Ghannoum v Papadeas

Supreme Court of NSW|2018-11-23|Before: Kunc J, Mr P

Summary

This judgment concerns whether a caveat lodged by the first plaintiff (Mr George Ghannoum) over land at Matraville (the "Land") owned by the defendants (the "Papadeas") should be withdrawn pursuant to s 74MA of the Real Property Act 1900 (NSW) (the "Act"). The second plaintiff is Mr Ghannoum's company.
Mr Ghannoum is a builder. The Papadeas are in the process of developing the Land. As part of a larger and factually more complex commercial dispute, Mr Ghannoum alleges that he entered into an oral agreement with the Papadeas to purchase a two-bedroom strata title unit in the completed development on the Land for $250,000 (the "Alleged Agreement"). Mr Ghannoum goes on to allege that, as part of a series of larger financial transactions with the Papadeas, he paid them the $250,000 purchase price.
On 18 September 2018, Mr Ghannoum caused a caveat to be lodged over the Land (the "Caveat") which described the estate or interest claimed as: "Estate In Fee Simple By virtue of: Agreement Between GEORGE GHANNOUM And MARIA JULIE PAPADEAS GEORGE DIMETRIUS PAPADEAS Details Supporting The Claim: The caveator has an equitable interest in land arising from his agreement to purchase an apartment in the proposed development on the land for the agreed sum of $250,000."
For the reasons which follow, the Court is satisfied that Mr Ghannoum has demonstrated that there is a serious question to be tried in relation to his claim to be entitled to a unit in the completed development and that the balance of convenience is in his favour. Provided that Mr Ghannoum is prepared to give an undertaking as to damages, the Court will dismiss the Papadeas' motion for the Caveat to be withdrawn.

Procedural background

On 24 April 2018, Mr Ghannoum filed a Summons in the Equity Division Duty List. The substantive orders sought included: "Upon the Plaintiff by its solicitor giving to the Court the usual undertaking as to damages the Court Orders that 7. Pursuant to s 74K of the Real Property Act, the operation of caveat number AN16XXXX be extended until further order. 8. In the alternative, leave be granted to the Plaintiff pursuant to Real Property Act, s 740(2)(a) to lodge a further caveat in respect of the same estate interest or right and purporting to be based on the same facts as caveat AN16XXXX."
On 22 May 2018, by consent, the operation of caveat number AN16XXXX (the "First Caveat") was extended by order of the Court. The interest claimed by the First Caveat was "Equitable interest in the land arising out of loans totalling $405,707.00" relying on these facts: "Loan advances made by the caveator to the registered proprietor in consideration of an interest in a development to occur on the land".
On 30 July 2018, the Papadeas filed a notice of motion seeking, inter alia, an order pursuant to s 74MA of the Act in relation to the First Caveat.
On 7 September 2018, the Court made an order pursuant to s 74MA of the Act requiring Mr Ghannoum to take all necessary steps to have the First Caveat removed from the title to the Land.
On 12 September 2018, Mr Ghannoum filed and served his statement of claim.
On or about 18 September 2018, Mr Ghannoum registered the Caveat.
On 10 October 2018, the Papadeas filed their defence.
On 22 October 2018, the Papadeas filed the present notice of motion claiming: "1. An order pursuant to s 74MA of the Real Property Act 1900 (NSW) that caveat ANXXXX lodged by the Plaintiff over the land comprised in Folio Identifier XXX otherwise known as XXX Road, Matraville, be withdrawn within 24 hours from the date of these orders. 2. Liberty to restore on 24 hours' notice. 3. The Plaintiff by himself, his servants and agents (including legal practitioners) be restrained from lodging any further caveats over the property at XXX Road, Matraville being the whole of the land XXX. 4. In breach of the undertaking given by the Plaintiff to this Honourable Court on 27 April 2018, the Plaintiff pay the Defendants damages in the sum of $672,107.00. 5. Any other order that the Court deems appropriate to give effect to the Orders above. 6. An order that the Plaintiff pay the costs of the Defendant of this motion."

