Homes v Newland

1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

File No. 2391/99 THOMAS HUGHES HOMES PTY LIMITED v THOMAS JOHN NEWLAND JUDGMENT 1 MASTER: In this matter on 19 May 1999 His Honour Mr Justice Santow ordered that by way of interim order the operation of Caveat No 5240488W be extended until further order of the Court. The order was made on the ex parte application of the plaintiff and the matter was brought back before me today when an application was made on behalf of the defendant that the order be vacated or, alternatively, under s 74 MA that the plaintiff withdraw the caveat. No motion was filed by the defendant but the parties are happy that the matter be determined on the basis of the defendant's oral application.

2 In the event that the defendant is not successful it is agreed that it will be necessary for the plaintiff to amend the Summons to include a claim for substantive relief in the proceedings.

3 The plaintiff is a builder and the defendant is the proprietor of land over the which the caveat has been lodged claiming an estate or interest under an equitable charge pursuant to cl 20 in a building agreement dated 24 March 1998 made between the plaintiff and the defendant.

4 Clause 20 was in the following terms:- "If there is an amount outstanding including any legal fees and costs associated with recovering an amount under this Agreement the Owner agrees that the Land on which the Building Works are being undertaken is hereby charged in favour of the Contractor for such outstanding amount. This clause shall not merge on completion."

5 It has been recognised for many years that such a clause gives a caveatable interest. See for instance Griffiths v Hodge 2 BPR 97134.

6 The defendant's contention is that there is no arguable claim that the plaintiff has a caveatable interest having regard to the provisions of s 7D of the Home Building Act 1997. That section, as it was in force at the time of the contract entered into between the parties, was in the following terms. " 7D Extent of caveatable interest in land under contract. The holder of a licence who is a party to a contract and in whose favour a judgment or order of a court or tribunal has been made against another party to the contract has a caveatable interest for the purposes of the Real Property Act 1900 in the land on which the contract work is, or is to be, carried out if the land is subject to that Act."

7 The factual situation in the present matter is that there has been a falling out between the parties and the plaintiff, builder, claims a sum is due, pursuant to the contract for certain works. The other fact which is to be noted is that the builder has obtained no order or judgment against the owner and, indeed, has recently commenced proceedings in the District Court seeking to recover $76,250 which is the sum which it alleges is due under the contract.

8 In short the argument of the defendants is that s 7D requires that any caveatable interest whether pursuant to a provision in a contract or otherwise requires that there be a judgment or order of the court. In support of his argument the defendant refers in particular to the opening words of s 7D and also to the comments made in the second reading speech on the passage of the Bill through Parliament in 1996. 9 Reading s 7D above and without having regard to the object of the Act as a whole one might be forgiven for thinking that the section gave an additional right to a builder to lodge a caveat where his agreement was silent on the subject if he obtained a judgment against the owner. Section 7D is not couched in negative terms of prohibition but in positive terms of a grant of rights.

10 In order to highlight the difficulty of construction one need only to see the form of the present section 7D. This followed the passage of the Home Building Amendment Act 1998 as a result of which the new section 7D is in the following terms:- " 7D Interests in land under contract (1) A contract does not give the holder of a licence or any other person a legal or equitable estate or interest in any land, and a provision in a contract or other agreement is void to the extent that it purports to create such an estate or interest. (2) Accordingly, the holder of a licence or any other person may not lodge a caveat under the Real Property Act 1900 in respect of an estate or interest prohibited by subsection (1). (3) However, subsection (1) does not apply to a provision in a contract that creates a charge over land if: (a) the land the subject of the charge is land on which the contract work is, or is to be, carried out, and (b) the charge is in favour of the holder of a licence who is a party to the contract, and (c) the charge is created to secure the payment to the holder of the licence by another party to the contract of money due under the contract, but only if a court or tribunal has made an order or judgment that such payment be made, and (d) in the case of a charge over land under the Real Property Act 1900 the party to the contract against whom the judgment or order is made is the registered proprietor of the land. (4) A charge referred to in subsection (3) over land under the Real Property Act 1900 ceases to operate if the party to the contract against whom the judgment or order is made ceases to be the registered proprietor of the land so charged."

11 Under the transitional provisions that amendment by way of repeal and re-enactment is said not to affect the validity of (a) any caveat lodged in accordance with the Real Property Act1900, or (b)any provision in a contract or agreement entered into, before the amendments commenced. 12 Accordingly, the new section does not apply to the contract with which I am concerned and thus the construction of the old section 7D is involved in the determination of the question before me. On the second reading speech on the amending Bill the doubts that caused the amendment were expressed in the following terms:- "Unfortunately, doubts have arisen as to whether the provisions which were introduced on 1 May 1997 are legally effective in preventing contractors from inserting caveat clauses in their contracts. This bill will clarify the operation of the Home Building Act in relation to caveat clauses in home building contracts and contracts for sale of kit homes. The amendment to be introduced by this bill provides that a contractor will have an interest in land which can be protected by a caveat only if, first, the contractor obtains a judgment against the home owner, second, the contract provides that non-payment of a judgment gives this right, and, third, the judgment debtor is the owner of the land at the time the caveat is lodged."

13 It is not appropriate to construe the first Act by reference to the remedial legislation and the speeches associated with that legislation. However, one can have regard, pursuant to s 34 of the Interpretation Act to what was said in the second reading speech of the original Bill. The comments made on that reading were as follows: - "A building contract will also no longer give a builder an estate or interest in land in order to lodge a caveat on the title to the consumer's land other than in two special circumstances. These are where the contract price is over $500,000 and where a judgment or order of a court or tribunal is made in favour of the contractor. Similar provisions apply to contracts to supply a kit home."

14 The reference to $500,000 was deleted from the bill before its final passage. 15 Under s 34 of the Interpretation Act 1987 this material can be used to determine the meaning of the provision - "(i) if the provision is ambiguous or obscure or (ii) if the ordinary meaning conveyed by the text of the provisions (taking into account its context in the Act or Statutory Rule the purpose or object underlying the Act or Statutory Rule and, in the case of a Statutory Rule the purpose or object underlying the Act which the Rule was made) leads to a result that is manifestly absurd or is unreasonable."

16 It is also important to bear in mind the provisions of s 33 of the Act. That section is in the following terms:- "33 Regard to be had to purposes or objects of Acts and statutory rules In the interpretation of a provision of an Act or statutory rule, a construction that would promote the purpose or object underlying the Act or statutory rule (whether or not that purpose or object is expressly stated in the Act or statutory rule or, in the case of a statutory rule, in the Act under which the rule was made) shall be preferred to a construction that would not promote that purpose or object." 17 This section reflects the contemporary approach to statutory interpretation. In Sarasvati v The Queen (1990-91) 172 CLR 1 at 21 Mr Justice McHugh explained this process in these terms:- "In many cases, the grammatical or literal meaning of a statutory provision will give effect to the purpose of the legislation. Consequently, it will constitute the 'ordinary meaning' to be applied. If however, the literal or grammatical meaning of a provision does not give effect to that purpose, that meaning cannot be regarded as the 'ordinary meaning' and cannot prevail. It must give way to the construction which will promote the underlying purpose or object of an Act." 18 It is necessary to consider the circumstances in which the section might operate. There would appear to be at least three circumstances in which, in the context of a Building Agreement between a builder and a owner, a caveatable interest might arise. These are:- 1. That the contract contains an appropriate clause granting either a mortgage or charge. 2. The contract may in terms provide an entitlement to lodge a caveat. Such a clause does give a caveatable interest, see Troncone v Aliperti Court of Appeal 20 April 1994. 3. Particular circumstances of an agreement between parties for the joint development of land, see Davies v Uratoriu Hodgson J 18 May 1995. 19 This last example which I have quoted would seem to be an extension of the principle referred to by Mahoney J in support of his conclusion in Troncone v Aliperti. There he said:- "It is a fundamental principle of construction that "Whoever grants a thing is deemed also to grant that without which the grant itself would be of no effect" ("Cuicungue aliquis quid concedit concedere videtur et id sine quot res ipsa esse non potuit" ): Broome's Legal Maxims (9th ed) p 307. The principle is said to go back at least to Shepherds Touchstone 89. … Thus, if the registered proprietor of land covenants by deed that, until a loan be repaid, he will not sell or deal with the land, that covenant would, in my opinion, create in favour of the covenantee an interest in the land to the extent at least that an injunction would go to restrain the covenantor from dealing with the land in a manner inconsistent with the covenant. It is not necessary for this purpose to pursue the nature of the estates or interests in land which, under the conventional law of real property, it was or is possible to create. No is it necessary to distinguish between an estate and an interest in land. The right, by the enforcement of an express or an implied negative covenant, to restrain a dealing with land is in my opinion an interest in land within this branch of the law. Accordingly, such an interest would, in my opinion, be within the words 'a legal or equitable estate or interest in land' within s 74F(1)."

