Narui Gold Coast Pty Ltd v Charles Harrison Pty Ltd and Ors

CATCHWORDS : [CAVEATS] - Clauses in Contracts for Sale of Land granting the caveators rights to charges on real property to secure indemnities "which the caveator becomes entitled to under this contract" - Proceedings commenced - Contracts terminated - Lapsing notice issued - Whether operation of caveat should be extended - Whether the defendants' claims "may have substance". LEGISLATION CITED : Real Property Act 1900 (NSW) Composite Buyers Ltd v Soong and Anor (1995) 38 NSWLR 286 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Ryu v Lee (1996) 7 BPR 14,678 Troncone v Aliperti (1994) 6 BPR 13,291 CASES CITED : [Luntz H, Assessment of Damages for Personal Injury and Death, 4th Ed, Butterworths, (2002). Mozley and Whiteley's Law Dictionary. Shorter Oxford Dictionary. Spry ICF, The Principles of Equitable Remedies, 6th Ed, LBC Information Services, (2001). Sutton KCT, Insurance Law in Australia, LBC Information Services, (1999)] Narui Gold Coast Pty Ltd (Plaintiff/Cross-Defendant) PARTIES : Charles Harrison Pty Ltd (First Defendant/First Cross-Claimant) Charles Harrison and Co Pty Ltd (Second Defendant/Second Cross-Claimant) FILE NUMBER(S) : SC 4369/01 Mr MLD Einfeld QC leading Mr CRC Newlinds (Plaintiff/Respondent) on 24/12/2002 COUNSEL : Mr CRC Newlinds (Plaintiff/Respondent) on 6/2/2003 Mr AD Justice (Defendant/Applicant) SOLICITORS : Hickey Lawyers (Plaintiff/Respondent) Dennis and Co Solicitors (Defendant/Applicant)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4369/01 NARUI GOLD COAST PTY LTD v CHARLES HARRISON PTY LTD and ORS JUDGMENT 1 These are applications by the first and second defendants pursuant to section 74K of the Real Property Act 1900 (NSW) (the Act) to extend the operation of two Caveats. The first Caveat, numbered 8367196, is on the title of land referred to in the applications as "the primary land" and the second Caveat, numbered 8190703, is on the title of land referred to in the applications as the "lot 7 land". 2 In each Caveat the nature of the estate or interest in the land is stated to be "legal and equitable interest and charge arising from Contract of Sale of Land between the Caveatee as vendor and the caveator as purchaser". The nature of the instrument described in each of the Caveats is a Contract of Sale of Land dated 7 December 2000, the parties to which are described as the plaintiff as vendor and Charles Harrison Pty Ltd, the first defendant, as purchaser in respect of the primary land and the plaintiff as vendor and Charles Harrison & Co Pty Ltd, the second defendant, as purchaser in respect of the lot 7 land. 3 The contract for the sale of the primary land between the plaintiff and the first defendant had within it the following clause: 35 Indemnity 35.1 The Vendor hereby agrees to grant the Purchaser a charge over real property of which it is registered proprietor to secure the Purchaser's rights to any indemnity or indemnities which the Purchaser has or becomes entitled to under this contract. 4 Clause 34 of the Contract for the Sale of Land of the lot 7 land was in identical terms to clause 35 of the primary land contract. 5 The purchase price of the primary land was $10.5 million with a deposit of $1,050,000. The purchase price of the lot 7 land was $450,000 with a deposit of $45,000. Contracts were exchanged on 7 December 2000. Each of the contracts provided that the deposits were to become due and payable on the later of two dates: (a) 21 days from the date of the contract; or (b) an extended date determined by the purchaser by giving written notice to the vendor in respect of the vendor's failure to obtain re-zoning approval of the land and development approval required by the purchaser. However the purchaser could not extend the date for payment of the deposit beyond two years from 7 December 2000 (cl. 36.1 & cl. 35.1). Another special condition of the contracts was that the plaintiff would take all steps necessary to "appropriately" sub-divide parts of the primary land and the lot 7 land (cl. 30.1). 6 On 5 September 2001 the plaintiff commenced proceedings against the first and second defendants by way of Statement of Claim. The plaintiff alleged that it was not aware of the special condition in relation to the delayed deposit and also that it was misled and deceived by the defendants in respect of the content of the contracts. It sought declarations that the contracts were void, with alternative claims for rectification and specific performance of the rectified contracts. 7 On 22 October 2001 the defendants filed a Cross Claim in which they allege that the plaintiff and its agent, Timothy Barr and/or Barr Project Management Pty Ltd, are guilty of misleading or deceptive conduct under the Trade Practices Act 1974 (Cth). The representations pleaded relate to the zoning status of the land and the status of the applications for development consent to construct condominiums, a retirement village/health clinic or a holiday retreat or alternatively a service station or motel. It is alleged that the plaintiff neglected, failed and refused to (a) appropriately subdivide and consolidate the land as required under the contracts; and, (b) obtain the required development approval. 8 The Cross-Claim pleads the Indemnity clauses, 34.1 and 35.1 respectively, and seeks declarations that the defendants have caveatable interests in the land as purchasers and as chargees. Further declarations in respect of both the primary land and the lot 7 land are sought in the following terms: That, in the event that the Cross Claimant, terminates the contract for nonperformance by the Cross Defendant, the Cross Claimant's charge and the Cross Claimant's caveatable interest in land of which the Cross Defendant is registered proprietor remain to indemnify the Cross Claimant in respect of damages. 9 The Cross-Claim seeks an order that the plaintiff subdivide the land and also seeks damages generally and damages or other relief pursuant to section 87 of the Trade Practices Act. 10 The defendants lodged the Caveats on 7 December 2001.