Factual background

Mr Ghannoum's claim in relation to the Caveat is part of a wider and factually complex dispute which was summarised in Mr Folino-Gallo's written submissions as: "10. The Plaintiff's claim that underlies the caveat that has been registered and is now the subject to the Defendant's application can be shortly stated: a. In or about late 2012, Mr Ghannoum and Papadeas entered into an agreement pursuant to which Mr Ghannoum agreed to provide building services to the Papadeas in respect of the proposed development that was to occur on the subject property ("the Proposed Development"). b. In or about October 2012, Mr Ghannoum advanced the sum of almost $10,000 on terms. c. In or about December 2012, Mr Ghannoum and the Papadeas entered into an agreement, pursuant to which the Papadeas agreed to sell a two-bedroom apartment in the Proposed Development for the sum of $250,000.00 to Mr Ghannoum ("the Purchase Agreement"). d. From 14 December 2012 to 10 August 2017, Mr Ghannoum or his agent advanced the sum of $734,651.36 to the Papadeas ("the Advanced Sum"). e. Of the Advanced Sum: i. Mr Ghannoum or his agent paid $250,000 as the purchase price of the two-bedroom unit pursuant to the Purchase Agreement ("the Purchase Price"); and ii. Mr Ghannoum or his agent advanced the sum of $484,651.36 pursuant to the Second Loan Agreement entered into between Mr Ghannoum on the one part and the Papadeas on the other ("the Second Loan Agreement"). f. From 31 December 2013 to 17 October 2016, Mr Ghannoum received the sum of $241,640.00 in repayments from the Papadeas in part repayment of the Second Loan Amount. g. In or about late 2015, Mr Ghannoum and the Papadeas entered into an Agreement pursuant to which, in consideration of Mr Ghannoum: i. forbearing from recovering the outstanding sums; and ii. building the dwellings on the Development Site at cost, the Papadeas would grant Mr Ghannoum an interest In the property equal to one-third of the value of the development ("the Joint Venture Agreement"). h. Mr Ghannoum did in fact; i. forbear from demanding repayment of the outstanding sums; ii. contribute his time and efforts in furtherance of the Proposed Development; iii. did not levy interest on the Papadeas in respect of the outstanding sums; and iv. advanced additional money of the sum of $154,586.35 to the Papadeas from late 2015 to 10 August 2017 which formed part of the outstanding sums of money owed by the Papadeas."
Mr Folino-Gallo accepted that the Alleged Agreement was the basis of Mr Ghannoum's claim in support of the Caveat.
This part of the claim appears in the statement of claim as: "13. In or about December 2012, the First Plaintiff and the First and Second Defendants entered into an agreement, pursuant to which the First and Second Defendant agreed to sell a two-bedroom apartment in the Proposed Development in consideration of the First Plaintiff and/or the Second Plaintiff acting as his agent, paying the sum of $250,000.00 prior to the Proposed Development being completed ("the Purchase Agreement"). 14. From 14 December 2012 and 10 August 2017, the First Plaintiff and/or the Second Plaintiff acting as his agent, and/or JBC Construction Services Pty Ltd as his agent, advanced the sum of $734,651.36 to the First and Second Defendants ("the Second Advanced Sum"). 15. Of the Second Advanced Sum: (1) The First Plaintiff and/or the Second Plaintiff acting as his agent, paid $250,000 as the purchase price of the two-bedroom unit pursuant to the Purchase Agreement ("the Purchase Price"); and (2) the First Plaintiff and/or the Second Plaintiff acting as his agent, and/or JBC Construction Services Pty Ltd as his agent, advanced the sum of $484,651.36 ("the Second Loan Amount") pursuant to the Second Loan Agreement entered into between the First Plaintiff on the one part and the First and Second Defendants on the other ("the Second Loan Agreement"). 