Plaintiff v First Defendant

Supreme Court of Victoria|2012-02-02|Before: J FORREST J

REAL PROPERTY - Caveat - Application to remove caveat - Transfer of Land Act s 90(3) - Whether estate or interest in land.

**1 This is an application made in the Practice Court by the plaintiff Polidoro Developments Pty Ltd[1] pursuant to s 90(3) of the Transfer of Land Act 1958 (Vic). It seeks to remove a caveat lodged by the first defendant Mr Fred Hayek over a property in Kett Street, Lower Plenty.

2 The guiding mind of PD is Mr Remo Polidoro. He and Mr Hayek have fallen out over their joint venture in the development of the property which involved the construction of six units (now completed and occupied), three of which are the subject of contracts of sale.

3 The primary issue agitated before me is whether the joint venture agreement between PD and Mr Hayek gave Mr Hayek an interest in land and thus the basis for the lodging of the caveat. A secondary point arises in relation to the form of the caveat.**

**4 The affidavit material filed reveals many issues which cannot be resolved until trial. However, I think the following matters are not in issue.

5 The property was the subject of a transfer by Myrtle Turnbull to Grandell Pty Ltd[4] on 21 November 2008. Grandell became and remains the registered proprietor. It is the corporate vehicle of a developer, Mr Robert Elliot who is an associate of both Mr Hayek and Mr Remo Polidoro.

6 Notwithstanding that Grandell remained the registered proprietor, PD and Mr Hayek entered into a joint venture to develop the property by constructing six units. I shall return to the terms of the joint venture agreement (which was oral) in a moment.

7 On 17 June 2010, Mr Polidoro entered into a contract of sale with Grandell to purchase the property.

8 On 22 June 2011, PD (as the nominee of Mr Polidoro) settled the purchase and a transfer from Grandell to PD was lodged with the Registrar of Titles.

9 On 4 July 2011, Mr Hayek lodged a caveat in relation to the land in the following terms:**

Estate or interest claim: An equitable interest in fee simple

Grounds of claim: As beneficiary under an implied, resulting or constructive trust.

**10 In July 2011, a writ was issued in the County Court by Mr Hayek against Grandell, Mr Polidoro and PD in relation to Mr Hayek's alleged entitlement to the proceeds of the joint venture.

11 On 19 January 2012, PD issued this proceeding to remove Mr Hayek's caveat.**

The construction of the units and their occupancy

12 Although there is an acrimonious dispute between Mr Hayek and Mr Polidoro as to the nature of the work performed by Mr Hayek on the construction of the units, the following matters seem clear (and I make the following findings of fact):

(a) that the original arrangement was for Mr Hayek to act as the builder of the units with PD financing the purchase of the land;

(b) that Mr Hayek was the registered builder nominated on the building permit dated May 2010;

(c) that Mr Hayek administered and supervised building works on the site from June 2010 and contributed amounts of money by way of payment for materials and subcontractors working on the site. There is a dispute which I cannot resolve, as to the amount spent by Mr Hayek on the job, as well as his contribution in terms of time and effort;

(d) by roughly the middle of 2011 the units were completed and each is now occupied; and

(e) three of the units are now the subject of contracts of sale by PD which cannot be completed whilst the caveat is in place.

