Judgment
1HIS HONOUR: This is an application for an order that the plaintiff sign a withdrawal of caveat. The application is made by way of what is said to be the enforcement of orders made on 11 November 2011. The background to the application is that on 2 February 2011 the plaintiff filed a summons seeking a declaration that he has an equitable interest of one-third of a property located at [xxxx xxxxxx], Pitt Town. The summons sought a declaration also that, in the alternative, the first defendant pay the plaintiff a sum, said to be owing under a contract for sale, of $364,049.63.
2The plaintiff was the owner of the property in [xxxx xxxxxx], Pitt Town, but on 10 July 2008 the property was transferred to the first defendant Impresario Enterprise Pty Limited. The plaintiff's son, Mr Kade Hancock, is the sole director of that company. The purchase price of the property, when acquired by Impresario Enterprise Pty Limited from the plaintiff, was $1.1 million.
3The plaintiff lodged a caveat on the title to the property dated 8 October 2010, claiming an equitable interest in the land under a contract for sale dated 10 July 2008, and a transfer dated 18 July 2008, and another document dated 1 June 2008. In the caveat, the plaintiff asserted that the equitable interest arose because he conveyed the subject land to Impresario Enterprises Pty Limited for the sum of $1.1 million and received part payment, leaving a balance of $354,062.54 in place of a proposed interest of 30.1 per cent in the same land.
4The proceedings instituted by the plaintiff on 2 February 2011 were compromised by consent orders contained in a document entitled "Terms of Settlement" that were signed by the counsel for the plaintiff and the solicitor for Impresario Enterprises Pty Limited, and filed in Court on 11 November 2011. Those orders, which were made by the Registrar, provide as follows:
"Terms of Settlement by Consent
Order that the caveat number 5F80835 remain on title subject to these orders,
Proceedings otherwise dismissed with no order as to costs,
Caveat to be withdrawn at completion of sale in the event of a sale being to the reasonable satisfaction of the caveator to a bona fide purchaser for value,
The parties agree that the property be sold by the defendant and the plaintiff's solicitor be fully appraised [sic] of the details of the sale, and
Any sum received in excess of the sum paid to satisfy the current mortgage (St George Bank Limited), agent and solicitor's fees and disbursements on such sale, be held in a joint account pending agreement, or Court as to distribution or [sic] as to distribution."
5On 27 April 2012, Impresario Enterprises exchanged contracts with a Mr and Mrs Horne for the sale of the property for a price of $900,000. The contract was due to be completed by 8 October 2012.
6On 21 May 2012, the solicitors for Impresario, Milne Berry Berger & Freedman, wrote to the plaintiff advising him that the contract for sale had been entered into on 27 April. The letter of 21 May 2012 advised that the vendor anticipated a shortfall of the balance of the sale proceeds, after agent's commission and legal fees, to discharge the mortgage debt. The solicitors sought a prompt reply that a withdrawal of caveat would be supplied upon completion. That was not forthcoming.
7Impresario Enterprises submits that the sale to Mr and Mrs Horne is an arm's length sale to a bona fide purchaser for the best price available at the time the property was sold, after it had been the subject of a lengthy marketing campaign. It submits that the plaintiff should be reasonably satisfied that the sale is to a bona fide purchaser for value and, if relevant, to a bona fide purchaser for fair market value. It submits that for these reasons the plaintiff is required to withdraw his caveat.
8On 3 October 2010, Impresario Enterprises filed a notice of motion seeking an order that the plaintiff be required to comply with order 4 of the orders of 11 November 2011, and sign a withdrawal of caveat in registrable form and deliver it to its solicitor by the following day. That application was heard and determined by Slattery J on that day. His Honour dismissed Impresario's notice of motion. His Honour held that there was a serious question, whether, under the settlement agreement embodied in the consent orders, the plaintiff was required to approve the entry into the contract of sale or whether his reasonable satisfaction might be established subsequent to the sale.
