Pang v Cao

Extension of caveat

1. Both parties agreed that in deciding whether to extend the caveat the Court should follow the principles stated by Brereton J in Sutherland v Vale (2008) 14 BPR 26,255 at [11]: It is well established that an application for an order extending the operation of a caveat, a test substantially the same as that for an interlocutory injunction applies. First, the applicant must determine that the caveat has or may have substance, the phrase, 'may have substance' encompassing the concept of a seriously arguable case; secondly, the Court will have regard to considerations of the balance of convenience and prejudice; and finally, to other discretionary considerations.
2. It is convenient to deal with the extension application under three headings: prima facie case; delay; and balance of convenience.

Prima facie case

1. Ms Pang's Summons claims declaratory relief to the effect that Mr Cao acquired, and thereafter held, the property as trustee for her. Prayers 8-10 are: A declaration that the Defendant holds Lot 251 of Strata Plan 93826, otherwise known as 211/12 Paul Street, Zetland 2017 (the Property), on constructive trust for the Plaintiff. In the alternative to Order 1 [sic], a declaration that the Defendant holds the Property on resulting trust for the Plaintiff, in share to be determined by the Court. An order that: a. the Plaintiff discharge the Defendant's mortgage over the Property; b. at the same time as (a), above, the Defendant cause: i. the legal title to the Property be transferred to the Plaintiff, or the Plaintiff's nominee; ii. provide the original certificate of title for the property to the Plaintiff's solicitors.
2. Counsel for Ms Pang put her case for the recognition of a trust as a resulting trust, or, alternatively, a constructive trust. At least two bases for the imposition of a constructive trust were identified. One was a failed joint endeavour, along the principles of Muschinski v Dodds (1985) 160 CLR 583. The other was a common intention constructive trust.
3. A somewhat similar situation arose in a case before me, Mao v Bao [2021] NSWSC 1096. In that case, a Chinese businessman provided an Australian businessman with money to buy a property for the Chinese businessman to live in. As in the present case, the Chinese businessman was not a permanent resident of Australia. That case was conducted on the basis that the property acquired was held on trust. Although the precise nature of the trust was not the subject of debate between the parties, it seems that the trust would have properly been characterised as an express one, arising out of an agreement between the parties.
4. In Mao v Bao, no issue about the statute of frauds was raised. That may not have been relevant because the agreement was made when the deposit monies were first provided, and the monies would have been impressed with a trust from that point. There seems to me to be no difficulty with the creation of an oral trust over a sum of money, and the subsequent tracing of the equitable interest in the money to the property once acquired. When I raised this idea with counsel for Ms Pang, counsel indicated that the alleged trust could be sustained on that basis also.
5. Although not expressly stated in the Summons, counsel for Ms Pang indicated that she would also be seeking orders requiring Mr Cao to account as trustee. Counsel did not suggest that there had been any collusion between Mr Cao and the purchaser of the property. But counsel did foreshadow a claim that Mr Cao had sold the property at an undervalue and thereby sacrificed Ms Pang's interest.
6. Counsel for Mr Cao did not dispute that there was a prima facie case that he purchased the property on behalf of, and effectively as trustee for, Ms Pang. Indeed, it was not clear to me that this is in dispute in these proceedings at all. As counsel for Ms Pang pointed out, there are numerous statements in the evidence in which Mr Cao acknowledged as much.
7. But counsel for Mr Cao did emphasise, consistently with my conclusions in Mao v Bao, that Ms Pang was obliged to discharge the mortgage before she could claim to be the beneficial owner of the property. Counsel submitted that no obligation arose to transfer ownership until Ms Pang tendered the amount outstanding under the mortgage, or at least produced an unconditional offer from a financier to lend Ms Pang sufficient funds to be able to discharge the mortgage. In counsel's submission, this had not occurred when the proceedings had commenced (and had not even occurred at the date of the hearing).
8. Counsel for Mr Cao did not appear to dispute that if the sale took place his client would have to account for the sale proceeds in Ms Pang's favour, less any outstanding outgoings. While the possibility of a claim for just allowances for the work done by Mr Cao in acquiring and holding the property could not be ruled out, counsel disclaimed any intention to pursue the time-charged claim put forward in the 2022 correspondence, or his earlier demand for $500,000. It was clear however that any allegation by Ms Pang that the property had been sold at an undervalue would be vigorously resisted.
9. Clearly there was a prima facie case that Mr Cao acquired unit 211 for the benefit of Ms Pang. That did not necessarily mean, however, that Ms Pang was entitled to have the caveat extended. To obtain such an extension, Ms Pang needed to be able to establish a prima facie case that she would ultimately be entitled to remain in possession of the unit: see Makaritis v Makaritis [2022] NSWSC 468 at [41]-[42].
10. For this purpose, it was not enough for Ms Pang to allege that the property was being sold to Mr Zheng at an undervalue. This allegation (which was not supported by any evidence on the application and was contradicted by Mr Cao's account of his dealings with the agent) was one which could be dealt with as a monetary claim as part of the process of taking accounts. What Ms Pang needed to do was to establish a prima facie case that Mr Cao was obliged to retain the property for her, and had therefore not been entitled to sell to Mr Zheng at all.
11. On the evidence which I have summarised, this was problematical. Mr Cao's claim for payment of tens of thousands of dollars in fees, and his attempts to link unit 211 with unit 206, may have been unreasonable. But at the same time, as Ms Pang through her counsel accepted, Mr Cao was not obliged to continue as mortgagor. Once he became unwilling to do so, Ms Pang's obligation was to pay out the mortgage, or take a transfer of the property which would result in the mortgage being discharged. If she was not prepared to do that, then, at least in the absence of some special understanding or agreement between the parties, Mr Cao was within his rights to sell the property and account to Ms Pang for the proceeds afterwards.
12. The correspondence between the parties shows that, by January this year, Mr Cao had made it clear that he was not prepared to continue as mortgagor and that the issue had to be brought to a head. It is true that Ms Pang did mention taking a transfer of the unit. But at the same time, she failed to embrace, fully and unequivocally, the proposition that the unit being held on trust for her and at her cost. More importantly, she seems to have taken no active steps (at least that she told Mr Cao about) to arrange a transfer, and the associated finance. On the face of it, by the time she did take such steps, Mr Cao had already entered into an arms' length contract with Mr Zheng.
13. For present purposes, I do not need to make a final decision on whether Mr Cao was guilty of breach of trust in selling when he did. It is sufficient to say that, on the evidence before me, the case for Ms Pang being entitled to remain in possession was at best a weak one.

