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[2001] WASC 104
plaintiff. Order extending the operation of Pindan's caveat under s 138C until the establishment of a secured trust fund at the Challenge Bank to secure the disputed sum; upon presentation of evidence of...
Pindan, the builder, had a contractual charge over Sunny's land and lodged a caveat to protect unpaid progress/final payments. A dispute over a $135,000 item arising after a compromise led Sunny's to seek discharge; Sunny's offered to place funds in a jointly controlled bank account. The Court found Pindan had an arguable caveatable interest and, exercising discretion under s 138C, extended the caveat only until the proposed secured fund was established, at which point the caveat would be discharged on evidence of establishment (paras 2, 7-9, 16-17, 22).
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Pindan Pty Ltd was the builder under a 1988 building contract with Sunny's Redevelopment. Clause 33 of that contract charged the land with payment due to the builder, a charge that plainly produced a caveatable proprietary interest under the Transfer of Land Act (paras 1-2, 10). Pindan lodged a caveat on 30 March 1999 to protect that interest (para 2). Over the course of the project units were sold and caveats removed and re-lodged; three lots (26, 28 and 29) remained subject to the caveat at the time of the hearing (para 3).
2 cited instruments linked from this judgment.
A dispute arose over progress claims. Claim 20 had been underpaid by $33,419 and claim 21 (the final claim) of over $787,000 was disputed; together Pindan's final claim was just over $820,000 (para 11). Negotiations culminated in a compromise on 22 November 2000 (para 12). During negotiation Pindan had been paid $135,000 (by way of an arrangement with a subcontractor/ purchaser) which was overlooked; Sunny's later realised and sought to have the compromise reduced by $135,000 on the ground the figure was mistakenly included (paras 13-16). Pindan refused to vary the compromise and issued proceedings to enforce it (para 14).
Sunny's proposed refinancing to discharge its bank mortgage; as part of that process Challenge Bank would advance funds and it was proposed that $135,000 be placed in a segregated trust account under joint solicitor control to secure the disputed amount, permitting discharge of the caveat and completion of the refinancing (paras 16-17). Pindan applied under s 138C for extension of the caveat's operation. Interim extensions had been granted pending the hearing (para 4). Murray J heard the matter and concluded that Pindan had an arguable caveatable interest and that the proposed trust account would adequately secure the disputed sum; the court therefore extended the caveat only until that fund was established, permitting discharge on proof to the Registrar (para 22).
Statutory framework and interlocutory character: Section 138C(2)(a) permits the Supreme Court to extend the operation of a caveat where satisfied that the caveator's claim "has or may have substance" (para 5). Murray J treated that statutory test as importing an onus on the caveator to demonstrate a serious question to be tried, but he emphasised that the power is discretionary and that interlocutory principles (notably the balance of convenience) remain pertinent (paras 6-9). The court explicitly treated a caveat as "in the nature of a statutory injunction of an interlocutory character" (para 6), so it applied the well-known interlocutory calculus: prima facie entitlement plus consideration of potential prejudice to both parties.
Prima facie caveatable interest established: Clause 33 created a charge over the land to secure monies payable to the builder; that is the classic proprietary foundation for a caveat and, subject to there being monies payable, constituted an arguable caveatable interest (paras 2, 10). Pindan's claim to outstanding monies, and its reliance on the compromise, placed an arguable case before the court (paras 11-14).
Defences and uncertainty: Sunny's advanced two categories of responses. First, that the compromise should be rectified or set aside because Sunny's had operated under a mistake as to the $135,000 (paras 18-20). Second, statutory claims under the Trade Practices Act for misleading/deceptive or unconscionable conduct might reduce the amount payable (para 21). Murray J held that the affidavit material did not permit findings that would defeat Pindan's claim: the equitable doctrine of mistake might apply, but on the material before the court it was not appropriate to make such determinations (paras 18-20). Equally, the asserted statutory causes of action were uncertain on the material (para 21).
