Redman Construction Pty Limited v Tarnap Pty Limited [2005] NSWSC 1011 | Case summary

7 On or about 7 December 2004, Redman lodged a caveat in respect of the Johnson Parade property. That caveat is not in evidence, but it is to be inferred that it claimed an interest under clause 31 of the contract; no other basis for a claim is apparent. Tarnap procured the issue of a lapsing notice which was served on Redman on 1 February 2005. Redman did not make any application for extension of the operation of that caveat, taking the view that the additional expense may prove unwarranted with the decision of the arbitrator pending. 8 On or about 23 March 2005, Redman informed its solicitors Trisley Kilmurray that Tarnap was intending to dispose of the Johnson Parade property. Mindful of Real Property Act, s 74O(2)(b), which deprives of effect any caveat lodged in respect of property claiming the same estate or interest as that claimed in an earlier caveat which has lapsed, Trisley Kilmurray on 23 March 2005 wrote to Tarnap seeking Tarnap's consent "to an order for security for costs or alternatively, whether it will consent to reissue a caveat over the property pursuant to clause 31 of the contract". 9 On 16 April 2005 an arbitrator made an award in the Local Court proceedings that Tarnap pay Redman $17,234 (inclusive of interest). Tarnap alleges that the award was erroneous and has filed an application for rehearing, and it is common ground that as a result of that application for rehearing, the award is of no effect. 10 In the absence of a response to their letter of 23 March 2005, Trisley Kilmurray in a further letter dated 20 April 2005 pressed for a response within seven days. There still being no response, Trisley Kilmurray by letter dated 2 May 2005 wrote:- We now assume your client will not consent to having a caveat lodged over the subject property and will not provide any security for costs or judgment. We confirm our client is prepared to provide such security if your client does the same. Accordingly, we have now arranged for a caveat to be relodged on the subject property and we advise that we will be making an application to the court for security for costs and seeking our professional costs associated with the same. … Please also be advised that should your client take any steps to have the caveat removed from the property prior to this matter being finalised, we shall be making an application to the Supreme Court to have the caveat extended and seeking our costs associated with the same on the basis that your client has failed to provide any other security and the contract contained a caveatable interest. 11 By letter dated 3 May 2005 the solicitor for Tarnap, Mark Evans, replied that he had not been able to obtain instructions in relation to the proposed security for costs, but sought details of what security Redman was prepared to provide. By letter dated 4 May 2005, Trisley Kilmurray responded that Redman would consider providing a similar amount for security as provided by Tarnap. 12 On 9 May 2005, Trisley Kilmurray for Redman lodged a caveat which was registered as AB482590 in respect of the Johnson Parade land. The caveat claims an interest described as "Contractual charge over site pursuant to building contract dated 23 September 2003 between C J Redman Constructions Pty Limited as builder and Tarnap Pty Limited as owner" by virtue of the facts "Pursuant to clause 31 of the said building contract, the balance of debt outstanding in the amount of $32,260.69 for work done and materials supplied to and on said parcel is claimed as a charge over the site". It is this caveat which is the subject of the present proceedings. 13 By letter dated 9 May 2005, Evans wrote:- I am instructed that my client will consent to your client placing a caveat over a property owned by Tarnap Pty Limited at Lot 44 James Scott Circuit, Lemon Tree Passage. The property is currently valued at $250,000. But our client's offer is conditional upon your client putting up similar security for costs incurred in this matter.

