with the allotments to be conveyed to EDPI's trustee of the EDPI Trust and Lifestyle's trustee of the Lifestyle Trust. Upon registration of the plan Lifestyle would procure a discharge of all bank securities upon the three residential blocks, Lot 4 would be developed into a retirement village. 13. The EDPI Trust was to be a unit trust in which Smith, James and Nader or their nominees would each take one-third interest bay (sic) way of the issue of units in the trust, Lots 1, 2 and 3 would then be marketed by Nader and the profits from the sales would be split three ways. 14. Lifestyle alleges that certain changes were to be made to the Trust Deed nominating Rapdocs as the entity to hold units in the EDPI Trust with the books to be kept by Mr. Belz, an accountant retained on behalf of the EDPI Trust. 15. On 4 May 2004, EDPI became the registered proprietor of Lots 1, 2 and 3, Lifestyle became the registered proprietor of Lot 4."

The issues arising on the cross-claim 7 In the plaintiff's outline of submissions, it is said that the central allegation in the cross-claim is said, in effect, to be that in the course of negotiations leading up to the making of the agreement EDPI or Mr. Zoljalali represented that EDPI would issue 20 units in the name of Mr. Smith and Mr. James or their nominees so that Mr. Zoljalali would only become entitled to one-third of the beneficial ownership of Lots 1, 2 and 3 and that he would make all such alterations to the Trust Deeds relied upon by the cross-claimant that were reasonably required by either Mr. Smith or Mr. James. 8 In response to the cross-claim, EDPI defends it upon the basis that there was no agreement as alleged, that there was never a trust and that there was never the issuing of any units. Reference was made to affidavit evidence that has been sworn and filed on behalf of EDPI by both Nader Zoljalali and Mr. Ronald Belz. 9 EDPI contends that the allegations in the cross-claim are without foundation and that the appropriate agreement was a tenancy in common at 30% and 70% with three lots to go to EDPI Pty. Limited as trustee for Hybrid Trust and Lot 4 in the name of Lifestyle Retirement Projects No. 2 Pty. Limited. In the cross-claim proceedings, EDPI alleges that a document purporting to be the issuing of a second Certificate of Units in a unit trust of EDPI as trustee for the Earth Development Unit Trust is a forgery (paragraph 20 of the plaintiff's outline of submissions).

The notice of motion 10 The application seeking an order that Caveat No. AA922102 be removed from Lot 3 of Deposited Plan 752053 is supported by the affidavit evidence of Nader Zoljalali sworn 26 May 2005 and of Romel Badal, solicitor, sworn 26 May 2005. 11 Mr. Zoljalali states that he is a director and principal of the company Parisi Homes Pty. Limited and of a further company, Marborne Pty. Limited. 12 The latter company is a holding company and subsidiary of Parisi Homes Pty. Limited which is presently in the process of undertaking a Sepp 5 development at Osborn Road, Marayong. 13 Mr. Zoljalali's affidavit set outs the background for the present proceedings and affirms that the cross-claim is to be vigorously defended. The affidavit discloses that Parisi Homes Pty. Limited is substantially indebted to Mr. Zoljalali himself and to Suncorp Metway and other creditors. It has monthly expenditure commitments for ongoing developments in the sum of approximately $100,000 per month. The corporation's main asset is the Sepp 5 development at Osborn Road which is said to have a sale value in excess of $3 million. The company's plant equipment and office furniture is estimated as being worth between $100,000 and $200,000. 14 The affidavit of Mr. Zoljalali reveals that Parisi Homes Pty. Limited is in the process of finishing the development at Osborn Road, which he anticipates to be completed within the next two months and then be ready for sale. The development comprises eight, two bedroom villas, a three bedroom townhouse and a four bedroom townhouse. 15 The affidavit reveals that the order in the notice of motion is sought so that EDPI Pty. Limited may utilise the equity in Lot 3 of Deposited Plan 752053 to then lend to Parisi Homes Pty. Limited in the short term so that Parisi Homes can trade in the short term to facilitate the completion of the Osborn Road development. 16 In paragraph 13 of the affidavit, details are provided of judgments said to have been obtained against companies of which Mr. John James and Mr. David Smith are directors and principals and it is claimed the non-payment of the judgments have contributed to Parisi's financial difficulties. 17 Of the three lots, Mr. Zoljalali claims that Lot 3, being a battleaxe block, is of less value than Lots 1 and 2. He attributes a value of approximately $450,000 to Lot 3. A valuation undertaken by Justine Hallows attached to her affidavit sworn 13 June 2005 attributes a value to 21 Thompson Close (Lot 3) of $430,000. 18 In submissions, the plaintiff proposed that orders be made, inter alia, upon the basis of the following:- "2. That the plaintiff and/or Nader Zoljalali be permitted to secure Lot 3 of Deposited Plan 1062109 as against a borrowing of $350,000 or 80% of the value of the said Lot either as agreed or as per the valuation of Justine Hallows dated 11 June 2005 3. That written notice of any borrowing over Lot 3 be served upon the solicitors for the cross-claimants seven days prior to settlement thereof."

