Golden Goal Pty Limited v Dapto Bowling Club Limited

Evidence and background facts

1. By agreement between the parties, the matter was listed at 2pm today, where about two hours would be available to deal with it. Notwithstanding the limited time available, the parties have served voluminous evidence, although that has ultimately not caused difficulty for the determination of the matter.
2. GGPL relies on affidavits of Mr Alex Medakovic, one of its directors, dated 12 September 2018, 16 September 2018, and 17 September 2018, and an affidavit of its other director, Mr Palapanis, dated 17 September 2018. GGPL also relies on an affidavit of its solicitor, Mr Zimmerman, dated 18 September 2018. DBC in turn relies on two affidavits of its liquidator, Mr Brennan, dated 17 and 18 September 2018. It would likely not have been possible to deal with the full range of the factual disputes agitated in those affidavits, in the time that was available to hear the matter. However, it is ultimately not necessary to determine the full range of those matters in order to determine the application.
3. I should briefly refer to a chronology of the relevant events, which emerges at least in part from a helpful chronology prepared by Mr Phillips on behalf of GGPL. It appears that, in about 2013, GGPL and DBC entered an Agreement for Lease (Ex A1) by which DBC agreed to grant three leases to GGPL with respect to land situated at Dapto, New South Wales. Clause 1 of the Agreement for Lease provides that DBC agrees to grant, and GGPL agrees to accept, leases of the premises in the form of the draft leases as annexed for the term, at the rent and subject to terms, covenants and conditions therein contained. The form of Agreement for Lease that was in evidence did not attach the relevant form of leases, although no point as to certainty was taken by DBC, and it appears that a first lease was subsequently executed by both parties, and the second and third leases at least by GGPL. The Agreement for Lease provided that the grant of lease was conditional upon certain matters, and there appears to be little contest that those matters were satisfied, such that at least the first lease was granted.
4. Clause 8 of the Agreement for Lease provided that the commencement date of the first lease will be seven days after completion of certain works, and the second and third leases five and ten years thereafter. Clause 9 provided that the agreement for lease did not itself constitute a demise of the premises, or create any relationship of lessor and lessee, unless the leases contemplated by it had been executed. Clause 12 provided that nothing in the agreement created a relationship of partnership, principal and agent, or joint venture between the parties.
5. It appears that a first lease was executed in about October 2013 (Ex A2) by both parties, for the period 2014-2019, and there is evidence that GGPL undertook substantial works in constructing soccer fields on the leased land and also in doing work on an adjoining house. It appears that second and third leases for the periods 2019-2024 and 2024-2029 were subsequently executed, at least by GGPL, although the forms of those leases in evidence were not executed by DBC.
6. On 19 October 2017, nearly a year ago, DBC was placed in voluntary administration. On 10 April 2018, GGPL lodged a caveat which claimed an equitable interest in the land arising from the existing first lease, as follows: "The caveator claims an equitable interest in the land in respect of the interest of [DBC] only as lessee under an unregistered lease pursuant to the Lease executed by [DBC] on 11 October 2013."
7. That is plainly a reference to the first of the relevant leases (Ex A2). It appears that, between March and June 2018, meetings and a mediation took place between GGPL and DBC, by its then voluntary administrator.
8. On 23 July 2018, DBC passed into a creditors' voluntary liquidation, and GGPL accepts that it received notice that the liquidator disclaimed the first lease on which it had relied in its caveat. No application to set aside the disclaimer was brought at that time. Mr Medakovic's evidence is that no such application was brought because, based on legal advice which he had received, he understood that the caveat lodged by GGPL would protect DBC's interests in a liquidation and did not take further advice as to the effect of the disclaimer of the lease. That may be an explanation of GGPL's lack of activity in respect of the disclaimer at that point, but it does not alter the fact that the disclaimer took effect, at that point, without an application to set it aside, and remains in effect. At present, there is a foreshadowed application to set aside the disclaimer, and a foreshadowed application for leave to bring that application, but no such application has been brought, still less succeeded.
9. Subsequently, on 23 August 2018, a lapsing notice was served on GGPL's present solicitors in respect of the existing caveat, and these proceedings were brought by GGPL some weeks later, on 12 September 2018.

