Jubilee Properties v Parkview Farm

Judgment 1HIS HONOUR: The plaintiff (the trustee) is the proprietor of three adjoining properties at Dee Why. It holds those properties as trustee of a unit trust. One of the unit holders, Jubilee Group Pty Limited (Jubilee Group), holds 75 percent of the issued units. The defendant (Parkview) holds the remaining 25 percent. 2Jubilee Group is a company associated with Mr Patrick Keenan. Parkview is a company associated with Mr William Ryder. 3I am concerned today with the trustee's application under s 74MA of the Real Property Act 1900 (NSW), that Parkview remove a caveat AI146271Y lodged by it against the titles to the three properties. The estate or interest claimed by that caveat is: "The interest of a unit holder in a unit trust." 4Mr Kidd SC, who appeared for the trustee, did not take the point that the description of the estate or interest was inadequate. Accordingly, I do not decide the matter upon that basis. I do however note that it would be a matter of some difficulty for a person contemplating dealing with the trustee, or indeed the Registrar General, to decide whether, for example, the recording of a dealing might affect the estate or interest claimed by Parkview. 5By cl 6 of the unit trust deed as it was drafted and executed, each of the unit holders had: "... an absolute, vested and indefeasible interest in each and every asset and the income of the trust fund in accordance with their entitlement pursuant to this deed and the right to require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust property." 6By cl 25 of the trust deed, as subsequently and uncontentiously varied, the trustee was authorised: "... from time to time in its absolute discretion... [to] vary any of the provisions of this deed (including this clause) by a deed or by oral or written resolution of the trust deed." 7On 15 November 2013, Jubilee Group procured the trustee to execute a fourth deed of variation to the trust deed. The effect of one of the variations was to substitute, for the existing clause 6, a new clause which provided among other things that any unit held by a unit holder created only an interest in the trust fund as a whole, and not any specific proprietary interest in any asset of the trust fund. That dead of variation was made with the consent of Jubilee Group as the holder of the majority of the units on issue in the unit trust. 8Parkview wishes to contend that the fourth deed of variation was ineffective insofar as it purports to take away the absolute vested and indefeasible interest that, hitherto, it had had in the assets of the trust fund. It advances various reasons in support of this contention. It is not necessary to go to the detail of those reasons. However, in broad terms, Parkview asserts that the resolution was outside the amending power comprised in clause 25 of the trust deed. That is said to follow either because, on the proper construction of the trust deed as a whole, the power to amend did not extend to cl 26; or because the effect of the amendment was to remove the substratum of the deed or the underlying trust. 9Further or alternatively, as I understand it, Parkview wishes to contend that the actions of Jubilee Group and Mr Keenan in procuring the trustee to pass the impugned resolution were a fraud on the power - I am sorry, attract the operation of the doctrine of fraud on power. 10I approach the resolution of the question in dispute - whether the caveat should be removed - on the basis that Parkview has, at the least, shown that there are arguable questions as to the validity and effect of the fourth deed of variation. But, to cut matters a little short, I do not decide this application on the basis first advanced by Mr Kidd for the trustee, which is that it has not been shown to be seriously arguable that Parkview has a proprietary interest in the land. 11With those matters out of the way, I turn to what seemed to me to be the principles that govern applications of this nature. I do not think that the basic principles were disputed between the parties. 12In Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd (2011) 15 BPR 29,055, Campbell JA (with whom Tobias and MacFarlan JJA agreed), stated the applicable principle as follows at [20]: [20] The primary judge correctly proceeded on the basis that on an application for an order to remove a caveat it is not necessary for the court to make a final determination as to the interest claimed by the caveator, or a final determination as to the priority that the caveator may or may not have over competing interests. Rather, the court should enquire whether the caveator would have been granted an interlocutory injunction to protect the interest that the caveator claimed in the caveat. If no such interlocutory injunction would have been granted, the caveat should be ordered to be withdrawn: Martyn v Glennan [1979] 2 NSWLR 234 at 239; Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222; Gay v Gooden (1989) NSW ConvR 55-445 ; BC8801324. Under currently applied principles, an interlocutory injunction is granted if the court is satisfied that there is a serious question to be tried, and that the balance of convenience favours the granting of an interlocutory injunction: Murphy v Lush (1986) 65 ALR 651 at 652 ; BC8601434; Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1 at 24 ; [1998] HCA 30; BC9801511. Those principles have not been challenged on the present application. 