Stone Living Pty Ltd v 3 Property Group 9 Pty Ltd [2020] ACTSC 149

Cases Cited: Adrija Pty Ltd v Mohamed and Ors [2013] ACTSC 120 GR8 Constructions Pty Ltd v O’Donnell [2011] ACTSC 92 Hanson Construction Materials Pty Ltd v Roberts [2016] NSWCA 240; 93 NSWLR 1 John Lampard Pfeiffer v Colin James Cummins (unreported, ACT Supreme Court, Gallop J, 2 July 1986) Kingstone Constructions v Crispel (Unreported, 12 March 1991, NSW Sup Ct) Matken Constructions Pty Ltd v Trevor James [2009] ACTSC 100 Piroshenko v Grojsman & Others [2010] VSC 240; 27 VR 489 Vella v Aliperti (1995) NSWConvR 55-750

Parties: Stone Living Pty Ltd (Plaintiff) 3 Property Group 9 Pty Ltd (ACN 618 155 409) (First Defendant) 3 Property Group 10 Pty Ltd (ACN 618 426 190) (Second Defendant) 3 Property Group 11 Pty Ltd (ACN 618 671 560) (Third Defendant)

Representation: Counsel Dr A Greinke (Plaintiff) Mr D Robens (First, Second and Third Defendants)

Solicitors Mills Oakley (Plaintiff) Harrington Kibbey Law (First, Second and Third Defendants)

File Number: SC 143 of 2020

McWilliam AsJ:

1. These proceedings concern three caveats that have been lodged by the plaintiff over land owned by each of the defendants. The question before the Court is whether to extend their operation, and if so, for how long.

The properties and the claims

2. The plaintiff in the present proceedings was contracted to undertake construction work for the first, second and third defendants in respect of three separate properties. The properties are as follows:

• Block one, section 18 Throsby, currently a vacant block of land, owned by the first defendant, 3 Property Group 9 Pty Ltd (ACN 618 155 409). It is currently subject to Caveat Number 2205372 (Throsby 1).

• Block one, section 28 Throsby, also currently a vacant block of land, owned by the second defendant, 3 Property Group 10 Pty Ltd (ACN 618 426 190). It is currently subject to Caveat Number 2205373 (Throsby 2).

• Block four, section 17 Throsby, owned by the third defendant, 3 Property Group 11 Pty Ltd (ACN 618 671 560), on which a childcare centre has been constructed. It is currently subject to Caveat Number 2249767 (Throsby 3).

3. The caveats have been lodged because the plaintiff says each of the defendants owes it money, either for work it has undertaken, or in interest arising from delays in payment.

4. With regard to Throsby 1 and Throsby 2, the plaintiff is currently pursuing an adjudication process pursuant to the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (the Act), for progress claims it says are unpaid in sums of $395,781.70 (inclusive of GST) and $434,806.46 (inclusive of GST) respectively.

5. With regard to Throsby 3, the amount claimed is purely a sum of interest, of approximately $16,000. No adjudication process has been pursued yet, or at all, as there is thought to be some uncertainty about whether such a claim is properly one that can be pursued through adjudication under the Act.

The nature of the application

6. By Originating Application dated 23 April 2020, and now through an Amended Originating Application filed 4 May 2020, the plaintiff seeks to extend the three caveats until further order of the Court.

7. The proceedings were brought about by the defendants each issuing lapsing notices in respect of the caveats over the properties, pursuant to s 107(2)(a) of the Land Titles Act 1925 (Land Titles Act).

8. Under s 107(3)(b)(ii) of the Land Titles Act, the Registrar-General is entitled to remove each of the caveats from the register unless within 14 days of service of the lapsing notice ‘the court otherwise orders’.

9. Due to the 14-day time limit, orders have already been made in this Court on 29 April and 1 May 2020, extending the said caveats ‘until further order of the Court’ which is precisely the relief sought in the Amended Originating Application. However, that type of relief is in terms more suited for an interlocutory order pending the determination of a substantive application. No party indicated that any future or further proceedings were contemplated at this stage.

10. The previous orders of this Court were said to have been made purely to preserve the status quo until the parties were able to fully prepare for, and argue, the application as to whether the caveats ought to be extended. The occasion for doing so was on 3 June 2020 with Dr Greinke appearing for the plaintiff and Mr Robens appearing for each of the defendants. Counsel for each party have assisted the Court with detailed written and oral submissions and I have also had regard to the substantial affidavit evidence that was also before the court. On 5 June 2020, I informed the parties of the view that I had formed having heard from counsel and having read all the material, and indicated that I would provide them with written reasons for the conclusion I had reached. These are those reasons.

