1 HIS HONOUR: This is an application by the plaintiffs, by notice of motion, to extend the operation of their caveat over land at Lot 1, Hector Street, Illawong. The defendants are the purchasers of the land and the caveat prevents them from becoming the registered proprietors.
2 The application has been made in proceedings determined by the judgment of Young J, delivered on 4 December 1998. His Honour found that the plaintiffs engaged a real estate agency, Clover Enterprises Pty Ltd, trading as 'Clover Real Estate: The Professionals', to sell their property at 61 Old Ferry Road, Illawong. The first defendant was the employee of the real estate agency with whom the plaintiffs most frequently dealt. The second defendant is the first defendant's wife.
3 During the course of the plaintiff's dealings with the real estate agency with respect to sale of the property at Old Ferry Road, the first defendant showed the plaintiffs other properties in order to interest them in buying. The plaintiffs indicated their strong preference for the Hector Street land. The first defendant eventually became aware that the plaintiffs had negotiated with the owner, Mr John Young, to buy the land at Hector Street for a purchase price in the range of $415,000 to $420,000 and had received a draft contract from the vendor's solicitor. The defendants offered an additional $10,000 to the vendor and exchanged contracts minutes before the appointed time for the vendor to exchange contracts with the plaintiffs.
4 These findings of fact implied a gross violation by the first defendant of a basic principle of commercial morality. However, the questions for Young J were, as always, legal questions rather than questions purely about morality. He had to decide whether the first defendant owed a legal duty to the plaintiffs, whether any such duty had been breached, and if so, whether the plaintiffs were entitled to a remedy against both defendants which would enable them to obtain the Hector Street land or damages for its loss.
5 Young J found that the first defendant, though an employee, was in a fiduciary relationship with the defendants in relation to the sale of their property at Old Ferry Road. But the obligations which flowed from that relationship did not, on the facts, carry over into their respective roles as selling agent and intending purchasers.
6 It was also contended that the first defendant was accountable to the plaintiffs because he had wrongly used his position (the position of fiduciary agent for sale of the property at Old Ferry Road) to acquire for himself and his wife the benefit of acquiring the Hector Street land. Young J rejected this contention. He held that the acquisition of the Hector Street land was capable of being regarded as the kind of benefit for which a fiduciary is accountable, even though full value was paid; but he also held, in effect, the benefit obtained by the defendants' purchase of the Hector Street land was outside the scope of the first defendant's fiduciary duty as agent for the sale of the property at Old Ferry Road.
7 Young J also held that the information passed on to the first defendant about the intended purchase was not confidential information of a kind warranting equitable protection. He rejected, on the facts, a submission that the first defendant had engaged in misleading or deceptive conduct in breach of s 42 of the Fair Trading Act 1987 (NSW).
8 Although those findings were sufficient to dispose of the case in favour of the defendants, his Honour also made some observations on the question of remedies. The plaintiffs had contended for a constructive trust of the Hector Street land in their favour, subject to their paying the necessary expenses incurred by the defendants in purchasing the land. Young J indicated that he did not consider the case to be an appropriate one for granting a remedy by way of constructive trust. He was concerned that to do so would have put the plaintiffs in a far better position than if they had lost the land to a disinterested third party. There was no suggestion, he noted, that the property was bought at an undervalue, or that any information derived from the plaintiffs went further than to show the first defendant the lower limit of where he should pitch his bid. His Honour would have preferred a remedy by way of damages, perhaps on an equitable rather than a common law measure.
9 The plaintiffs have appealed from Young J's judgment. The grounds of appeal challenge his Honour's findings as to the first defendant's duty as a fiduciary not to misuse his position; the confidentiality of the information disclosed to the first defendant; and the question whether the first defendant's conduct was misleading or deceptive. The plaintiffs seek to set aside Young J's orders and replace them with orders recognising a constructive trust and ordering that the Hector Street land be transferred to them upon their indemnifying the defendants for purchase money, and perhaps also the costs and expenses of acquisition. The appeal has not yet been heard.
10 On 24 February 1998, shortly after discovering that they had been 'gazumped' by the defendants, the plaintiffs lodged a caveat against the Hector Street land, of which the registered proprietor was then and still is the vendor, John Young. The caveat asserted that the plaintiffs were beneficially entitled to the defendants' interest as purchaser from John Young. The plaintiffs received a notice from the Land Titles Office on 9 April 1999 issued under s 74J of the Real Property Act, 1900 (NSW) on the application of John Young. The notice stated that the caveat would lapse upon the expiration of twenty-one days unless this Court were to order an extension and the order were to be lodged within that period.
