Executive Builders & Developers Pty Ltd v Roddam

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4192/03 - EXECUTIVE BUILDERS & DEVELOPERS PTY LTD v RODDAM JUDGMENT 1 HIS HONOUR: The applicants/defendants move for an interlocutory order that the respondent be restrained from dealing in any way with proposed Lots 7, 8, 31, 34, 35 and 37 in a certain plan until further order. 2 The case has a number of unusual features. 3 It is common ground that on 18 June 2002, a deed called Deed of Compromise was entered into between the plaintiff and the first and second defendants, Peter and Glenda Roddam. The recitals were:

"A. Lena Pace, Victor Pace, Catherine Pace, J & L Pace have entered into the Loan Agreement.

B. Executive is the registered proprietor of the Property.

C. Executive and Roddam have agreed that the obligations of all parties under the Loan Agreement will be compromised and satisfied on the terms set out in this Deed." 4 The Loan Agreement was defined as being the agreement between the Roddams and Paces which was set out in Schedule 1 to the Deed. It would appear that the Paces owed the Roddams $650,000 under that agreement. The loan was secured, inter alia, by a second mortgage over Lot 6 Meroo Road, Meroo Meadow being part Folio Identifier 2/237607 and part Folio Identifier 3/237607. 5 Certain leaps in faith have to be made. One is that the land over which that second mortgage was held is the whole of the land being dealt with in subdivision by the plaintiff of which the lots involved in this litigation are part, and secondly, that the plaintiff whose ACN is 003 817 874 as is noted on the backsheet of the Deed of Compromise is the same as ACN 099 625 411 which is its description on page 1 of the deed. However, for the purpose of the interlocutory proceedings I will make that leap. 6 Clause 2 of the deed is as follows: "2. Satisfaction of Loan Agreement Obligations

2.1 Simultaneously with and conditional upon execution of this Deed, Executive and Roddam (or its Nominee) shall enter into the Sale Contracts. 2.2. Notwithstanding the terms of the Sale Contracts, Executive and Roddam agree that the Sale Contracts shall not be completed until the date which is 14 days after the date of completion of the sale of the fortieth (40th) lot of the Proposed Lots (excluding the Satisfaction Lots and lots 68, 69, 70, 71 and 72 being transferred to APE). On completion of the Sale Contracts Executive will deliver to Roddam (or its Nominee) the stamped transfers in registerable form, the title deeds to the Satisfaction Lots together with a discharge of mortgage and release of any charge or encumbrance over the Satisfaction Lots in registerable form. 2.3 The parties agree that the sum of $650,000.00 payable under clause 2 of the Loan Agreement shall be set off against the balance of the purchase monies payable by Roddam (or its Nominee) under the Sale Contracts and clause 2 of the Loan Agreement is hereby amended so that the payment of $650,000.00 will be made in that form. 2.4 Subject to and in consideration of completion of the Sale Contracts, Roddam releases and forever discharges Executive, Lena Pace, Catherine Pace, Victor Pace, Michael Isakka and J & L Pace from all obligations under the Loan Agreement and any other obligations arising in respect of verbal or written representations made by any person in respect of any monies payable pursuant to the Loan Agreement." 7 Clause 8 was an entire agreement clause. 8 Pursuant to the Deed of Compromise and on 18 June 2002, the plaintiff entered into four contracts. Lots 7, 35 and 37 were contracted to be sold to Peter and Glenda Roddam for $324,999.99. Lot 8 was contracted to be sold to Loretta Shane Hadfield for $108,333.33, Lot 31 was contracted to be sold to Michael and Cheree Fairbairn for the same price and Lot 34 also for the same price to Steven Roddam. 9 When the proceedings originally commenced only Peter and Glenda Roddam were named as defendants and they are also applicants in the notice of motion. When, during oral argument I raised the question that it may be once the contracts were exchanged with the nominees the nominees were the persons to assert rights, the cross claim was amended. There was some argument before me as to whether the notice of motion had also been amended, but this is of no practical significance. Accordingly I do not feel myself obliged to enter into the discussion as to whether where a nominee is involved it is appropriate for proceedings to be taken in the name of the original grantor or the name of the nominee; see eg Westminster Estates Pty Ltd v Calleja (1970) 91 WN (NSW) 222, 229 and Fileman v Liddle (1974) 2 BPR 9192, 9199. 10 Each of the contracts contained a special condition headed "30. Subdivision". Sub-paragraphs (a) and (b) of this clause are as follows: "(a) Completion of this Contract is subject to and conditional upon the registration at the expense of the Vendor of a plan of subdivision drawn in accordance with the draft plan of subdivision annexed to this Contract and marked "A" ("Plan").