Please obtain your client's instructions in relation to this proposal. 14 Trisley Kilmurray responded by letter dated 10 May 2005, relevantly as follows: Our client does not agree to any contingency in relation to the caveat. That right arises directly from the contract. 15 On 20 June 2005, Trisley Kilmurray pressed the question of security for Redman's costs, proposed that each party should provide $40,000 security for costs, and foreshadowed an application for security by motion if Tarnap did not agree. Evans replied on the same date, confirming that Tarnap would consent to a caveat on Lot 44 James Scott Circuit. 16 On 8 July 2005, Redman made an application by notice of motion in the Local Court proceedings for security for costs in the sum of $55,000. That application was dismissed by a Magistrate on 18 August 2005. 17 Tarnap procured the issue of another lapsing notice pursuant to Real Property Act, s 74J, and served it on Redman on 16 August 2005. 18 On 31 August 2005, Mr G Smith of counsel, who appears for Redman, appeared before me as Duty Judge and obtained leave to file a summons claiming an order extending the operation of the caveat, and an abridgement of time for service making the summons returnable on 5 September 2005, when Mr Gruzman of counsel appeared for Tarnap and opposed the extension of the caveat, upon two grounds: first, that the caveat had no effect, by operation of Real Property Act, s 74O(2)(b); and secondly, that there being no award or judgment in force, clause 31 of the contract did not create a caveatable interest. 19 Real Property Act, s 74O, applies if a caveat lodged in respect of any particular estate or interest in land subsequently lapses, and the same caveator lodges a further caveat in respect of the same estate or interest and purporting to be based on the same facts, as the first caveat. Subsection (2) provides as follows:- (2) A further caveat to which this section refers has no effect unless: (a) The Supreme Court has made an order giving leave for the lodgement of the further caveat and the order or an office copy of the order accompanies the further caveat when it is lodged with the Registrar General, or (b) The further caveat is endorsed with the consent of the primary applicant or possessory applicant for, or the registered proprietor of, the estate or interest affected by the further caveat. 20 Neither party has put the first caveat in evidence before me. However, the correspondence to which I have referred warrants the inference, especially in the absence of evidence being adduced by Redman of the terms of the first caveat, that it was indeed in respect of the same estate or interest and based on the same facts as caveat AB482590. Accordingly, s 74O applies. 21 Caveat AB482590 was not endorsed with the consent of Tarnap, and the course of correspondence makes clear that such consent was not given. Nor was the caveat accompanied by an order of the court giving leave for its lodgement, nor is there any suggestion that any such order was made. It follows that by operation of s 74O(2), the caveat is of no effect. 22 Mr Smith asks that the court grant leave pursuant to s 74O(2) for the lodgement of the further caveat. The summons, and the amended summons, claims as well as an order extending the operation of the caveat, "such further or other order as the court may deem fit". Furthermore, the court may at any stage of proceedings on the application of any party give such judgment or make such order as the nature of the case requires notwithstanding that the applicant does not make a claim for relief extending to that judgment or order in any originating process: Civil Procedure Act, s 90; UCPR, r 36.1; Farrell v Mulroney [1978] 1 NSWLR 221, 224-225 (Rath J). If anything, the obligation of the court to endeavour to determine the real matters in controversy is accentuated by Civil Procedure Act, ss 58 ("Court to follow dictates of justice") and 60 ("Proportionality of Costs"). 23 The terms of s 74O(2), set out above, require that as a condition of the further caveat having effect, not only must the court have made an order giving leave for its lodgement, but the order (or an office copy of it) must accompany the further caveat when it is lodged with the Registrar General. The caveat was apparently lodged on or about 9 May 2005. No order that the court now makes could accompany the caveat when it was lodged. The terms of s 74O(2) are inconsistent with it being possible to grant such leave nunc pro tunc, or retrospectively. As Sperling J said in Hanover Investments v Registrar General [1999] NSWSC 21, the court has no power to make an order pursuant to the proviso to s 74O which would have retrospective effect, because that part of the proviso which requires that any order or an office copy must accompany the further caveat when lodged could not be complied with in the case of an order which purported to operate in relation to a caveat that had already been lodged, so that it could not have been intended that the court would have the power to make such an order which had effect in relation to a caveat already lodged. This view was followed by Hamilton J in McCulloch v Fern [2000] NSWSC 729, [7]. 