The defendant's affidavit evidence 19 The affidavit of Richard John Kitching sworn 9 June 2005, solicitor, responds to Mr. Zoljalali's affidavit in support of the notice of motion. He states that:-

• EDPI is the Trustee of the Earth Developments Trust.

• That Trust currently has one registered member, Nader Zoljalali.

• Mr. Zoljalali is in turn the trustee of the Zoljalali Family Trust. 20 The affidavit reveals that one of the three judgments referred to in paragraph 13 of Mr. Zoljalali's affidavit (the claim concerning Plus 55 Village Management Pty. Limited) was the subject to a decision of Justice White on 3 June 2005 setting aside the Statutory Demand on the grounds that there were bona fide disputes concerning the indebtedness of Plus 55 and that in respect of the claim against Wagga Road Properties Pty. Limited ($12,960) there are proceedings pending in the Consumer Trader and Tenancy Tribunal. Mr. Kitching further points to the limited assets of the plaintiff based on statutory information, the fact that Parisi Homes appears to be in significant financial difficulties and the prospect of prejudice if the caveat is withdrawn on Lot 3 of recovering costs in the event that the plaintiffs are successful in the cross-claim. 21 The affidavit of David Anthony Smith sworn 10 June 2005 also responds to Mr. Zoljalali's affidavit. He is a director of the companies Lifestyle Retirement Projects No. 2 Pty. Limited and Plus 55 Village Management Pty. Limited. He states that Parisi Homes was engaged by Plus 55 Village Management Pty. Limited to carry out a construction of a hostel for older people at Lavington near Albury. He provides information as to the basis upon which the judgment was obtained by Parisi Homes Pty. Limited and related issues. Mr. Smith also refers to Supreme Court proceedings in relation to the claim against Lifestyle Retirement Projects No. 2 Pty. Limited. 22 The plaintiff's written outline of submissions dated 14 June 2005 focuses on two aspects:-

(a) that, given the claim set out in the cross-claim, even if the cross-claimant were successful, orders would be made pursuant to s.66G of the Conveyancing Act such that the plaintiff would realise its one-third share;

(b) the conduct of the defendant in not paying judgments and taking action to try and set aside statutory demands which, prima facie, are without merit and that fairness indicates that relief should be given to the plaintiff to assist it in re-financing to lend to the main company to trade. 23 The first of these two grounds are the more significant of the two on this application for removal of the Caveat. 24 The written submissions in opposition to the plaintiff's motion dated 15 June 2005 and the supplementary submissions of 16 June 2005 concentrate on the second of the above two points. 25 An examination of the terms of the cross-claim does not assert that Mr. Smith and Mr. James are entitled to all of the units of the EDPI Trust. It is sufficient to refer briefly to the following paragraphs in the cross-claim:- "9(g) The EDPI Trust was to be a unit trust in which Smith, James and Nader, or their nominees, would each take a one-third interest by way of the issue of the units in the said Trust. (h) Lots 1, 2 and 3 would then be marketed by Nader and the profits from the sales would be split three ways." 26 In paragraph 14(d), it is alleged that at a meeting on 20 May 2005, Nader, on behalf of EDPI agreed that the EDPI Trust would have as its unit holders Rapdocs Pty. Limited as to two-third and Nader as to one-third. 27 Paragraph 24 proceeds upon the assertion of Rapdocs entitlement as a holder of two-third of the units in the EDPI Trust or as the beneficial owner in equity of a two-third interest as tenants in common with EDPI in Lots 1, 2 and 3. 28 The declarations and order sought include a declaration that the Trustee of the EDPI Trust, that is, EDPI Pty. Limited holds the land upon trust for Rapdocs as to two-third shares and Nader as to a one-third share as tenants in common. 29 The plaintiff accordingly asserts that the cross-claim inherently accepts that EDPI Pty. Limited is entitled to alternatively one of the three lots, or to a one-third share as a tenant in common with Rapdocs. Accordingly, the plaintiff says that even if the cross-claim were to succeed, its interest in either respect would be maintained in that event and that accordingly there is no warrant any longer for the Caveat to apply to preclude it from obtaining the order (order 2) in the notice of motion. It relies upon the financial need that Parisi Homes has to utilise the security in Lot 3 to complete what is said to be, at the moment, a substantially completed development.