20 There are thus a variety of ways in which the right to lodge a caveat will arise. The grammatical construction of s 7D, leaving aside the opening words for the moment, would seem to posite another circumstance which gives a caveatable interest. The circumstance is a licensee being a party to the contract who has obtained a judgment or order of the court. This could appropriately be described as the grammatical or literal meaning of the provision. It is notable that when the Act in other circumstances seeks to strike down a clause in a contract it does so expressly. See s 7C which declares void any arbitration provision. 21 It is necessary to look at the Act to try and discern the nature of its purpose in accordance with the principles I have referred to above. If one does, one finds an Act which applies to a limited class of building work where the particular people likely to be affected are, apart from the builders, owners of residential property. Division 1 deals with the contracts which are entered into for such work and contains a series of restrictions on matters such as insertion of arbitration clauses, amount of deposit and the form of such contracts. One then moves through other divisions which regulate the licensing of people to do work, obviously for the benefit of the consumer being the home owner and further provisions which provide statutory warranties to benefit the home owner. The Act then deals with a variety of other matters such as disputes, insurance and penalties. 22 Division 1, to which I have referred, deals with contracting for work. It contains a number of prohibitions and applies certain requirements for the contracts in question. In particular s 6(1) provides that s 7 and s 7D apply to a contract under which the holder of a licence undertakes to do, inter alia, any residential building work. Section 7 deals with the form of such contracts and prescribes a number of things that must be complied with and also proscribes a number of things which are not to be included. Section 7C provides that an arbitration clause in any such agreement is void. When one comes to s 7D the first line, which I take not to be a heading, is "Extent of Caveatable Interest in Land Under Contract". If one then looks at the remainder of the section which follows one finds nothing within it which qualifies the amount or "extent" of the caveatable interest. All the latter part does is say that a licence holder who has a judgment has a caveatable interest in the land. 23 This tends to suggest that "extent" has a different meaning other than defining the ambit of a particular caveatable interest. If the purpose of the Act and in particular this division is to protect an individual owner of residential land then a more natural construction of the word "extent" might see it as being a restrictive provision. Given as I have pointed out above that a caveatable interest can arise in a variety of circumstances even where the contract does not contain an express clause having as a legal result a caveatable interest such as the first two examples quoted above, a different interpretation of the word "extent" becomes more apparent. It is in effect a restriction on all caveatable interests and requires there to be a licence holder who has obtained a judgment. This construction is supported by the terms of the second reading speech which I have referred to before. Whether the section gives a caveatable interest where the law would not have previously found one is not a matter which requires a decision in this case. 24 It seems to me therefore that the proper construction of s 7D is one which provides for the section to restrict a caveatable interest to the holder of a licence who has a judgment or order of the court in his favour. As this is not the case in the present matter the point should be determined against the plaintiff. The appropriate orders are that the plaintiff forthwith withdraw caveat 5240488W and the plaintiff to pay the defendant's costs of the motion and the proceedings and I so order.

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