9Slattery J did not finally decide that question, because he held that the plaintiff had not been given sufficient details of the sale to enable him to determine to his reasonable satisfaction whether the sale was to a bona fide purchaser for value (Bradley James Hancock v Impresario Enterprise Pty Limited [2012] NSWSC 1217 at [27]-[31]).
10The sale did not complete by 8 October 2012. On 24 October 2012, the purchaser's solicitor served a notice to complete making time for completion essential. The notice to complete requires completion to take place by 3.00pm on Monday, 12 November 2012.
11Late in the evening of 3 October 2012, after Slattery J delivered judgment, Mr Berger, the solicitor for Impresario Enterprises, sent an email addressed to the plaintiff advising that his firm was presently arranging for affidavits to be prepared from the purchasers and from the agent who acted on the sale "addressing issues flagged by the judge".
12On the following day, Mr Berger forwarded another email addressed to Rosalie Donovan, said to be for the plaintiff, attaching draft affidavits advising that the plaintiff could see from what was enclosed the type of evidence that was being gathered. This included a draft affidavit from Mr Horne, which is in the same form as an affidavit ultimately sworn by him on 9 October 2012.
13 Also enclosed was the bare bones of an affidavit from the estate agent who acted on the sale, Mr Hamish Rogers, but it did not take matters very far at all.
14On the following day, on 7 October 2012, Mr Berger sent draft affidavits to the plaintiff from one of the purchasers and the agent. This did not advance matters.
15The present application was commenced on 31 October 2012. Impresario Enterprises had been attempting to have the matter relisted by correspondence with the registry or listing office, but, as there was no outstanding application, the matter was not relisted. A further notice of motion was not filed until 31 October. Impresario Enterprises contends that, having regard to further information that has been provided to the plaintiff since Slattery J's judgment of 3 October 2112, he should now be reasonably satisfied that the sale to Mr and Mrs Horne is both bona fide and for market value. The plaintiff resists this.
16There are two principal questions about the construction of the orders of 11 November 2011. The first was considered but not decided by Slattery J. His Honour, kindly, described the orders as having been framed neither with great felicity, nor great precision (at [21]).
17As I adverted to earlier in these reasons, the first question is whether the caveator, the plaintiff, had to be reasonably satisfied to the sale being to a bona fide purchaser for value before contracts were exchanged. The second question is what the caveator, the plaintiff, has to be reasonably satisfied about. Is it reasonable satisfaction to the sale, that being a sale to the bona fide purchaser for value, or is it enough he be reasonably satisfied that the sale is to a bona fide purchaser for value? In other words, is the subject matter of his reasonable satisfaction that the purchaser is bona fide and that the sale is for value, or is the subject matter of his reasonable satisfaction wider in that he has to be reasonably satisfied as to the sale?
18Impresario Enterprises contends for the narrower construction.
19The sale to Mr and Mrs Horne is clearly for value, whether or not it is for the best price that could be obtained, and whether or not it is for fair market value. On the narrower construction, it being a sale for value, the only question is whether the plaintiff should be reasonably satisfied as to the bona fides of the purchasers. Of course, the consideration for the sale could itself be relevant to bona fides, but on this narrower construction of the orders it would not matter if the plaintiff was not reasonably satisfied that the price was for the best price that could be obtained, and it would not matter whether or not he was reasonably satisfied that the price was a fair market value, unless that could reasonably lead to a dissatisfaction as to the bona fides of the purchaser.
20Before dealing with these questions of construction, it should also be noted that reasonable satisfaction has both a substantive and a procedural component. By the latter I mean that if a person is giving information about a fact that he has no time to digest or to investigate then, at least if a proposed investigation is reasonable, he might reasonably not be satisfied about the existence of that fact, even if, after mature consideration or further investigation, he should be so satisfied.
21The plaintiff contends that he has been given information late, or only in draft form, and has not had a proper opportunity to form a state of reasonable satisfaction.
