JNJ Investments Australia Pty Ltd v Sunnyville Pty Ltd

DJS Jackson QC and LA Stephens for the first respondent

[1] MULLINS J: The applicant completed its purchase of Lot 1 on RP 212639 in the County of Ward Parish of Gilston ("Lot 1") from the second respondent and Lot 169 of RP 41923 in the County of Ward Parish of Gilston ("Lot 169") from the third respondent on 11 November 2005. The first respondent is the purchaser under contracts with the second and third respondents for the purchase respectively of Lot 1 and Lot 169. The time appointed for the settlement of its purchases was 3pm on 11 November 2005. The first respondent's purchases were unable to be completed, because the second and third respondents had settled instead with the applicant at 2 pm on 11 November 2005. The first respondent lodged caveats 709130939 and 709130956 respectively over Lot 1 and Lot 169 on 14 November 2005. In a separate proceeding in this Court (BS9806 of 2005), the first respondent on 7 February 2006 obtained orders for specific performance against the second and third respondents. By originating application filed on 13 February 2006 the applicant seeks orders against the first respondent for the removal of the caveats.

[2] Each of the applicant and the first respondent had filed affidavits for the purpose of the application. Each party cross-examined one or more of the deponents whose evidence was relied on by the other party. The applicant's witnesses who were cross-examined were Mr Hodgson of Hickey Lawyers who were the solicitors for Limited Pty Ltd ("Limited") which held mortgages over Lot 1 and Lot 169; Mr Mike Eden who was the solicitor acting on behalf of the second and third respondents in respect of the sales of Lot 1 and Lot 169; Mrs Hayley Corben who is a legal secretary employed by Mr Eden who was assisting him in the conveyances of Lot 1 and Lot 169; and Mr Adam Sambrook who acted on behalf of the applicant in its purchase of Lot 1 and Lot 169.

[3] The only witness for the first respondent who was cross-examined was Mr Hiro Sano of Asahi Lawyers who acted on behalf of the first respondent in connection with its contracts for the purchase of Lot 1 and Lot 169.

[4] There were credit issues concerning aspects of the evidence of Mr Eden, Mr Sambrook and Mr Sano. In the course of these reasons, I have made findings, where necessary, on evidence that was challenged. In general terms, however, it was apparent from Mr Eden's evidence that his attitude to the first respondent's contracts and his recollection of the events that unfolded on 11 November 2005 was affected by his knowledge that the second and third respondents did not wish to complete the sales of Lot 1 and Lot 169 to the first respondent. Mr Sambrook's conduct on 11 November 2005 also seemed to have been affected by the eagerness of the applicant to complete purchases of Lot 1 and Lot 169 on 11 November 2005 without having entered into any written contracts to do so.

[5] From August 2005 Limited held a registered mortgage over Lot 1 and from July 2005 held a registered mortgage over Lot 169. Limited sent a notice of exercise of power of sale to the second respondent in respect of Lot 1 on or about 30 August 2005, following default under the relevant mortgage. Limited also sent a notice of exercise of power of sale to the third respondent in respect of Lot 169 on or about 2 September 2005, following default under the relevant mortgage. On or about 3 October 2005 Limited commenced its marketing campaign for the sale of Lot 1 and Lot 169 by public auction which was scheduled to be held on 12 November 2005. On or about 24 October 2005 Limited forwarded to the Australian Securities & Investments Commission ("ASIC") forms 504 and 505 in respect of each of the second and third respondents in compliance with its obligations under ss 427(1B) and 427(2) of the Corporations Act 2001 to notify that it had entered into possession of property of the second and third respondents and notifying ASIC of its address.

[6] As from 27 October 2005 the ASIC records for the second and third defendants showed the status of each company as "Externally Administered" and the current controller was shown as Limited. The ASIC records for each company showed that the documents relating to the external administration were forms 504 and 505 and that the notification was of the appointment of a controller (other than as receiver).

[7] New directors were appointed to each of the second and third respondents on 2 November 2005. They were Suk Young Jo and Byung Kyung Kim and they replaced the existing director.

[8] An order was made by the Federal Court of Australia on 10 February 2006 winding up the second respondent. An ASIC search of the third respondent on 10 February 2006 showed that strike-off action was in progress and that there was a pending application to wind up the third respondent.

[9] The first respondent entered into a contract dated 26 October 2005 with the second respondent for the purchase of Lot 1 for the sum of $3.3m (inclusive of GST). The contract was subject to special conditions which affected the calculation of the date for completion. In addition the date for completion was shown in the Items Schedule of the contract as 10 November 2005. The first respondent also entered into a contract dated 26 October 2005 with the third respondent for the purchase of the adjoining land which was Lot 169 for the sum of $1m. This contract also showed the date for completion as 10 November 2005, but as subject to special conditions. Each contract was signed on behalf of the vendor by its director Alexander Bush.