Balance of convenience and alternative security: Crucially, Sunny's proposed to place the disputed $135,000 in a segregated trust account at Challenge Bank, with joint solicitor signatories. The judge viewed that arrangement as providing "perfectly adequate security as an alternative to reliance upon the charge under the building contract" (para 22). Given that protection, the balance of convenience tipped in favour of permitting Sunny's to finalise refinancing and project winding up, while protecting Pindan's security by conditioning discharge on establishment of the fund and presentation of proof to the Registrar (paras 16-17, 22).
Hence the court exercised its discretion to extend the caveat's operation only until the alternative security was in place, preserving Pindan's equitable protection while allowing Sunny's practical financial arrangements.
Before s 138C was enacted in 1996, courts approached caveat disputes by applying equitable and interlocutory principles developed in case law. Murray J observed that although s 138C provides statutory machinery after 1996, earlier authorities and principles remain relevant in deciding whether to extend (or remove) a caveat because the caveat remains interlocutory in nature (para 6). He expressly relied on the reasoning in Custom Credit Corporation Ltd v Ravi Nominees (and Porter v McDonald) that removal of a caveat where an arguable caveatable interest exists will be unusual, given the prospect of defeating a proprietary security by enabling sale of the land (para 8).
After this decision, the practical takeaway is that s 138C does not displace the equitable balancing exercise. A caveator who can show an arguable proprietary interest ('has or may have substance') will generally secure the extension of a caveat; however, the court will still weigh competing hardships and may make ancillary orders, including conditioned discharge upon provision of adequate alternative security (paras 5-9, 22). Pindan v Sunny's thus exemplifies that s 138C is to be deployed with traditional interlocutory discretion, and that courts may accept alternative forms of security to protect caveators.
"The character of a caveat as being in the nature of a statutory injunction of an interlocutory character..." (para 6).
"The caveator bears an onus to demonstrate that there is a serious question to be tried as to whether a valid caveatable interest exists." (para 7).
Quoted passage from Custom Credit about removal of a caveat being unusual where an arguable case exists (para 8).
Final operative direction: extension until the fund is established and then discharge upon proof (para 22).
This decision is directly relevant when:
In such circumstances the court is likely to require the caveator to show an arguable proprietary claim, consider the balance of convenience, and may condition any extension/discharge upon the provision of an alternative security that protects the caveator's interest (paras 2, 5-9, 16-17, 22).
This judgment itself places significant reliance upon earlier authorities (Eng Mee Yong [1980] AC 331; Custom Credit (1992) 8 WAR 42; Porter v McDonald [1984] WAR 271), adopting and applying their interlocutory reasoning to the statutory test in s 138C (paras 6-9). The delivered reasons show an approach that integrates the statutory language with established equitable practice. The judgment does not, however, report on subsequent judicial treatment of Pindan v Sunny's (being a single-chamber decision dated 30 April 2001). The present source does not supply later appellate consideration or citations to this decision. Consequently, one cannot from this judgment alone assert how later courts have treated it; practitioners should search subsequent case law databases for authority citing Pindan Pty Ltd v Sunny's Redevelopment.
Robustness of alternative securities: Murray J accepted the proposed trust account under joint solicitor control as adequate protection on the material before him (paras 16-17, 22). The judgment does not formulate criteria for when such arrangements are sufficient in other contexts (e.g. more complex creditor arrangements, competing priorities, risk of fund dissipation). Future cases will need to state more precise safeguards and proof requirements.
Evidential threshold on affidavit material: The judge declined to decide equitable questions of mistake and rectification on the present affidavits (paras 18-20). The judgment does not specify the precise affidavit content that would allow a court to resolve such issues at the s 138C hearing. Practitioners must therefore prepare to adduce more cogent affidavit evidence if they seek a definitive finding at the interlocutory stage.
Interaction with statutory causes of action: Sunny's raised possible Trade Practices Act claims (para 21). Murray J observed uncertainty as to success but did not explore how a statutory reduction in a compromise might affect the caveator's proprietary rights in interlocutory proceedings. The interplay between statutory consumer protection remedies and equitable caveat protection in commercial construction contexts remains a point for further judicial elaboration.
Extent of court's ancillary powers under s 138C(2)(c): While the court used its ancillary powers to condition discharge on the establishment of a fund, the decision does not catalogue the full range of ancillary orders contemplated under s 138C(2)(c). That leaves some practical uncertainty about what other protective devices (e.g. receivership, ring-fenced escrow with additional undertakings) courts will accept as alternatives in different fact patterns.
When an arguable claim is nonetheless insufficient: The decision reiterates that an arguable caveatable interest 'will ordinarily secure the extension' (para 9), but leaves open the precise circumstances where the balance of convenience will nonetheless mandate removal despite an arguable claim. Future authorities will need to clarify the thresholds and examples where the competing public or commercial interests outweigh the protective function of a caveat.
Conclusion
Pindan v Sunny's is a practical demonstration of how courts integrate the s 138C statutory test with the established interlocutory balancing exercise. It confirms that a contractual charge gives rise to a caveatable interest and that, absent clear defeat of that interest on the material, extension of a caveat is likely. However, the court retains flexibility to permit alternative securities to replace a caveat, provided they adequately protect the caveator. Practitioners should take from this case the need to front-load affidavit evidence on disputed equitable issues if seeking final resolution at interlocutory stage, and to structure alternative security arrangements so they are demonstrably protective to a caveator before the court will permit conditional discharge.
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
CITATION : PINDAN PTY LTD -v- SUNNY'S REDEVELOPMENT PTY LTD & ANOR [2001] WASC 104
Caveat - Caveat lodged pursuant to a building contract providing caveatable interest by way of charge granted by the owner to the builder to secure unpaid monies under the contract - Compromise agreement made - Dispute over money properly payable under compromise and building contract - Caveatable interest maintained - Whether caveat should be extended pending resolution of dispute - Whether balance of convenience favours removal of caveat conditioned upon establishment of fund to secure disputed sum - Turns on own facts
Operation of caveat extended pending establishment of secured fund
Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459
Bell v Lever Bros Ltd [1931] UKHL 2; [1932] AC 161
Commercial Bank of Australia Ltd v Schierholter [1981] VicRp 32; [1981] VR 292
Commonwealth Bank of Australia v Garon Pty Ltd and Ors [1999] WASC 170
Commonwealth Bank v Amadio [1983] HCA 14; (1982-1983) 151 CLR 447
Gibson v Co-ordinated Building Services Pty Ltd (1989) 4 BPR 9630
Johnstone v Commerce Consolidated Ltd [1976] VicRp 46; [1976] VR 463
Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281
Lam v Ausintel Investments Pty Ltd (1989) 97 FLR 458
Marks v GIO Australia Holdings [1998] HCA 69; (1998) 196 CLR 494
Martyn v Glennan [1979] 2 NSWLR 234
Re Burman's Caveat [1994] 1 Qd R 123
Rising Developments Pty Ltd v Hoskins (1996) 39 NSWLR 157
Riverlate Properties Pty Ltd v Paul [1975] Ch 133
Taylor v Johnson [1983] HCA 5; (1981-1982) 151 CLR 422
Thomas Bates Ltd v Wyndham's Ltd [1980] EWCA Civ 3; [1981] 1 WLR 505
Wright v Bridge Wholesale Acceptance Corporation (Australia) Ltd [1993] VicRp 34; [1993] 1 VR 502
1 MURRAY J: The first defendant ("Sunny's) is the owner of a piece of land the subject of a strata title at 6 Canning Highway, East Fremantle. On 16 November 1988 it entered into a building contract with the plaintiff ("Pindan") to demolish an existing building on the land and construct 30 apartments in two multi-storey buildings. The ANZ Bank was Sunny's financier and, as I have mentioned, the object was to build and then sell the units on individual titles issued under the Strata Titles Act 1985 (WA).
"The Owner hereby charges the parcel of land on which or on part of which the Works are to be erected with due payment to the Builder of all monies that may become payable to the Builder by virtue of this Contract or otherwise from the carrying out of the Works."