13 In Mr Hayek's affidavit, he set out the terms of the joint venture agreement as follows:

Given the close friendship I had with Remo, I reluctantly agreed to request that Grandell sell the property to the new joint venture between myself and Remo. Robert Elliot of Grandell agreed to sell the property to the joint venture for $1.1 million with interest accruing at 15% per annum from the date that the request was made until the date of settlement had occurred from Grandell to the Kett Street Joint Venture. To assist Remo in obtaining the necessary funds, it was decided to have the Contract of Sale to the Kett Street Joint Venture put in the name of Remo Polidoro and/or nominee. The initial agreement between myself and Remo was that an Australian company would be incorporated to be the nominated company at the time of the settlement. In summary, the agreement for the Kett Street Joint Venture between Remo and myself was reached mid-2009 and the terms included (the "Kett Street Joint Venture Agreement"):
1. I would secure the Contract of Sale of the land from Grandell Pty Ltd to the Kett Street Joint Venture under the name of Remo Polidoro and/or nominee;
2. Remo Polidoro would provide the funding for the construction of the 6 town-house site. Remo was to contribute $600,000.00 of his own funds and that the bank would finance the balance of the construction finance of approximately $600,000.00 bringing the total construction cost to a total of $1.2 million;
3. I would be the registered builder for the site and build the project under my licence as Remo was not a registered builder nor licenced at the time. It was agreed that I would receive a heavily discounted rate of $2,000.00 per week as part of the construction cost to site manage and build and that any works I would complete myself would be paid for at a market rate as a construction cost.
4. The profit of the sale of the units at the Kett Street Joint Venture, after paying my fees and costs, would be shared equally which we estimated at the time to be one town house each.

...I was aware that the tradesmen were not being paid and that is why I contributed $124,000 of my own funds to the project as deposed earlier in this affidavit. My relationship with Remo deteriorated because he did not have the promised funds to complete the project, sold a unit to his brother for $100,000 less than the market value, and added over $100,000 worth of improvements and variations to Unit 6 (his unit) and Unit 5 (his brother's unit).

14 Counsel for Mr Hayek's also relied upon part of Mr Polidoro's affidavit:

We agreed in or about the end of March or early April to proceed to develop the Site together ("the project") as set out above and agreed that Fred would be the onsite supervisor of the project under my builder's license. I would supply the frames and trusses at my normal commercial rates and provide all the administrative support. We agreed that we would fund the project equally and share the profits. We did some due diligence calculations and agreed to contribute $600,000.00 each and the bank would finance the balance of construction finance required to complete the project. We concluded that we would make a profit of one unit each which we estimated would be approximately $650,000.00 each. Fred made it all sound easy as he was an experienced builder and had claimed to have done all this before. We agreed that he could use an office at my main business premises at Factory 4, 212 Newlands Road Coburg, as his office for this development.

15 In Piroshenko v Grojsman & ors,[5] the Chief Justice set out the applicable principles in an application under s 90(3) of the TLA. It suffices to extract her Honour's conclusions in relation to the obligations of the caveator in an application:

Therefore, consistently, in order for a caveator to satisfy the first limb of the test applied by the courts when deciding applications under s 90(3) of the Act, he or she must satisfy the court that:

1. there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and

2. that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.

...

In may be that the courts in Victoria are already deciding applications under s 90(3) by reference to this new, higher test. However, the language used is apt to confuse. For example, the test has been phrased as requiring a caveator to demonstrate "that there is a prima facie case or serious question to be tried". [emphasis added]. In order to avoid confusion as to the burden which must be discharged by the caveator, it may be that the courts would be better served by talking of a 'prima facie case giving rise to a serious question to be tried' or even 'a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat' when deciding such applications.

Finally, it should be noted that the onus which the caveator must discharge is an onus with respect to an interest or rights in land. Caveats are not a 'bargaining chip'. It is not sufficient for the caveator to establish a prima facie case that they have contractual, equitable or statutory rights against the caveatee; their interest or rights must attach to the property with respect to which the caveat has been lodged. [6] (emphasis added)

16 As Macaulay J explained in Percy & Michele Pty Ltd v Gangemi:[7]

The reference to "probability" in the first limb of what her Honour said[8] must be satisfied is plainly qualified by the character of that probability as described in the second limb. Recalling what the High Court said in Australian Broadcasting Commission v O'Neill, showing a "prima facie case" does not mean that a plaintiff must show that it is more probable than not that he or she will succeed at trial.[9]

Does Mr Hayek have an interest or right which attaches to the property?

**17 This was the substantive dispute between the parties. Counsel for PD contended that on Mr Hayek's own material, the joint venture provided for a share of the profits and did not provide for any interest in the property.