… (b) In the event that the plan of subdivision has not been registered within 12 months from the date of this contract than [sic] either party hereto may rescind this contract by written notice served on the other and clause 19 shall apply." 11 There is no need to look at clause 19 which is a standard clause dealing with rescission. 12 Printed clause 29 provides, so far as is relevant, as follows: "29.1 This clause applies only if a provision says this contract or completion is condition on an event. … 29.4 If anything is necessary to make the event happen, each party must do whatever is reasonably necessary to cause the event to happen." 13 The plan was not registered by 18 June 2003. It was subsequently registered on 10 October 2003. The plaintiff purported to rescind the contracts by letter dated 23 June 2003. It also purported to terminate the Deed of Compromise by letter dated 27 August 2003. 14 The Roddams placed a caveat on the title No 9732208P. The plaintiff commenced these proceedings to have the caveat withdrawn. This was met by a cross claim for specific performance. However, the caveat was actually withdrawn on about 2 September 2003. 15 Despite the fact that there was a caveat on the title and that there were conversations between the solicitors, the plaintiff has entered into 42 contracts for the sale of lots in the draft plan of subdivision. Two of these contracts affect the subject land, namely Lots 31 and 37 which were sold in the sense of contracts being entered into, to third parties who would appear not to have any notice of the prior interest of the Roddams, on 23 October 2003 and 30 October 2003 respectively. There is an affidavit which was filed at the heel of the hunt and I reserved my position as to whether I should admit it by a solicitor for the "sub-purchasers" of Lot 37 claiming that they would be prejudiced, at least financially, if the vendor was restrained from completing their contract. 16 I was referred to a decision of Bryson J in Masterton Homes Pty Ltd v Executive Builders & Developers Pty Ltd [2003] NSWSC 908. The defendant in that case is the same as the plaintiff in the present. The land again appears to be the same as the present. The rescission for non-registration of the plan clause appears to be virtually identical in both cases. Bryson J examined the evidence as to why it took so long for the plan to get registered, looked at the balance of convenience in that case and made an interlocutory injunction. There does not, however, appear to have been any on-sale of any of the lots in the Masterton Homes case. 17 The matter was argued before me in the duty list on 5 November 2003, Mr A D Justice of counsel appearing for the plaintiff and Mr M K Meek of counsel appearing for the defendant. Because a couple of points arose on which I thought it was better to have further submissions from counsel and because other matters had to be dealt with, I adjourned the matter for further submissions to be filed in writing and this duly happened. 18 I should deal with first one point that concerned me on which I wished further submissions before coming to the gravamen of the principal case. Under the six contracts nothing further was to be payable by any of the named purchasers. The $650,000 referred to in the Deed of Compromise was to be taken as the full purchase price. 19 Ordinarily, when rescinding a contract one can only do so if all parties can be put back into their status quo ante and if they cannot, rescission is usually unavailable. Furthermore, equity is usually far less troubled by granting specific performance in a situation where the vendor has been fully paid or the contract has otherwise been executed on one side than where the contract is purely executory. 20 Mr Justice attempts to answer this proposition by saying that on the true construction of the Deed of Compromise there was no obligation on the plaintiff to pay the money which was owed by others under the loan agreement. Once the contracts had come to an end, then its obligation had ceased it being fairly clear that the form of contract which was actually entered into was in accordance with the Deed of Compromise. Accordingly, the Pace interests still owe the money because there has been no release and discharge under clause 2.4 of the Deed of Compromise. 21 On the other hand, Mr Meek puts that the true construction of the Deed of Compromise is that in the events which have happened, either the plaintiff is liable to pay the $650,000 or else it is precluded from rescinding unless and until it pays or causes someone else to pay, the $650,000 to the Roddams. 22 Mr Meek says that authorities such as McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, particularly at 476-477 per Dixon J, show that if a partly executed or partly performed contract is allegedly rescinded then it is only rescinded for the future and the obligation remains to restore what has been paid under it. Accordingly, Mr Meek says that even if his construction of the Deed of Compromise is not accepted at the final hearing, then under this principle the plaintiff is bound to pay the $650,000 to the Roddams and their nominees, the rescission only being valid, if valid at all, for the future. Accordingly, the proper analysis is that by the Deed of Compromise and the subsequent contracts, the plaintiff may be subrogated to the rights of the Roddams in relation to the Pace debt, but it is bound to pay the Roddams. 23 Mr Meek also submits that it is self-evident that the Deed of Compromise and contracts for sale are inter-related and the sale contracts are merely the mechanism for carrying out the obligations referred to in the Deed. The answer to this may be that if the mechanism fails, then the parties are put back into the position that they were in before the Deed of Compromise. 24 Mr Justice says that the Roddams' refusal to honour their obligations under the Deed of Compromise permitted that Deed to be terminated and also meant that the Roddams themselves were a material cause in the plan not being registered. 25 Often a judge will decide a question of construction of a document on an interlocutory application. However, where the construction might be affected by the factual matrix, it is usually better not to do so. I will not do so in the instant case. However, it does seem to me that Mr Meek has a strongly arguable case for his construction (there is also an arguable case on Mr Justice's side as well). 26 I can thus return to the principal matter, and that is whether the plaintiff was justified in rescinding under clause 30(b). This Court hears numerous cases involving clauses like 30(b). The approach is fairly clear:

(1) the onus is on the person resisting rescission to make out the case that the rescission was invalid;

(2) however where all the facts are in the camp of the developer, any onus on the other party is to a degree softened;

(3) the question of fact that has to be decided is whether any act or omission of the developer plaintiff materially contributed to the non-registration of the plan. 27 As to these questions, see Walker v Chanrich Properties Pty Ltd [2003] NSWSC 1064. 28 On this third point, the decision of Bryson J in Hawes v Cuzeno Pty Ltd (1999) 10 BPR 18,011 was referred to by counsel. It may well be that that case is no guide because the present case does not involve a special clause dealing with the rights of rescission in the contract but rather the equitable rule expounded in New Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France [1919] AC 1. It is worth pointing this out in an endeavour to ensure that this case keeps on the rails at the final hearing, but otherwise the point has no significance at the present stage. 29 Mr Justice says that when one looks at all of the evidence presented by the plaintiff in this case one should not adopt the view that the defendants/cross claimants have an arguable case. As to this, two things should be said. The first is that Bryson J looked at very similar material and did not form that view. Whilst that does not bind me, the mere fact that it happened is a matter that makes Mr Justice's submissions that there is no arguable case that much harder to sustain. 30 Furthermore, it must be remembered that on this sort of application this Court must follow the approach of the Court of Appeal in Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729, 734, when Mahoney JA, giving the judgment of the Court said: "There are limitations upon the extent to which a judge is to take into account such evidence as the defendant may tender upon an interlocutory application. It is not his function to conduct a preliminary trial of the action, nor is it, in general, to resolve the conflict between the parties' evidence, and grant or refuse the application upon the basis of such findings. Where there is conflict of evidence, the use which may be made of the defendant's evidence in determining whether the plaintiff has made out a prima facie case is a limited one. For example, the plaintiff's evidence, considered alone, may be such a prima facie case as would be acceptable if submitted to a jury in a trial. But, when considered in the light of the defendant's evidence, it may be explained away so as no longer to be such. Or the defendant's evidence, when juxtaposed to that of the plaintiff may show that there is in reality no such case, no real question between the parties, appropriate to warrant preserving the status quo until the hearing." 31 Finally on this aspect of the case I note that the solicitor for the plaintiff proffered an undertaking to the Roddams and their nominees that they would not deal with any of the four lots and would make some arrangements with respect to money compensation in relation to the two if certain events happened. This tended to indicate that there was an acknowledgement by the solicitor shortly before the matter came on before me that there was a prima facie case. However, at the hearing the concession was withdrawn without any reason. In my view this matter reinforces my determination that there is a prima facie case. 32 In my view the material presented by the plaintiff does amount to a prima facie case. 33 The next matter is to look at the balance of convenience. It is quite clear that it will take some time for this case to come on for a final hearing both because of the evidence that needs to be collected on both sides and also because of the state of the court's lists which is exacerbated by the forthcoming long vacation. 