There is, of course, no doubt that that charge created in favour of Pindan a caveatable interest within the meaning of the Transfer of Land Act 1893 (WA), s 137, and Pindan lodged a caveat over the land on 30 March 1999 to prevent dealing in the land absolutely.
3 However, as I understand it, the caveat has been lifted from time to time to permit the sale of individual units, following which the lodgment has been renewed. As I understand it three units remain, being those constructed on lots 26, 28 and 29, over which the plaintiff continues to assert a caveatable interest, and continues to seek to maintain the caveat pending resolution of a dispute between Pindan and Sunny's.
4 The caveat presently lodged is one under the Act, s 138B. That being the case, Sunny's has caused the Registrar to serve Pindan with a notice that the caveat will lapse unless this Court makes an order extending its operation. Interim orders of that kind have been granted by the court pending the determination of the application before me under s 138C of the Act for an order extending the operation of the caveat until further order, effectively until the resolution of the dispute between the parties.
5 Section 138C(2) is in the following terms:
"(2) On the hearing of an application under subsection (1), the Supreme Court -
(a) if satisfied that the caveator's claim has or may have substance -
(i) may make an order extending the operation of the caveat for such period as is specified in the order;
(ii) may make an order extending the operation of the caveat until the further order of the Court; or
(iii) may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;
(b) if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and
(c) may make such ancillary orders in relation to the application as it thinks fit."
6 Although the legislation was not framed in such specific terms before s 138C was enacted and came into operation in November 1996, in my opinion earlier authorities retain their relevance in respect of the question when an order might be made extending the operation of a caveat, and when such an order might be refused. The character of a caveat as being in the nature of a statutory injunction of an interlocutory character restraining dealings in the land pending the determination by the court of the caveator's claim remains unchanged: Eng Mee Yong v Letchumanan [1980] AC 331, 335.
7 In proceedings such as those before the court it remains the case, in my opinion, that the caveator bears an onus to demonstrate that there is a serious question to be tried as to whether a valid caveatable interest exists. That onus is demonstrated by the words in s 138C(2)(a) that the court may act to extend the operation of the caveat "if satisfied that the caveator's claim has or may have substance". However, although if not so satisfied the application is to be dismissed, the court will not necessarily make an order extending the operation of the caveat if it is affirmatively satisfied that there is an arguable case that a valid caveatable interest exists. The power to make the order provided in s 138C(2)(a) is conferred in discretionary terms.
8 It follows in my opinion that the balance of convenience, in the sense in which that term is understood in relation to the grant or refusal of interlocutory injunctions, remains a factor to be considered. The leading authority in that regard, in my opinion, remains Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42. In that case Owen J, with whom Malcolm CJ and Walsh J agreed, held that although considerations of the balance of convenience would require to be taken into account:
"...it seems to me that interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated, will be unusual. It is important to bear in mind the nature and purpose of a caveat under the Torrens System. By its very nature, a caveatable interest must be a proprietary interest in land. The purpose of the caveat is to restrain the registered proprietor from dealing with the land in a way which will defeat or derogate from the incidents attaching to that proprietary interest until the respective rights of the parties have been honoured (if there is agreement) or determined (if there is disagreement). In many cases, removal of the caveat will have the effect of destroying for all practical purposes, the benefit of the proprietary interest. For example, a creditor, having a specific security interest in land, will rank as an unsecured creditor once the property, the subject of the specific security, no longer exists. This will often be the result of removal of a caveat which permits the registered proprietor to sell the property free from any practical obligation to account to the secured creditor for the proceeds of sale."
In so holding his Honour applied the decision of Rowland J in Porter v McDonald [1984] WAR 271.
9 In my respectful opinion the same observations may be made about the application of the present s 138C(2), given that the order made by the court will not be one to remove the caveat, but one to defeat the statutory lapsing of the caveat under s 138B(1) by ordering its operation to be extended. The essential point remains that the demonstration of a caveatable interest will ordinarily secure the extension of the operation of the caveat unless it appears to be clear that it may be removed, perhaps in the context of the making of ancillary orders under s 138C(2)(c), in circumstances which do not sacrifice the security provided by the caveat to the caveator or, if that interest is to be sacrificed, that should only be done for good reason.
10 The essential effect of the charge upon the land provided by cl 33 of the building contract is to provide such security. This is not a case where Pindan claims any interest in the land other than by way of charge, but in that context its caveatable interest would be conceded by Sunny's provided there are still monies payable to Pindan by Sunny's pursuant to the contract. That is the issue between the parties about which they are in dispute.
11 As I understand the matter, the dispute arises in this way. During construction the ANZ Bank, Sunny's mortgagee, had appointed quantity surveyors to certify amounts payable to Pindan under the contract. By September 2000 the point had been reached that claim number 20 for a progress payment had been made and certified for, but it was underpaid to the extent of $33,419. Claim number 21 was to be the final claim. It was for an amount of over $787,000 and it was in dispute. At this point, having regard to the $33,419, Pindan's claim for final payment was for the sum of just over $820,000.
12 The disagreement as to the amount to be paid was discussed by principals of Pindan and Sunny's. By the end of November 2000 it appears that an agreement had been reached to compromise Pindan's claims by the payment of various sums pursuant to a timetable and under particular circumstances specified in correspondence exchanged between the parties' solicitors. The agreement, however, seems to have been negotiated between directors of the parties.
13 During the course of the negotiations a director of Pindan who was closely involved in the negotiations, a Mr Allingame, had an officer of the company check the claims and receipts for the project. That officer reported to Mr Allingame that Pindan had in fact been paid $135,000 more than shown on the quantity surveyor's summary for purposes of certification of the claims. Mr Allingame discussed it with another director of Pindan, a Mr Pringle, and they agreed that having regard to the fact that they had received the amount of $135,000 more than they had previously thought to be the case, Pindan could settle for an amount about $50,000 less than its total outstanding claims. Mr Pringle was left to continue the negotiations. He continued this process with a director of Sunny's, a Mr Clafton. It is apparent that in the course of their discussions there was no particular reference to what I think it is fair to refer to as the undisclosed payment of $135,000.
14 The compromise agreement having been reached on 22 November 2000, Mr Clafton did not discover that he had overlooked the $135,000 until he did some calculations in December 2000. Sunny's then approached Pindan and sought to have the agreement of compromise rectified by reducing the amount it was to pay under that agreement by the sum of $135,000. Pindan declines to vary the agreement in that way. It insists upon the performance of the compromise agreement in the terms agreed and it has issued a writ out of the District Court on 30 March 2001 endorsed with a claim to be paid the sum of $135,000 pursuant to the compromise agreement. Clearly those negotiating for Pindan had regard to that amount in determining the figure Pindan was prepared to accept to compromise its claims. Therefore, from Pindan's point of view, the compromise remains a genuine agreement in the terms in which it was reached.
15 For completeness, although it matters little for present purposes, I should say how Pindan came to receive the $135,000 and why, I think, it was then overlooked for a time by all involved in the parties' dealings with each other. A Mr Williamson has a cabinet making business which was a subcontractor to Pindan for work to be done on the Sunny's project. He had also agreed to purchase two of the units. On about 6 April 2000 he received a cheque from Pindan in the sum of $135,000. He made a convenient arrangement with Pindan and Sunny's by which Mr Williamson endorsed the cheque back to Pindan, to whom he returned it. He was then credited with that amount against the purchase price of the units by Sunny's, so that in one stroke Pindan's indebtedness to him was reduced and his indebtedness to Sunny's was reduced. The effect of the arrangement of course was that Sunny's paid the $135,000 to Pindan.
16 There seems to be no disagreement between those involved as to what has occurred, but still the dispute remains, limited to the $135,000. As to that, Sunny's has arranged with the Challenge Bank, who has agreed to provide, refinancing for it upon the security of lots 26, 28 and 29. As part of that process of refinancing, the sum of $135,000 could be set aside as an alternate security if the caveat was discharged to enable the agreements for the sale of the remaining units to be completed, a process which as I understand it would discharge Sunny's indebtedness to its financiers and provide it with funds to its credit so that it may wind up the Sunny's Trust for which, as trustee, Sunny's has acted in the building project in question.
