Weston and Cussen as liquidators of Karl Suleman Enterprizes Pty Ltd v Metro Apartments Pty Limited & Anor

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

2329/02 PAUL G WESTON & ANOR v METRO APARTMENTS JUDGMENT 1 HIS HONOUR: This is an application to extend a caveat of the plaintiffs, who are the liquidators of Karl Suleman Enterprizes Pty Limited and receivers of the interests of Mr Karl Suleman in certain real estate. Mr Karl Suleman was the sole director of Karl Suleman Enterprizes Pty Limited. The first defendant, Metro Apartments Pty Limited, is the registered proprietor of a parcel of land at 16/30 Bunn Street, Pyrmont, on which a block of apartments is being constructed. The builder or developer carrying out that construction was a company called B G Metro Pty Limited. The second defendant, Mr James Jariv, is the sole director of Metro Apartments Pty Limited. 2 On 26th June 2001 Mr Suleman entered a contract with Metro Apartments to purchase unit 43 in the Pyrmont development for the price of $1,000,000. That agreement made provision for a deposit of $100,000. The evidence also shows that Mr Suleman entered into two contracts with Metro Apartments on 21 October 2001 to purchase units 41 and 42 in the Pyrmont development. The price of each of those units was $950,000 and a deposit of $95,000 was payable. Stamp duty has been paid on the contract to purchase unit 43 but no stamp duty has been paid on the contracts to purchase units 41 and 42. 3 To move back a step in the chronology, on 27 July 2001 an agreement was entered into between Karl Suleman Enterprizes Pty Limited and Mr Jariv. Under it Mr Jariv agreed to make a loan to a business which Karl Suleman Enterprizes Pty Limited was carrying on, in the sum of $1,000,000. In return, Mr Suleman was to receive, for a period beginning on 27 July 2001 and ending on 27 July 2004, an amount of $50,000 per fortnight. This "business" was supposedly a business relating to trolley collection services which has since been shown to be unsubstantial. The plaintiffs were appointed the liquidators of Karl Suleman Enterprizes Pty Limited on 7 December 2001. 4 They had, on 5 December 2001, been appointed as joint and several receivers and managers of interests of Mr Suleman in amongst other things units 41, 42 and 43 of the Pyrmont development. 5 On 18 February 2002 that appointment was modified, so that it related to the interest of Mr Suleman in the contracts for sale by Metro Apartments of units 41, 42 and 43. 6 On the evidence before me, it seems that there is a serious question to be tried about the type of connection that there was between Mr Jariv, having entered the investment contract with Karl Suleman Enterprizes Pty Limited and Mr Suleman entering the contracts to purchase units 41 and 42. The essential question for present purposes is whether the plaintiffs have made out a case that there is a serious question to be tried that the nature of the connection between those contracts is such as gave Karl Suleman Enterprizes Pty Limited an estate or interest in the land comprised in units 41 and 42. (The case has proceeded on the basis that, though the caveat sought to be extended related to units 41, 42 and 43, no attempt is made to keep the caveat on unit 43.) 7 The caveat claims an estate or interest of "equitable owner of the fee simple or alternatively an entitlement to a equitable charge". The caveat claims that interest by virtue of the contracts of sale (those being contracts which nominated Mr Suleman as the purchaser), and by virtue of the fact of "consideration paid under the relevant contract or agreement for the acquisition of property". 8 The evidence shows that on 30 July 2001 a deposit of $650,000 was made to the bank account of Karl Suleman Enterprizes Pty Limited. Of this deposit $600,000 was a payment which the deposit slip attributes to "Metro Pty Limited". It was common ground before me that this money actually came from B G Metro Pty Limited, and that it was intended to be a part payment of the $1,000,000 which was due to be pad by Mr Jariv under the investment contract. The remaining $400,000 which was due to be paid under the investment contract was never paid. 9 The evidence includes a note which was identified by a Mr Hyde in the course of an examination under section 596B of the Corporations Act. That note is dated 30 July 2001. It includes the entries "James - what to say". I infer that "James" is Mr Jariv. There are remaining entries on the page which include the figures of $950,000 and $1,000,000. There is also an entry that says "we set up contract for $1,000,000" and "units cost each $950,000 made out of $650,000 cash and contract for $300,000". These particular entries suggest that there was some sort of connection between the investment contract, and the purchase of the two units, but the nature of the connection cannot be ascertained from that document alone, unassisted by oral evidence. 