[10] On 3 October 2005 the first respondent deposited settlement notices in respect of each of the Lot 1 and Lot 169 for recording by the Registrar under s 140 of the Land Title Act 1994 ("LTA"). Each settlement notice related to a transfer of the fee simple and was recorded on the date that it was deposited. Mr Sano was cross-examined on the reason for depositing these settlement notices on 3 October 2005 when the first respondent's contracts were dated 26 October 2005. Mr Sano stated there was concern about the financial difficulties of the second and third respondents. It was not apparent what the basis was for the first respondent to lodge the settlement notices prior to the entry by the second and third respondents into the contracts for the sale of Lot 1 and Lot 169 to the first respondent. The definition of "transferee" in s 138 of the LTA means that the entitlement to deposit a settlement notice does not arise until a purchaser has entered into an enforceable contract for the purchase of an interest in land for valuable consideration.

[11] By letter dated 28 October 2005 Asahi Lawyers advised Mr Hodgson that the first respondent had entered into contracts to purchase Lot 1 and Lot 169 from the second and third respondents and that they were due to settle on 10 November 2005 and requesting confirmation by return of the position of the mortgagee. By facsimile dated 4 November 2005 Mr Hodgson advised Mr Eden of the estimated total indebtedness of the second and third respondents under the mortgages and reserved the right of Limited to proceed with the sale of Lot 1 and Lot 169 by public auction, if the sales to the first respondent did not settle on 10 November 2005. Mr Hickey forwarded a copy of this facsimile to Mr Sano.

[12] It appears that the parties to the first respondent's contracts proceeded on the basis that they were due to settle on 10 November 2005. On 9 November 2005 Mr Eden's firm sought an extension of the time for settlement until 11 November 2005 with time to remain of the essence. Mr Eden's firm nominated 3pm at the office of Hickey Lawyers as the time and place for settlement on 11 November 2005. That extension was agreed to by the first respondent.

[13] On 9 November 2005 Mr Sano viewed facsimiled copies of the transfers of Lots 1 and 169 that appeared to have been executed on 9 November 2005 on behalf of each of the second and third respondents by Mr Bush as sole director. On 10 November 2005 Mr Sano arranged for ASIC searches to be undertaken of the second and third respondents to ascertain whether Mr Bush was the sole director. Those searches showed that Mr Bush was no longer a director of the second and third respondents. Mr Sano sent copies of the ASIC searches of the second and third respondents by facsimile on 10:17am on 10 November 2005 to Mr Eden's firm.

[14] On 10 November 2005 Mr Eden's firm sent a letter by facsimile to Asahi Lawyers enclosing settlement statements which showed the calculation of adjustments to the purchase price under each of the contracts. By facsimile sent on 10 November 2005 Asahi Lawyers confirmed to Mr Eden's firm the arrangements for settlement and the details in the settlement statement, but noted changes in the calculation of the amounts owing to Gold Coast City Council and Commissioner of Land Tax to take account of interest up to 11 November 2005.

[15] At about 2:19pm on 10 November 2005 Asahi Lawyers received an email from Mr Eden's firm attaching copies of the transfer documents said to be signed by the new directors of the second and third respondents ("the second transfer documents") and advising that the original transfers would be available the next day.

[16] At about 2:30pm on 10 November 2005 Mr Sano attended the office of Mr Eden's firm to discuss the settlement details for the next day. Mr Sano spoke briefly to Mr Eden about the second transfer documents. Mr Eden told Mr Sano that there may be something wrong with the second transfer documents.

[17] At about 4:20pm on 10 November 2005 Asahi Lawyers received a facsimile from the third respondent under the hand of Mr Bush, shown as managing director, notifying that the contracts which the first respondent had with the second and third respondents would be cancelled as the first respondent had not paid GST of $100,000.

[18] At about 4:42pm on 10 November 2005 Asahi Lawyers sent a facsimile to Mr Eden's firm rejecting the contention that there had been non-payment of GST and confirming that settlement was to proceed the following day. That was how Mr Eden became aware that the second and third respondents wanted to get out of their contracts with the first respondent. Mr Eden was then given instructions by the second and third respondents to that effect.

[19] The applicant had been interested in purchasing Lot 1 and Lot 169 in 2004, but after investigations had decided against proceeding to purchase the properties at that stage. In early November 2005 Mr Kwak, a director of the applicant, was driving through Surfers Paradise when he noticed a large sign outside Lot 1 and Lot 169 advertising a sale by the mortgagee in possession. The applicant caused enquiries to be made of the agent and, as a result, organised a meeting of representatives of the applicant with Mr Eden for 11 November 2005.