24 However, notwithstanding that circumstance, it may be appropriate to give a leave to lodge a further caveat if the caveator would be entitled to an injunction to restrain transactions, it being preferable in the public interest to keep a caveat on the title rather than restrain by injunction the registered proprietors from dealing with the title: Bell v Mainbader Pty Limited (1991) BPR 21,031 (Young J); McCulloch v Fern, [9]. This is because, where there is a caveatable interest and the balance of convenience favours the maintenance of a caveat, so that an interlocutory injunction would be appropriate, the publicity provided by a caveat, so that the world may be warned of the interest claimed, is a more satisfactory way of maintaining the status quo than the simple grant of an injunction inter partes: McCulloch v Fern, [10]. In McCulloch v Fern and Hanover Investments v Registrar General the court made orders pursuant to s 74O(2) to enable a further caveat to be lodged, notwithstanding that the current caveat was one which was ineffective by operation of s 74O, having been lodged without leave or consent when leave or consent was required. 25 Accordingly, if, notwithstanding the conclusion I have reached that the caveat is deprived of effect by s 74O, I conclude that there is a caveatable interest, then I should proceed to consider whether the balance of convenience and other discretionary considerations favour the maintenance of the caveat, and if so grant leave to lodge a further caveat. 26 Whether Redman has a caveatable interest depends upon the construction of clause 31 of the building contract, in the events which have happened. For Tarnap, Mr Gruzman argues that there is no charge under clause 31, and no caveatable interest, unless and until a court or tribunal has made an order that the owner (Tarnap) pays an amount of money, payable under the contract, to the builder (Redman). For Redman, Mr Smith emphasises the words "may become payable" as contemplating the situation that the charge is intended to operate notwithstanding that moneys have not yet become payable under the contract, but might become payable in the future. 27 In Griffith v Hodge (1979) 2 BPR 9474, Waddell J (as he then was) considered a clause in a building contract which provided as follows:- The owner hereby charges the parcel of land on which, or on part of which, the works are to be erected, with the due payment to the builder of all moneys that may become payable to the builder by virtue of this contract, or otherwise arising from the carrying out of the works. 28 Following Helsham J (as he then was) in Graham H Roberts v Maurbeth Investments Pty Limited [1974] 1 NSWLR 93, Waddell J held that such a clause created an equitable charge over the land of the owner to secure payment of moneys owing to the builder. While the clause in question in Griffith v Hodge did not contain the words referring to "the extent that a court … has made an order" for payment which feature in the present case, it did contain the words "may become payable". In answer to a submission that if the builder claimed to be owed money under the contract he should not enter a caveat unless and until he had established his claim by arbitration and had a direction from the arbitrator permitting him to enter a caveat, Waddell J said that the interest in the land given by the clause did not depend upon it being established that at the time the caveat was entered there was in fact money owing under the agreement:- The interest in the land given by clause 30 does not depend upon it being established that at the time the caveat was entered there was in fact money owing under the agreement. The charge given by cl 30 extends to amounts which might become due in the future. The builder therefore had an interest in the land which he was entitled to protect against the possibility that moneys would become due and owing and enforceable under the charge in the future. Moreover, as a matter of construction, it seems to me that cl 26 is not in sufficiently wide terms to deprive the builder of his right under the general law to lodge a caveat to protect his interest in the land, as given by cl 30. Accordingly, in my view the defendant had an interest which he was entitled to protect by the lodgement of the caveat at the time when the caveat lodged. That interest continues until it is finally determined whether or not any moneys are owing by the plaintiffs to the defendant pursuant to the building contract. The defendant, however, is not entitled to maintain the caveat on the land indefinitely. He is only entitled to maintain it for such time as is necessary to determine the question of liability under the contract. 29 The words referring to the extent of the charge in the present case might arguably have the result that no charge arises at all unless an order of the type contemplated has been made, or alternatively might be construed only as defining the quantum of the charge. Use of the words "to the extent" favour the view that they relate to the extent, or quantum, of the charge, and not to its existence. The words of clause 31 are unconditional and present: they speak of a charge given by the owner upon execution of the contract, not of a charge which springs into existence at some future time when an order for payment is made. Moreover, the former construction would effectively deprive the words "may become payable" of any effect, whereas the latter permits the words "may become payable" to retain the effect described by Waddell J in Griffith v Hodge, while also giving effect to the words "to the extent … ", as words defining the quantum of the charge. Accordingly, the latter construction is to be preferred. 