11 The plaintiffs' solicitor then wrote to the defendants' solicitor indicating that the plaintiffs did not object to the land being transferred to the defendants, provided the plaintiffs' interest was protected by a further caveat lodged upon registration of the defendants as registered proprietors. The plaintiffs' solicitors sought an undertaking by the defendants' solicitors to advise them when the transfer was being lodged for registration, so that the plaintiffs could lodge their further caveat simultaneously. When that undertaking was refused, the plaintiffs brought the present application. They seek an order that the operation of the existing caveat be extended until final determination of their appeal, or until further order of the Court of Appeal or this Court.
12 In support of the application Mrs Gonsalves has given evidence, which I accept, that the Hector Street land has extensive views over the Woronora River; that as far as she is aware there is no comparable block of land on the Illawong peninsula; that the plaintiffs wish to build a family home on the land and live there indefinitely, since other members of their immediate family also live in Illawong; and that the plaintiffs have instructed their solicitor to prosecute the appeal with all proper diligence.
13 The Court's power to extend the operation of a caveat which would otherwise lapse under s 74J is conferred by s 74K which states:
'(1) Where a caveator is served with a notice prepared under section 741(1) or (2) or 741J(1), the caveator may prepare, in the manner prescribed by rules of Court, an application to the Supreme Court for an order extending the operation of the caveat.
(2) Subject to subsection (3), on the hearing of an application made under subsection (1), the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application.
(3) Unless the Supreme Court has made an order dispensing with service, it may not hear an application made under subsection (1) unless it is satisfied that all interested parties disclosed by the notice which gave rise to the application have been served with copies of the application before the hearing.
(4) An order under subsection (2) may be made ex parte or otherwise.
(5) When making an order under subsection (2), the Supreme Court may make such ancillary orders as it thinks fit.'
14 In the present case it appears the plaintiffs have complied with subs (1). Subsection (3) is a problem because John Young, the registered proprietor, is not a party to the application. As registered proprietor he is undoubtedly an 'interested party' since the caveat prevents the registration of dealings with respect to the land - indeed, he is the only party identified by the s 74J notice apart from the plaintiffs, and appears to have made the application which caused the Director of the Land Titles Office to issue the s 74J notice.
15 At the commencement of the hearing before me, counsel for the defendants took the point that there was no proof that John Young had been served with the plaintiffs' application, and submitted that there was no basis for the Court to make an order under s 74K(3) dispensing with service. Counsel for the plaintiffs responded that it would be manifestly unjust to deny relief to the plaintiffs on the formal ground of want of parties if they otherwise had a meritorious case. He said that John Young no longer had any real interest, although there was no evidence of this. He invited me to stand the matter down in the list for hearing later in the day so that in the meantime John Young could be served. However, it seemed to me doubtful that John Young could be located in sufficient time and, even if he were, he would have inadequate time to obtain legal advice, and so service would be futile unless the case were to be adjourned at cost to the real disputants.
16 I decided that the appropriate course was to make an immediate order under s 74K(3) dispensing with service, so as to overcome s 74K(3) and empower myself to hear the application. I gave brief ex tempore reasons for making the order, in which I warned the parties that I might find it necessary to vacate the order if it became apparent that John Young had a continuing real interest and therefore should be served with the application. I shall return to the position of John Young later in these reasons.
17 Under s 74K(2) the question is whether the Court is 'satisfied that the caveators' claim has or may have substance.' If I am not so satisfied I must dismiss the application. It appears that in considering the statutory question the courts in this State and in other jurisdictions which have adopted the Torrens system apply the same principles as they would apply if the caveators were seeking an interlocutory injunction to restrain interference with their asserted interest pending a final hearing of their claim. Thus, the Court should consider whether there is a serious question to be tried (or an 'arguable case') and whether the balance of convenience favours the extension. Young J took this approach in Penny Nominees Pty Ltd v Fountain (unreported, 2 May 1989), though he pointed out that if the claim depends solely on a question of law, the Court will normally decide that question. Cases in other comparable jurisdictions have applied the interlocutory injunction standard both on applications for extension of the operation of caveats, and on applications for removal of caveats (where the legislation provides for such applications): see S Colbran and S Jackson, Caveats (1996) pp 428 ff (especially at 434), and 332 ff.
18 It appears to me that in New South Wales the statutory wording in s 74K(2) lends support to this approach, for the words 'has or may have substance' point to the 'serious question' criterion; and the Court is empowered but not directed to make an order if it is satisfied to the requisite standard, suggesting a judicial discretion to which considerations of balance of convenience would be relevant.