Determination 30 An order having been made on 5 November 2004 by his Honour Justice Young, Chief Judge in Equity, extending the caveats over the three lots, the plaintiff has the onus on this application to establish a basis, including any changed circumstances, which would warrant the caveat being removed from Lot 3. 31 In determining the application, regard must be had to the principles to be applied in determining applications for the withdrawal of caveats pursuant to s.74MA of the Real Property Act 1900 (NSW). Generally the proper approach qua caveats is that expressed by McLelland, J. in Woodward v. Page (1989) 7 BPR 14, 612, at 14, 613 in the following terms:- "… the caveat should be removed except to the extent that the Court is satisfied that the (caveator) would be entitled to an interlocutory injunction restraining the plaintiff from dealing with the property until the final determination of the (caveator's) claim. That, in turn, invokes the principle that where a claimant's entitlement to ultimate relief is uncertain, the court in deciding to grant or refuse an interlocutory injunction must consider what course is best calculated to achieve justice between the parties in the circumstances of the particular case, pending the resolution of the uncertainty, bearing in mind the consequences to the respondent of the grant of an injunction in support of relief to which the claimant may ultimately be held not to be entitled, and the consequences to the claimant of the refusal of an injunction in support to which he may ultimately be held to be entitled." 32 In exercising the discretion on an application such as this, it is appropriate to have regard, in my opinion, to the Court's approach to the grant of interlocutory injunctive relief. Those principles are generally dealt with and set out in Appleton Papers Inc. v. Tomasetti Papers Pty. Limited (1983) 3 NSWLR 208. 33 Accordingly, I approach this application, having regard to the nature of the cross-claim, by reference to the following:-

• The basis or lack of any basis in the defendants to establish a prima facie case that at trial they will be held entitled to relief which would embrace or include Lot 3.

• The inconvenience or injury which the plaintiff would be likely to suffer if the caveat were not removed and whether that outweighs or is outweighed by the injury or detriment which the defendants would suffer if the caveat were removed.

• In addition to the application of interlocutory injunction principles, those principles which govern applications concerning the right of parties to lodge or to require the withdrawal of caveats generally to be found in the Real Property Act 1919. 34 Later in oral submissions, I raised with counsel for the defendants as to whether, by application of these principles, the defendants were in a position to establish that they had a probability of success in terms of a prima facie case that the cross-claimant would be entitled to relief in respect of Lot 3. Counsel for the defendants indicated that if the matter was to be approached in accordance with the principles outlined above then the defendants may seek leave to re-open to adduce further evidence. However, as events transpired, no such application was made and final submissions were then made on the evidence already adduced. 35 One further issue raised with the parties was whether or not this was a matter in which the interests of Parisi Homes could be regarded as the interests of an innocent third party that the Court should have some regard to in the exercise of its discretion. In respect of the proper approach on applications for interlocutory relief where the relief sought would impact on the interests of innocent third parties, reference may be made to the correct approach identified in Patrick Stevedores Operations No. 2 Pty. Limited v. Maritime Union of Australia (1998) 195 CLR 1 per Brennan, CJ., McHugh, Gummow, Kirby and Hayne, JJ. in the joint judgment at 42. 36 In the present case, as an exercise of discretion, I consider it is, on the evidence, appropriate to have regard to the stage of development of Parisi Homes' project in Osborn Road, Marayong and its need for additional secured finance to complete the project. That is a discretionary factor which I consider I am entitled to have regard to in determining the present application. 37 On the primary question as to whether the defendants have established a prima facie case or a serious issue to be tried in relation to Lot 3, it is clear from the terms of the cross-claim, specific aspects of which I have earlier set out, that the cross-claimants concede that Lots 1, 2 and 3 would, in the event that the court makes the orders sought, be marketed by Mr. Zoljalali and the profits from the sales would be split three ways. Accordingly, for the purposes of this application, I do not see that the cross-claim constitutes proceedings that deny an entitlement in EDPI to Lot 3 or its equivalent in terms of a unit holding in the Trust. The contrary was not argued in submissions on this application. I do not consider that the evidence establishes a serious issue in relation to Lot 3. 38 Finally, I have not overlooked the prospect as referred to in Mr. Kitching's affidavit sworn 9 June 2005 that the release of one lot could, in the future, prejudice the cross-claimant in recovering costs in the event that it were successful in the cross-claim. However, in the balancing exercise required in exercising the discretion, I do not consider that that prospect outweighs the competing matters that favour the order for removal of the caveat in respect of Lot 3. The balance of convenience, I consider, leans in favour of its removal. 39 Finally, although the affidavit of Mr. Kitching refers to the possibility of a damages claim, as counsel for the plaintiff has observed, at no time has such a claim been formulated in the proceedings as an alternative basis for proceedings against the plaintiff. 40 Accordingly, the orders made by me on 17 June 2005 in terms of MFI 1 are, I consider, the appropriate orders to be made on this application. **********

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