Whether the caveat should be extended in its present form

1. In order to establish that the operation of the caveat should be extended, GGPL bears the onus of showing that it has a seriously arguable case for final relief in the nature of the caveatable interest claimed and that the balance of convenience favours retention over removal of the caveat: Martyn v Glennan [1979] 2 NSWLR 234; Morkaya v Parkinson [2010] NSWSC 596 at [2]. The caveat should be ordered to be withdrawn unless an interlocutory injunction would be granted to protect the interest claimed in it: Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 at [20].
2. GGPL rightly accepts, in its submissions, that a liquidator has the ability to disclaim a lease without leave, although it did not go so far as to accept, in terms, that the effect of that disclaimer is to bring about the termination of the lease: Willmott Growers Group Inc v Willmott Forests Ltd (recs and mgrs apptd) (in liq) (2013) 251 CLR 592. Nonetheless, in the course of oral submissions, Mr Phillips rightly accepted that the present position is that the first of the leases, that which is currently operative, has been disclaimed and the consequence is, it seems to me, that that lease is terminated.
3. It may be that, if GGPL files its application for leave to set aside the disclaimer, and if it is in future also successful in obtaining that leave, and if it is then in future also successful in setting aside the disclaimer, then at that point the disclaimer would no longer have effect in terminating the lease, and GGPL would at that future point have a leasehold interest in the property. That cannot assist GGPL in this application, because a caveat cannot now be supported by an interest which does not now exist, but which in future might exist if several things in future occur in GGPL's favour. For that reason, it seems to me that there is no seriously arguable case that GGPL has a proprietary interest in the form claimed in the existing caveat, namely an equitable interest arising from the existing lease. There is no seriously arguable case for that interest because that existing lease has ceased to have effect, by reason of the disclaimer, and that will remain the case, unless and until the Court makes an order which has not yet been sought, that the disclaimer be set aside. Mr Phillips, while I think falling short of any formal concession to that effect, ultimately accepted a substantial part of that proposition in the course of oral submissions.