19 In the present case the application of the 'serious question to be tried' test would require the Court to assess the prospects of successful appeal from a judgment and orders made by this Court. The plaintiffs say I should not hesitate to do so; that their appeal is clearly not vexatious or frivolous; and that it therefore satisfies the 'serious question' test as enunciated by the House of Lords in American Cyanamid Co v Ethicon Limited [1975] AC 396. They point to cases where an order was made extending a caveat to cater for an appeal: Mawbey v Jannine Pty Ltd (No 2) (unreported, Supreme Court of New South Wales, Court of Appeal, 24 May 1990); Attorney General for Hong Kong v Reid (No 2) [1992] 2 NZLR 394. However, these cases were cases where the order against which an appeal was made was an order refusing to extend the operation of the caveat. One can understand a short-term order being made in such a case, just as the Court may extend for a short time an injunction which it decides to dissolve, to preserve the status quo pending an appeal, analogously to granting a stay. In this case, however, the judgment from which an appeal has been made is a judgment dealing with the plaintiffs' claim to a proprietary interest against the defendants, and the decision contrary to the plaintiffs has undermined the basis on which they as caveators claim an interest in the land.
20 In Van Reesema v Giameous (No 2) (1978) 17 SASR 39 the Full Court of the Supreme Court of South Australia refused to extend the operation of a caveat pending the resolution of the caveator's appeal to the Privy Council, but did so on the narrow basis that it lacked jurisdiction on the particular wording of the statutory provisions which were before it. In Howe v Waimiha Timber Co Limited [1921] NZLR 110, 114 it was held that a caveat ought not to be extended pending an appeal to the Privy Council on the ground that to allow the caveat to remain would be to deny the registered proprietor the fruits of the judgments that he had obtained. It is not clear whether this decision was merely the result of the balancing of discretionary considerations on the facts of the case, or asserted a more absolute principle.
21 Counsel for the defendants says there is indeed an absolute principle at work, namely, the law of estoppel and res judicata. His forceful submission is that the plaintiffs are now estopped by Young J's judgment and orders from asserting the claim made in the caveat, and therefore there can be no proper basis for extending the operation of the caveat. He relies on two forms of estoppel by record, namely, cause of action estoppel and issue estoppel.
22 Cause of action estoppel and issue estoppel have some common ingredients. There must be a final binding judgment on the merits by a tribunal of competent jurisdiction, to which the parties are privy. These elements are clearly satisfied as regards the plaintiffs and the defendants by Young J's judgment and orders, which cannot be varied, reopened, or set aside by a Court of coordinate jurisdiction: Carl Zeiss Stiftung v Rayner & Keeler Limited (No 3) [1970] Ch 506, 538-9; Linprint Pty Ltd v Hexam Textiles Pty Ltd (1991) 23 NSWLR 508, 517 to 521, 526.
23 The requirement that the judgment be final is not diminished because it is appealable (Marchioness of Huntley v Gaskell [1905] 2 Ch 656, 667; Taylor v Ansett Transport Industries Limited (1987) 18 FCR 342, 354, 365; Rogers v The Queen (1994) 181 CLR 251, 279; Spencer Bower Turner & Handley, The Doctrine of Res Judicata (1996) p 382); nor because an appeal has been lodged (Harris v Willis (1855) 15 CB 710 [139 ER 604]).
24 Additionally, cause of action estoppel applies only where the same cause of action is asserted, and this occurs if a party asserts that the same right has been infringed or seeks in substance to have the same controversy decided: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, 610-11; Onerati v Phillips Constructions Pty Ltd (1989) 16 NSWLR 730, 737-49; Trawl v Effem Foods (1992) 108 ALR 335. Counsel for the defendants submits that the plaintiffs' claim in the caveat is in substance the same as the claim rejected in Young J's judgment. Accordingly, cause of action estoppel applies.
25 Issue estoppel applies, in the circumstances already described, if a question of fact or law has been directly put in issue in the previous proceedings and has been solemnly pronounced upon with certainty: see Halsbury's Laws of England (4th Ed) para 965. Counsel for the defendants says that these elements were satisfied by the hearing and judgment of Young J which made findings which are fatal to the claim made in the caveat.
26 In my opinion, Young J's judgment and orders create estoppels with respect to the issues or causes of action specifically dealt with by Young J, namely: that the first defendant did not owe the plaintiffs any fiduciary duty; that the first defendant did not misuse his position to gain a benefit for which he must account; that the first defendant did not receive or misuse any confidential information of the plaintiffs; and that the defendants did not breach s 42 of the Fair Trading Act.
27 The defendants also allege that there was an estoppel with respect to Young J's finding that a constructive trust would be not an appropriate remedy had he found a breach of duty. I disagree. In my opinion the remarks on this point were obiter dicta, as the point did not arise in the light of his conclusion that there was no breach of duty, and were expressed in a qualified way, using language such as 'I was very troubled' and 'I am not at all sure'. However, in my view nothing turns on this finding because there is an estoppel in respect of each allegation of breach of duty which is said to lead to proprietary relief.