Delay

1. The Summons was supported by an affidavit of Ms Pang's solicitor, Mr Oi. In the affidavit, Mr Oi acknowledged that there had been some delay by Ms Pang in bringing the proceedings after she had been aware of the contract for sale for more than four weeks. He explained this by saying that Ms Pang had been in China preparing for her wedding.
2. Counsel for Mr Cao submitted that Ms Pang was guilty of significant, unreasonable and unexplained delay. Counsel referred to her failure to take any steps to prevent the sale of unit 211, pay out the mortgage, or bring an end to Mr Cao's custodianship, notwithstanding having been put on notice of the sale by Mr Cao. Counsel resisted the fact that this was excused by Ms Pang being in China for her wedding, on the basis that she continued to reply to emails during January and February 2023. Counsel submitted that she could have lodged a caveat much earlier.
3. I do not think there can be any doubt that there has been a significant delay in bringing these proceedings, and the present application, before the Court. The evidence shows that by September last year, Ms Pang was telling Mr Cao that unless the dispute between them, which involved unit 211, as well as unit 206, Mr Cao's other demands, and the repayment of the $50,000, could be resolved, legal proceedings would be necessary.
4. Ms Pang also claimed to have consulted a barrister on the subject. It does not matter that in fact she had not done so. The important point is that her claim bespoke an appreciation on her part that proper protection of her legal interests, and advancement of her claims, required legal advice, and, probably, court proceedings.
5. Had Ms Pang obtained legal advice at that time and then sat on her hands waiting until this year to lodge the caveat and bring proceedings, there would have been a strong argument for refusing her application merely on the ground of laches: see the discussion of delay in the context of interlocutory relief in Meagher, Gummow & Lehane's Equity Doctrines and Remedies, Heydon JD, Leeming MJ, Turner PG (5th ed, 2014, LexisNexis Butterworths) at [38-045]. Ms Pang could be in no better position because she did not in fact obtain legal advice she claimed to have obtained. Therefore, I considered delay to be a significant factor in the application.