17 It is proposed that a special trust account will be opened at the Challenge Bank, the joint signatories of which would be the respective solicitors for the parties. I see no reason to suppose, and for Pindan it does not appear to be suggested, that such an arrangement would leave its position inadequately secured. Nonetheless, for Pindan it is asserted that it has a caveatable interest and the reasons advanced why it should not be extended in operation do not tip the balance of convenience, so to speak, in Sunny's favour.
18 I would not be prepared to find, as for Sunny's it is urged upon me that I should, that in truth Pindan has no caveatable interest. One starts with the compromise agreement. If the proper view of it is that it was an agreement designed to compromise all claims which might be asserted between the parties, then it might be enforced in full in the terms agreed and the question of mistake would be irrelevant. On the other hand, if the agreement was to be regarded more as in the nature of an account stated, then it might be void for mistake if thought to be of a fundamental kind, or set aside in equity, for mistake of that character or where some other factor might justify that course in equity: Hampton Gold Mining Areas Ltd v Metals Exploration Ltd (1995) 17 WAR 30, 46 - 48.
19 If one considers the matter in the context of the question of mistake, then upon the evidence presently available it would seem that it might be held that Sunny's was operating under a mistake as to the $135,000, but Pindan was not. The question would then be whether those acting for Pindan would be held to be aware that those acting for Sunny's were entering into the agreement under the mistake referred to and that they then set out to ensure that those acting for Sunny's did not become aware of the true circumstances. It is not possible, I think, upon the present state of the evidence to make a finding about that; nor at this juncture, in my opinion, should I do so on the basis of affidavit evidence.
20 In any event, it does not appear to be suggested on either side that the outcome of a finding of mistake in terms relevant to equitable doctrine should lead to an order rescinding the compromise agreement, but to its rectification in relation to the final amount owing, in which case the agreement will otherwise have been performed. Sunny's would still seek to rely upon that agreement, thus destroying the capacity for Pindan to assert a caveatable interest.
21 Further, Sunny's contends that it has claims under the Trade Practices Act (Cwth) for misleading or deceptive conduct and for unconscionable conduct which might lead to an order under s 87 of that Act reducing the amount payable under the compromise agreement, but otherwise leaving it in operation. I think it is by no means certain that Sunny's claims would succeed, either at equity or under the statute and so I am not prepared to hold at this stage that Pindan has no maintainable caveatable interest.
22 It follows that I should make the orders sought unless I am persuaded that upon the balance of convenience the alternative course proposed by Sunny's should be taken. I think it may. It seems to me that the creation of the fund envisaged would provide perfectly adequate security as an alternative to reliance upon the charge under the building contract. At the same time, it would enable Sunny's to otherwise finalise the project, leaving it in a position to make appropriate arrangements with its bankers, to pursue its proposal for refinancing, and to otherwise conduct its affairs as it pleases. I see no circumstance of danger to the position of Pindan in what is proposed in that regard. I decline to make the order sought except to extend the operation of the caveat until the fund discussed above is established, whereupon, on the presentation of evidence to that effect to the second defendant, the caveat may be discharged in respect of the whole of the land presently covered.
Pindan Pty Ltd
Sunny's Redevelopment Pty Ltd & Anor [2001] WASC 104
(1990) 21 NSWLR 459
(1995) 184 CLR 281
(1989) 97 FLR 458
(1998) 196 CLR 494
(1996) 39 NSWLR 157
(1992) 8 WAR 42
(1995) 17 WAR 30
Order extending the operation of Pindan's caveat under s 138C until the establishment of a secured trust fund at the Challenge Bank to secure the disputed sum; upon presentation of evidence of establishment to the Registrar of Titles the caveat was to be discharged in respect of the whole of the land (para 22).