The Court’s power to extend the operation of a caveat

11. The application falls within the inherent jurisdiction of the Court. In order to justify an order preventing the removal of the caveat, the caveator’s claim to an interest in the land must raise a serious question to be tried, and the balance of convenience must favour the extension of the caveat, as opposed to other options: see Adrija Pty Ltd v Mohamed and Ors [2013] ACTSC 120 per Mossop M (as his Honour then was) at [21]. See also GR8 Constructions Pty Ltd v O’Donnell [2011] ACTSC 92 at [24]- [27]; John Lampard Pfeiffer v Colin James Cummins (unreported, ACT Supreme Court, Gallop J, 2 July 1986).

12. The onus of establishing that there is a serious question rests with the caveator: Piroshenko v Grojsman & Others [2010] VSC 240; 27 VR 489 at [7].

13. As there are no other proceedings (either commenced or imminent) for determination of the underlying issues, I have treated the application as being one for orders that the caveats not be removed. However, the nature of the considerations does not change. On an application seeking removal of a caveat, it has been said (to similar effect) that the Court must pay close attention to matters such as the nature of the interest claimed by the caveator, whether there is any dispute as to the existence or extent of the interest, and the likely consequences of ordering the caveat to be withdrawn: Hanson Construction Materials Pty Ltd v Roberts [2016] NSWCA 240; 93 NSWLR 1, per Sackville AJA (with whom Beazley P and Payne JA agreed) at [62].

The issues

14. There is no dispute that the wording of the caveats sufficiently defines or describes the interest claimed. In respect of Throsby 1 and Throsby 2, the nature of the interest in the land claimed is a ‘charge on land and rights created by Building Contract dated 5 September 2018’.

15. In respect of Throsby 3, the caveat refers to a ‘charge on the land created pursuant to Building Contract between caveator and the registered proprietor dated 10 September 2018’.

16. The defendants’ complaint is that neither of the two aspects of the Court’s discretion are satisfied, namely:

(i) whether there is a serious question to be tried; and

(ii) where the balance of convenience lies.

17. Part of the circumstances relevant to the balance of convenience include a substitute security proffered by the defendants in lieu of the caveats, in the form of security over a different property, that being a charge over units 2 and 3 of 130 Blamey Crescent in Campbell (the York Townhouses). The York Townhouses are owned by a separate but related company, 3 Property Group 6 Pty Ltd (ACN 617 263 626) (3 Property Group 6). Mr Jaime Farrelly is a director of all defendants and this related company.

18. The amount of the charge over the York Townhouses would be limited to any amounts that may become payable to the plaintiff, arising out of the building contracts between the parties.

Is there a serious question to be tried?

19. In each caveat, the plaintiff relies on a contractual entitlement to a charge over the land. The plaintiff points to a clause in each of what were described as standard form building contracts, signed in September 2018, the terms of which are as follows:

If no security is required to be provided…the Client charges its interest in the site with the due payment to the Builder of all moneys that may become payable to the Builder arising out of the subject matter of the contract.

20. There is no dispute that no security was required to be provided. The ‘Client’ in each case is a reference to each of the defendants. The ‘Builder’ is a reference to the plaintiff.

21. The defendants accept that such a clause would ordinarily constitute a caveatable interest (in accordance with Matken Constructions Pty Ltd v Trevor James [2009] ACTSC 100, which is to that effect).

22. However, the defendants argue there is no serious question to be tried because the claims being made by the plaintiff in respect of Throsby 1 and Throsby 2 are not maintainable on the express terms of the contracts.

23. The defendants rely on the building period referred to in each of the contracts not having commenced. Clause 16 of each of the contracts provides that the Builder must commence the works (defined in the contract) by the ‘commencement date’. The commencement date is defined as the date specified at Item 5(a) in the Schedule, which is expressly read as part of the contract. Item 5(a) is as follows:

Commencement Date: 1 weeks from the later of the date that the Client

(i) gives possession of the site to the Builder;

(ii) gives the Builder evidence of capacity to pay the contract sum; or

(iii) provides the Builder with the required building and planning approvals.

24. In respect of Throsby 1 and Throsby 2, the defendants argue that the commencement of the works never occurred. There was no agreement between the parties as to what would be built, and there are no building approvals for any work to take place. There were delays of more than 18 months and the properties are still vacant land. The contracts themselves should be taken to have been abandoned. In any event, the contracts have recently been terminated by the first and second defendants. The defendants have paid more than $1.5 million to the plaintiff to date and are adamant that no further monies are payable.

25. In respect of Throsby 3, the position is the opposite. The defendants argue that the contract price was agreed, the building works have been fully completed and full payment has been made. Further, the original building contract has been overtaken by a later agreement dealing with the same land, executed by the plaintiff and the third defendant (dated 18 December 2018), along with two other parties, Chase Building Group (Canberra) Pty Ltd (being the guarantor) and the Commonwealth Bank of Australia. The defendants argue that this later agreement expressly prevents the plaintiff from lodging a caveat.