22Dealing with the first question of construction, Slattery J made the following observations:
"[21] Two interpretations of the obligations created under clauses 3 and 4 of the 11 November 2011 agreement are possible. These two clauses are framed neither with great felicity nor with great precision. The general structure of the parties' agreement was that Impresario could sell the property and Mr Hancock's solicitor would be fully appraised of the details of the sale. But the settlement agreement was unclear as to whether Mr Hancock's solicitor should be appraised of the details of such a sale before or after the sale were to take place. Both seem to be possible under the agreement clause 3 could be performed in two ways.
[22] If the parties' settlement agreement means that the details of the sale of the Hall Street property should be communicated to Mr Hancock before the sale is entered into, then the words 'In clause 3 in the event of a sale being to the reasonable satisfaction of the caveator' would be words contemplating Mr Hancock's approval of the sale itself. On the other hand, if the parties' agreement means that the details of the sale could be communicated after the sale occurs, then the 'reasonable satisfaction of the caveator' might be able to be established subsequent to the sale.
[23] I am inclined to construe the parties' agreement in accordance with the former view: that what the parties had in mind was that the plaintiff's solicitor would be informed of the details before the sale took place. But I do not have to decide that question of construction, because it seems to me that on neither construction of the contract has Impresario established a basis for the withdrawal of the caveat.
[24] The former construction is the more attractive. There would seem to be little point in appraising Mr Hancock's solicitor of the details of the sale after the event. If the former construction is right, there is certainly no evidence that Impresario informed Mr Hancock before the Impresario-Horne sale that it was to take place. The only such communication in evidence is the correspondence of 21 May 2012, which was after the Impresario-Horne sale. But even if the second interpretation is adopted the communications which have taken place are not in accordance with the 11 November 2011 settlement terms, clauses 3 and 4."
23The first question is, "What is the 'sale' that, by order 3, is to be the reasonable satisfaction of the caveator to a bona fide purchaser for value?" There is a distinction between an agreement for the sale of property and the passing of property on completion of that agreement. In some contexts it is only when property passes, that is to say, when the sale is completed, that it can be said that there has been a sale. If that is the case, in relation to order 3, no question could arise whether a caveator had to be satisfied of the sale before contracts were exchanged.
24Slattery J did not think that was the meaning of "sale" in order 3. Nor do I. In Sigala v TZ Limited [2011] NSWCA 334 Young JA, with whom McClellan CJ at CL and Handley AJA agreed, said (at [35] and [36]):
"[35] ... The allegation is that an order preventing a person from selling something is ambiguous. I disagree. It is certainly the case that the classic meaning of the word 'sell' or 'sale' is that the property in something is exchanged for money, but in the real world no-one has any difficulty in understanding that they sell their house when they enter into a contract to sell it. At that point, if there is an estate agent's sign on the house, the word 'Sold' is plastered across the sign.
[36] It is also the law that equitable fee simple is not created in the purchaser unless the contract is specifically enforceable, but in 95% of the cases of the sale of a block of land or a building, it is specifically enforceable. An injunction against selling something is clearly breached by entering into a contract for sale in respect of the property."
25Order 3 uses the term "sale" in the same sense. The order itself distinguishes between a sale on the one hand, and the completion of the sale on the other. In that context, "sale" must mean the entering into of the contract for sale.
26The question then is whether the caveator has to be reasonably satisfied of the contract for sale before exchange, or whether it is enough if he reaches a state of reasonable satisfaction after exchange.
27Order 3 and the agreement in paragraph 4 have to be read together. There must be a purpose to order 4, that "the plaintiff's solicitor be fully appraised [sic] of the details of the sale". It might be said that prima facie the requirement that he "be fully appraised [sic] of the details of the sale" is otiose because, if the sale is to be to the caveator's reasonable satisfaction, he could, in any event, insist on full details. Paragraph 4 speaks of the plaintiff's solicitor being fully "appraised" of the details. An appraisal is, typically, an estimate of the value or quality of a thing. It does not necessarily connote an element of forward looking, but it may well do.
28Order 3 refers to the event of a sale "being" to the reasonable satisfaction of the caveator et cetera. The order is to be construed as at the date the order was made. That is to say, the orders look forward for the something which will take place in the future.
