Oceanview Group Holdings v Anastazija Balaz & Anor [2006] NSWSC 1469 | Case summary

4036/06 Oceanview Group Holdings v Anastazija Balaz & Anor JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff Oceanview Group Holdings has lodged a caveat AC349130, claiming an equitable interest by way of a constructive trust in the land comprised in folio identifier 29/2538 situate at 16 Tivoli Avenue, Rose Bay, of which the first defendant, Ms Anastazija Balaz, is the registered proprietor. The second defendant, Mr Michael Issa, is the husband of Ms Balaz. The constructive trust is said to arise from the defendants' use in whole, or in part, of funds of Oceanview to purchase the Tivoli Avenue property, without the consent of Oceanview. Mr Michael Issa's brother, Mr Steve Issa, is the principal of Oceanview, of which Ms Balaz was a director until March 2003, and Mr Michael Issa was a director from March 2003 until March 2005 and at least arguably a de facto director at an earlier time. On 4 December 2006, Ms Balaz served a lapsing notice, by reason of which the caveat will lapse on or about 25 December 2006 unless the Court makes an order extending its operation. The Court may make such an order if it is satisfied that the caveat may have substance. 2 On an application for extension of the operation of a caveat under the (NSW) Real Property Act 1900 sf 74O, the approach of the Court is substantially the same as that which pertains to an application for an interlocutory injunction. The first question is whether the caveat may have substance. If that is resolved in the affirmative, then it is necessary to consider whether the balance of convenience favours the maintenance over the lapsing of the caveat. In addition, it would not be proper to continue the operation of a caveat unless the caveator gives the usual undertaking as to damages. 3 As to whether there is a serious question to be tried, the evidence at this point establishes that the following matters are at least arguable. First, the Tivoli Avenue property was purchased by Ms Balaz on 21 December 2001 for $5.7 million. Secondly, on completion of that purchase, Westpac provided $4,975,000, of which $1 million was provided on account of Statewide Advances Pty Ltd, a company under the control of Mr Michael Issa, and $3.975 million was provided apparently on account of Ms Balaz. Thirdly, the deposit of $575,000 was provided by funds drawn by Mr Michael Issa from Oceanview, without the consent of Oceanview. Fourthly, a further $500,000 was drawn by Mr Michael Issa from Oceanview on 13 November 2001 and paid to Statewide, and yet a further $500,000 was drawn by him from Oceanview on the same date and paid to Pacific Hotel Design, another company under his control. Fifthly, the balance required to complete the purchase price - some $156,000 - was drawn by Mr Michael Issa from Oceanview on 20 December 2001, the day prior to completion of the purchase. Sixthly, a further $200,000 was drawn by Mr Michael Issa from Oceanview, apparently for the purposes of paying stamp duty, on 17 December 2001. 4 The defendants proffer, as an explanation for these transactions, that Oceanview was a single-transaction joint venture company which had two bank accounts, one under the control of Mr Steven Issa and one under the control of Mr Michael Issa, and that after completion of the joint venture property development which it was undertaking at Princess Street, Brighton-le-Sands, and which was completed in about 2001, the profits were informally divided between Mr Steve Issa and Mr Michael Issa. 5 Mr Steve Issa has for some time been contending that his brother obtained more than he did and that there has not been an equal distribution. It may well be that ultimately it can be shown that there was formal or informal consent to the dealings which Mr Michael Issa entered into on the bank account of Oceanview that he controlled, including in particular the drawing of the cheques resulting in the payments to which I have referred. However, it also has to be observed that, at a final hearing, the defendants would bear the onus of proving an informed consent in that respect. The defendants' evidence at this stage does not go far towards proving a case of consent. Cross-examination of the plaintiff shows that there might have been an understanding that the profits from the joint venture would be shared between them, but falls short of showing that the plaintiff authorised Mr Michael Issa to make the payments to which I have referred. 6 Although it has been submitted that it has not been shown that Ms Balaz was dishonestly or knowingly involved in any relevant breach of trust or fiduciary obligation by Mr Michael Issa, there is nothing to suggest that she received the benefit of the payments other than as a volunteer, and in those circumstances the absence of evidence implicating her in any intentional breach of trust or fiduciary obligation is beside the point. 