[20] At or about 8:00am on 11 November 2005 Mr Sano received a telephone call from Mrs Kim who is one of the directors of the first respondent who advised that the agent had passed on concerns that there was something "strange" happening and that "someone was moving on the settlement" and gave instructions to settle earlier. Mrs Kim telephoned Mr Sano again at or about 8:30am and advised him to settle earlier.

[21] At 8:15am Mr Kwak and Mr Kim on behalf of the applicant together with Mr Sambrook met with Mr Eden at his office to discuss the purchase of Lot 1 and Lot 169 by the applicant.

[22] At 8:39am Mr Sano telephoned Mr Eden on his mobile ("the first conversation") to discuss settlement of the first respondent's contracts. Mr Sano said that the first respondent would like to settle earlier, although Mr Sano raised the problem that the only transfer documents which he had were those signed by Mr Bush when he did not have the authority to sign on behalf of the second and third respondents. (It was suggested to Mr Sano in cross-examination that at the time of the first conversation he was concerned about the validity of the first respondent's contracts as a result of the external administrator having been appointed to the second and third respondents. I am satisfied from Mr Sano's evidence that his concern at the time of the first conversation was the authority of the director who executed the transfers on behalf of the second and third respondents.) Mr Eden then said something to Mr Sano to the effect that as the first respondent's contracts had been signed by Mr Bush, he believed the contracts were invalid. Mr Sano said to Mr Eden that he would like to check this assertion that the contracts were invalid.

[23] Mr Sano then satisfied himself that the contracts had been signed by Mr Bush whilst he was still the director of the second and third respondents. In the meantime Mr Eden and Mr Sambrook were studying the first respondent's contracts and the ASIC searches of the second and third respondents that had been sent to Mr Eden by Mr Sano the previous day. Mr Eden and Mr Sambrook formed the view (which was incorrect) that the first respondent's contracts were invalid as they postdated the appointment of the external administrator.

[24] At about 8:57am Mr Sano telephoned Mr Eden again on his mobile ("the second conversation") and informed him that he considered the contracts were valid as Mr Bush had authority to execute the contracts on behalf of the second and third respondents on the date of the contracts. It was in the second conversation that Mr Eden then raised with Mr Sano his belief that the contracts were void on the ground that an external administrator had been appointed to the second and third respondents prior to the contracts being signed. Notwithstanding that the ASIC searches obtained by Mr Sano on 10 November 2005 showed the status of each of the second and third respondents as externally administered, I find that this was the first time that Mr Sano considered the implication for the first respondent's contracts of the appointment of an external administrator in respect of the second and third respondents. I reject Mr Eden's evidence to the effect that it was Mr Sano who raised the issue of the effect of the appointment of the external administrator on the first respondent's contracts. It was Mr Eden who was looking for the means for the second and third respondents to avoid completing the sales to the first respondent and who had been examining the ASIC searches of the second and third respondents to assist in that purpose. Again Mr Sano was uncertain about this advice from Mr Eden and I accept that Mr Sano said something to Mr Eden to the effect that he wanted to check first and would make his own enquiries.

[25] Mr Sano made enquiries of another lawyer based on the statement of Mr Eden that the second and third respondents had been put under "external administration" and that lawyer advised Mr Sano that the contracts were nullities. The fact that Mr Sano did make enquiries is consistent with his evidence that in the second conversation he said to Mr Eden that he wanted to check on the correctness of what Mr Eden had told him.

[26] Mr Eden stated in his affidavit that after this telephone conversation with Mr Sano at about 9am "Mr Sano agreed with me that the contracts were void". Mr Sambrook's diary note records his observation of this telephone conversation and Mr Eden's reaction as follows:

"I was aware of Mike Eden having a discussion with a Hiro from Asahi Lawyers but I was not a party to their discussion. After Mike Eden got of the phone, he said that Hiro had in his view, accepted his proposition that the Contract was invalid based on the fact that it post dated the appointment of the controller."

[27] I accept Mr Sambrook's evidence as to what he had been advised by Mr Eden about what Mr Sano said in the second conversation even though it was not an accurate summary of what Mr Sano said. It had to be the second conversation that Mr Eden was informing Mr Sambrook about, as Mr Sambrook and the representatives of the applicant had left Mr Eden before the third conversation.

[28] Mr Eden then decided to check his view of the validity of the first respondent's contracts by consulting a barrister. That is consistent with no concluded position being reached between Mr Eden and Mr Sano on the status of the contracts in the second conversation. Mr Eden sought the barrister's opinion on the basis that a voluntary administrator under Part 5.3A of the Corporations Act 2001 had already been appointed to the second and third respondents when a director had signed the contracts on behalf of the second and third defendants. When Mr Eden was cross-examined on the hearing of this application, he acknowledged that he had misinterpreted the ASIC searches at the stage when he spoke to the barrister. The barrister advised him that the director had no power to bind the companies in administration and that the contracts with the first respondent were void. Mr Eden informed Mr Sambrook who was present in his office at the time of the advice of the barrister.