16. From 31 December 2013 to 17 October 2016, the First Plaintiff received the sum of $241,640.00 in repayments from the First and Second Defendants in part repayment of the Second Loan Amount. a. The sum of money received by the First Plaintiff from the First and/or Second Defendants was applied by the First Plaintiff to the First and Second Defendants' indebtedness on a "First In First Out" basis ("FIFO Basis"). b. The sum of money received by the First Plaintiff discharged the indebtedness of the First Plaintiff and/or First Defendant and/or Second Defendant to JBC Construction Services Pty Ltd. 17. By reason of the facts and circumstances set out in paragraphs 13 to 16 above, the First Plaintiff and/or Second Plaintiff: a. has an interest in the Property in that he has purchased a two-bedroom unit in the Proposed Development that is yet to be constructed for which he has paid the sum of $250,000 ("the Unit Purchase Price"). b. is owed an additional $252,551.36 pursuant to the Second Loan Agreement ("the Second Outstanding Sum")".
The Papadeas deny Mr Ghannoum's claim. In particular, in paragraph 11 of their defence they plead to paragraph 13 of the statement of claim: "11. As to [13] of the Claim, (a) the First and Second Defendant deny the matters alleged in that paragraph; and (b) Save as set out in (a) above, without fee or an agency agreement, on or about December 2012, the First Plaintiff introduced acquaintances of the First Plaintiff, being Messrs Kociper and Aravanis as investors and/or possible purchasers of apartments on completion of the development owned solely by the First and Second Defendants; (c) As at 24 November 2011, the First Plaintiff was an undischarged bankrupt and his financial affairs were managed by Andrew Hugh Jenner Wiley of Armstrong Wiley as trustee for the First Plaintiff and in furtherance, the First Plaintiff would not have been in a financial position to borrow, advance or lend monies without consent of the said Trustee in Bankruptcy and furthermore, at law, the First Plaintiff was, throughout his bankruptcy is precluded from entering binding contracts pursuant to section s.269 of the Bankruptcy Act 1966 (Cth). (d) Upon completion of the development construction, a two bedroom apartment is estimated to be valued and sold at $900,000. (e) The First and/or Second Defendant have at no time in the past or anytime agreed to sell a 2 bedroom apartment for $250,000 in circumstances where a 2 bedroom apartment is estimated at and likely to be sold at $900,000 or more."
The interlocutory evidence in support of Mr Ghannoum's claim is set out in his affidavit sworn on 24 April 2018, which was filed when he commenced the proceedings: "23. In or about December 2012, Maria and I met at the Property. We had a conversation and words to the following effect were said: Maria: I've got cash flow issues. I will sell you an apartment if you give me $250,000.00 upfront. Me: I don't have $25,000.00 sitting in a bank account, but I can get the money. Maria: Just pay me as I need it. 24. From 14 December 2012 and 10 August 2017, I provided money to Maria and George. The usual process would be that Maria would send me a text message or would contact me by phone asking for a particular amount of money. Maria would ask me to either give her cash or transfer the money. If the money was urgent I would do a Telegraphic Transfer (TT) at an additional cost from my bank." [There then follows a schedule of payments said to have been made between 25 October 2012 and 10 August 2017 and some miscellaneous payments totalling $655,511.56. Mr Ghannoum also admits receiving what he describes as "payment towards the debt" from the Papadeas in the sum $241,640.00.]
Further to the denial in their defence, Mrs Papadeas says in her affidavit of 27 September 2018: "23. On 19 September 2018 I am informed and verily believe that the Plaintiff lodged a further caveat on the whole of the land in regards to an alleged agreement between myself, my husband and the Plaintiff to purchase an apartment within the proposed development. There was never any agreement with the Plaintiff for the purchase of an apartment in the development. 24. I had approached him originally for him to construct the building but this was never an agreement for him to purchase any of the lots."