7 It follows that in my opinion there is a seriously arguable case that the funds used to purchase Tivoli Avenue, to the extent that they were not borrowed from Westpac, were funds appropriated by Mr Michael Issa for the purposes of himself (or his wife) in breach of his fiduciary obligations to Oceanview. If that be so, it also follows that, it being seriously arguable that the benefit of those funds were received by Ms Balaz as a volunteer, they are recoverable by Oceanview as the traceable proceeds of a breach of trust or breach of fiduciary duty. 8 I do not accept the submission that in this context a caveator has to show that damages or equitable compensation are not an adequate remedy - though if they were, that might bear on the balance of convenience. The question of whether a caveat may have substance depends on whether the caveator has an arguable claim to the interest asserted in the land, not on whether any such interest may be satisfied or discharged by some means other than a transfer of an interest in the land or a charge over it. If trust property can be traced into land, the circumstance that a convenient remedy might be an order for restitution of a sum of money rather than a transfer of an interest in land, does not mean that - at least until such time as restitution is given - the beneficiary does not have an interest in the land and therefore a caveatable interest. Moreover, if there were an award of equitable compensation in that context, it would almost certainly be charged upon the land and thus constitute an interest in the land. 9 Nor do I accept the submission that the interest claimed in the caveat is too wide. As presently stated, the interest is described as "equitable interest by way of constructive trust in favour of the caveator flowing from the registered proprietor in whole or in part using the caveator's funds to purchase the land without the consent of the caveator". It is at least arguable, on the present state of the evidence, that - except to the extent of moneys borrowed from Westpac - all of the purchase price had its source in money withdrawn by Mr Michael Issa from Oceanview. If that be so, there would be at least an arguable claim by Oceanview that it was entitled to a constructive trust over the whole of Tivoli Avenue, subject to the Westpac mortgage. Alternatively, if the remedy were to be an equitable charge for the moneys appropriated, that charge would extend over the whole of the property in priority to all other interests, save for the registered mortgage to Westpac. 10 As to the balance of convenience, I accept that where there is a seriously arguable or even indisputable caveatable interest, the Court nonetheless retains a discretion, based on the balance of convenience, as to whether or not it will maintain the caveat or permit it to lapse. The circumstance that a caveator has a caveatable interest is not conclusive that the caveat will not be removed. The Court will order its withdrawal even where the caveat is indisputably valid, where the balance of convenience favours that course [Buchanan v Crown and Gleeson Business Finance Pty Ltd [2006] NSWSC 1465 (and the cases there cited)]. Circumstances in which such a course may be appropriate include where the party applying for removal of the caveat has an interest in the land superior to that of the caveator, particularly where that party is being prevented by the caveat from a legitimate exercise of its rights. Thus a caveat by an unregistered second mortgagee will be removed if it is preventing the registered first mortgagee from exercising its power of sale with a clear title [see, for example, Kerabee Park Pty Ltd v Daley (1978) 2 NSWLR 222]. A valid caveat may also be removed by the Court if it prevents the registered proprietor from the legitimate exercise of a right in respect of the land, including a proper sale or refinance. 11 A highly relevant consideration is whether the removal of the caveat will derogate from the caveator's claim, and it is a rare case indeed, if there is any, where a valid caveat will be removed for reasons of balance of convenience if that will result in a derogation from the priority of the caveator's claim [Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50 (Owen J)]. In my view, if the priority of the caveator's interest would be adversely affected by the removal of the caveat, it is ordinarily inappropriate to remove the caveat, having regard to considerations of the balance of convenience. 12 In this case, the prejudice to the registered proprietor said to arise from the continuation of the caveat is that it is said to inhibit the development of the Tivoli Avenue property. Construction works on that property are at an early stage. The defendants say that the caveat inhibits their ability to obtain credit accounts with suppliers of goods, and they refer in particular to Bunnings and to a concrete supplier for the purposes of the development. 