13If I may say so, his Honour's approach did not herald any sudden shift in the way in which applications under s 74MA are approached. On the contrary, as the authorities cited by his Honour show, that approach was well established. 14As a result, one has the somewhat curious situation that an application for what is in effect final relief is approached on the basis of an analysis usually undertaken in connection with applications for interlocutory relief. 15It is important to note that the application is not to be decided simply by considering whether or not the defendant (in this case, Parkview) has a caveatable interest. That is simply the starting point of the inquiry. If there is no caveatable interest shown then the caveat must go as of course. But if a caveatable interest is shown, the focus of the debate turns to the other questions applicable to the grant (or withholding) of interlocutory injunctive relief. 16That point is made clear by the decision of Pembroke J in Lew v Bluescope Distribution Pty Ltd [2010] NSWSC 794 at [5], [6]. In the latter paragraph, his Honour summarised the relevant issue as being: "...not whether the caveator has a valid caveatable interest but whether, as against competing interests, there is a serious question that the interest recorded in the caveat would be entitled to the protection of an interlocutory injunction." 17Returning to the facts of this case, it is necessary to take into account some other terms of the trust deed. First, and as one would expect, the trust fund and all the assets from time to time comprising it are vested in the trustee. 18Secondly, the trustee is given very wide powers of investment. Indeed, without limitation, it is to have "the same powers of investment in all respects, as if it were the absolute owner beneficially entitled to the trust fund" (cl 9.2). 19Likewise, by cl 14, the trustee has extremely wide powers including, again without limitation, "all the powers over and in respect of the properties and assets constituting the trust fund which it could exercise if it were the absolute and beneficial owner of such properties and assets" cl 14.1). 20The situation is, thus, that management of the trust fund is vested exclusively in the trustee. 21That is not insignificant in this case. The trustee holds the three properties in question for the purposes of development. It has obtained development consent for the construction of a 9 storey building which will comprise some 85 residential apartments, for retail premises, and car parking. It has entered into off the plan sale contracts with third party purchasers in respect of 50 of those residential apartments. Under the terms of those contracts, the trustee is required in effect to proceed expeditiously with construction of the building and registration of the strata plan. If those matters are not completed by specified dates, then the contracts may be rescinded. 22It has come to the attention of the trustee that the land may be rezoned so as to permit more intensive development. It has caused revised plans to be prepared, showing a 15 storey building which comprises an additional 64 residential apartments. It has entered into off the plan contracts for sale of some 60 of those further apartments, subject to a number of conditions including of course the grant of development consent. 23The evidence, although not particularly specific, is that the consent authority (which is not the local council but an organisation known as the Joint Regional Planning Panel) is likely to deal with the application in the first three months of 2014. 24It is obvious that, whichever development proceeds, there will be a lot of construction work to be carried out. It is obvious that this will cost a lot of money. The trustee has approached banks and a broker for construction finance. It has been advised by two banks that the caveat is an impediment to obtaining the finance that the trustee seeks. One, St George Bank, stated simply that in the presence of the caveat "registered on the above title", it is "unable to proceed any further with your application until such time the caveat is withdrawn". 25Another bank, ING Direct, which has an existing relationship with Jubilee Group, is prepared to process the loan application whilst these proceedings are under way. However, the manager in question has said that he does not think it would be advisable to seek approval for the application while the caveat remains in place. He added that even if the facility were offered, withdrawal of the caveat would be a precondition to drawdown. 