[29] Mr Kwak was advised by Mr Sambrook that the contracts between the first respondent and the second and third respondents appeared invalid because a controller had been appointed to the second and third respondents before the contracts had been entered into and that Mr Sambrook had been advised by Mr Eden that the first respondent's solicitor had accepted that the first respondent's contracts were not binding on the second and third respondents. Mr Kwak therefore gave Mr Sambrook instructions to make a formal offer on behalf of the applicant to purchase Lot 1 and Lot 169.

[30] Mr Sambrook advised Mr Eden that the applicant was prepared to offer to purchase Lot 1 and Lot 169 for $3m and $1.5m respectively and that the applicant would be in a position to settle at 2pm on that day. Mr Sambrook and his clients left Mr Eden's office. Mr Sambrook returned to his office to prepare for the settlement of the purchases of Lot 1 and Lot 169 by the applicant. No written contracts for the purchase of Lot 1 and Lot 169 by the applicant from the second and third respondents were entered into.

[31] At about 9:05am Mr Hodgson received a telephone call from Mr Eden in which Mr Eden said words to the effect that the solicitors for the first respondent had informed him that Limited was an external administrator and that Limited must sign the transfer documents. Mr Hodgson said to Mr Eden that Limited was appointed only as controller of the subject properties. Mr Eden then informed Mr Hodgson that the second and third respondents had another purchaser for Lot 1 and Lot 169 and his instructions were to terminate the contracts with the first respondent on the basis that they were not valid. I accept that Mr Hodgson said to Mr Eden that he could not comment about the second and third respondents' position in relation to the contracts with the first respondent as that was entirely a matter for the second and third respondents, as that accords with the legal position and is consistent with what was conveyed by Mr Hodgson in his letter to Mr Eden sent by email around 12 noon and the earlier letter sent on 4 November 2005 by Mr Hodgson to Mr Eden. I therefore reject Mr Eden's evidence that in this telephone call Mr Hodgson advised that the contracts to sell Lot 1 and Lot 169 needed to be ratified by Limited to be valid.

[32] At about 9:53am Mr Sano telephoned Mr Eden again on his mobile telephone ("the third conversation"). Mr Sano advised Mr Eden that the contracts were void, but he would confirm that in writing. By this time Mr Eden had been given the correct information by Mr Hodgson of the status of Limited as controller and knew that his suggestion to Mr Sano about the first respondent's contracts being invalid was wrong, but Mr Eden did not seek to correct the wrong information that he had conveyed to Mr Sano in the second conversation. Mr Eden told Mr Sano that he would have to deal directly with Mr Hodgson.

[33] Mr Eden stated in his affidavit that in the third conversation he told Mr Sano that the second and third respondents had another purchaser and that the first purchaser to tender the settlement moneys would get Lot 1 and Lot 169. Mr Sano stated in his affidavit that he did not recall any mention by Mr Eden in the third conversation that the second and third respondents had or would go to another purchaser, but was not certain that he did not. The facsimile letter that Mr Eden's firm sent at 1:39pm advised of the existence of a second purchaser in such a way that suggested it was new information. That was conceded by Mr Eden in cross-examination when he said that the facsimile of 1:39pm was the first time that he told Mr Sano there was another purchaser. I find that Mr Sano was not informed by Mr Eden of the second purchaser until 1:39pm. Where the evidence of Mr Sano and Mr Eden differs as to what was said in each of the first, second and third conversations, I prefer Mr Sano's evidence. Mr Sano was acting on behalf of a client whom he knew was keen to purchase Lot 1 and Lot 169 before the scheduled public auction and he was cautious in responding to the various suggestions of Mr Eden about the invalidity of the first respondent's contracts. Although by the third conversation Mr Sano did agree with Mr Eden's assertion that the first respondent's contracts were invalid, I find that Mr Sano qualified what he said by saying that he would confirm that in writing. Mr Eden showed a cavalier attitude to his own clients' legal obligations under the first respondent's contracts which was reflected in the manner in which he put a gloss on what he conveyed to Mr Sambrook about what Mr Sano said and also in his evidence on this application.

[34] At about 9:55am Mr Sano telephoned Mr Hodgson and expressed his concern that the first respondent's contracts were not valid as Limited was an external administrator. Mr Hodgson corrected this view expressed by Mr Sano and explained Limited's true position as mortgagee in possession, pointing out that Limited was appointed as a controller only of Lot 1 and Lot 169 and was prepared to deliver releases of mortgage at settlement in exchange for payment of the total indebtedness pursuant to the mortgages.