18 Mr Hayek's counsel did not contend that any such right arose out of dealings with Grandell; however he asserted that the affidavit material supported an inference that Mr Hayek had an interest in at least one of the units. Counsel for Mr Hayek contended that the evidence I have set out in paragraphs [13] and [14] amounted to an agreement that provided for Mr Hayek to have an interest in one of the units. He went on to say that Mr Hayek would have not expended his labour and funds for over one year if his only entitlement was to a share of the profits rather than having an interest in the property itself.

19 In the context of the lodging of a caveat, there is authority both in this State and in New South Wales to the effect that it is necessary in any claim relating to a share of the profits from the sale of land to establish that there was an intention on the part of the parties to create an interest in the subject property: Epple v Wilson,[10] Simons v David Benj Motors Pty Ltd[11] and Luxury Homes Pty Ltd v Danieli & anor.[12] It is only necessary for the purpose of this exercise to extract what was said by White J in the most recent of those decisions:**

In Epple v Wilson, it was held that an interest in the proceeds of the sale of land does not necessarily involve an interest in the land itself, even where there is a trust for sale. In Simons v David Benge Motors Pty Limited, it was held, following Epple v Wilson, that an agreement to share the profits of resale of land, did not confer on the lender of the moneys an interest sufficient to support a caveat. The position may be different if the plaintiff has a right to have the land sold and to have the proceeds divided, being a right which the plaintiff could enforce by an order for specific performance.[13]

**20 In my opinion, the argument of PD should be accepted. Mr Hayek must point to a prima facie case demonstrating an interest attaching to the land or to the units. But the evidence from Mr Hayek does not go that far. At best it reveals an agreement to share the profits which are estimated to be in the region of $600,000.00 - being the asserted value of one unit. I accept that he may have set up the joint venture with Mr Polidoro but that in itself does not amount to an interest in land. Nowhere in either affidavit can it be said that there was an agreement that Mr Hayek would have an interest in one of the constructed units or an interest in the property itself. Rather, the agreement was for a share of the profits as evidenced by paragraph 5(iv) of Mr Hayek's affidavit. The reference to "a profit of one unit each" does not mean this was an intended interest in the property or a unit; rather, I conclude that this was an estimate of the level of profit that might be achieved on the deal. It would have been far different if the agreement, in terms, allocated one unit to each of the joint venturers.

21 For two reasons I do not accept the argument that Mr Hayek would not have carried out his work on the site and expended money unless he thought his work would be secured by an interest in one of the units. Firstly, he failed to say so in his affidavit. Rather, I am asked to infer this merely from the fact he worked on the site and expended money. Secondly, I doubt very much whether the question of his work being secured by an interest in land ever crossed his mind. It is not surprising that it is not referred to in his affidavit.

22 I also do not accept that the offer to resolve the dispute contained in a letter from PD's solicitors to Mr Hayek's solicitors amounted to a concession that Mr Hayek had an interest in land. Rather the offer - to permit Mr Hayek to maintain a caveat over two of the units once the plan of subdivision was registered - was a sensible offer to resolve an impasse which was affecting the commercial disposition of the units.

23 In summary, Mr Hayek has established a prima facie case as to both a contractual and equitable entitlement in relation to a proportion of the funds received from the sale of the units. However, I am not persuaded that he has raised a prima facie case that his interest attaches to the property or any of the units constructed on the land sufficient to justifying the caveat remaining on the title.

24 It is not necessary to deal with the second limb of PD's argument - the form of the caveat.**

25 By the time this application was made counsel for Mr Hayek did not contend that the balance of convenience favoured the maintenance of the caveat. Rather, he suggested that any order made discharging the caveat in its present form should allow for caveats to be lodged over one or two of the units once the plan of subdivision is registered. The balance of convenience clearly points to removal of the caveat.

26 Subject to hearing from counsel, I propose to make orders removing of a caveat No AJ050883C from the register.

[3] The second defendant, the Registrar, as is customary, took no part in the hearing of the application.

[8] At [18] of the judgment in Piroshenko v Grojsman & ors.

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