26Parkview has made an offer which is apparently intended to assuage the concerns of both the trustee and prospective lenders. One of the proposals that it has offered is that it would consent to the registration of any dealing in relation to the properties provided that "the dealing legitimately furthers the development of those properties". 27The manager of ING to whom I have referred has said that the bank would not be satisfied simply by consent to its mortgage being registered. He said that in addition the bank would need to be "absolutely certain" that the trustee could do whatever it needs so as to complete the development and the sales that it has effected. 28In addition to all this, the mortgage broker approached by the trustee has said that his strong preference is for the caveat to be resolved before any loan application is made to other banks. In his opinion, it would have a negative impact on any application for funding if the caveat remained on the title at the time the application were made. 29That evidence was not seriously challenged, and I accept it. 30The position being taken by Parkview is in effect that it wishes to reserve to itself the right to consider whether any proposed dealing "legitimately furthers the development of" the properties. That is not a right that it has under the trust deed, either as originally executed or as from time to time varied. As I have pointed out, all powers of management and decision-making are vested in the trustee. The offer made by Parkview seems to me to be illusory. 31It is obvious that minds might differ as to what did, or did not, legitimately further the proposed development. Thus, if the matter were to be left on the basis that the caveat remains in place and the registration of any dealing is at the discretion of Parkview, very little would have been gained. In saying that, I assume, contrary to what in my view is the state of the evidence, that the development could proceed because some lender would be likely to advance finance even with the caveat remaining on the title. 32I do not think that this is a sensible basis to proceed. As Young J has said (Australian Property Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255): "The Court does not live in some commercial vacuum. The Court knows that the mere presence of a caveat may prevent a whole series of bona fide commercial transactions taking place and if a case gets into that sort of area the Court will be extremely careful as to whether the caveat should be retained." 33The state of the Court's knowledge has not deteriorated in the more than 16 years since his Honour uttered those observations. 34Thus, turning to the question of the balance of convenience, it seems to me that the considerations are all one way. Maintenance of the caveat would have a number of consequences. One is, as I have indicated, that it would subject the trustee's exercise of its powers of management to the effective control of Parkview, having regard to the nature of the offer that has been made. Another is that it is likely in the extreme to frustrate the development, because it is likely to have a negative impact on the ability of the trustee to obtain construction finance. It may be noted not only that the evidence on this point is uncontroverted, but also that Parkview has not offered any evidence of lenders who might be prepared to lend whilst a caveat of the kind that it has lodged remains recorded on the title. 35In short, it seems to me, so long as the caveat remains on the title, the legitimate development of the properties, in the manner contemplated both by the trust deed and by the antecedent meeting of minds of the parties, is likely to be hindered at least, and more likely entirely thwarted. 36The only evidence of detriment to which reference was made in oral submissions was the fear that Jubilee Group might use its position as the effective controller of the trustee to cause the trustee to grant it a mortgage to secure advances that Jubilee Group has already made to the trustee. Mr Sirtes SC, who appeared with Mr Lloyd of counsel for Parkview, addressed this point. He adverted to the interest rate charged under the mortgage (which he had taken up in cross-examination of Mr Keenan) as being 20 percent per month compounding. The only evidence that I have seen of any interest terms comes from a minute of a meeting of the directors of the trustee held on 25 November 2009, which refers to interest being charged at 20 percent per annum repayable at call on all but the first one million dollars of the funding advanced. Whether there has been some variation to that position I know not. 37Be that as it may, it may well be accepted that there is some theoretical risk that a mortgage of the kind could be granted. There is in fact no evidence that this is likely to happen. Further, one might think, it would be unlikely in the extreme to happen while the trustee was seeking construction finance. The existence of any such mortgage would be an impediment to security to be taken by a proposed lender. And if construction finance were found and a mortgage granted to secure its repayment, one would expect, in the ordinary way, that there would be likely to be a prohibition on the granting of further mortgages (at least without the consent of the first mortgagee). 38In the real world, that fear does not seem to me to be one which is entitled to any serious consideration. It would appear that Mr Ryder may share that view. He swore a lengthy affidavit comprising some 84 paragraphs in support of Parkview's opposition to the relief sought against it. At para 69 of that affidavit, he set out the concerns that he had. He did not seem to think that the prospect of grant of a mortgage, by the trustee to Jubilee Group, was a problem, because he did not refer to it in the paragraph in question or, so far as I could see, anywhere else in the affidavit. 39In truth, I think, there is some reason for believing that the risk of grant of a mortgage is something that has come to the mind of Parkview's legal advisers relatively late in the piece, as a further reason for opposing the relief sought. 40Thus, as I have said, I conclude that the balance of convenience is such that, applying the Bayblu test, Parkview would not obtain an interlocutory injunction to protect the interest for which it claims protection under the caveat. 41Further, even if it were to be assumed, contrary to what I have just said, that some interlocutory injunctive relief might be granted, it is very difficult to see that it would go so far as the relief effectively obtained by the "statutory injunction" embodied in the caveat. I have already noted one of the matters prohibited by the caveat: the recording of any dealing affecting the estate or interest claimed by Parkview. 42The caveat also prohibits the registration or recording of any plan other than a delimitation plan affecting Parkview's claimed estate or interest. Thus, it would prohibit the registration of a strata plan. And finally (although this is not of such significance) it would prohibit the recording of a writ affecting Parkview's claimed estate or interest. 43On no basis, so far as I can see, has Parkview made out an arguable case, in any sense of the word "arguable", to interlocutory relief of the width claimed by the first two prohibitions. 44In circumstances where there is no evidence to support a suggestion that the trustee proposes to deal with the properties otherwise than in accordance with the provisions of the trust deed as varied, I conclude that the balance of convenience is entirely against Parkview. 45Finally, in looking at the sort of considerations that are caught up in the Bayblu test, I turn to the undertaking as to damages that Parkview would be required to proffer should it seek interlocutory injunctive relief. It is of course well established that the same requirement (to proffer an undertaking as to damages) applies in the case of caveats. See Martyn v Glennan [1979] 2 NSWLR 234 at 242F. I note, in passing, that Martyn was one of the cases cited with evident approval, by Campbell JA in Bayblu at [20]. 46Parkview has not formally proffered the usual undertaking as to damages but I am prepared to assume that it would. But the only evidence of its ability to meet an undertaking is that it is a company with a share capital of $2, and apparently no other assets save its interest in the unit trust. Given the consequences that might flow in terms of damages, if the development of the property is impeded, it seems to me that Parkview has no hope of offering, unaided, an undertaking of sufficient value to allay the legitimate concerns of the trustee. And I note that Mr Ryder has not sought to put his own assets behind any undertaking that has been or might be offered. 47In the circumstance, I conclude that, if Parkview were to seek an interlocutory injunction to protect its claimed interest in the properties, whether to the full extent that it seeks to do so by the caveat or to some lesser extent, that application would fail. Accordingly, in my view, the trustee has made good its claim to an order under s 74MA. 48I order that caveat number AI146271Y recorded on folio identifiers B/381816, 4/417528 and 1/300967 be withdrawn forthwith by the defendant or by some person authorised by it. I order the defendant to pay the plaintiff's costs of the application. I order that the exhibits on the application be returned. 49Having dealt with the trustee's claim, I turn to Parkview's cross-claim. That cross-claim, at present advanced only by way of cross summons, seeks in various ways to attack the validity of the fourth variation, under which the absolute vested and indefeasible interest that Parkview had in the assets of the trust property was taken away from it. Having regard both to the nature of the case sought to be advanced by the cross summons and to the matters put in submissions in support of Parkview's case to that relief, it seems to me to be appropriate that the cross summons should proceed by way of pleadings. I will accordingly hear the parties on directions that are appropriate to get the cross summons ready for hearing (if Parkview wishes to press it).