Whether leave should be granted to lodge further caveat

1. It remains to deal with the alternate and primary basis on which GGPL put its submission that it had a seriously arguable interest that was capable of supporting a caveatable interest in the property. If GGPL was successful on that alternative basis, then the appropriate relief would be the alternative relief it sought, namely an order granting it leave under s 74O of the Real Property Act to lodge a further caveat reflecting the alternative interest claimed. That alternative interest was formulated in GGPL's first outline of submissions as follows: "[GGPL] claims an interest in the land arising from it having utilized approximately $500,000 to effect capital structures and improvements to the land. The value of such interest being either the costs of the improvements or the value of the improvements as may be determined and as such creating an equitable interest by (constructive trust) and/or charge and/or giving rise to a Proprietary Estoppel or such equity as may be necessary to avoid unconscionable retention of the value/benefit of the improvements."
2. In its first outline of submissions, GGPL submitted that the Court should infer that it completed the relevant works in order to be granted the first lease of the relevant premises, and that matter is directly addressed by Mr Medakovic's affidavit. At least for the purposes of this application, it seems to me that GGPL has established that there is at least a seriously arguable question that it incurred significant expenditures on the basis of the Agreement for Lease, and in anticipation that it would be granted a first lease over the premises, as occurred, and a second and third lease which have not yet been granted.
3. GGPL also submits, and I will assume for present purposes, that a disclaimer of the first lease would not extinguish any other legal or equitable rights that GGPL may have outside of the lease. In its first submissions, GGPL puts the alternative basis of the interest claimed as arising from principles of proprietary estoppel although it referred to Waltons Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 also deals with the circumstances in which a promissory estoppel would be established. GGPL submits that DBC's conduct created an expectation that it would obtain an interest in DBC's land, and GGPL altered its position in that respect, and "as such", equity recognises a proprietary interest in the land. GGPL also refers, in those first submissions, to a suggested "windfall" obtained by DBC, on the assumption, which may not be established by the evidence, that the particular form of improvements that were made to the land would ultimately be of value to DBC on a sale of the land. GGPL submits that, assuming unconscionability is established, then that may be remedied by creating a charge over DBC's property to the extent of the benefit conferred on DBC, by constituting a trust in relation to a portion of the property or the proceeds, or by fashioning a remedy to suit the circumstances.
4. In GGPL's further submissions, it referred to other examples where a plaintiff has incurred expenditure which results in improvements to a defendant's lands in the expectation of continued occupation, and to the circumstances in which equity may grant relief in that respect, and refers to the decision of McLelland J in Morris v Morris [1982] 1 NSWLR 61, and to the subsequent application of those principles by Pembroke J in Pennie v Pennie [2010] NSWSC 565 at [43]. In those further submissions, GGPL also responds to matters raised in DBC's submissions, which I need not now address, in circumstances where it was not necessary to call upon Mr Emmett in respect of the application. GGPL also made submissions as to the prospects of the application for leave to have the disclaimer of the lease set aside under s 568E of the Act, but it is not necessary to address those submissions where that application was not pressed in terms, and was raised only as relevant to the balance of convenience in respect of the extension of a caveat or leave to lodge a further caveat. The question of the balance of convenience does not arise unless a seriously arguable case is established that a proprietary interest exists to support the caveat.
5. It seems to me that, even accepting the relatively low standard that it is necessary to establish a seriously arguable case, a seriously arguable case is not established here. The principles on which GGPL relies turn on the unconscionability of the conduct of DBC, such that the Court should intervene, by way of equitable relief, to prevent that unconscionable conduct. The case law distinguishes, although GGPL largely did not, between a "proprietary estoppel" in the nature of that referred to by Lord Kingsdown in his dissenting judgment in Ramsden v Dyson (1866) LR 1 HR 129 and a "promissory estoppel" in the nature of that held by Mason CJ and Wilson and Brennan JJ, to have bound the prospective tenant in Walton Stores (Interstate) Ltd v Maher above.
6. In Ramsden v Dyson above, Lord Kingsdown observed (at 170) that: "If a man, under a verbal agreement with a landlord for a certain interest in land, or, what amounts to the same thing, under an expectation created or encouraged by the landlord that he shall have a certain interest, takes possession of such land with the consent of the landlord, and upon the faith of such promise or expectation, with the knowledge of the landlord and without objection by him, lays out money upon the land, a Court of equity will compel the landlord to give effect to such promise or expectation."
7. In Waltons Stores (Interstate) Ltd v Maher above, Mason CJ and Wilson J (at 404) identified a common principle in cases of promissory estoppel and proprietary estoppel, whether by encouragement or acquiescence, that equity will grant relief to a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party has played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. Brennan J (at 428) there observed that the first thing it was necessary for the plaintiff to prove was that: "… the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship."
8. In Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394, a case of promissory estoppel, Deane J observed (at 444) that the law does not permit an unconscientious departure by one party: "from the subject matter of an assumption which has been adopted by the other party as the basis of some relationship, course of conduct, act or omission which would operate to that other party's detriment if the assumption be not adhered to for the purposes of the litigation."
