Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSCA 345

1 Greenvale Property Group Pty Ltd ('Greenvale') applies for an order directing Sim Development Pty Ltd ('Sim') to withdraw a caveat Sim has lodged on the land known as Unit 3, 617-643 Spencer Street, West Melbourne, Victoria ('the land').[1] Sim has filed a notice objecting to the competency of the application.

2 Greenvale is the registered proprietor of the land. Sim provided consultancy and management services in relation to a proposed townhouse development ('the project') on the land pursuant to a consultancy and management agreement dated 29 May 2013 ('the agreement'). On 10 July 2015 Greenvale sent an email notifying Sim of its intention to terminate the agreement with effect from 28 August 2015. On 15 July 2015 Sim lodged the caveat[2] over the land ('the caveat') to secure the moneys alleged to be owed to it by Greenvale pursuant to the agreement. On 31 July 2015 Sim rendered an invoice to Greenvale for $380,280 in respect of fees and services provided to Greenvale for the period up to and including 10 July 2015. That invoice not being paid, Sim brought a proceeding (proceeding S ECI 2016 000034) in the Trial Division claiming the sum of $380,280 from Greenvale under the agreement ('the principal proceeding'). This related to claims for: (1) services rendered at the contractually agreed rate of $330 per hour; and (2) outstanding monthly payments of $5,000. Sim sought further relief including a declaration that it is entitled to 20 per cent of the net profit to be realised on the sale by Greenvale of the properties associated with the project. Greenvale also counterclaimed in the principal proceeding with respect to the presence of an electricity substation on the land.

3 Greenvale brought a separate proceeding (proceeding S CI 2016 00373) under s 90(3) of the Transfer of Land Act 1958 ('the TLA') seeking, amongst other things, an order directing the Registrar of Titles to remove the caveat immediately.[3]

4 In the principal proceeding the judge held[4] that Sim was entitled to payment of $152,600.03 but otherwise dismissed Sim's claims.[5] With respect to the counterclaim, the judge held that Greenvale was entitled to payment of the sum of $20,000 but the counterclaim was otherwise dismissed.

5 Sim has brought an application for leave to appeal from the orders in the principal proceeding and in that appeal seeks orders that:

(1) Greenvale pay Sim the sum of $380,280;[6]

(3) A declaration that Sim is entitled to 20 per cent of the net profit on the sale of the properties at 617-643 Spencer Street, West Melbourne to be calculated in accordance with cl 7.4 of the agreement;

(4) Greenvale to pay Sim's costs of the claim and the counterclaim.

6 The judge dismissed the caveat proceeding and Greenvale has not sought leave to appeal against that order.[7]

7 In dismissing the proceeding for the removal of the caveat, the judge identified cl 16(c) of the agreement as 'disclos[ing] a common intention of the parties that the [land] should constitute a security with respect to any unpaid monies owed to [Sim], in the event of termination prior to completion of the proposed development'.[8] Clause 16(c) reads as follows:

16 Consequences of termination

Upon termination of this agreement:

...

(c) if the termination is prior to the Completion of the Project [Greenvale] gives [Sim Development] the right to register a charge over the property in [Item 6] of the Schedule and any other property owned by [Greenvale] and such charge is to be applied to the payment in full of any money owed to [Sim Development];

...[9]

8 The judge went on to explain how the contractual right to register a charge, in the event of termination, supports the existence of a caveatable interest. He said:

Moreover, whilst Clause 16(c) does not specifically adopt the language of lodging a caveat, its reference to the concept of registration, and lack of sufficient indication to the contrary, would support the conclusion that Clause 16(c) does give rise to a caveatable interest.[10]

9 He rejected the view that Sim had lodged the caveat without reasonable cause:

It follows from my earlier conclusion as to the effect of Clause 16(c) of the [agreement] that Greenvale has failed to discharge its onus to demonstrate that Sim Development lacked reasonable cause for lodging the Caveat. I also find that, at the time of lodging the Caveat, Sim Development held an honest belief based on reasonable grounds that it had a caveatable interest in the Property. In any event Greenvale has failed to establish any loss.