29I think that the ordinary reader would understand the words as Slattery J did at paragraph 24 of his Honour's judgment, where his Honour said, "There would seem to be little point in appraising Mr Hancock's solicitor of the details of the sale after the event".
30Looking forward from the time the order was made to the future event of the sale, I think the sense of the sale "being to the reasonable satisfaction of the caveator, et cetera" is that the state of satisfaction exist at the future time when the contract for sale comes into being.
31Reasonable minds could well differ on this question. The question is not only one of a grammatical or semantic construction of the language used. In the event of ambiguity, the language will yield to what can be determined as to the purpose of the orders, and will yield to a commercially sensible construction.
32Mr Jarrett, counsel for Impresario Enterprises, submits that to construe the orders as requiring the plaintiff to be reasonably satisfied of the sale when the sale is entered into is not a commercially sensible construction, because it would give the plaintiff an effective veto over entry into a contract.
33I do not agree. There is only a power of veto if the sale is not, to the reasonable satisfaction of the plaintiff, to a bona fide purchaser for value. The question of reasonable satisfaction could be determined before a proposed contract was entered into by litigation, just as it has to be determined before the sale is completed by litigation, when the parties are not agreed. Indeed, I think it is more commercially sensible for such an issue to be determined before third parties' rights intervene.
34Moreover, it would not be necessary, although it would be desirable, for a dispute as to whether the plaintiff was not reasonably satisfied of the sale to be decided before contracts were exchanged. Just as there is a dispute now as to whether the plaintiff should now be reasonably satisfied about the sale, so there could be a dispute after exchange as to whether the plaintiff should have been reasonably satisfied of the sale before exchange.
35In this case, of course, there could be no such dispute because there was no question of such reasonable satisfaction at that time. But that is not relevant to the construction of the clause.
36I also think that the second question of construction tends to support the conclusions to which I have come on the first. On the second question of construction I think, as Slattery J evidently did, that the language used in order 3 is more consistent with the narrower construction of the subject matter of the plaintiff's satisfaction than a wider construction. But, although that is, I think, the preferred linguistic construction, I think that should yield to a conclusion about the commercial purpose of the agreement to be served by the orders.
37By the first order, the parties agreed that the caveat in which the plaintiff, in substance, claimed an interest as an unpaid vendor, should remain on the title. That was subject to the other orders. But by their agreeing that the caveat should remain on the title, I think the parties must be taken to have agreed that there is at least a serious question to be tried as to the existence of such an equitable interest.
38Order 2, then, provides for the proceedings in which the plaintiff sought to establish such an interest be otherwise dismissed.
39The effect of that would seem to be that the only way in which the plaintiff could then seek to realise value for his asserted equitable interest was through the caveat.
40Order 3, of course, provides for a caveat to be withdrawn in the circumstances that are the subject of detailed consideration in this judgment, and the agreement in paragraph 4 is related to order 3. Order 5 then deals with the case if there be any sum available in excess of the amount required to pay out the St. George Bank. In that event, the moneys are to be held in a joint account pending agreement or, presumably, pending the court's decision as to how the funds should be distributed.
41In the latter event there would, presumably, have to be fresh proceedings to litigate the matters that had been raised in the summons.
42Looking at that framework of the orders, I infer that the caveator was entitled to form a state of reasonable satisfaction to seek to ensure that his equitable interest in the land was protected, or its value enhanced, so far as it reasonably could be having regard to market conditions. Such a construction supports the wider construction of the clause, namely, that the plaintiff be reasonably satisfied as to the sale, and not just that the sale is one for value to a bona fide purchaser.
43It would mean that the plaintiff, in forming or not forming a state of reasonable satisfaction, could take account of matters such as his satisfaction with how the property had been marketed, or whether the best price had been obtained.
44Considered in that way, I think that also supports the construction which I prefer, that his state of reasonable satisfaction should be formed at the time of exchange of contracts. That would require the parties to discuss how the property was being marketed. That would allow the caveator some input into that process which, it seems to me, is consistent with the terms of settlement when they are construed as a whole.