11 On 26 February 2002 the plaintiff filed an amended Statement of Claim joining a third defendant, John Charles Harrison. In that pleading the plaintiff claims declarations that the contracts are void for uncertainty and that the plaintiff has validly avoided or terminated the contracts. It is alleged that the defendants informed the plaintiff in April 2001 that they were not financially able to proceed with the purchase of the primary land and the Lot 7 land and that such notification repudiated the contracts. The plaintiff claims that it terminated those contracts by letter to the defendants dated 7 August 2001 or alternatively by the filing of the Amended Statement of Claim. An order was also sought for the removal of the Caveats.

12 On 18 October 2002 the plaintiff filed a Cross-Claim against Barr Project Management Pty Ltd and Timothy Barr seeking damages, contribution or indemnity in respect of any damages for which the plaintiff is found liable to the defendants and an inquiry into further damages suffered by the plaintiff. 13 On 24 October 2002 the first and second defendants wrote to the plaintiff in the following terms: 1. We confirm that each of our companies accepts the repudiation by Narui Gold Coast Pty Limited of its respective contracts for Sale of Land (each dated 7th December 2000) with Charles Harrison Pty Ltd & Charles Harrison and Co Pty Ltd. 2. We understand each of the following to be objective acts of repudiation by Narui Gold Coast Pty Limited: (a) written notice in early 2001 that you would not co-operate with us in any way; (b) commencement of litigation to try to void the contracts on 5th September 2001; (c) inviting tenders for the whole of the Kings Forest property from clients of Hickey Lawyers in or about mid 2002, and purportedly awarding the tender to interests associated with Leda Developments in or about; (d) continued inactivity in obtaining the approvals required by the contracts and in sub-dividing the land the subject of the contracts thereby denying us substantially the whole of the benefits of the contracts. 3. The contracts are or were due to settle shortly and it is objectively clear that you cannot and will not rectify these breaches. The writer has been in close contact with Tweed Shire Council to monitor progress and it seems that initial steps towards rezoning are only now taking place. 14 On 24 October 2002 the defendants wrote a further letter to the plaintiff, with a copy to the plaintiff's solicitors, in the following terms: Each of our companies hereby accepts the repudiation by Narui Gold Coast Pty Limited of its respective contracts for Sale of Land (each dated 7th December 2002) with Charles Harrison Pty Ltd and Charles Harrison & Co Pty Ltd. 15 On 23 December 2002 the plaintiff's solicitors wrote to the defendants' solicitors advising that "if the contracts were not already at an end", which the plaintiff asserted they clearly were, "they unquestionably are at an end in light of the non payment"by the defendants "of the deposits which the companies claimed were payable on or before 7 December 2002". 16 The plaintiff made application under section 74J of the Act and a lapsing notice was issued to the defendants. The defendants then brought these applications that were first before me in the Duty List on 24 December 2002, when Mr AD Justice, of counsel, appeared for the defendants, applicants in the Motion, and Mr MLD Einfeld QC, leading Mr CRC Newlinds, appeared for the plaintiff, respondent to the Motion. I allowed an adjournment to 6 February 2003, over objection by the plaintiff, to enable the defendant to file additional evidence. In the interim, and on the defendants' usual undertakings as to damages, I extended the operation of the Caveats to 5pm on that date. On 6 February 2003 I heard further argument and reserved judgment, extending the Caveats until further order, once again on the defendants' usual undertakings as to damages.

17 On 6 February 2003 the defendants relied upon the evidence of Douglas Raymond Tune, a real estate agent in Queensland. Mr Tune gave evidence of the market value of the primary land and lot 7 and expressed the view that there was a ready market for, and national interest in, the primary land. 18 The test to be applied on these applications is that contained in section 74K of the Act. If the Court is satisfied that the defendants' claim "has or may have substance" it may make an order extending the operation of Caveats. The plaintiff submitted that the termination of these contracts is now beyond doubt by reason of the letters written by the defendants on 24 October 2002. That is conceded by the defendants. In those circumstances, the plaintiff submitted that there could be no caveatable interest in the land as such interest relies upon the terms of a terminated contract. The plaintiff submitted in those circumstances that there is no serious issue to be tried and that the operation of the Caveats should not be extended.