13 There is evidence that upon completion of the works, the property may be worth a total of $21.75 million. The evidence varies as to whether the current debt is $8 million or $10 million; the explanation may be that the facility is for $10 million and the current debt $8 million. Assuming that in favour of the defendants, the equity would be $13.5 million upon completion of the construction works. But that assumes that there will be no further borrowings to fund the construction works which, given the extent of the proposed construction works, seems at least unlikely. 14 There is no evidence before me of the value of the Tivoli Avenue property in its present condition, and I am unable to be satisfied on the evidence that there is in its present condition sufficient equity to meet the caveator's claim, let alone to provide an excess over it to satisfy further borrowings. In those circumstances, it is not established that further encumbrances would not impinge on the caveator's interest if they took priority over it. 15 The plaintiff has offered to consent to the property being used as security for the Bunnings account to a limit, which it proposes as a starting point of $250,000, in a form reasonably acceptable to the plaintiff, but the defendants are not satisfied with that offer. They propose instead that in lieu of the caveat, they proffer an undertaking to give seven days' notice of any intention on their part to alienate or further encumber the property. There appears to be no immediate proposal to enter into any such transaction; at least no such proposal has been put before me. 16 On the present state of the evidence, I accept that there may be some prejudice to the defendants from their inability to use the property as security for suppliers' accounts. To the extent that any particular proposal has been so far identified, that could have been averted by acceptance of the offer which the plaintiff made in respect of the Bunnings account. If similar issues arise in the future, each can be considered on its merits as it arises. Thus I do not see that there is significant prejudice to the defendants from maintaining the caveat. 17 The potential prejudice to the plaintiff from allowing the caveat to lapse is the loss of the caveator's priority. As I have said, the evidence does not permit the conclusion that there is sufficient equity in the property to satisfy the caveator's claim, at least in the present condition of the property. Accordingly, as the evidence presently stands, the balance of convenience favours the maintenance rather than the lapsing of the caveat. 18 For the defendants, Mr Dowdy has raised two discretionary considerations against granting the relief sought. The first relates to the undertaking as to damages which the plaintiff proffers. The defendants submit that the undertaking is illusory because the plaintiff is a two-dollar company. The plaintiff has met that submission by proffering - as Mr Dowdy suggested it might - an undertaking also of its principal, Mr Steve Issa, and that, I think, answers that argument. 19 The remaining discretionary issue raised is one of delay. The underlying dispute between Mr Steve Issa and Mr Michael Issa has been on foot since 2002. It is true that the caveat was not lodged until 2 June 2006. Over the interval, the plaintiff had been seeking an accounting from Mr Steve Issa of his dealings with the assets of Oceanview. Those attempts to obtain an accounting do not appear to have produced any satisfactory response. 20 It is not clear when the plaintiff first became aware that assets of Oceanview had been applied to the purchase of Tivoli Avenue, but assuming that it was as early as 2002, there is no suggestion that there was any threat to sell or further encumber Tivoli Avenue - and thus no occasion for the plaintiff to have to seek interlocutory relief or lodge a caveat - until it did in mid 2006. 21 I do not accept that equity's insistence on vigilance requires members of a family to resort to litigation against other members of the family when there are reasonable prospects that that litigation will not be necessary, and there is no pressing need to approach the court. Accordingly, I do not accept that the plaintiff is now disqualified by delay from seeking an order extending a caveat lodged in June of 2006. 22 It follows that I am satisfied that the caveat may have substance, that the balance of convenience favours the maintenance rather than the lapsing of the caveat - especially having regard to the undertaking now proffered by Mr Steven Issa - and that discretionary factors do not militate against that course. 23 My orders are:

Oceanview Group Holdings v Anastazija Balaz & Anor

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