30 In my opinion, therefore, clause 31 gives Redman an interest in land which is not dependent upon it being established that at the time the caveat is lodged there was extant an order for payment of money owing under the agreement. The charge extends to moneys which may become payable under the contract and become the subject of a court order, in the future. Redman has an interest in the land which it is entitled to protect against the possibility that moneys will become enforceable under the charge upon an order being made in the future. At the least, that view is a seriously arguable one. 31 As to the balance of convenience, one has to balance the "convenience" of the registered proprietor being able to deal with the land, with the "inconvenience" of the caveator's claim losing priority to any interest which might be created by the registered proprietor. While, at least in this State, it is for the caveator to show that the balance of convenience favours leaving the caveat in place pending the hearing of the proceedings [Kingstone Constructions Pty Limited v Crispel Pty Limited (1991) 5 BPR 11, 987; Dunecar Pty Limited (in liq) v Colbron [2001] NSWSC 1181, BC200107963] - whereas, in Western Australia, the approach prevails that, where a caveator establishes a serious question to be tried, the caveat should remain unless the balance of convenience favours removal [Custom Credit Corporation Limited v Ravie Nominees Pty Limited (1992) 8 WAR 42; Western Australian Real Estate Custodian Pty Limited (receivers and managers appointed) v Chesson [2005] WASC 33; BC200500982)] - there is in practice little difference between these positions. As Young J (as he then was) said in Kingstone Constructions Pty Limited v Crispel Pty Limited (NSWSC, Young J, 12 March 1991), normally, when a caveat is proper in form and substance it will be retained even though this will cause harm to the registered proprietor: after all, the whole purpose of a caveat is to enable a brake to be put on the registered proprietor's dealing with his or her property, so as potentially to confer indefeasibility on another, while the claim of the caveator is resolved. 32 Here, declining an injunction (or leave to lodge a further caveat which is effectively the same thing) would permit Tarnap to deal with the Johnson Parade property free of Redman's claimed interest, which would result in that interest being potentially wholly defeated. 33 Tarnap has tendered evidence that Redman's licence under the Home Building Act has been cancelled. That cancellation appears to have taken effect on 4 September 2004. The cancellation of that licence does not bear on the "inconvenience" to Redman which would arise from the charge securing Tarnap's alleged debt to it to being defeated by other dealings by Tarnap. 34 An attempt was made to show that Tarnap had assets other than the Johnson Parade property. Assuming that it does, and assuming the availability of sufficient equity to meet Redman's claimed debt, the existence of other assets, over which Redman does not hold security, is, as a matter of the balance of convenience, no substitute for the loss of an existing security - an unsecured debt is obviously inferior to a secured debt. 35 Moreover, Tarnap did not adduce any evidence that it would suffer any hardship or difficulty if an injunction were granted. Further, any leave granted to lodge a further caveat will be framed in a manner which preserves Tarnap's right to test any further caveat on relatively short notice, including if any event occurs which may impact on the balance of convenience. 36 Accordingly, the balance of convenience plainly favours the grant of an injunction. And for the reasons mentioned above, including by Hamilton J in McCulloch v Fern, that course is preferably achieved by the grant of leave to lodge a further caveat. 37 The orders which I shall make shall reserve leave to Tarnap to apply by notice of motion for removal of any further caveat. The purpose of reserving that leave is that, in recognition of the interlocutory nature of the current application, Tarnap should not be precluded from disputing any new caveat until any final hearing, and should also be permitted to do so should there be any development bearing on the balance of convenience. Reserving leave to apply in that respect by motion is not intended to preclude Tarnap from obtaining and serving a further lapsing notice if so advised. 38 As to costs, on the substantive issue as to whether it has a caveatable interest, Redman has succeeded. However, it has required the leave of the court to lodge a further caveat, in circumstances where the caveat which it sought to sustain was of no effect. Tarnap, while it has succeeded in resisting the extension of the operation of the existing caveat, has failed on the substantive issue as to whether Redman has a seriously arguable case for a caveatable interest. While Mr Gruzman argues that Redman did not claim in its summons or amended summons an order under s 74O(2), it was clear from early in the hearing that such leave was sought. The justice of the case will be met if costs of the interlocutory application are costs in the cause. 39 It was for the foregoing reasons that, on 5 September 2005, I made the following orders:-

Redman Construction Pty Limited v Tarnap Pty Limited

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Judgment (19 paragraphs)

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