45My conclusion, that the state of reasonable satisfaction had to be reached at the time of exchange of contracts, determines this application, because there is no evidence that the plaintiff then even knew the contracts had been exchanged, let alone that he or his solicitor, if he still had one, had full details to enable him to determine to his reasonable satisfaction whether it was a sale to his reasonable satisfaction to a bona fide purchaser for value.
46If I am wrong in that conclusion, I will deal with the other questions that have been raised.
47The plaintiff submitted that he reasonably was not satisfied as to the bona fides of the purchasers. He had been provided with a draft affidavit of Mr Horne. Although the final affidavit was in the same form, he submitted that he did not have to be satisfied with a draft.
48He also pointed to the fact that only Mr Horne had sworn an affidavit purporting to speak for both himself and his wife. In cross-examination the plaintiff obtained an admission from Mr Horne that Mr Horne was not aware of all of the associates that his wife had had since her birth. Accordingly, he submitted that he did not have to be reasonably satisfied that there was not a relationship between his son and Mrs Horne that meant that the sale was not at arms length, even if he should accept Mr Horne's evidence, about which there was no real ground for challenge.
49The plaintiff submitted that there was a ground for challenging Mr Horne's evidence, because both he and Mr Kade Hancock worked in the same industry and area. But I would not consider that any dissatisfaction, or lack of satisfaction, by reason of that fact was reasonable.
50There may be something to be said for the absence of any evidence directly from Mrs Horne, and until today there was no evidence adduced from Mr Kade Hancock, the director of Impresario Enterprises. But he has also sworn that he did not know the purchasers before this transaction, and that his only dealing with them was this particular transaction. He was not cross-examined or in anyway challenged on that evidence. Considering the matter as it stands today, I would not consider that any lack of satisfaction by the plaintiff to the bona fides of the purchasers would be reasonable. As I have said, there can be no question that the sale to them is for value.
51Accordingly, had I construed the orders in the way counsel for Impresario Enterprises submitted they should be construed, I would accept that it has made good its case, albeit belatedly, that the plaintiff's lack of satisfaction is not reasonable. This would justify the order for withdrawal of the caveat.
52There would be a question as to how much time the plaintiff has had to consider the information provided, but, having regard to the service of the draft affidavit and the very narrow area of enquiry, I do not consider that the plaintiff could make good the proposition that his lack of satisfaction was reasonable by reason of shortness of time.
53However, even if the time at which reasonable satisfaction must exist is now and not at the date of exchange, in my view, there are other matters that the plaintiff is entitled to have regard to; in particular, price and marketing.
54The plaintiff's position is that in 2007 and 2008 he was offered a price of $1.1 million for the property by the agent who marketed the property, Mr Rogers, which offer he rejected.
55It appears that in 2008 the buildings and 3,000 square metres of surrounding land were advertised for sale at a price of $692,000. This would be for a sale which would then have been subject to council approval. The block of land in question is a little under 10,000 square metres in area, and the property would have to have been subdivided for that separate block of land to have been sold.
56It was the plaintiff's understanding, and I think it is not disputed, that at that time subdivision was an available option.
57Subsequently, according to the evidence of Mr Kade Hancock, which is supported by the published Local Environmental Plans, it appeared that the property in question cannot be subdivided. This would have an obvious effect on price.
58Quite apart from the fact that the sale of the land from the plaintiff to Impresario Enterprises in 2008 for $1.1 million was a sale between related parties, the changes to the zoning requirements indicate why it would not now be reasonable for the plaintiff to insist on a price of $1.1 million, or thereabouts, based upon the prior offers made in 2007 or 2008.