[35] After this conversation with Mr Hodgson, Mr Sano immediately attempted to telephone Mr Eden to tell him that the settlement of the first respondent's contracts could go ahead as scheduled. Mr Sano was unsuccessful in telephoning Mr Eden's mobile. After the third conversation Mr Eden had gone to a charity golf tournament and had no further telephone conversations with Mr Sano on that day.

[36] Mr Sano telephoned Mr Eden's office. At about 10:01am Mr Sano had a telephone conversation with Mrs Corben. Mr Sano said to Mrs Corben something to the effect that as a result of his further investigations, he considered the first respondent's contracts were valid and able to be settled that day, but that he had been unable to reach Mr Eden on his mobile to advise him of this. Mrs Corben recalls that Mr Sano did make a comment about the validity of the contracts, but she had difficulty in understanding him. Mr Sano then discussed with Mrs Corben about whether the second transfer documents could be used for settlement and Mrs Corben said something to the effect that the second transfer documents had not been properly executed and could not be used. Mr Sano indicated that he would obtain a new set of documents executed by the controller, as offered by Mr Hodgson.

[37] At about 10:10am Mr Hodgson was telephoned by Mr Sambrook who informed him that the applicant was prepared to pay $4.5m that day for Lot 1 and Lot 169. Mr Hodgson conveyed that Limited's position was that it was proceeding with the public auction of the properties on 12 November 2005, unless the amount owing under the mortgages was paid by the second and third respondents beforehand, but said he would obtain Limited's instructions in relation to whether it was prepared to sell Lot 1 and Lot 169 to the applicant.

[38] At 10:11am and 10:13am Mr Sano forwarded by email to Mr Hodgson transfer documents for execution by Limited as the administrator of each of the second and third respondents.

[39] At about 10:30am Mr Sambrook spoke to Mr Hodgson by telephone and advised that the applicant would be ready to settle at about 2pm. At 11:07am Mr Sambrook sent transfer documents by email to Mr Hodgson and then sent a further set of transfer documents at 11:30am.

[40] During the course of the morning Mrs Corben sent by facsimile to Mr Sambrook copies of searches for Lot 1 and Lot 169 which Mr Sambrook had required in order to be able prepare transfer documents and settlement statements which showed the calculation of adjusted purchase prices on the basis of the offers made by the applicant. These settlement statements showed the time for settlement at 3pm, but it was common ground between Mrs Corben and Mr Sambrook that the applicant would be endeavouring to settle at 2pm.

[41] At about 11.10am Mr Eden telephoned Mr Hodgson and told him that he had told both purchasers that the first purchaser to tender the settlement moneys would get the properties. Although I accept that this is what Mr Eden told Mr Hodgson, I am not satisfied it reflected what Mr Eden had told Mr Sano at that stage.

[42] At about 12 noon Mr Hodgson sent a letter by email to Mr Eden which stated:

"We confirm your clients' total indebtedness to our client as at today is $3,266,219.02.

We note settlement is to be effected today and that your clients and the solicitors for the purchasers have requested that our client sign the transfers as controller of the property the subject of the transfers. We confirm that our client has not entered into nor is it a party to any contract upon which you proposed to settle today. We request that you and the solicitors for the purchasers confirm your request and the position in this regard in writing. Our client is prepared to execute the transfers on this basis upon such confirmation being given. Our client's agreement in this regard is not to be taken as any kind of consent to any contract entered into by your client.

Our client gives no assurance or warranty that its execution of the transfers on this basis is sufficient or that such transfers will not be the subject of requisition.

We also request you confirm in writing that you will indemnify our client for any consequences including any loss and damage associated with the execution of the transfer.

We reiterate that our client reserves all of its rights to proceed with its own sale of the subject properties and should settlement of the contracts not be effected today with payment of your clients' total indebtedness to our client in cleared funds, our client will proceed with the public auction on 12 November 2005."

[43] Mr Hodgson also forwarded that letter to each of Mr Sano and Mr Sambrook by email at about 12:11pm.

[44] Mr Hodgson received from Mr Eden by email the indemnity he requested in respect of the signing of the transfers by Limited. Limited executed the transfers for Lot 1 and Lot 169 on behalf of each of the second and third respondents as "the duly registered controller" of Lot 1 and Lot 169 respectively. It was common ground at the hearing of the application that under the mortgages held by Limited each of the second and third respondents had granted a power of attorney to Limited which enabled it to sign the transfers respectively on behalf of the second and third respondents.

[45] At 12:52pm Asahi Lawyers received settlement statements by facsimile from Mr Eden's firm for each of the purchases which showed the final calculation of the adjusted purchase prices and the payees of each of the bank cheques required for settlement.

[46] At 1:39pm Asahi Lawyers received a facsimile from Mr Eden's firm which stated:

"Please note we have been advised by our client that there is a second Buyer for the above properties who is ready willing and able to effect settlement today. They have been provided with the relevant cheque details and will be attending at the offices of Hickey Lawyers for settlement this afternoon.