34 There are obvious factors in favour of granting an injunction. First, if the plaintiff's construction of the Deed of Compromise is correct, then the only security which the Roddams have for their money is the set of contracts for the sale of land. If the plaintiff is permitted to dispose of these otherwise, then their rights may well be limited to claims against the Paces or claims for damages against the present plaintiff. Secondly, in cases of specific performance over land because your land has a unique quality, equity tends to assist the plaintiff to obtain specific performance especially where there is an executed contract on one side. 35 On the plaintiff's side it is said that the plaintiff will suffer great hardship if it cannot sell the land and recoup the expenditure on the development. Furthermore it has said it has on-sold two lots and the purchasers of those lots will suffer hardship and inconvenience if they are not able to complete their purchase. 36 As to the circumstances of third parties being taken into account when considering balance of convenience, Mr Justice referred me to a series of authorities including Spry, The Principles of Equitable Remedies 6th ed (Law Book Co, Sydney, 2001) pp 473-4. 37 In Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, 42, five Justices of the High Court adopted that passage as it appeared in an earlier edition of Spry. However, as their Honours noted: "The weight to be given to third party interests varies according to the circumstances". 38 In the instant case we do not know what are the rights and obligations of the contracts whereby the plaintiff sold two of the disputed lots to third parties in late October 2003. The evidence tends to date tends to suggest that the plaintiff made that decision without seeking any legal advice and making certain unwarranted assumptions. Of course, this cannot be laid at the feet of the purchasers because the caveat, having been removed from the title, there was nothing to indicate that the vendor did not have a full right to sell. 39 If, however, the contracts with the two new purchasers contains some provision allowing rescission if certain things do not happen, that would be quite a different matter than if they were unconditional contracts. The evidence on this matter was in the plaintiff's camp and it chose not to adduce it. 40 It seems to me that whilst I must bear in mind the convenience of the third parties, in the instant case it is a greater matter of justice to grant an injunction protecting the rights of the Roddams and the other original purchasers rather than allow the interests of the plaintiff and the subsequent purchasers to prevail. 41 I should remark that on the material before me there is some flavour that if the Roddams and the other original purchasers were left to damages, there may not be much comfort for them. 42 In this analysis I have assumed that the purchasers to whom the two lots were on-sold had no inkling of the earlier contract. Whether this is so or not may well be a matter for contention at the final hearing. 43 Accordingly, an interlocutory order should be made up to the hearing of the proceedings in order to preserve the status quo. 44 There is an existing order in the terms of paragraph 2 of the notice of motion which is continued until further order. I accordingly do not have to make any further order as the existing will enure up to the final disposal of the matter or until further order. 45 As to costs, where an interlocutory injunction is granted, the usual order is that the costs are costs in the cause. However, in the instant cases it seems to me that the resistance to the application went beyond what was reasonable and the proper order should be that the costs of the applicants to the notice of motion are to be their costs in the cause. There should be no order for costs of the respondent.

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