Applicable legal principles

The Papadeas did not press the claim in paragraph 4 of their notice of motion for damages for an alleged breach of undertaking by Mr Ghannoum and agreed that prayer for relief could be dismissed. The only question before the Court was their application for an order under s 74MA of the Act: "74MA APPLICATION TO COURT FOR WITHDRAWAL OF CAVEAT (1) Any person who is or claims to be entitled to an estate or interest in the land described in a caveat lodged under section 74B or 74F may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator or another person who by virtue of section 74M is authorised to withdraw the caveat. (2) After being satisfied that a copy of the application has been served on the person who would be required to withdraw the caveat if the order sought were made or after having made an order dispensing with service, the Supreme Court may: (a) order the caveator or another person, who by virtue of section 74M is authorised to withdraw the caveat to which the proceedings relate, to withdraw the caveat within a specified time, and (b) make such other or further orders as it thinks fit. (3) If an order for the withdrawal of a caveat is made under subsection (2) and a withdrawal of the caveat is not, within the time limited by the order, lodged with the Registrar-General, the caveat lapses when an office copy of the order is lodged with the Registrar-General after that time expires."
There was no dispute between the parties that where, as in this case, the Papadeas were the registered proprietors of the Land, the onus was on Mr Ghannoum to demonstrate that in all the circumstances he would be entitled to an interlocutory injunction. This necessitates consideration of whether there is a serious question to be tried or prima facie case, and the balance of convenience.

A serious question to be tried?