59That is not the end of the matter. The evidence as to the marketing of the property was not fulsome, and no greater information was provided to the plaintiff. Mr Rogers deposed that he marketed the property from 27 July 2011 until the date of exchange of contracts on 27 April 2012. He said that in doing so he incurred marketing expenses of $3,000. He deposed that the sale price, of $900,000, was the highest price he could achieve for the sale, and expressed his opinion that it was a very favourable price for the vendor. He estimated that the current market value would be approximately $850,000 to $900,000, and said that the market had come back a little since April. He also said that the property had been on the market for almost a year, that the house was old, basically in need of repairs, and that there were only two prospective purchasers who were willing to proceed; one who refused to increase his offer of $850,000 and the other being Mr and Mrs Horne.
60The plaintiff is not satisfied as to the steps taken in the marketing of the property. There is no evidence that the plaintiff knows the detail of the steps taken.
61The plaintiff served, although only today, a notice to produce for the supply of the full advertising details, and for a copy of the agency agreement between Mr Rogers and Mr Kade Hancock for the preceding six months prior to the exchange of contracts. Impresario Enterprises had no documents to produce in court in response to that notice. It remains that there is an absence of information about that.
62Mr Rogers was asked how the $3,000 was spent, and over what period of time it was spent. His testimony in answer to those questions was confusing. He said that expenditure on marketing of $2,000 to $3,000 would be normal, and that the expenditure in the present case was just above normal. But he also said, at one point, that the $3,000 was for advertising and auction expenses, something from which he then resiled. At one point in his evidence he said, as I understood his evidence, that there had not been an extensive programme for marketing the property over the year.
63One would not conclude from that evidence that the property had not been adequately marketed, but nor could I conclude that a lack of satisfaction by the plaintiff as to the marketing of the property would be unreasonable.
64For the reasons I have given, I consider that that is one of the subject matters to which the plaintiff is entitled to have regard in forming or not forming a state of reasonable satisfaction to the sale.
65The plaintiff also took issue with Mr Roger's description of the quality of the house. Mr Rogers was of the view that the house was of uncertain value, and in the course of his oral evidence, as I understood it, said that the value of the property was with the land and the two prospective purchasers did not intend to keep the house. As I understood it, the evidence of the plaintiff and Mr Rogers about the quality of the house is conflicting. The plaintiff says that the house was substantially rebuilt in 2007 and 2008. That conflict may not have direct relevance to the plaintiff's reasonable satisfaction about the sale but, as I understood his submissions, it feeds into a suspicion that if Mr Rogers, wrongly in his view, has an adverse view about the quality of the building, that that might affect the way the property was marketed.
66As I have said, I accept that the lack of information about marketing would provide a basis for an absence of reasonable satisfaction about the sale.
67For these reasons, even had I concluded that the state of reasonable satisfaction could be arrived at today, rather than at the date of exchange, I would not have concluded that Impresario Enterprises is entitled to the order it seeks for removal of the caveat.
68I recognise that this is unfortunate, to say the least. It means that, unless something else is resolved very quickly between now and Monday, the contract with Mr and Mrs Horne cannot be completed. This could, no doubt, expose Impresario Enterprises to a claim for damages. The contract might be terminated. It may well mean that the registered mortgagee exercises its power of sale as mortgagee. It may well be that less than $900,000 is received. But the question before me is not whether, having regard to the overall balance of convenience, the caveat should be removed to allow the sale to proceed. The question before me is the narrower question of the construction of the orders and the evidence as to the plaintiff's satisfaction.
69As I alluded to earlier in these reasons, the difficulties to which the first defendant's construction of the order gives rise, as evidenced by the need for this urgent hearing, the result of which is that it is very likely that the sale to Mr and Mrs Horne cannot go ahead, indicate why the construction of the order, that the plaintiff be satisfied at the time of exchange about the sale, is the more sensible construction commercially.
70For these reasons I order that the first defendant's notice of motion filed on 31 October 2012 be dismissed.
71The first defendant is not legally represented. It is possible that he has incurred expenses, such as photocopying, for the purpose of this hearing. His expenses have been minimised because, by necessity, the hearing has been conducted, over a number of days now, by telephone link. Nonetheless, if he has incurred expenses in dealing with this application, he is entitled to recover those.
72I order that the first defendant pay the plaintiff's costs of the notice of motion.
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Decision last updated: 21 November 2012