Please note, our clients instructions are to settle with whichever party provides the necessary bank cheques first."

[47] At about 1:50pm Mr Sano left Brisbane for the Gold Coast for the purpose of attending the settlement of the first respondent's purchases at the scheduled time of 3pm. At this point Mr Sano attempted to contact Mr Eden or anyone else at Mr Eden's firm to discuss the facsimile received from Mr Eden's firm at 1:39pm. Mr Sano was unsuccessful with his attempts at contact.

[48] At or about 1:55pm Mr Sambrook and other representatives of the applicant and Mrs Corben and another employee of Mr Eden's firm on behalf of the second and third respondents attended at Mr Hodgson's office and Mr Hodgson provided to Mrs Corben the executed transfers and releases of Limited's mortgages in exchange for two bank cheques in payment of the total indebtedness to Limited under the mortgages and the purchases of Lot 1 and Lot 169 by the applicant from the second and third respondents were otherwise completed by 2:15pm. Mr Eden's firm also acted at the settlement as the unpaid agent for the solicitors who acted on behalf of another mortgagee of Lot 169 whose mortgage was being paid out.

[49] This was the first purchase which Mr Sambrook had settled for a client where settlement notices deposited on the titles of the land being purchased remained extant.

[50] At 2:54pm Mr Eden's firm sent a facsimile to Asahi Lawyers notifying them that the second and third respondents had settled with another buyer and that settlement with the first respondent would not be proceeding.

[51] At 3pm Mr Sano attended at the office of Hickey Lawyers ready and willing to settle the first respondent's purchases of Lot 1 and Lot 169 but was unable to do so, because of the earlier settlement in favour of the applicant.

[52] At 5:19pm Asahi Lawyers sent a facsimile to Mr Eden's firm alleging breach of contract by the second and third respondents and confirming that settlement notices in relation to Lot 1 and Lot 169 were still in place.

[53] Although Limited was exercising its power of sale in respect of both Lot 1 and Lot 169 by organising a public auction to take place on 12 November 2005, Limited had not entered into any contract to sell Lot 1 or Lot 169 as at 11 November 2005. It was therefore possible for the second and third respondents to rectify the default under the mortgages by paying out in full the debt owed to Limited and secured under the mortgages: Property & Bloodstock Ltd v Emerton [1968] Ch 94, 114-115, 120; WD Duncan & L Willmott, Mortgages Law in Australia (2nd ed) at 105. If the second and third respondents were able to sell Lot 1 and Lot 169 to pay out the debts secured against that land prior to it being sold by Limited, it was for the second and third respondents to make the arrangements with the mortgagees for the payout of the mortgage debt simultaneously with the completion of the sale of Lot 1 and Lot 169.

[54] Despite the contrary opinions expressed in evidence by Mr Sambrook and Mr Eden, on 11 November 2005 Limited was acting at the request of the second and third respondents in releasing its mortgages in exchange for the payment of the moneys due under the mortgages. It was the second and third respondents that were selling Lot 1 and Lot 169 in advance of the public auction by Limited and they elected to sell to the applicant, rather than complete the first respondent's contracts. On 11 November 2005 the vendor of Lot 1 was the second respondent and the vendor of Lot 169 was the third respondent.

[55] Some confusion may have arisen from the fact that it was Limited that was executing the transfers of Lot 1 and Lot 169 on 11 November 2005. The letter that Mr Hodgson sent to Mr Eden at about 12 noon on 11 November 2005 (which was copied to both Mr Sambrook and Mr Sano) made clear the position in relation to any settlement of any sale by the second and third respondents on 11 November 2005, as far as the role of Limited was concerned.

Applicant's knowledge of the first respondent's contracts

[56] A solicitor who is acting for a purchaser of land and who expresses an opinion to the effect that the contract appears invalid does not itself make the contract invalid. Mr Sambrook as a solicitor must be taken to have known that a contract is not brought to an end by solicitors for the vendor and purchaser speculating on the validity of the contact. Where there is an issue of law which could affect the validity of the contract, it is either valid or invalid. If the contracts were valid (as was the case in this matter), the contracts could be brought to an end only by agreement between the parties to the contracts for good consideration or by conduct of the first respondent which would prevent the contacts from being enforced by the first respondent, such as a representation made by or on behalf of the first respondent that it would not be completing its purchases that was intended to be acted upon by the second and third respondents and was so acted upon by the second and third respondents. There was no suggestion whatsoever by Mr Eden to Mr Sambrook that Mr Sano had the authority of the first respondent to make an agreement to bring the first respondent's contracts to an end or to make any such representation.

[57] I find that Mr Sambrook advised the applicant on the basis of his erroneous conclusion about the invalidity of the first respondent's contracts and that the applicant through him had the means of knowledge from the time Mr Sambrook looked at the first respondent's contracts and the ASIC searches to ascertain that the first respondent's contracts were valid. To the extent that Mr Sambrook passed on Mr Eden's incorrect statement that the first respondent's solicitor accepted the first respondent's contracts were not binding, Mr Sambrook failed to advise his clients that the statement did not bind the first respondent if the contracts were valid, unless it was made with the authority of the first respondent. In any case by 10.10am on 11 November 2005 Mr Hodgson had conveyed to Mr Sambrook the true position of Limited's role as mortgagee which was confirmed by Mr Hodgson's letter to Mr Eden's firm sent at about 12 noon, which was also sent to Mr Sambrook, and which made it clear that the first respondent's contracts must be valid.

[58] Mr Sambrook stated in evidence that when he settled the applicant's purchase he "was under the impression that the [first respondent's] contracts were still invalid". That was a wrong impression. As it was the second and third respondents who were selling to the applicant, the impediment which Mr Sambrook considered made the first respondent's contracts invalid must have had the same effect on the applicant's purchases, if Mr Sambrook's view about invalidity was correct. The view I formed when listening to Mr Sambrook's evidence was that he (and therefore the applicant) acted on 11 November 2005 in reckless disregard of the first respondent's rights under the contracts with the second and third respondents, as a result of the view that Mr Sambrook formed about the invalidity of the first respondent's contracts. This is borne out by the analysis of the knowledge and means of knowledge which Mr Sambrook had on 11 November 2005 about the status of the first respondent's contracts and that the applicant was prepared to settle its purchases in spite of the first respondent's settlement notices deposited on the titles of Lot 1 and Lot 169.

[59] It was submitted that the application would be resolved by determining "where the better equity lies": Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liquidation) [1965] HCA 17; (1965) 113 CLR 265, 276 ("Latec"). Although it was acknowledged that the first respondent's interest was prior in time, the applicant submitted that it was the owner in equity of each lot, having paid the purchase prices in full and obtained executed transfer documents and releases from the registered mortgagees. It was pointed out that, in contrast, the equitable interest of the first respondent was subject to the registered mortgages, as its contracts had not been completed and it did not have the benefit of releases of these registered mortgages.

[60] Critical to the submissions made by Mr Anderson of counsel on behalf of the applicant was the assertion that the first respondent by its solicitor, Mr Sano, caused the applicant to believe that the first respondent would not pursue its contracts which had been signed by the second and third respondents. This was described in oral submissions as the first respondent creating an environment that resulted in the applicant believing "it was an open market" and that the applicant was entitled to compete with the first respondent in endeavouring to settle its purchases before the first respondent settled its purchases.

[61] The applicant also submitted that the conduct of the first respondent in failing to look after its own interests when advised of the existence of another buyer for Lot 1 and Lot 169 was relevant. Another consideration relied on was the fact that the applicant had paid over the total purchase price of $4.5m (as adjusted) and, if its interests were postponed to that of the first respondent, it would need to take steps to recover that sum.

[62] The first respondent started from the position that its equitable interest was prior in time and the applicant must show that there is a basis for postponing the prior equitable interest. Mr Jackson QC who appeared with Mr Stephens of counsel for the first respondent submitted that the applicant was unable to make out any claim for postponement based on any estoppel, as at no time had Mr Sano on behalf of the first respondent made any statement that amounted to a clear and unambiguous representation that the first respondent treated its contract as at an end. The first respondent relied on the fact that Mr Sambrook and his client were aware of the existence of the first respondent's contracts on the morning of 11 November 2005 and acted recklessly in disregard of the existence of those contracts. It was also submitted that the applicant could not rely on having paid the purchase price in order to claim that its equitable interest was better than the interest of the first respondent in Lot 1 and Lot 169, as the purchase price was paid by the applicant knowing of the existence of the first respondent's contracts.

[63] It was also submitted that any consequential equitable relief to give effect to a declaration made in favour of the priority of the first's respondent's equitable interest over that of the applicant could be structured so that it would cause the least damage to the applicant. It was suggested that the first respondent should pay its purchase monies directly to the applicant, leaving the applicant to recover from the second and third respondents the difference between the monies it would receive from the first respondent and that which the first respondent paid to the second and third respondents and that the releases held by the applicant from the registered mortgagees could be delivered to the first respondent.

[64] At the commencement of 11 November 2005 the first respondent had the benefit of contracts to purchase Lot 1 and Lot 169 and the applicant had actual notice of the first respondent's contracts.

[65] The applicant sought to characterise the conduct of Mr Sano on 11 November 2005 as conduct which could displace the priority in time which otherwise would be enjoyed by the first respondent's contracts as contemplated in Latec at 276:

"But where the merits are unequal, as for instance where conduct on the part of the owner of the earlier interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maxim may be displaced and priority accorded to the later interest."