Construction of the proposed development on the Land has not yet commenced. As I will discuss further below, it is part of the Papadeas' argument on the balance of convenience that the presence of the Caveat on the title to the Land is preventing them from obtaining the necessary finance to enable the construction work to begin.
Looking at the interest asserted by Mr Ghannoum in the Land, it might be thought that a claim under an oral contract to purchase an interest in a strata title unit where the strata plan had not yet been brought into existence, let alone registered, was somewhat tenuous. It might also be questioned whether such an interest would support a caveat over the entirety of the Land. These issues invite attention to two matters: the nature of a purchaser's interest in an unregistered strata plan and the enforceability of an oral contract for sale of an interest in land.
The issue of whether a caveat is available to protect the interest of a purchaser in an unregistered strata plan over the whole of the property to be developed was determined in the affirmative in a carefully reasoned decision of Barrett J (as his Honour then was) in Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486; [2001] NSWSC 281 ("Forder"). In that case, the Purchaser's interest which was sufficient to support a caveat arose from a deed which his Honour described: "[3] By clause 4.1 of Mr Forder's deed, Cemcorp granted to him or his nominee an option to purchase "the Property". By clause 6.1, Mr Forder granted to Cemcorp an option to require him to purchase "the Property". Upon exercise of either the call option or the put option in accordance with the terms governing exercise, "a Contract for sale and purchase of the property in the form of the Contract will immediately be taken to be operative and effective": clauses 4.3 and 6.3. Clause 3.1 defines "Contract" and "Property" as follows: " Contract' means the Contract for sale which is annexure A' to this Deed." " `Property' means the property described in the Contract." (For present purposes, it is the call option exercisable by Mr Forder, rather than the put option exercisable by Cemcorp, which is relevant.) [4] The annexure "A" to the deed is a standard form contract for the sale of land in accordance with the 1996 edition, with numerous attachments. The property described in this annexure "A" form of contract is: "16/14-16 Francis Street, Dee Why ... Unregistered plan: Lot 16 in an unregistered plan (copy attached) (clause 15) which is part of Lot 49 & 50 Section [blank] Plan 7413 (copy attached)." [5] One of the attachments to the form of contract in annexure "A" is headed "Additional Conditions - Registration of Strata Plan". The first of the provisions in that attachment is as follows: "The Purchaser acknowledges that completion of this contract is subject to and conditional upon the registration of a strata plan by the Land Titles office relating to the property being purchased pursuant to this contract. Annexed hereto are copies of the draft strata plan and the floor plan identifying the property being purchased pursuant to this contract. If such registration is not effected within eighteen (18) months from the date of this contract, then either party shall be entitled to rescind this contract by notice in writing to the other party whereupon the provisions of clause 19 shall apply." [6] The case is thus one of "off the plan" purchase (or, more accurately, option), with the relevant commitments created at a time when a development site exists but the intended block of units has not been built or, at least, has not been completed."
As in the present case, the caveat considered by Barrett J was over the entirety of the development site: "[9] The estate or interest asserted is thus an estate or interest in the whole of Lots 49 and 50 in Deposited Plan 7413, being the development site. It is not an estate or interest in the as yet unsubdivided portion represented by Lot 16 in the proposed strata subdivision of Lots 49 and 50."
His Honour's dispositive reasoning was: "[26] In the present case, Mr Forder has, by virtue of the deed and, in particular, the call option provision in clause 4.1 (as supplemented by the machinery provisions which follow it), a right to bring into existence at any time a contract in the form of the annexure "A" to the deed. Although registration of the exhibited strata plan is a condition precedent to completion, neither the deed nor the form of contract appears to impose upon Cemcorp an explicit obligation to proceed to obtain that registration and, if such a term cannot be implied, it may be that there is no basis on which Mr Forder can require Cemcorp to do everything necessary to effect the registration. But Mr Forder can, in any event, and by virtue of the deed, call upon the assistance of equity in two relevant ways: first, as secondly described by Malcolm CJ in Kuper, that is to restrain Cemcorp by injunction from dealing with the site as a whole inconsistently with his rights under the deed; and, second, as described by Brownie J in Jessica Holdings, to restrain Cemcorp from registering a strata plan which does not accord with the deed."
In considering the present case, I have not overlooked that it could be argued that there is a considerable difference between the precision of the contractual arrangements in Forder (especially the specification of the lot in the unregistered strata plan) as opposed to the generality of the Alleged Agreement relied upon by Mr Ghannoum. Although not an argument expressly raised by Mr Currie or the Papadeas' defence, the submission could be made that the Alleged Agreement is too uncertain to be specifically performed (and therefore incapable of creating an equitable interest to sustain the Caveat) because the lot in the yet to be drawn up strata plan to be sold under the Alleged Agreement has not been identified.
However, I do not think the answer to that submission is so obviously adverse to Mr Ghannoum that it can be definitively resolved against him at an interlocutory stage. The question may become, in the context of the entirety of the evidence on a final hearing, the proper construction of the Alleged Agreement, in particular whether a term was to be construed or implied as to which party could nominate the particular unit to be conveyed.