The application for orders granting removal of the Caveat pursuant to s 90 of the TLA and for compensation pursuant to s 118 of the TLA must fail.[11]

10 As noted above, there has been no application made by Greenvale for leave to appeal from the dismissal of the proceeding for the removal of the caveat. Instead Greenvale has brought an interlocutory application in the application brought by Sim for leave to appeal from the orders made in the principal proceeding. The interlocutory application seeks an order directing Sim to withdraw its caveat upon a payment of the judgment sum, $152,600.03, being made into an interest-bearing account of Greenvale's solicitors. The terms of the order sought are as follows:

Upon the respondent [Greenvale] paying the sum of $152,600.03 into an interest bearing bank account in the name of its solicitors and giving an undertaking not to enter into any contract to sell the land referred to below before the conclusion of the applicants' [Sim, and Hong Cai, the second applicant] application for leave to appeal and any appeal, an order directing the first applicant [Sim] to provide the respondent [Greenvale] with a duly executed withdrawal of caveat no. AM032772N lodged on the land situate at and known as Unit 3, 617-643 Spencer Street, West Melbourne, Victoria, being the land described in Certificates of Title Volume 09767 Folios 984, 996, 997, 998, and 999 and Volume 09798 Folios 000, 001 and 002.[12]

11 Greenvale relies upon s 10(3) of the Supreme Court Act 1986 which provides that the Court of Appeal may, in 'proceedings' before it, 'exercise every jurisdiction or power of the Court'. Greenvale submits that the Court has both the jurisdiction and power to hear the caveat removal application as there is a relevant proceeding before the Court, namely Sim's application for leave to appeal from the orders made in the principal proceeding. It claims that the practical reality is that Sim's application for leave to appeal has lifted the controversy from the Trial Division to the Court of Appeal and part of that broad controversy relates to the caveat.

12 Sim, in response, submits that this Court does not have jurisdiction to hear Greenvale's interlocutory application as the only relevant proceeding before the Court, pursuant to s 10(1) of the Supreme Court Act, is the application for leave to appeal that Sim has brought and which does not concern the maintenance of the caveat. It submits that the application for withdrawal of the caveat should be discontinued in this Court and brought before the Trial Division.

13 We consider that this Court does have jurisdiction to hear the interlocutory application brought by Greenvale and that it is a competent application. We consider that it is appropriate that the application for the withdrawal of the caveat be brought in the Court of Appeal.

14 The application for leave to appeal brought by Sim challenges the sum arrived at by the judge as the unpaid amount of 'money owed to' Sim within the meaning of cl 16(c) of the agreement. The existence and quantum of an amount of 'money owed to' Sim is at the heart of Sim's application for leave to appeal and enlivens the right under the agreement to register a charge over the land. It is the foundation of the caveatable interest. The caveat reflects the common understanding of Greenvale and Sim, as reflected in the agreement, as noted above,[13] that the land 'should constitute a security with respect to any unpaid monies owed to [Sim]'.

15 If leave were to be granted, and the appeal allowed, and the sum of $380,280 substituted for the sum of $152,600.03, the extent of Sim's security interest in the land, pursuant to cl 16(c) of the agreement, would increase from $152,600.03 to $380,280.[14] In those circumstances, we consider that the question of the maintenance, or removal, of the caveat is sufficiently closely connected to the substance of the application for leave to appeal before this Court that it is appropriate that any interlocutory application be dealt with in this Court. For the same reasons, we consider that this Court has jurisdiction and power with respect to the application for the withdrawal of the caveat and that there is otherwise no deficiency in the competency of the application. We do not consider that the application should be made in the Trial Division; the matter is now in the Court of Appeal and this Court should deal with it.

16 Furthermore, we consider that it is irrelevant that there is no appeal from the orders made in the caveat proceeding. The application Greenvale makes involves different circumstances from those before the judge; it involves an offer to pay the judgment sum into an interest-bearing account. There is no challenge to the finding that Sim had a proper basis for lodging the caveat. Greenvale rather relies on a change in circumstances to support its interlocutory application.

17 Some of these observations are relevant to the question of the merits of the withdrawal application.

18 Greenvale submits that it has the benefit of various costs orders from the date of its second Calderbank offer which, when quantified, may equal or exceed the sum of $152,600.03. It submits that it should be entitled to set off those costs orders against the judgment sum ordered by the judge. It resists paying the judgment sum directly to Sim now because it says Sim is a shell company with no assets and it is concerned that if it makes payment it will not be able to recover a later quantified costs order in its favour. It claims that cash in a bank account is better security than an equitable charge over the land, a submission that was emphasised again this morning. It is also prepared to give an undertaking that it will not enter into any contract to sell the land before the conclusion of the application for leave to appeal, and any appeal.

19 With respect to the issue of costs, Sim disputes the claim that once the costs have been taxed the amount due to Greenvale may exceed the amount Greenvale is due to pay to Sim. Sim has appealed the costs order made by the judge with respect to the effect of the Calderbank offer, including challenging the validity of the relevant Calderbank offer.

20 Greenvale submits that the caveat is impeding Greenvale's efforts to obtain finance and its plans to develop the land. It relies on the affidavit of Greenvale's director, Mr Li,[15] who deposes that to fund the proposed new development on the land, a large construction finance facility will be required to be provided by the Commonwealth Bank of Australia ('CBA') or another financier, and that CBA requires Greenvale to remove the caveat in order for Greenvale to extend its current facility with CBA and also to apply for further finance.

21 To this Sim responds by submitting, we consider correctly, that it is the equitable charge which the caveat protects, rather than the caveat itself, which (if anything) might bear upon the willingness of a lender to finance the new project.

22 Greenvale also relies upon the affidavit of Mr Li and a more recent affidavit of Gary Kyriacou[16] to support its submission that the caveat needs to be removed for the lodgement of new plans, an amendment to the title and a subdivision of the land. Mr Kyriacou deposes that his firm has drawn up new plans that will involve an amendment to the title to the land so that the proposed townhouses make better and higher yielding use of the space than did the previous plans and permit obtained by the firm Sketch Building Design, engaged by Sim when it was the development manager/project manager for the land. He also states that on or about 20 September 2017 his firm lodged a new planning permit with the City of Melbourne. He states that while the planning permit application is under way, it is also necessary for Greenvale to take steps to have the title amended so that the new townhouses can be built on the land. He states that the new townhouses he has designed cannot be built without amendment to the title.

23 He recognises, however, that the title amendment process will involve entering into negotiations with owners in the owners' corporation relevant to the land in order to obtain their consent. Moreover, it was accepted this morning that the planning process can continue in the face of the maintenance of the caveat and the planning process can be long. Counsel for Greenvale also observed that the court process may not be resolved until the second half of next year.

24 In response, Sim submits that the evidence relied upon by Greenvale is inadequate. It observes that there is no certainty that the recent permit application will be granted. It submits that Greenvale has not explained the progress of its negotiations with the adjoining owners. If the consent of the other owners is not obtained the development will not be able to proceed and there will be no need for the removal of the caveat.

25 Importantly, Sim submits that the removal of the caveat would cause significant prejudice to it because by losing the protection of the caveat it would potentially lose the priority of its security interest, and possibly that security interest itself, if Greenvale were to seek to further encumber the land by borrowing more money against it and seeking to secure those monies in favour of lenders in priority to Sim. The value of Sim's security interest could potentially be destroyed. It is noteworthy that the undertaking proffered, which was repeated in its terms this morning, is an undertaking not to sell the land; this contrasts with an undertaking not to further encumber the land - it is the potential for further encumbrances which may reduce or eliminate the value of Sim's security interest.