[66] The applicant has failed to prove that the first respondent through its solicitor Mr Sano made any statement with the authority of the first respondent which enabled the second and third respondents to conduct themselves as if the first respondent would not pursue its contracts to purchase Lot 1 and Lot 169 from the second and third respondents.

[67] It was reasonable for Mr Sano in acting on behalf of the first respondent which was a party to contracts that bound the second and third respondents to expect that the second and third respondents would meet their obligations, particularly as arrangements had been made for settlement at 3pm on 11 November 2005. The fact that the first respondent had made Mr Sano aware of the possibility of another buyer did not change hat position. The facsimile from Mr Eden's firm at 1:39pm on 11 November 2005 amounted to notice that the second and third respondents intended to breach their contracts with the first respondent, if the second buyer arrived to settle before the second and third respondents. In practical terms, as Mr Sano had to travel from Brisbane to the Gold Coast to attend the office of Hickey Lawyers for settlement, the notification of the possibility that the second and third respondents would breach the first respondent's contract did not enable Mr Sano to take action to settle much earlier than 3pm.

[68] The notion advanced on behalf of the applicant during the hearing of this application that it was a race between the applicant and the first respondent to see which party could settle first was misconceived. The steps taken by the applicant to settle its purchase of Lot 1 and Lot 169 prior to 3pm were done in cooperation with the second and third respondents in order to defeat the priority that the first respondent enjoyed in respect of Lot 1 and Lot 169, as its contracts with the second and third respondents had been entered into on 26 October 2005. The applicant cannot rely on its conduct in supporting the breach by the second and third respondents of the first respondent's contracts to say that the first respondent failed to look after its own interests by not trying to settle earlier than 3pm.

[69] The first respondent's priority dates from the date of its contracts of 26 October 2005. The fact that it deposited settlement notices at an earlier date than the relevant contracts does not in the circumstances preclude priority being given to its interests under the contracts as from 26 October 2005. The difficulties which might attend the applicant in recovering from the second and third respondents the amount paid to purchase Lot 1 and Lot 169 above the purchase prices agreed to be paid by the first respondent is a consequence of the applicant's conduct in settling its purchases recklessly in disregard of the first respondent's interests and does not preclude effect being given to the first respondent's priority.

[70] The priority of the first respondent's equitable interests in Lot 1 and Lot 169 prevails over that claimed by the applicant, as the applicant had notice of the first respondent's equitable interests at the time of the acquisition of its interests: Platzer v Commonwealth Bank of Australia [1997] 1QdR 266, 273, 289.

[71] It is usual for an application for the removal of a caveat pursuant to s 127 of the LTA to be concerned with determining whether the caveat should remain on the register, pending the final determination of the issue that underlies the lodgement of the caveat. That requires the Court to determine whether there is a serious question to be tried and whether the balance of convenience favours that the caveat not be removed: Re Burman's Caveat [1993] QCA 252; [1994] 1 Qd R 123, 127-128.

[72] All of the evidence relevant to the substantive issue of priority of interests between the applicant and the first respondent was available on the hearing of this application. It has therefore been possible to make a final determination of the disputed question between the parties.

[73] It was the first respondent's proceeding for specific performance against the second and third respondents that prevented the lapsing of the caveats. At the time of hearing this application, there was no proceeding by the first respondent seeking relief against the applicant. The consequence of the final determination in this application of the issue between the applicant and the first respondent is that a declaration should be made as to the priority of their respective interests in Lot 1 and Lot 169. As the applicant did seek in its application that the Court make any further or other order as may be just (and in order to reflect truly the outcome of the application), a declaration as to the priority of the respective equitable interests should be made.

[74] The first respondent has been successful in resisting the applicant's application and establishing the priority of its equitable interest over that of the applicant. The first respondent should therefore have its costs of the application.

1. It is declared that the equitable interest of Sunnyville Pty Ltd (ACN 116 244 869) as purchaser under contracts of sale dated 26 October 2005 of land described as Lot 1 on RP212639 and Lot 169 on RP41923 in the County of Ward Parish of Gilston is entitled to priority over the equitable interest in the same land claimed by JNJ Investments Australia Pty Ltd (ACN 104 765 504) as trustee under Dealing No 708666227 as purchaser that has paid the full purchase prices pursuant to memoranda of transfer dated 11 November 2005.

2. Liberty to the parties to apply for further orders on 3 days' written notice to the other parties.

3. The application for relief in paragraph 2 of the originating application is dismissed.

4. It is ordered that the applicant pay the first respondent's costs of the proceeding to be assessed.

5. Costs as between the applicant and the second and third respondents are reserved.