For present purposes, Mr Ghannoum has demonstrated a serious question to be tried that he is the beneficiary of an agreement that entitles him to a unit in the development when it is completed. By analogy with the circumstances identified by Barrett J in Forder (see paragraph [26] above) Mr Ghannoum is entitled to the assistance of equity at least to restrain the Papadeas by injunction from dealing with the entirety of the Land inconsistently with his alleged right to a unit in the completed development on the Land. Applying Forder, the Court is satisfied that the Alleged Agreement therefore creates an equitable interest in the Land sufficient to support the Caveat, notwithstanding that a strata plan has not yet been brought into existence and the Caveat operates in respect of the whole of the Land.
Insofar as the oral nature of the Alleged Agreement is concerned, Mr Folino-Gallo accepted that it would be necessary for Mr Ghannoum to demonstrate an act or acts of part performance in order to give him a right to enforce the Alleged Agreement. The act relied upon in the present case is that Mr Ghannoum alleges he paid the purchase price of $250,000 to the Papadeas.
It is trite law that specific performance of an oral agreement in relation to the sale of an interest in land can be the subject of an order for specific performance, notwithstanding the modern manifestations of the Statute of Fraud 1677 (UK) (in this State s 54A of the Conveyancing Act 1919 (NSW)), where the party seeking specific performance can demonstrate acts of part performance unequivocally, and in their own nature, referable to a contract of the kind asserted by that party: Pipikos v Trayans [2018] HCA 39; (2018) 92 ALJR 880. The availability of specific performance of such a contract will give rise to an interest in land capable of supporting a caveat. Mr Ghannoum's evidence is sufficient to raise a serious question to be tried whether his alleged payment is unequivocally referable to the terms of the Alleged Agreement. Ultimately that will be an issue of fact which can only be determined at a final hearing.
It follows from the matters which I have set out in paragraphs [27] to [31] above that I am satisfied that Mr Ghannoum has demonstrated there is a serious question to be tried (or a prima facie case) that he has an enforceable agreement for the purchase of a strata unit in the completed development on the Land and thereby has an equitable interest in the Land sufficient to support the Caveat. I will next set out why I do not accept the arguments advanced on behalf of the Papadeas against that conclusion.
In relation to the issue of serious question to be tried, Mr Currie made three submissions.
First, attention was drawn to the Papadeas' denial of the Alleged Agreement in their defence and Mrs Papadeas' evidence. It was submitted that, in the face of that denial, Mr Ghannoum could not have a proper basis to lodge the Caveat.
I do not accept that submission. While I have taken the denial into account in my consideration, in and of itself (and without more), it cannot be a conclusive answer at the interlocutory stage to Mr Ghannoum's claim. Taking into account Mr Ghannoum's evidence, and including the fact of the Papadeas' denial, the Court is nevertheless satisfied by that evidence that it demonstrates Mr Ghannoum's case on this point has "a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial": Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [65] per Gummow and Hayne JJ (Gleeson CJ and Crennan J agreeing).
Second, Mr Currie submitted that leave was required pursuant to s 74O of the Act to have filed the Caveat: "74O RESTRICTIONS ON LODGMENT OF FURTHER CAVEATS IF EARLIER CAVEAT LAPSES OR IS WITHDRAWN (1) This section applies if a caveat lodged under a provision of this Part in respect of any particular estate or interest in land or any particular right arising out of a restrictive covenant: (a) subsequently lapses, or (b) is, after an application is lodged with the Registrar-General for the preparation of a notice under section 74C (3), 74I (1) or (2), 74J (1) or 74JA (3), withdrawn under another provision of this Part, or (c) is withdrawn or lapses under section 74MA, and the same caveator lodges a further caveat with the Registrar-General in respect of the same estate, interest or right and purporting to be based on the same facts as the first caveat. (2) A further caveat to which this section refers has no effect unless: (a) the Supreme Court has made an order giving leave for the lodgment of the further caveat and the order or an office copy of the order accompanies the further caveat when it is lodged with the Registrar-General, or (b) the further caveat is endorsed with the consent of the primary applicant or possessory applicant for, or the registered proprietor of, the estate or interest affected by the further caveat."
Although there are no reasons available for Darke J's earlier decision dismissing the First Caveat, there was no dispute between the parties that his Honour did so by applying his decision in The Woodsman Pty Ltd v Jozic [2018] NSWSC 1311 ("The Woodsman"). The effect of that decision is that where a caveat is "incurably deficient" it is not appropriate to make an order under s 74O: "[18] It is also not appropriate in these circumstances to grant leave to the plaintiff under section 74O of the Real Property Act to lodge a further caveat. The section applies to successive caveats that claim the same estate, interest or right and purport to be based on the same facts. Even if a fresh caveat claiming an interest under an equitable charge based on the General Security Agreement of 31 August 2015 could be said to be one purporting to be based on the same facts, it would not be a caveat in respect of the same estate, interest or right (see FTFS Holdings Pty Ltd v Business Acquisitions Australia Pty Ltd [2006] NSWSC 846 at [12] to [13]). The defendant seems to accept that leave under s 74O would not be appropriate in the circumstances of this case."
The effect of that part of his Honour's decision in The Woodsman is that s 74O of the Act has no application in circumstances where the deficiency in a caveat was that it completely failed to disclose the estate, interest or right that was being claimed because it is not a caveat for the purposes of the Act. Applying his Honour's decision in The Woodsman to the circumstances of this case, the First Caveat did not disclose the estate, interest or right so that s 74O can have no application to the Caveat, notwithstanding that it may purport to be based on the same facts as the First Caveat.