19 The defendants submitted that the indemnity clauses grant to them charges over the plaintiff's properties to secure rights of indemnity, which it is submitted include a claim for damages in respect of the contracts that have been terminated. It is submitted that the claim for damages falls within the description of "indemnity or indemnities which the Purchaser has or becomes entitled to under this contract". In support of this argument the defendants relied upon the definition of "indemnity" in the Shorter Oxford Dictionary at 1054 - "security or protection against contingent hurt, damage or loss" - and in Mozley and Whiteley's Law Dictionary, 10th Ed., Butterworths, 1988 at 232 - "compensation for a wrong done, or trouble, expense, or loss incurred. An undertaking, usually by deed, to indemnify another". Reliance was also placed upon Troncone v Aliperti (1994) 6 BPR 13,291 and Composite Buyers Ltd v Soong & Anor (1995) 38 NSWLR 286 in support of the submission that the defendants have a caveatable interest in the land. 20 I am satisfied that the grant of the charges under the contracts gave to the defendants a caveatable interest in the land. The charges were to secure: (a) "rights to any indemnity or indemnities" the defendants had under the contracts; and, (b) "rights to any indemnity or indemnities" the defendants became entitled to under the contracts. The indemnities expressly provided in the special conditions of the contract for the primary land were: (a) for the cost the first defendant may have incurred in doing such things and completing such works to satisfy conditions required by the relevant Council for the Development Approval, if the plaintiff neglected to do such things and complete such works; and, (b) for the cost incurred by the first defendant in providing water mains, sewerage mains, electricity/power lines and telephone lines, if the plaintiff neglected to provide such services (cl. 31 & 32). The plaintiff was required by the contract to comply with the Council requirements and to provide the services "within 90 days after the completion date". The lot 7 contract does not contain these provisions. 21 The Cross-Claim alleges that the plaintiff has breached its obligations to "appropriately" sub-divide and consolidate the land as required by special condition 30.1 of the contracts. Under that clause the plaintiff was required to take all steps necessary in this regard "not more than 21 days from the date" of the contracts. Although Mr Tune's evidence concentrated on the value of the land it appears that the defendants have incurred at least some costs in preparing for the sub-division of the primary land that the plaintiff is alleged to have failed to obtain: see annexure "A". Although specific detail was not in evidence, it is submitted that those costs, and any others proved at trial, incurred by the defendants are costs for which the defendants are indemnified by the plaintiff under the contracts. 22 The defendants submit that they have accrued rights under the contracts and that the right to be indemnified by the plaintiff has been unconditionally acquired and survives the termination of the contracts: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477. Although Mr Justice referred to Ryu v Lee (1996) 7 BPR 14,678, I am not satisfied that it is of assistance in this case. One question that arises is whether the parties intended the indemnity clauses to operate after the termination of the contracts. The indemnity clauses are not limited to the express indemnities in the special conditions; they include indemnities to which the defendants became entitled under the contracts. The indemnity clauses are in very broad and unqualified terms, except to the extent that they were to arise "under the contract". 23 A question for the trial judge will be the meaning of "indemnity" and "indemnities" in the indemnity clauses. Sometimes awards of compensation "are loosely spoken of as indemnities"; I.C.F. Spry, The Principles of Equitable Remedies, 6th Ed. LBC Information Services (2001) at 313 fn 1. Although some texts on damages purport to refer to the distinction between damages and an indemnity (H. Luntz, Assessment of Damages for Personal Injury and Death, 4th Ed. Butterworths, (2002), par 1.1.1) in the field of insurance law, indemnities have been referred to as the payment of compensation to cover pecuniary loss: KCT Sutton, Insurance Law in Australia, LBC Information Services (1999), par 1.2-1.3. The breadth of the indemnity clauses in these contracts may include what has been described as the defendants' claim for "damages", in part or in whole. 24 I am satisfied that there is a serious issue to be tried as to whether the rights granted under the indemnity clauses in the contracts survived the termination of the contracts and specifically, whether the claims made by the defendants for "damages" falls within such an expression and were, in part, accrued rights under the contracts. To return to the test provided in the Act, I am satisfied that the claim made by the defendants may have substance and on the evidence currently before me I am satisfied that the operation of the Caveats should be extended. 25 I order that, on the first and second defendants' undertaking as to damages, the operation of Caveat numbered 8367196 is extended until further order and the operation of Caveat numbered 8190703 is extended until further order.

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