Renascent v ASEL [2002] NSWSC 345 | Case summary

1 The plaintiff is a building contractor which has before the Court two applications relevant to building work in relation to a property in Clarence Street, Sydney, of which the defendant is the owner. 2 First, the plaintiff seeks an order under s.74K of the Real Property Act extending until the further order of the Court the operation of caveat no. 8032326 affecting the title to the defendant's property. 3 Second, the plaintiff seeks orders removing into this Court, in the Construction List of the Equity Division, certain proceedings between the parties in the District Court arising from disputes over the building work at the Clarence Street site. 4 The estate or interests which the plaintiff has asserted in support of its caveat is said to arise under the building contract itself, which is in evidence. The relevant clause is clause 10.17.2 by which the proprietor, which is the defendant, charges its interest in the site with the payment to the builder, which is the plaintiff, "of all monies certified by the architect or otherwise payable under this agreement". 5 It follows that, to be within the scope of this clause, monies must be payable under the agreement, that is to say the building contract, either by virtue of a certificate of the architect or in some other way. It is the "or otherwise payable" aspect on which the plaintiff as builder relies. 6 The plaintiff's claims as they now exist and arise from the building contract are reflected in the District Court statement of claim, which is in evidence. The maximum sum applicable to the claims as pleaded is $48,036 disregarding any interest elements. 7 The claims arise under two headings. First, there is a claim for the cost of variations not paid by the defendant, and that covers a sum of $13,036. Second, there is a claim referable to extensions of time, including those produced by variations, which amounts to $35,000. 8 The alternative claim in the District Court statement of claim, to the extent that it involves a monetary claim, refers to a sum less than the aggregate of $48,036 to which I have referred. 9 I have been taken by counsel for the plaintiff to various matters in the contract and elsewhere to show the validity of the claims reflected in the District Court statement of claim. 10 For present purposes, I do not believe I need to go into the finer detail of those matters, and I certainly do not need to decide the questions which it will be necessary to decide when the proceedings themselves are heard. Given the nature of the application as it affects extension of the caveat, I can dispense with any need to go into that detail. 11 I am satisfied that clause 10.17.2 creates an equitable charge affecting the defendant's property, or at least I am satisfied that there is a sufficiently arguable case for present purposes. I am also satisfied that the plaintiff has a sufficiently arguable case that monies of some amount are secured by that charge. That being so, the plaintiff is entitled to maintain its caveat subject to factors relevant to the balance of convenience, to which I now turn. 12 The chief factor there, and the one upon which emphasis came to be placed more heavily as the hearing proceeded, is the defendant's expressed and continuing willingness to give appropriate substitute security in the form of payment of monies into Court. In other words, the defendant has expressed a willingness to make a payment into Court to abide the determination of the District Court proceedings as the price, as it were, of being relieved of the situation where its title is burdened by the plaintiff's caveat. 13 I have been taken to a number of decided cases and I will quote some extracts. First, in Kingstone Constructions Pty Ltd v Crispel Pty Ltd, (1991) 5 BPR 11,987, Young J said: "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 proprietors dealings with his property whilst the claim of the caveator is resolved".

His Honour then referred to his own decision in Gibson v Co-ordinated Building Services Pty Ltd (1989) 4 BPR 9630. 15 Young J reiterated similar principles regarding balance of convenience most recently in Dunecar Pty Ltd (In Liq) v Colbron [2001] NSWSC 1181 where he said: "The caveator has to show, in my view, that the balance of convenience favours leaving the caveat in place pending the hearing of the proceedings. In many cases if the caveator will not accept a substitute security then it is a case where the caveator has not demonstrated the balance of convenience and the caveat will go." 16 In light of these principles and the facts of this case, the issue before me resolves itself into a question about that aspect of the balance of convenience which is concerned with substitute security. As I have said, the defendant has made it clear that it is prepared to provide substitute security by way of payment into Court. The real issue is as to the appropriate amount. 17 I asked counsel for the defendant how much the defendant was prepared to pay into Court. The response was to the effect that the defendant did not wish to nominate a sum, and I think that that is an appropriate response. The plaintiff has provided some calculations which I will go through, referring in particular to the matter of interest and legal costs. 18 The sum the plaintiff identifies is the sum of $150,000. It is made up of four components. The first is a sum of $48,000 which reflects the District Court claim; the second an amount of $57,600 for legal costs of the litigation in the District Court; the third an interest component of $20,000; and the fourth what counsel for the plaintiff described as a contingency for risk from the unsecured position, which has been included at a figure of $25,000. 19 The interest figure of $20,000 is an approximation and has been calculated by reference to the terms of the building contract. The provision for interest in the building contract is at clause 10.5, which causes interest to be payable on sums due by the proprietor at a rate which is 1.25 times the highest applicable Commonwealth Bank Bankcard rate. There is some difficulty with the interpretation of this description, but for present purposes it has been accepted by the parties that the reference is to a rate per cent per annum which is 1.25 per cent per annum higher than the rate per cent per annum which is the Commonwealth Bank Bankcard rate for the time being charged. For approximation purposes, that is somewhere in the order of 18 per cent per annum or 19 per cent per annum and it is at that rate applied to the claim of $48,000 and the legal costs figure of $57,600, that the interest figure of $20,000 approximately, for two years, is derived. 20 Turning to the legal costs figure of $57,600, there is evidence from the plaintiff's solicitor about his estimations and calculations of costs which will be incurred in the prosecution of the District Court proceedings. There is, however, a question about whether those costs are secured by the charge in the building contract. When I say there is a question, what I really mean is that, on the face of things, those costs could only be covered by the charge if they were properly described as monies "payable under this agreement", so, in the absence of any clause being identified which entitles the plaintiff under the agreement to reimbursement or recoupment of legal costs, the charge does not apply. 21 But that, to my mind, is not an end of the matter, even if it be correct. In his decision in Gibson v Co-ordinated Building Services Pty Ltd (above), Young J considered a similar situation involving a proposal that money be paid into court as a basis for removal of a caveat in circumstances where litigation was in progress over a building dispute. Of relevance is his Honour's statement as follows at page 9633: "The builder has been given a contractual right to maintain a caveat. If that contractual right were maintained you would in effect be able to maintain his caveat up until the hearing of the building case and ensure that no other dealing was registered with respect to the land. This would give the builder a considerable advantage even though his security was only in respect of the claim and not the costs. Where the owner seeks to remove that caveat then it seems to me that it is only conscionable that the owner ensure that the builder is not disadvantaged by the court giving the owner the boon of providing a substitute security. Accordingly, having now heard submissions for and against the proposition I adhere to what I said in Venious v Machon . The builder is entitled if there is to be a substitute security to such security as will secure him not only for the claim but for the reasonable costs of litigation." 22 I note that the clause creating the equitable charge in that case was wider in its operation than the present clause. Nevertheless, as I read his Honour's comments, he was influenced not by the fact that the legal costs were secured by the charge - indeed, I do not think he decided that point - but more by the need to ensure that someone whose caveat is in effect taken away from them in circumstances where there is a right to maintain it should be treated in a way which does not prejudice any of his potential claims, including a claim for costs. 23 In the present case, therefore, even though clause 10.17.2 does not extend to legal costs, those costs are nevertheless to my mind an appropriate element in the calculation for the purposes of determining the amendment for which substitute security should be given. 24 Finally, there is the contingency for risk from the unsecured position, the purpose of which is clear enough. The present situation is one where, according to the evidence, the building concerned may have a value of over $25 million. There is some incongruity in a building of that value being security for a claim for $48,000, but that is the bargain into which the parties have entered. If that very considerable margin of security is to be taken away from the plaintiff, it is in my judgment entitled to something by way of a cushion over and above the bare elements of the calculation of the financial exposure it faces. 25 Counsel for the defendant challenged some of the components of the plaintiff's calculation. To the extent that he sought to challenge any of the items that go to make up the $48,000 District Court claim, I do not consider this to be the time or place to resolve those points. I think the $48,000 as claimed could, for present purposes, be taken as it is found. 26 As to the legal costs of $57,600, the defendant submitted that $40,000 might be more appropriate, but there has not been any move to analyse and question item by item the various matters in the solicitor's affidavit. 27 The interest factor of $20,000 was the subject of submissions, not as to the rate but as to the period for which it should be taken into account. Two years, the defendant says, is probably too long to think that the proceedings will continue, and one year would be a more realistic estimate, particularly if, as the plaintiff seeks and I think the defendant does not oppose, the District Court proceedings are removed into this Court, which, I might say, I am disposed to order. I shall approach the mathematics on that basis. 28 The defendant also disputes the need for any contingency for risk from the unsecured position. For reasons I have stated, however, I consider that component to be appropriate. 29 I do not think there is a need for the court to go into fine details of calculation here. It is sufficient to say that I would make only one adjustment to the plaintiff's calculation, which would be to allow interest only for one year, rather than two years, particularly in view of the impending removal into the Construction List of this Division. 30 The defendant has foreshadowed that it will request a direction under Part 50 rule 5 of the Supreme Court Rules that the monies paid into court be invested. I indicated, and I think there was no demur, that the appropriate form of investment would be that in paragraph (f) sub-paragraph (i), an interest-bearing deposit in a bank authorised to carry on the business of banking under any law of the Commonwealth. As an adjunct to that, the defendant has foreshadowed an application for an order allowing interest to be paid on the monies in Court under Part 50 Rule 6(2), that interest being the equivalent of the interest earned by the bank deposit ordered under Part 50 Rule 5. 31 The defendant says that interest thus to be generated should be credited against the interest component to be included in the sum paid into court. I agree. Again, not being in the territory of precise calculations, if one takes the bank deposit rate as being, say, 4 per cent, that would reduce the applicable interest rate from 18 per cent or 19 per cent to 14 per cent or 15 per cent, and I am content to adopt 15 per cent. 32 In the result, therefore, the proceedings, so far as they involve the caveat, should be resolved on the basis that the caveat is not extended, provided that the defendant pays into Court to abide the outcome of the proceedings currently in progress in the District Court, a sum made up of the aggregate of $48,000 for the sum claimed in the District Court statement of claim, $57,600 for the possible legal costs, interest on $48,000 for one year at 15 per cent being $7,200 and the contingency for risk from unsecured position of $25,000. The aggregate figure is therefore $137,800. 33 In relation to the notice of motion seeking removal of the District Court proceedings into this Court, I make orders 1, 2 and 3 in the notice of motion. At this point I will not make order 4 because the costs of today as to both aspects are something to be further considered. 34 As to the caveat, it is appropriate that its extension be ordered pending the making of an order for the payment of $137,800 into court. The matter can come back before me for the making of that order when the defendant has made the necessary arrangements for payment. I make orders in accordance with the short minutes which I initial and date. **********

Renascent v ASEL

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