26. The defendants argue that the belated lodging of a caveat over Throsby 3 for an amount of $16,000 in claimed interest after the project has been completed is tantamount to blackmail.

27. The plaintiff’s position is that it has carried out substantial work under the contracts for Throsby 1 and Throsby 2 and in relation to Throsby 3, the standard construction contract and the later agreement with other parties are directed to different things. The first deals with the construction or development of the land, and the second agreement is directed to finance and security matters. The two contracts co-exist and give rise to different contractual rights. Any conflict between the two documents in terms of the rights that are created or excluded is a matter that is yet to be resolved by the parties, either through the courts or otherwise.

28. I am satisfied that there is a serious question to be tried, in that the dispute is a genuine one, and that it ‘has or may have substance’, being the language used in Vella v Aliperti (1995) NSWConvR 55-750 (Vella) at 55-772per Santow J.

29. The defendants’ construction of the contractual position arising in respect of each property may well be correct, but it is not one that I consider to be so clear on the documents as to make unarguable any case made by the plaintiff to the contrary. At present, the evidence is sufficient to establish that there is a contract, and that there are monies alleged to be payable under the contract, in the form of progress claims and an invoice. There is a clause in the contract that gives an express right to a charge over the monies payable, and there are extant proceedings for adjudication of those amounts, at least in respect of Throsby 1 and Throsby 2.

30. An application such as this is not the appropriate time for undertaking the task of construing contractual documents or conflicts in contractual rights: see Boral v Aghili [2009] ACTCA 18 at [2] and [5]. The charge is not yet being enforced.

31. Counsel for the defendants drew the Court’s attention to the fact that previous proceedings for adjudication under the Act had been dismissed for want of jurisdiction. However, that is insufficient for the Court to find that the current applications for adjudication have no merit, as the evidence submitted to the adjudicator is different from the evidence provided in support of the earlier applications. It is not for this Court to pre-empt any view that an adjudicator might take.

32. Counsel for the defendants also submits that there are currently no proceedings in this Court concerning the underlying contractual entitlement to any further payment of monies to the plaintiff, so that there is no issue to be tried. The plaintiff responds that it is entitled to pursue its statutory rights under the Act first (including any separate subsequent civil proceedings it is entitled to bring by operation of s 38 of the Act), and that if the defendants wish to essentially claw back part or all of the money payable, then it is open to them to commence proceedings.

33. I accept that the plaintiff is entitled to pursue its claims to payment through adjudication or, in the case of Throsby 3, through other avenues such as liquidated debt proceedings in the Magistrates Court. The fact that there are no currently intended proceedings apart from the adjudication process occurring is relevant to the exercise of the Court’s discretion (and I will return to that matter below), but it is not an essential requirement for the plaintiff to prove before the Court would find that there is a claim of substance yet to be resolved.

Where does the balance of convenience lie?

34. The defendants argue that the balance of convenience is strongly in favour of the caveats being removed. It is essential for the defendants to refinance their land, and the caveats are preventing that process from occurring, including using Throsby 3 as cross-collateral security. The loans in respect of each of the properties either have expired or will expire shortly. There is an incoming builder and every further delay has an impact upon the finances of the first and second defendants. Interest is accruing over the period that the development of the land does not proceed. If finance is not available for the properties, the relevant mortgagees and other unsecured lenders may take steps to realise their security. The defendants therefore claim that they are facing significant prejudice in the caveats remaining.

35. I accept that there is clearly ongoing financial prejudice to the defendants in their inability to refinance so as to enable the development of Throsby 1 and Throsby 2. However, the evidence before the Court did not suggest that any realisation of security was imminent. At its highest, the evidence as to the expiry of the loans was simply that refinance was required before a particular ‘Annual Review’ was to take place.

36. The defendants have offered a substitute security to the plaintiff, which they submit is a significant discretionary factor weighing in favour of removal of the caveats. The Court was taken to the decision of Young J in Kingstone Constructions v Crispel (Unreported, 12 March 1991, NSW Sup Ct) (Kingstone Constructions) where Young J at 11,991 stated as follows:

So far as balance of convenience generally is concerned, it is certainly the case that this court has ensured that caveats are not used as a blackmailing device so that a caveat can legitimately be lodged in respect of a relatively small claim and force the registered proprietor to pay out such a claim even though it is bitterly contested. The court has consistently taken the attitude that if the registered proprietor is prepared to put up an alternate security, then it will remove the caveat, even though, as I have said, the caveat may be completely valid. A recent example is Gibson v Co-ordinated Building Services Pty Ltd (1989) 4 BPR 9630; NSW ConvR 55-481.