Balance of convenience

1. Counsel for Ms Pang submitted that the balance of convenience favoured their client for three main reasons. First, that Ms Pang's interest appeared to be undisputed. Second, if unit 211 was sold, Ms Pang's interest would be destroyed. Third, the claimed interest was to be transferred an estate in fee simple.
2. Counsel referred to authority that where the nature and extent of the caveator's interest is undisputed and removal of the caveat would clearly destroy the caveator's interest, it is "very unusual" for a removal application to be granted, citing Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1 at [78]; International Computer Network Pty Ltd v Lumos International Pty Ltd [2018] NSWSC 1793. As I have pointed out, however, the real question on an application such as this is not so much the nature of the interest claimed, but rather, whether there is a prima facie case that the plaintiff will be entitled to remain in possession at the end of the proceedings.
3. On the evidence before me, the current value of the unit is well below what Ms Pang paid for it. Counsel for Ms Pang acknowledged orally that this was so, but stated that Ms Pang wished to have the ability to sell the property in the future when the market has recovered.
4. By the time the hearing took place, Ms Pang's legal advisors had recognised that discharging the existing mortgage debt (which I was informed stood at $625,000) was a critical factor in the balance of convenience. Mr Oi's second affidavit of 22 April stated that Ms Pang was seeking to obtain a loan approval to enable her to pay out the mortgage. At the hearing on 1 May (a Monday), a further affidavit from Mr Oi was filed which attached a conditional approval from NAB in the sum of $640,000. The bank's email, dated 28 April (the previous Friday) at 12:58pm, stated: We're pleased to confirm that your Home Loan application has been conditionally approved for AUD 640,000. This conditional approval is valid for 3 months. What's next? There's nothing more you need to do now. When you want to proceed with this application, please let us know. We'll then verify the security and the information you've provided in your application. We'll complete a valuation and a further credit assessment (if required). As long as each of these are acceptable to us and your financial situation hasn't changed, we'll send you our formal offer, which will include the terms and conditions. If you'd like to discuss your application with us, or you have any questions, feel free to contact your banker, visit your branch or give us a call on 131312. We'll be happy to help.
5. This email was, I suppose, a positive development. But it did not involve any commitment by the Bank. It remained open to the Bank to undertake a further credit assessment, and there was no promise to do so by any particular date within the three-month period of the "conditional approval".
6. Nor was there in Mr Oi's initial affidavit any information about Ms Pang's ability to meet the undertaking as to damages. This was partially addressed in Mr Oi's second affidavit and then in the third affidavit filed on the day of the hearing. Ms Pang said that she owns a half share of another investment property with her mother and suggested that there was some equity in that property.
7. In the course of the hearing on 1 May, counsel for Mr Cao provided to the Court an undertaking on his client's behalf that if the application was refused and the caveat was removed, that on completion of the contract with the purchaser, Mr Cao would pay into court the net sale proceeds after payment and discharge of all land taxes, council rates, strata levies and other liabilities owed on the property; or monies owing to the first registered mortgagee; or conveyancing costs payable to any third party; and all costs associated with the sale and marketing of the property owed to any third party.
8. For their part, counsel for Ms Pang indicated that she would be prepared to undertake to pay into court the amount claimed as a shortfall by Mr Cao ($12,000), even though only $11,000 is accepted by Ms Pang. Counsel also indicated that Ms Pang would give an undertaking to meet the ongoing mortgage payments (although this was potentially qualified, in a way which was not made clear, by the possibility of an application to have the property let out).
9. This undertaking was not reduced to written form, and was criticised by counsel for Mr Cao on the ground that Ms Pang had no equity to require him to continue to hold the property, and be exposed to the mortgage liability, any longer than was absolutely necessary. When it appeared that the undertaking might not be enough, counsel foreshadowed the obtaining of further instructions.
10. Those further instructions resulted in an unsigned affidavit which was provided in the course of the reply submissions by counsel for Ms Pang. In the unsigned affidavit, Ms Pang indicated that she could obtain financial assistance from her husband and from her family to raise the monies necessary to pay out the mortgage. On Ms Pang's behalf, counsel offered an undertaking for the continuation of the caveat that Ms Pang would pay the sum of $400,000 by Friday 5 May and the further $227,000 by Friday 12 May.
11. Counsel objected to what he characterised (correctly) as a re-opening of Ms Pang's case. Counsel observed that the question of Ms Pang's financial circumstances had been raised as an issue well before the hearing of the interlocutory applications, and, in any event, the onus lay on her to provide appropriate undertakings to deal with the balance of convenience, and to provide evidence demonstrating that these undertakings would be met. In the end, I decided to permit the tender of the unsigned affidavit as evidence of assertions made by Ms Pang. But owing to the circumstances in which the unsigned affidavit came before the court - counsel for Mr Cao had no real opportunity to scrutinise it - if admissible at all, it is of very little weight so far as it purports to demonstrate what Ms Pang's financial position is.
12. Counsel for Ms Pang, orally, put the balance of convenience in the case in the following way. Counsel calculated Ms Pang's loss, if the unit is sold to Mr Zheng, as $135,000, being the difference between the figure Ms Pang had spent on the unit and the figure Mr Zheng had agreed to pay. Counsel contrasted this with the sum of $12,000 (on Ms Pang's case, $11,000), representing the outstanding expenditure which had been paid for by Mr Cao. Counsel submitted that the difference between the two figures effectively represented the balance of convenience, and was therefore very much in Ms Pang's favour. Counsel also submitted that Mr Cao's behaviour towards Ms Pang had been overbearing and, perhaps, exploitative.
13. I did not agree with counsel's financial analysis. I accepted, of course, that the sale of the property at the current price would crystallise a loss for Ms Pang which could be significant in the context of her overall financial position. I accepted also that Ms Pang wishes to retain the property. It was briefly suggested by counsel that Ms Pang might wish to live at the property, but this does not seem very likely, given Ms Pang's personal circumstances.
14. But the problem was that the Court could not be satisfied that the sum of $135,000 really measured the prejudice to Ms Pang. It was reasonable to suppose that if Ms Pang were to continue to hold the property, then eventually its value would increase again. But no one could say how long that would take. For all the Court knew, the property might decline in value even further. It might prove best for Ms Pang to take the loss immediately.
15. Furthermore, counsel's argument did not, in my opinion, acknowledge the full extent of the detriment to Mr Cao. If the caveat were extended, Mr Cao would be subject to ongoing obligations to the Bank as mortgagor. His ability to deploy his own personal equity and credit rating for his own benefit would continue to be diminished. Admittedly, with the change in Ms Pang's position in the course of the hearing and the offer of undertakings to payout the mortgage by 15 May, this might not be for a very long period. But, in principle, it was undesirable that he should be forced to do so for one moment longer than he was prepared to.
16. More importantly, an extension of the caveat would make Mr Cao unable to settle the sale of the unit to Mr Zheng. Mr Cao had already been placed in default by the caveat. If he failed to complete in the face of Mr Zheng's notice, Mr Cao would be forced into a repudiation, rather than merely a breach, of the contract, and would be exposed to an action for damages by Mr Zheng.
17. Elsewhere in their argument, counsel for Ms Pang acknowledged this. But counsel pointed out that Mr Zheng has not intervened in the proceedings and there was no evidence from him about his intentions. Nor, counsel pointed out, was there any evidence from Mr Cao about the matter. Counsel submitted that, in the circumstances, the detriment to Mr Cao resulting from failing to complete the contract on 2 May was of little substance.
18. Counsel relied on the judgment of Kunc J in Brose v Slade [2022] NSWSC 1785. That was a case between a father and mother on one hand, and their daughter and son-in-law on the other. The dispute centred on a large rural property on five separate titles, some of which were owned by the parents and some by their superannuation fund. The parents listed the property for sale. The daughter and son-in-law (the plaintiffs) claimed an interest in the property as a result of past work on it, and a succession planning agreement. They lodged caveats on the properties to protect their claimed interests.
19. In response, the solicitors for the parents stated that a buyer had been found for a specified price (although contracts had not been exchanged). The solicitors foreshadowed a question about the balance of convenience in extending the caveat, and in particular whether the plaintiffs would be able to satisfy their undertaking as to damages if the sale went off.
20. The plaintiffs then commenced proceedings. A few days later, the parents exchanged contracts with their buyer. The plaintiffs sought an extension of the caveat. This was opposed on several grounds, including the foreshadowed ground about balance of convenience.
21. Kunc J stated at [88]-[89], [92]: There is no evidence from the current purchaser (even by solicitor's correspondence, for example) as to what may happen to the contract for sale. Nor, for understandable reasons, does Bruce [the father] say anything on that topic. His evidence … assumes and is fearful of the loss of the present sale, but there is no evidence before the Court that enables the likelihood of that assumption proving true to be assessed. In my respectful view, in the absence of evidence, for the Court to conclude that the sale at the current price will be lost forever would be speculation. There is obviously a chance it may be lost, but how great that chance is cannot be assessed. It has certainly been my experience both at the bar and on the bench that an inability to complete a contract for the sale of land pending third party legal proceedings does not always lead to termination of the contract. Nevertheless, the view to which I have come would be the same even if the evidence were that the current sale will be lost forever and the deposit returned. This is because the evidence is too general and speculative to enable the Court to make any conclusion about any future sale price and how long any sale might take to achieve. To describe the evidence as such is not a criticism of the parties, who have sought to provide the best evidence they can in urgent circumstances. Furthermore, assuming no deleterious effect from the floods, the only relevant, objective fact currently available to the Court - that the present sale was achieved within three months - suggests that fear of a long delay if the blocks have to be put back on the market may be unrealistic. … Furthermore, as a matter of discretion, I have taken into account that Bruce took a calculated risk in entering into the contract for sale of the Slade Land with knowledge of the plaintiffs' claim and these proceedings having been commenced. I do not regard the alleged doubts entertained about the plaintiffs' undertaking … as sufficient to negative this consideration.
22. In my view, Brose is distinguishable. One difference is that it concerned a rural property, where a sale is typically a long and complex process. With respect, it is quite understandable for his Honour to observe in that context that the existence of a dispute very often would not result in the sale of a multi-million-dollar piece of property being frustrated. But I do not think the same considerations apply to an ordinary residential unit in Sydney. There is no reason whatever to think that a purchaser of such a unit, whether intending to live in it or hold it as an investment, would be prepared to hang around for a period of months or possibly longer in order to complete the sale.
23. Even more importantly, in Brose the contract was entered into after the caveat had been lodged and the proceedings had begun. There may have been room to argue about the fact that the parents placed the property on the market before the caveat was lodged, but it is not necessary to consider this in the present case. Here, the sale contract was entered into well before the caveat had been lodged or the proceedings had begun.
24. I acknowledge that the evidence did not allow the Court to make any judgment about what damages might have been incurred by forcing Mr Cao to repudiate the contract. But I did not think that was essential. The simple fact was that repudiation was going to expose Mr Cao to being sued.
25. Counsel for Ms Pang accepted that her undertaking as to damages would include an indemnity against any costs Mr Cao might incur (or at least might reasonably incur) if that happened. But in my view, even if that indemnity had been properly secured (and the evidence did not really establish that) it was not enough to negate the prejudice.
26. Breach of contract, even if it is not followed by litigation, can itself be a subject of prejudice. It may damage the party's credit rating or that party's general commercial reputation. Furthermore, if litigation does ensue, it often results in strains on the parties which go beyond the costs of conducting it. For these reasons, I thought the Court should be slow to countenance an interlocutory regime in one piece of litigation which would encourage further dispute and potential litigation about the subject matter of the dispute.
27. Most importantly, the question was not merely one of the balance of convenience between Ms Pang and Mr Cao. Extension of the caveat would defeat, or at least defer, Mr Zheng's right under the contract he had made with Mr Cao. No-one suggested that Mr Zheng was aware, or ought to have been aware, before he entered into the contract, of the potential dispute between Mr Cao and Ms Pang about the unit.
28. In this context, I was not impressed by the point that Mr Zheng had not involved himself in the proceedings or provided any evidence about his intentions. No doubt he could have done so. I saw no reason why he should have.
29. So far as the evidence went, Mr Zheng had entered into a purchase contract in perfect good faith. I did not see why he should be obliged to incur additional legal costs (even if he might ultimately have recouped them by way of a costs order against whichever party is unsuccessful) of involving himself in these proceedings. Nor did I see why he should be obliged to go to the trouble of giving an affidavit to Mr Cao's solicitors about his intentions in the event that Mr Cao did not complete. Mr Zheng had made a contract, which, on the face of it, he was entitled to have performed. In my view he was not obliged to explain himself any further.

Conclusion

1. For these reasons, I thought Mr Zheng's rights as an innocent third party were of much greater significance than the asserted prejudice to Ms Pang. When coupled with her delay, and the weakness of her case, I concluded that the extension application should be refused.

Compulsory withdrawal of caveat

1. The same considerations resulted in the conclusion that, as the extension of the caveat is to be refused, it should be compulsorily withdrawn to allow the sale to Mr Zheng to take place. The undertaking given by Mr Cao of course remained in force.

Orders

1. The parties agreed that if the caveat were removed and the sale went ahead then all that would remain in the case would be the taking of accounts. They also agreed that the District Court would have jurisdiction to take the necessary accounts and enter judgment for the amount owing, and the proceedings should be transferred to that Court.
2. In the light of my conclusion that the caveat should not be extended, the orders I made on 1 May were: 1. Dismiss the plaintiff's application for interlocutory relief (claims 5-7 in the Summons). 2. On the defendant's motion filed 24 April 2023, and on the undertaking of the defendant recorded in the attached document, order that the plaintiff forthwith, and no later than 9am 2 May 2023, remove Caveat AS976659 from the folio of Lot 251 in SP93826. 3. Order that the plaintiff pay the costs of the plaintiff's application for interlocutory relief and of the defendant's motion. 4. Order that the proceedings continue on pleadings. 5. Order that the proceedings be transferred to the District Court.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 July 2023