The third submission relied upon the Papadeas' allegation that Mr Ghannoum was an undischarged bankrupt at the time of the Alleged Agreement. The Papadeas' defence (see paragraph [17] above) pleads that "throughout his bankruptcy [Mr Ghannoum was] precluded from entering binding contracts pursuant to s 269 of the Bankruptcy Act 1966 (Cth)" (the "BA").
The reliance on s 269 of the BA is misconceived. An undischarged bankrupt does not lose her or his legal capacity to enter into contracts. It is clear from the terms of s 269 that it does not have the effect contended for in the Papadeas' defence and, assuming Mr Ghannoum was an undischarged bankrupt at the relevant time, would not have operated to prevent him entering into the alleged agreement: "269 Bankrupt or debtor who is a party to a debt agreement obtaining credit etc. without disclosing bankruptcy or debt agreement (1) An undischarged bankrupt or a debtor who is a party to a debt agreement shall not: (a) either alone or jointly with another person, obtain credit to the extent of $3,000 or more from a person without informing that person that he or she is an undischarged bankrupt or a party to a debt agreement (as the case requires); (aa) either alone or jointly with another person, obtain goods or services from a person: (i) by giving a bill of exchange or cheque drawn, or a promissory note made, by him or her either alone or jointly with another person, being a bill, cheque or note under which the sum payable is $3,000 or more; or (ii) by giving 2 or more such instruments under which the sums payable amount in the aggregate to $3,000 or more; without informing that person that he or she is an undischarged bankrupt or a party to a debt agreement (as the case requires); (ab) either alone or jointly with another person, enter into a hire-purchase agreement with a person, or enter into a contract or agreement for the leasing or hiring of any goods from a person, being a hire-purchase agreement, contract or agreement under which the amounts payable to that person amount in the aggregate to $3,000 or more, without informing that person that he or she is an undischarged bankrupt or a party to a debt agreement (as the case requires); (ac) either alone or jointly with another person, obtain goods or services from a person by promising to pay that person or another person an amount of, or amounts aggregating, $3,000 or more without informing that person that he or she is an undischarged bankrupt or a party to a debt agreement (as the case requires); (ad) either alone or jointly with another person, obtain an amount of, or amounts aggregating, $3,000 or more from a person by promising to supply goods to, or render services for, that person or another person without informing that person that he or she is an undischarged bankrupt or a party to a debt agreement (as the case requires); or (b) carry on business under an assumed name, in the name of another person or, either alone or in partnership, under a firm name without disclosing to every person with whom he or she or, if he or she is carrying on business in partnership under a firm name, the partnership deals, his or her true name and the fact that he or she is an undischarged bankrupt or a party to a debt agreement (as the case requires). (2) This section has effect subject to section 304A. Penalty: Imprisonment for 3 years."
While the Papadeas' defence refers to s 269 of the BA, Mr Currie's submissions referred to Mr Ghannoum, if he were an undischarged bankrupt at the relevant time, being unable to enter into any contracts for the purchase of land because to do so would be a breach of s 148 of the BA. Again, it is apparent from the terms of s 148 that it cannot have the effect for which the Papadeas' contend or will be in any other way relevant to these proceedings: "148 Misleading conduct by bankrupt For the purposes of this Part, a bankrupt is taken to have engaged in misleading conduct in relation to a person in respect of a particular amount (in this section called the relevant amount ) if: (a) the bankrupt, either alone or jointly with any other person, obtained credit to the extent of the relevant amount from the first-mentioned person without informing that person that he or she was an undischarged bankrupt; or (b) the bankrupt, either alone or jointly with any other person, obtained goods or services from the first-mentioned person: (i) by giving a bill of exchange or cheque drawn, or a promissory note made, by the bankrupt, either alone or jointly with another person, being a bill, cheque or note under which the relevant amount is payable; or (ii) by giving 2 or more such instruments under which the total of the amounts payable is equal to the relevant amount; without informing the first-mentioned person that he or she was an undischarged bankrupt; or (c) the bankrupt, either alone or jointly with any other person, entered into a hire-purchase agreement with the first-mentioned person, or entered into an agreement for the leasing or hiring of any goods from the first-mentioned person, being a hire-purchase agreement or agreement for the leasing or hiring of goods under which the total of the amounts payable is equal to the relevant amount, without informing the first-mentioned person that he or she was an undischarged bankrupt; or (d) the bankrupt, either alone or jointly with any other person, obtained goods or services from the first-mentioned person by promising to pay that person or another person the relevant amount, or amounts the total of which is equal to the relevant amount, without informing the first-mentioned person that he or she was an undischarged bankrupt; or (e) the bankrupt, either alone or jointly with any other person, obtained the relevant amount, or amounts the total of which is equal to the relevant amount, from the first-mentioned person by promising to supply goods to, or render services for, that person or another person without informing the first-mentioned person that he or she was an undischarged bankrupt; or (f) the bankrupt carried on business under an assumed name, in the name of another person or, either alone or in partnership, under a firm name and: (i) in the course of the carrying on of that business the bankrupt, or, if the bankrupt carried on the business in partnership under a firm name, the partnership, dealt with the first-mentioned person; and (ii) the bankrupt did not inform the first-mentioned person that he or she was an undischarged bankrupt."