26 Furthermore, counsel for Sim submitted this morning that the application for the withdrawal of the caveat is premature in circumstances where it has not been shown that the caveat is currently impeding the project or precisely when further significant finance will be required. Moreover, counsel for Greenvale conceded this morning that it is unclear when in the future the title will need to be amended.

27 We consider that Sim should not be ordered to withdraw its caveat. As noted above, the caveat is supported by Sim's right under the agreement to a charge over the land.[17] The withdrawal of the caveat would in effect remove the protection of the security interest the parties provided for under the agreement. Ordering Sim to withdraw the caveat would be in substance to remove a contractual right Sim enjoys. We consider that for this Court to make such an order, in the circumstances, would be quite inappropriate and improper.

28 Moreover, as we have mentioned, if Sim is successful on any appeal it may be that Greenvale would be ordered to pay Sim $380,280. In those circumstances, the amount placed in Greenvale's solicitors' interest-bearing bank account, $152,600.03, would be quite inadequate and Sim would have lost the protection of the caveat supporting its entitlement to monies owed. This could render any appeal effectively nugatory. We consider Sim should not be placed in this position.

29 We do not accept that the prospects of success of the appeal are so weak as to be characterised as devoid of merit. On the present application it is not appropriate to further dwell on the merits of the appeal.

30 In conclusion, we consider that Sim is correct in its submission that the evidence relied upon by Greenvale is inadequate in its specificity as to exactly how the caveat will impede the progress of the development of the land, especially when it is unclear what stage it has reached, if any, in obtaining the consent of the adjoining owners. Applying a test of balance of convenience,[18] we consider that Sim has discharged its onus of establishing that the prejudice that would flow to it from an order directing it to withdraw the caveat outweighs any demonstrable prejudice to Greenvale. In our view, the balance of convenience favours the maintenance of the caveat.

[1] This is the land described in Certificates of Title Volume 09767 Folios 984, 996, 997, 998 and 999 and Volume 09798 Folios 000, 001 and 002.

[3] Greenvale also counterclaimed in the principal proceedings with respect to the presence of an electricity substation on the land. The judge held that Greenvale was entitled to payment of the sum of $20,000 on its counterclaim but the counterclaim was otherwise dismissed.

[4] Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSC 335 ('Reasons').

[5] The relevant order was that there be judgment for [Sim] in the sum of $133,260 together with interest in the sum of $19,340.03. This is a total of $152,600.03. In the Reasons (at [126(a)] the judge says that Sim has an entitlement to $153,260. Nothing appears to turn on this disparity. We use the figure arising from the formal orders.

[6] The application for leave to appeal specifies the sum of '$385,280' but this may be a mistake. We use the figure of $380,280.

[7] Ibid [126(d)]. The judge gave combined reasons for both the principal proceeding and the caveat proceeding.

[9] The terms of clause 16(c) are as extracted in Reasons [22]. The judge noted that pt IV of the TLA does not allow a charge to be registered over land in Victoria.

[12] Greenvale also sought an order for security of costs of $40,000 but this was resolved by orders by consent made 1 November 2017.

[13] See [7] above.

[14] This puts to one side the question of whether there is also an entitlement to 20 per cent of the net profits of sales.

[15] Affidavit of Min Li affirmed 11 October 2017. Greenvale also relies on the affidavit of James Greentree sworn 12 October 2017.

[16] Affidavit of Gary Kyriacou sworn 13 November 2017.

[17] Given there is no application for leave to appeal from the judge's orders in the caveat proceeding, it is not in issue that Sim has the estate or interest which is its claim in the land: Piroshenko v Grojsman (2010) 27 VR 489, 491 [7].

[18] Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172 [36]-[40]; Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126 [34]-[39].