37. Young J further indicated that the Court has to balance the ‘convenience’ of the registered proprietor being able to deal with the land with the ‘inconvenience’, if a Court should hold that the caveator has a valid equitable charge, of its interest losing priority to any interest which would be created by the registered proprietor if the subject property were to be sold or, in this case, refinanced. The same considerations arise here. The plaintiff is at risk of being unable to enforce and realise the payment of any adjudicated amount if the caveats are removed.

38. The plaintiff raises difficulties with the alternative security being offered. The first is the form, in that what is being offered is only a right to a charge over the York Townhouses. The security is not of a more certain or secure nature, such as a mortgage or the payment of monies into Court.

39. The second difficulty is that the substitute security proposed is not being offered by the registered proprietor of either Throsby 1, Throsby 2 or Throsby 3. It is being offered by a separate (albeit related) company, 3 Property Group 6. That gives rise to the potential for arguments about uncommercial transactions, particularly in the event that 3 Property Group 6 were put into administration for any reason.

40. The third difficulty is that little is known about the financial position of 3 Property Group 6, including other creditors, any unregistered charges and any cross-collateralisation agreements.

41. I accept that the security being offered is not of an equivalent nature. A right to a charge over land is the same type of security as what the plaintiffs presently allege they have pursuant to the building contracts, and greater specificity about the wording as to what was being offered could be accommodated, but the overriding problem is that the registered proprietor is not the entity offering it and that, in my view, is critical to whether the Court should exercise its discretion to order the removal of the caveats now.

42. The position may be different (as opposed to would – the Court’s exercise of discretion must depend on the factual matrix at the time) if the defendants owned the York Townhouses, or possibly if the substitute security offered was owned by one of the directors personally. Alternatively, the plaintiff indicated its attitude would be different if the defendants had offered to pay a sum of money either into a solicitor’s trust account or into this Court pending resolution of proceedings to be commenced, or even for a bank guarantee to be provided (something that any proposed refinance might be able to include).

43. As it stands however, I do not consider the security to be a satisfactory alternative. I have had regard to the submission that to date, the defendants may have made certain commercial decisions which would mean that the potential costs of litigation would outweigh the amounts involved, and that they should not be in the position of commencing costly litigation themselves in order to remove any ongoing caveat in circumstances where it should be for the party seeking payment to prove its underlying entitlement. That is particularly the case with regard to the $16,000 interest claim.

44. Unfortunately for the defendants, that is the effect of the legislative scheme created by the Act, which takes a ‘pay now, fight later’ approach. If the defendants wish to agitate the lack of any contractual entitlement to any adjudicated amounts, regrettably they may have to commence or defend further legal proceedings.

45. The plaintiff has proffered the usual undertaking to the Court as to damages and that was given in Court on 5 June 2020. On the present evidence, that weighs heavily in the balance of convenience. The undertaking is accepted and will be a condition of these orders.

46. I return, then, to the relief sought by the plaintiff, which is to maintain the caveats ‘until further order’ in circumstances where there are no current legal proceedings on foot to resolve the underlying dispute. Such relief is not justified, as accepted by counsel for the plaintiff. Young J in Kingstone Constructions pointed out at 11,990 that the whole purpose of a caveat is to enable a brake to be put on a registered proprietor’s dealings with property, ‘whilst the claim of the caveator is resolved’. The litigation stand-off between the parties should not be permitted to continue indefinitely, with the defendants’ land constrained in the meantime.

47. Accordingly, I am presently only minded to extend the operation of the caveats for a period of three months (that is, until 10 September 2020), during which time it is envisaged the plaintiff will take appropriate action to enforce its alleged contractual rights, either through the lodgement of an adjudication as a judgment of this Court or if necessary, through further litigation.

48. If the extant adjudication proceedings are decided in the first and second defendants’ favour, and the plaintiff does not pursue any avenues it has for recovering the small amount claimed to found the charge over Throsby 3, the balance of convenience may be different, bearing in mind that the defendants have a prima facie right to deal freely with their land (Vella at 55,772).

49. Alternatively, if the plaintiff is successful in establishing an entitlement to payment under the contracts pursuant to the Act, it should be in a position to register the adjudication as a judgment of this Court and properly enforce the payment, subject to any litigation brought by the defendant. The fact that there remains a state of flux or uncertainty as to how the parties will resolve their differences means that they should each be given an opportunity to work out their next steps. For this reason, an indefinite extension of the caveats is inappropriate.

50. As to the question of costs, the parties indicated that they would make submissions once they had taken the opportunity to consider these reasons. The parties may wish to have the issue determined on the papers following brief written submissions, or alternatively to reserve the question of costs for determination once the three month extension has passed.

Conclusion

51. The parties are to bring in short minutes of order to give effect to these reasons. Bearing in mind the ongoing disputes between the parties, any short minutes of order should also make provision for application to the Court at short notice in the event of continuing disagreement.

I certify that the preceding fifty-one [51] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam.

Associate:

Date: