Syndication Capital Group Pty Limited v MDR Cornish Investments Pty Limited

Judgment (ex tempore) 1HIS HONOUR: On or about 21 July 2011 the plaintiff Syndication Capital Pty Limited lodged a caveat in respect of land of which the defendant MDR Cornish Investments Pty Limited is the registered proprietor, comprised in folio identifiers X/XXXXXXX, X/XXXXXXX, X/XXXXXXX and X/XXXXXXX, which together comprise a development site at Ryde. The caveat prohibits the actions described in item 1 of schedule 2, namely, the recording in the register of any dealing other than a plan affecting the estate or interest claimed by the caveator and set out in schedule 1. The estate or interest claimed by the caveator is described as follows:

1. Equitable fee simple as purchaser under an exchanged contract for sale of the land;
2. The Caveatee had consented to the registration of a caveat by the caveator, arising from a letter sent by the Caveator [ sic ] - possible Caveatee, dated 20 December 2010;
3. Beneficiary of a constructive trust, by virtue of the following facts: (a) By words and conduct the Registered Proprietor expressly and by necessary implication represented to the Caveator that there was a common intention between the parties to provide the Caveator with a future interest in the property. b) By reason of such words and conduct the Caveator worked for the Caveatee as a project manager of the Caveatee's development on a block of units situated at unit XX/XXX-XXX Blaxland Road, Ryde in excess of 18 months when the Caveator rendered a Tax Invoice for $495,000 but in lieu of payment the Caveatee agreed to transfer Lot 16 in an unregistered strata plan to the Caveator. (c) On or about 23 December 2010 the parties exchanged the Contract for Sale of Land for the transfer of Lot 16 in an unregistered Strata Plan from the Caveatee to the Caveator. 2On or about 30 August 2011, solicitors acting for the defendant served a lapsing notice. By summons filed on 16 September 2011, the plaintiff claims, amongst other things, an order extending the operation of the caveat until further order, and final relief to the effect that the defendant transfer unit 16 in the development to the plaintiff and a declaration that the defendant holds unit 16 upon trust for the plaintiff. On 19 September 2011, an order was made by Rein J extending the operation of the caveat until tomorrow. 3There is an extensive factual dispute between the parties which extends to the nature of the plaintiff's retainer to work for the defendant in connection with the Ryde property and the circumstances in which the documents which give rise to the plaintiff's claim for an equitable interest in the land came to be executed. If the defendant's version is ultimately accepted, then it may well be that the plaintiff has no interest in the land. But on an application such as the present for an order extending the operation of a caveat, the Court's approach is analogous to that which applies on an application for an interlocutory injunction. In short, the caveator must show that its claim has or may have substance [see (NSW) Real Property Act 1900, s 74K(2)], which imports the test of a seriously arguable case for final relief. In addition, it is well-established that on such an application, even where the caveator's claim has or may have substance, the Court may decline to extend the operation of the caveat having regard to circumstances pertaining to the balance of convenience. That said, it is a rare case in which the Court will, on balance of convenience considerations, allow an otherwise sustainable caveat to lapse if the consequence of doing so would be to jeopardise or detrimentally affect the priority of the caveator's claim to an interest in the land. Cases in which the balance of convenience can be determinative include, for example, where a caveat is preventing a sale by an encumbrancee entitled to higher priority than the caveator, and where the caveat is preventing a refinancing the consequences of which would be to leave the caveator in no worse position than the present position. 4I turn first to the issue of whether the caveator's claim may have substance. The caveator puts its claim on three alternative bases: first, that it is the purchaser under contracts exchanged on 23 December 2010; secondly, that if contracts were not exchanged, nonetheless it has an equitable interest as a result of having continued to render services to the defendant on the assumption that such contracts had been exchanged; and thirdly, that in any event the defendant, by letter of 20 December 2010, agreed that the plaintiff should have a caveatable interest in the land. 5The evidence establishes that there are counterpart front pages of a contract for sale of unit 16 in an unregistered residential strata plan of the land (the counterpart signed by the vendor having been dated 23 December 2010 apparently by a solicitor who, at the time, seems to have been acting for both parties but certainly for the defendant/vendor). A copy of the counterpart cover sheet signed by the vendor was handed to the purchaser. 6It is said that this is curious in the extreme, in that there is no suggestion that it was accompanied by other terms and conditions. Further, it is said that if there were a contract, it must be implied that its conditions were those in the standard form 2005 edition of the contract for sale of land, of which it was the cover page. 7I am not at all sure that this is so. (NSW) Conveyancing Act 1919, s 57, and, more particularly, s 60, stipulate the conditions that are to be imported into a contract for sale of land, subject to any other terms on which the parties may agree. It seems to me at least seriously arguable that in the absence of any other term or special condition, the terms and conditions are to be found in s 57, s 60, and the third schedule to the Conveyancing Act, as imported by s 60. 8Secondly, it seems at least seriously arguable, from the circumstance that an executed copy of the front page was dated by the defendant's solicitor and handed to the purchaser, that contracts were exchanged at that time. There is a factual dispute as to what happened and, in particular, as to whether the solicitor said to the purchaser at the time "contracts have now been exchanged". It is neither necessary nor appropriate to resolve that dispute now, but the facts (1) that the vendor's executed counterpart was provided by the vendor's solicitor to the purchaser; (2) that the letter addressed to the Office of State Revenue signed by both directors of the vendor and purportedly witnessed by their solicitor refers to "when the off the plan contract of sale was exchanged with the purchaser"; and (3) that the letter of 20 December 2010 asserts that the defendant has "signed ownership of unit 16...to Benjamin Cryer or nominee" all lend support to the proposition that there was an exchange of contracts at that time. It is sufficient for me to conclude that it is seriously arguable that there was. 9In any event, on the plaintiff's version, the defendant, by both its directors, on 20 December 2010 executed a letter in the following terms: I Douglas Ross Cornish and Pamela Rose Cornish of X Sanctuary Close Tea Gardens NSW 2324, Director and Secretary of MDR Cornish Investments Pty Ltd have signed ownership of Unit XX/XXX-XXX Blaxland Road Ryde NSW to Benjamin Cryer or Nominee (Please refer to signed and dated contract and invoice for the amount of $450,000.00). This has been signed for consideration of the work carried out by Benjamin Cryer and Associated Companies for his contribution to project coordination of the above mentioned development previous to 20/12/2010 and to completion of the project and registration of all titles of the development. No other commission will be due and payable for work carried out on the project as of the 21/12/2010 and signing of this letter. Any funds lent to or paid by Douglas Ross Cornish Pamela Rose Cornish or MDR Cornish to Benjamin Cryer or Associated companies after the signing of this agreement are to be repaid Paid [ sic ] within 28 days of title being registered for them. If the project does not proceed through to completion and title registration is not achieved for all units in the development project due to any circumstance not related to Benjamin Cryer or Associated Companies then all monies due and payable to Benjamin Cryer or Associated companies will then become due and payable upon sale of the development site as a whole. We also give Benjamin Cryer and Associated Companies the right to place a caveat on the Development Property to guarantee payment if the development is not to proceed or fails to complete due to any factors not related to Benjamin Cryer or Associated Companies. 10Mr Douglas Cornish, a director of the defendant, denies that he signed that letter and says that so far as he knows his wife did not sign it. There is evidence from Carol Cryer and from her son, Jake Portelli, that they attended on Mr and Mrs Cornish and saw them both sign the letter in question. The letter found its way to their solicitor - as it seems, with the other documents - by the hand of the plaintiff. After the suggestion was raised that it was a forgery, the plaintiff has had a copy of it forensically examined and the forensic examiner has expressed, albeit at this early stage on a qualified basis, a view that the signatures on the letter are very likely to be the signatures of the people who signed the specimen Douglas Cornish and Pamela Cornish on documents the authenticity of which appears at this stage to be not readily disputable. 11On that basis, it seems to me that there is a seriously arguable case that the plaintiff has a beneficial interest in the subject land. Mr Young argued that this seemed an improbable arrangement, given the quantum of fees to which the plaintiff would have been entitled at that time and the unlikelihood of a solicitor preparing and exchanging contracts in those circumstances. There may be, objectively, elements of improbability looked at alone, but the documents themselves raise a significant case to the contrary. 12Objection was taken to the form of the caveat. It will be observed that the caveat claimed an interest in four lots, whereas the contract refers only to unit 16 in an unregistered plan of subdivision of the whole site. The claim in the caveat refers to a contract for the sale of "the land" - which, on its face, is a wider claim than the caveator's case could sustain; but that needs to be seen in the context of the elaboration of the facts set out in the schedule and the annexure to it, which makes tolerably clear that the contract for sale in question related to lot 16 in an unregistered plan in the subdivision and not to the whole of the land. 13Although under the contract the plaintiff's claim would be to lot 16 alone once the unregistered plan is registered (if ever) it does not follow that a caveat that claims an interest in the whole of the land is too wide. Often, a caveat forbidding dealing with the whole of the parcel of land when the interest supporting it can affect only part of it will be too large [see: Re Paul; (1912) 19 WN (NSW) 114; Queensland Estate Pty Ltd v Co-Ownership Land Development Pty Ltd (1969) Qd R 150; and Roclin Investments Pty Ltd v Makris (1974) 7 SASR 485]. But these cases depend upon the position being that the interest claimed is an interest in only part of the land. In Re Henderson's Caveat (1998) 1 Qd R 632, the situation was explained by Macrossan CJ and Demack J in the Queensland Court of Appeal in the following terms (at 638): As to the issues raised in paragraph (5) we do not think that the caveat should be defeated on the basis that in claiming an interest in the whole of Portion 69 it is too wide. If the parties had agreed or evidence had been presented which at this stage established that the caveat should be amended to refer to a similar parcel of two acres precisely identified, that would be one thing, but the two acre area has not yet been subdivided nor does it have its boundaries exactly established by any decision of the Court on firm evidence agreed between the parties. The Court therefore should not hold that the caveat is too wide and attempt to order its restriction or amendment in some fashion. Until precision is established it seems correct to accept that at the caveat stage that the respondent has an equitable interest sufficiently applicable to all of Portion 69. 14Davies JA said, on the same topic (at 642), after referring to in Re Paul and some of the other cases in this area: With respect, I cannot agree with the reasoning in these cases. In cases such as the present, equitable relief would be available, either in the form of an injunction or a limited decree for specific performance, to ensure that the registered proprietor deals with the larger parcel of land only in a manner consistent with subdivisional approval being obtained for the excision of the claimed portion. Any such order for relief would be expressed to extend to the registered proprietor's dealings with the larger parcel. In this respect, I agree with the views expressed by Hodgson J in Locke (at 11,690-11,691). See also Kuper at 427-432. In my opinion, therefore, equity recognises the respondent's interest as extending the whole of Portion 69 until subdivisional approval is obtained. Consequently I think the respondent has an equitable interest in the whole of Portion 69. 15In Fitzibbbons v Shaftsbury Pty Ltd [2011] NSWSC 525, I applied the reasoning in those cases, observing (at [18]): In my opinion, these observations are precisely applicable to this case. Assuming that the plaintiff's interest may ultimately be defined as the cottage and the 200 acres surrounding it, it is not yet so defined: there is not as yet any proposed, let alone approved, Subdivision; and remedies are available to the plaintiff in respect of the whole of the land, including, for example, an order that it be subdivided to that effect, or an order imposing a charge over it, or a declaration that the plaintiff has a beneficial interest in it. Accordingly, in my view the caveat is not too wide. 16Thus, I do not think the caveat is bad for claiming an interest in respect of the whole of the development site, because the plaintiff could obtain relief directed to the whole of it, at least unless and until a plan of subdivision is registered. If, for example, no such plan is ever registered, then it is at least arguable that the plaintiff would have a charge or other equitable interest in respect of the whole of the subject land. 17That said, it is true, as Mr Young submits, that the precise claim, in asserting an equitable fee simple as purchaser under an exchanged contract for sale of the land, is inaccurate. Precisely, it should be framed as "under an exchanged contract for sale of part of the land." But Real Property Act, s 74L, provides that: If in any legal proceedings a question arises as to the validity of a caveat lodged under a provision of this Part, the court shall disregard any failure of the caveator to comply strictly with the requirements of this Part, and of any regulations made for the purposes of this Part with respect to the form of the caveat. 18In my view, the absence of the words "part of" from the description of the nature or interest claimed, in the context of this case, is a formal defect which I overlook under s 74L. Accordingly, I am satisfied that the caveator's claim may have substance. 19I turn to the balance of convenience. On this, the essential issue is that if the caveat is wrongly maintained, there is a risk that the defendant will not be able to obtain further finance for the development, that the development will be delayed and that, as a result, the defendant will incur substantial interest costs. The evidence establishes that the defendant at present incurs interest of about $3,000 per day. There is some evidence that a financier has declined to proceed while the caveat issue remains unresolved, but that evidence would have been more convincing had it come from the financier who has himself sworn an affidavit in the proceedings but which is silent on that issue. 20The offer of finance was made and apparently accepted before any caveat was lodged, yet does not appear to have been pursued in the meantime. Significantly, the proceeds of the additional finance of some $1.2 million are to be applied, so it seems, to existing creditors of the defendant, in payment in instalments to the defendant or its directors amounts approximately equal to the interest payments, and substantially to a variation or extension (rather than completion) of the development. 21Against that, while the plaintiff has offered an undertaking as to damages, the plaintiff's financial statements, tendered by the defendant having obtained them on notice to produce, would tend to show that that undertaking is worthless. The plaintiff's principal, Mr Cryer, has now also offered an undertaking as to damages, which moderates that difficulty to some extent, but in the context that the defendant has had no opportunity to explore Mr Cryer's undertaking it cannot be said that has much more value than that of the defendant itself. 22In a caveat case, as I have foreshadowed, once it is established that the caveat may have substance, the Court will allow the caveator's priority to be jeopardised only in rare circumstances. In my view, if the plaintiff has a valid claim to an interest in the land, then it ought not be permitted to be jeopardised by permitting the defendant to obtain additional finance and secure it on the land in priority to the plaintiff's claim. If, on the other hand, the defendant can show that it can obtain additional finance without prejudice to the plaintiff's claim, then the Court would be inclined to permit or require the caveat to be withdrawn to permit such further finance to be obtained, and then re-lodged. Indeed, one would expect the plaintiff to consent to such a dealing to avoid the necessity for an application to the Court. 23But at this stage, far from showing that additional finance would not prejudice the plaintiff's position, the evidence tends to show that it would indeed prejudice the plaintiff's position. Mr Cornish, in his affidavit, attributes to Mr Silverman, the proposed financier, the statement: We are not convinced that there remains enough equity in the project due to the claim by Cryer and are concerned about a priority dispute with the caveator. 24It seems to me that if the potential financier is concerned as to whether there remains enough equity, concerns by the plaintiff to the same effect, must be equally valid. 25I am therefore not prepared to allow the caveat to lapse, having regard to the balance of convenience. As I have foreshadowed, if at a later stage the defendant can show that additional finance can be secured without prejudice to the plaintiff's interests, then the Court would give close consideration to requiring the caveat to be withdrawn temporarily to permit that to be done. If the defendant is able to inform the court that Mr Cryer's own undertaking was worthless, that might contribute to such an outcome. But, as the evidence stands, it seems to me that the operation of the caveat should be extended. 26Upon the plaintiff and upon Benjamin Cryer, by their counsel, giving to the Court the usual undertaking as to damages, I order that the operation of caveat AGXXXXXX in respect of the land comprised in folio identifiers X/XXXXXXX, X/XXXXXX, X/XXXXXX and X/XXXXXX be extended until further order of the Court. 27I order that costs of the interlocutory application be the plaintiff's costs in the proceeding.