28 Since estoppel arises to the extent which I have indicated, it seems to me that the plaintiffs can no longer assert against the defendants the claim which they make in the caveat. Whilst they were not by any judgment estopped from making the claim in February 1998, when the caveat was first lodged, they became estopped from continuing with that claim against the defendants when Young J's judgment was delivered and his orders were made. Although it is generally true (as Young J observed in the Penny Nominees case) that for the purposes of s 74K the 'caveators' claim' is the claim made in the caveat, the Court's task under the section is to be satisfied that at the time of hearing the application, rather than historically, the 'caveators' claim' has or may have substance.
29 An estoppel arising after lodgement of the caveat which prevents the caveators from subsequently asserting their claim requires the Court to refuse the extension, to the extent that the claim is asserted against a person who has the benefit of the estoppel. The defendants can rely on the estoppel, and the registered proprietor does not need to do so, as the caveat does not assert any interest other than a beneficial entitlement to the defendants' interest in the land. Nor, in my opinion, could the plaintiffs avoid the estoppel by re-drafting their claim to make it contingent on their success in the Court of Appeal, because a caveat so drafted would either assert a present interest contrary to the estoppel, or it would not assert an interest capable of supporting a caveat.
30 Since formulating these reasons, I have been very pleased to discover that they conform to the judgment of McLelland CJ in Eq in Lahoud v B & M Quality Constructions Pty Ltd (unreported, 22 July 1994). There the facts were very similar to the present case, except that the caveat was lodged after the Court had found against the interest claimed in the caveat, and the caveat claimed 'a right as beneficial owner to require [the defendants] to transfer land held by them in trust for the caveator, subject to the Court of Appeal upholding an appeal by the caveator ...'. I do not regard these factual distinctions as significant because in that case, as in the present case, the Court was asked to make a decision about extending the operation of the caveat at a time when an appeal had been lodged against a judgment which denied the interest on which the caveat was based.
31 McLelland CJ in Eq said:
'In the first place, the judgment and orders of Windeyer J of 20 October 1993 give rise to an estoppel, at least as between Mr Lahoud and B & M, on the issue whether Mr Lahoud has any present interest as claimed in the property. Unless and until Windeyer J's orders are set aside, that estoppel remains binding, and it is immaterial that an appeal is pending from those orders (see Spencer-Bower & Turner 'Res Judicata' 2 ed p 144, cases cited in footnote 5 and corresponding text). Elmowy would, in my opinion, also be entitled to the benefit of that estoppel as a successor in title to B & M.'
32 My conclusion that the plaintiffs are estopped from asserting against the defendants matters upon which they must rely to support their caveat, prevents me from concluding that there is a serious question to be tried, and hence from being satisfied for the purposes of s 74K(2) that the plaintiffs' claim as caveators has or may have substance. It follows that the plaintiffs' application for extension of the operation of the caveat must fail.
33 Even if I had reached a different conclusion on those matters, I doubt that I would have made the order for extension, having regard to the balance of convenience. First, my opinion is that the orders should not be made without at least giving John Young, the registered proprietor, the opportunity to be heard. The present caveat prevents him from dealing with his land and, in my opinion, no proper justification for doing so has been advanced. However, even if there were some way of permitting registration of the transfer to the defendants and then allowing lodgement of a fresh caveat to restrain dealings by them (perhaps by my making an order under s 74O) I would be inclined to favour the defendants over the plaintiffs on the question of the balance of convenience.
34 Whilst I acknowledge the special value of the Hector Street land to the plaintiffs, I am not satisfied that this would justify orders which could extend the life of the caveat for a very considerable time, preventing the defendants from dealing with the land whatever may be their financial situation from time to time unless they successfully apply to the Court of Appeal or this Court. Interest and other expenses and losses could be substantial, and I would hesitate to expose the defendants to that risk even if I were to require the plaintiffs to give an undertaking to pay damages in the usual form. Moreover, extension of the operation of the caveat would not fully protect the plaintiffs' position since the defendants would not thereby be prevented from improving the property by, for example, building on it. (I say nothing about the legal risks to which that course of action may give rise, whether there is a caveat or not, given the defendants' knowledge of the plaintiffs' claim.)
35 In this case it seems to me that the plaintiffs are seeking to use the caveat to preserve their position pending the hearing of the appeal. They may have directly applied for interlocutory orders for that purpose but, as far as I am aware, they have not done so. In my opinion, the latter would have been a more appropriate application.
36 In my opinion the plaintiffs' motion should be denied.
37 (Question of costs stood over to another time)
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