Balance of convenience

A number of the Papadeas' arguments turned on the value of the Land (both before and after the completion of the proposed development) when compared to the value of the interest asserted by the Caveat. This included assertions by the Papadeas of the amount of equity that would be left in the development if the Caveat were lifted and if the secured finance required to undertake the project were to be provided. These arguments fell away at the hearing because the Papadeas' evidence concerning the value of the development and related financial matters was ruled inadmissible.
The Papadeas submitted that, even if Mr Ghannoum had demonstrated that there was a serious question to be tried, the balance of convenience did not favour the continuation of the Caveat because the presence of the Caveat on the title to the Land meant that the Papadeas were unable to obtain the finance which they required to develop the Land and to satisfy a judgment which had been obtained against Mrs Papadeas in connection with the development by Mr Robert Kociper for $964,000 plus interest and costs. It was further submitted that Mr Kociper had served a bankruptcy notice on Mrs Papadeas' solicitor and that, in the absence of being able to refinance, Mrs Papadeas was at risk of being made a bankrupt by Mr Kociper.
The Papadeas also submitted that even if Mr Ghannoum had demonstrated that there was a serious question to be tried in relation to his alleged interest, the Court could still order withdrawal of the Caveat. This was, they submitted, an example of a case where they, as registered proprietors of the Land, had a superior interest to that of Mr Ghannoum and the Caveat was preventing them from legitimately exercising their rights to develop the Land. This submission relied on the decisions of Tadrous v Tadrous [2009] NSWSC 407 ("Tadrous") and Kerabee Park Pty Ltd v Daley; Kerabee Park Pty Ltd v Karinya Investments Pty Ltd [1978] 2 NSWLR 222 ("Kerabee Park").
In response to these arguments Mr Ghannoum cited the decision of Young J (as his Honour then was) in Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 97,424 ("Kingstone Constructions") where his Honour said (at 11,990) that, "Normally, when a caveat is proper in form and substance it will be retained even though this will cause harm to the registered proprietor". Reliance was based on this passage in his Honour's judgment (at 11,991): "So far as balance of convenience generally is concerned, it is certainly the case that this court has ensured that caveats are not used as a blackmailing device so that a caveat can legitimately be lodged in respect of a relatively small claim and force the registered proprietor to pay out such a claim even though it is bitterly contested. The court has consistently taken the attitude that if the registered proprietor is prepared to put up an alternate security, then it will remove the caveat, even though, as I have said, the caveat may be completely valid. … It may be that the discretion vested in the court under s 74K(2) is wider than what I have just indicated and indeed, some passages in Martyn v Glennan [1979] 2 NSWLR 234 and Wildschut v Borg Warner Acceptance Corp (Aust) Ltd (1987) NSW ConvR 55-344, indicate that this is so. … In any event, one would have to balance the "convenience" of the registered proprietor being able to deal with the land with the "inconvenience", if a court should hold that the caveator has a valid equitable charge, of its interest losing priority to any interest which would be created by the registered proprietor if the transactions which that proprietor wishes to enter into proceeded."
Insofar as the Papadeas rely on Kerabee Park, I accept the submission made on behalf of Mr Ghannoum that it does not assist the Papadeas because that was a case where a first ranked mortgagee was seeking to exercise its power of sale, thus realising the asset as distinct from further encumbering it.
In relation to the Papadeas relying on Tadrous, Mr Ghannoum drew attention to this passage in the judgment of Brereton J (as his Honour then was) (emphases added): "8 Thus, where the registered proprietor wishes to refinance an existing first mortgage, there may be a strong case on the balance of convenience to permit it to do so, at least where that course will not prejudice or derogate from the caveator's claim. But it is always a highly relevant consideration whether the removal of the caveat will derogate from the caveator's claim, and it is a rare case indeed, if there is any, where a valid caveat will be removed for reasons of balance of convenience, if to do so would have an adverse effect on the priority of the caveator's claim [Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 (Owen J); Buchanan v Crown & Gleeson [10]; Oceanview v Balaz, [11]. If the priority of the caveator's interest would be adversely affected by the removal of the caveat, it is at least ordinarily inappropriate to remove the caveat having regard to considerations of the balance of convenience [Custom Credit v Ravi, 50; Buchanan v Crown & Gleeson, [11]; Oceanview v Balaz, [11]. At least, ordinarily speaking, if the removal of the caveat would have the practical effect of deferring the priority of the caveator's equitable interest, its removal ought not be countenanced. One reason for this is that to do so is practically to prefer unsecured rights over the proprietary rights of the caveator."
In that case, Brereton J ultimately determined that the balance of convenience favoured granting leave to file a subsequent caveat pursuant to s 74O of the Act.
I accept Mr Ghannoum's submission that, applying Brereton J's observations in Tadrous, the balance of convenience in this case supports the Caveat remaining in place, because if it is allowed to be withdrawn the Papadeas' lender would gain priority for the drawdown which the Papadeas say is required both to develop the Land and pay Mr Kociper.
I have also reached the preceding conclusion because of, to my mind, the highly significant absence of any attempt by the Papadeas to provide some form of alternative security to Mr Ghannoum in respect of his interest that arises under the Alleged Agreement, even if limited to apply only until the determination of these proceedings. Even though the specific evidence of values was rejected by the Court, if the Papadeas are to be believed this is a financially significant development the value of which considerably exceeds the value of the interest asserted by Mr Ghannoum in a single unit in the development.
The Court may well have taken a different view in the ultimate result in the exercise of the Court's discretion if a reasonable offer by the Papadeas to Mr Ghannoum to secure the latter's alleged interest pending determination of these proceedings had been made and rejected. However, as they are entitled to do, the Papadeas have chosen simply to reject Mr Ghannoum's claim. Conformably with the dicta of Young J in Kingstone Constructions and Brereton J in Tadrous which I have set out above, I am satisfied that the balance of convenience in upholding Mr Ghannoum's interest as secured by the Caveat outweighs the detriment allegedly being suffered by the Papadeas by reason of the presence of the Caveat.

Conclusion

The Papadeas' notice of motion will be dismissed. However, as Mr Ghannoum has succeeded in maintaining the Caveat by demonstrating his entitlement to an interlocutory injunction, it nevertheless seems to me appropriate in the circumstances that the dismissal of the Papadeas' motion should be conditional upon Mr Ghannoum giving to the Court the usual undertaking as to damages. In reaching this conclusion I have not overlooked that the Papadeas already have the protection of s 74P of the Act. The Court will also give the parties an opportunity to address on the question of costs and what directions are required to progress the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 March 2019

(UK) Bankruptcy Act 1966(Cth)

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