9. In Delaforce v Simpson-Cook [2010] NSWCA 84; (2010) 78 NSWLR 483 at [21], Handley AJA (with whom Allsop P and Giles JA agreed) observed that a proprietary estoppel, in the nature of an estoppel by encouragement: "comes into existence when an owner of property has encouraged another to alter his or her position in the expectation of obtaining a proprietary interest and that other, in reliance on the expectation created or encouraged by the property owner, has changed his or her position to their detriment. If these matters are established equity may compel the owner to give effect to that expectation in whole or in part." See also the review of the authorities by White J in Priestley v Priestley [2016] NSWSC 1096 at [109]-[116].
10. There seem to me to be several difficulties with the way in which GGPL puts its claim to an equitable proprietary interest in the land, which are so substantial that a seriously arguable case for the interest claimed is not established. The first is that, by contrast with the position in Waltons Stores (Interstate) Ltd v Maher above, both the Agreement for Lease and the first lease were executed in this case and the parties' obtained their respective rights under those agreements. While GGPL relies on an expectation that it would obtain an interest in DBC's land and contends that it altered its position in that respect, by incurring expenditures in developing that land, it did obtain an interest in the land, under the first lease. That first lease was then disclaimed by the liquidator, in accordance with the statutory provisions permitting such disclaimer under the Corporations Act, and GGPL has not as yet applied to set aside that disclaimer.
11. Here, taking GGPL's case at its highest, an Agreement for Lease was executed by both parties which provided that DBC agreed to grant, and GGPL agreed to accept, three leases of the premises for the specified terms. One of those leases was granted, partly fulfilling the representation and promise made in that clause. The second and third leases will presumably not be granted, where DBC is in liquidation, although GGPL would obtain little benefit from the grant of such leases where a liquidator would then immediately be entitled to disclaim them, without leave, and may have a strong basis to defend that disclaimer where the effect of continuance of those leases would be to prolong the liquidation for some ten years into the future.
12. So far as GGPL's case concerns the alleged breach of cl 1 of the Agreement for Lease, in respect of the failure to grant the second and third leases, GGPL thereby obtains a right of contractual damages. Mr Phillips accepted in submissions that that right might include, although it was not limited to, a claim for reliance damages of the kind identified in McRae v Commonwealth Disposals Commission [1951] HCA 79; (1951) 84 CLR 377, being the expenditures made on the basis of the contractual promise contained in cl 1 of the Agreement for Lease.
13. It seems to me that, where GGPL had contracted with DBC that it would do certain works, in exchange for certain contractual rights, namely the right to the grant three leases over a term, and where a contractual right of damages exists for the partial breach of that obligation, then there is no seriously arguable case that equity would intervene, because there is nothing unconscionable about GGPL being left to the rights that it has bargained for or to contractual damages for the breach of it. Mr Phillips did not submit that there exists any principle that unconscionability could be established merely because contractual damages are less favourable to GGPL in an insolvency of DBC, than a proprietary remedy in equity would be.
14. I recognise, of course, that in this case contractual damages may in fact be less favourable to GGPL than a proprietary remedy, so far as it would be left to prove its damages in the liquidation, and may ultimately recover only a proportion of those damages, depending upon the amount of funds which is available in the liquidation and the extent of claims by other creditors. However, that highlights one other matter, namely that there is nothing unconscionable about GGPL, as a party with a claim in contractual damages, being left to prove in the same manner as other creditors in the liquidation. Indeed, the Courts have repeatedly recognised that equitable remedies ought not to be used, in the context of insolvency, as a means of preferring one creditor to other creditors who may have claims for debt or for breach of contract.
15. In these circumstances, it seems to me that GGPL's claim to establish unconscionability or an estoppel, rather than to be left to its claim to contractual damages, is so weak that it could not be described as seriously arguable. There are a number of other difficulties which would arise in respect of the balance of convenience, but it is not necessary to address those where a seriously arguable case has not been established that GGPL has a proprietary interest in the land in the circumstances. I have not neglected the proposed alternative form of caveat also referred to as a constructive trust or charge, but GGPL did not identify any matters which would support that relief beyond those relied upon to establish an estoppel, and I can see no basis on which that relief would be seriously arguable where estoppel is not, particularly where its effect would be to prefer GGPL's interests to those of DBC's other creditors.
16. I am therefore not satisfied that a basis has been established either to sustain the caveat in its original form, where the lease has been disclaimed, or to permit lodgement of a caveat in the alternative form, based on a claim for unconscionability which does not seem to me to be seriously arguable. For these reasons, the claim for interlocutory relief in paragraph 7 of the Summons should be dismissed.
17. It will be necessary to hear the parties as to whether other aspects of the relief sought in the Summons are pursued on a final basis, and whether the claim to set aside the disclaimer will be pursued. It seems to me that the issues raised by the Interlocutory Process today are discrete, and the outcome of the balance of the Summons will have no effect upon their determination. For these reasons, the Plaintiff should be ordered to pay the Defendants' costs of and incidental to the determination of the matters raised by paragraph 7 of the Summons.

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: 21 September 2018