10 The evidence also included the transcript of a liquidator's examination of Mr Jariv. While there is room for difference of interpretation about the nuances of the evidence that Mr Jariv gave, it seems clear enough that he put a proposal to Mr Hyde, who acted on behalf of Mr Suleman, whereby Mr Jariv would invest in the Suleman scheme and Mr Suleman would purchase two penthouses from Mr Jariv, with the two transactions taking place at the same time. It also appears that there was proposed to be some sort of connection between the payment of deposits on the units and Mr Jariv entering the scheme. 11 It is common ground that Mr Jariv received payments from Karl Suleman Enterprizes Pty Limited of a total of $350,000, in seven payments each of $50,000, over the period 10 August 2001 to 2 November 2001. These payments were at the rate which would have been appropriate, under the investment contract, if Mr Jariv had lent the whole of the $1,000,000 he had contracted to lend. 12 There was a meeting of creditors/investors of Karl Suleman Enterprizes Limited held on 12 November 2001. For the purpose of that meeting the people who claim to be creditors or investors were invited to submit a document making that claim. Mr Jariv submitted a document relating to a sum of $1,000,000. It was put to me that he was entitled to make that claim because he had a contractual obligation under the loan agreement to pay the full $1,000,000. The fact remains that, before he had actually paid the full $1,000,000, he was claiming to be a creditor for $1,000,000. It may be that, on further examination, this turns out not to be a fact of great importance, but it is a matter which is appropriate to be taken into account in deciding whether there is a serious question to be tried. 13 I should also say that although the caveat had claimed an interest in the fee simple the only interest which counsel for the plaintiff sought to support before me was an equitable charge. 14 In my view there is a serious question to be tried concerning whether the relationship between the entry for the contracts of the units for 41 and 43, as the entry of the investment scheme, was such as to give rise to an equitable charge over the land. The nature of the charge was not developed in detail in submissions - this was in part because the argument took place yesterday in the course of a busy duty judge list and under some time pressures. However, I can see the possibility of an argument that, at the least, there was an equitable charge for that portion of the $350,000 which was an excess payment - excess in the sense that Mr Jariv was entitled to receive those payments only if he had paid $1,000,000 to the scheme, but he had paid only $600,000. In saying this, I am not seeking to limit the basis on which an equitable charge might exist, I am merely seeking to identify a bare minimum which seems to me to justify the continuance of a caveat on the property. 15 The defendant raises a point of law. It says that because the contracts are unstamped it is not possible to rely on them to find a caveatable interest. In the way that the case unfolded before me, it was only after the contracts had been admitted into evidence that my attention was drawn to the fact that they were not stamped and that anything would be made of that fact. This is of little significance however because it is always possible to withdraw my earlier order admitting them into evidence, and make a fresh order if need be. 16 The admissibility of unstamped documents into evidence is now governed by section 304 of the Duties Act 1997. It provides:- "Receipt of instruments in evidence (1) An instrument that effects a dutiable transaction or is chargeable with duty under this Act is not available for use in law or equity for any purpose and may not be presented in evidence in a court or tribunal exercising civil jurisdiction unless: (a) it is duly stamped, or (b) it is stamped by the Chief Commissioner or in a manner approved by the Chief Commissioner. (2) A court or tribunal may admit in evidence an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, and that does not comply with subsection (1): (a) if the instrument is after its admission transmitted to the Chief Commissioner in accordance with arrangements approved by the court or tribunal, or (b) if (where the person who produces the instrument is not the person liable to pay the duty) the name and address of the person so liable is forwarded, together with the instrument, to the Chief Commissioner in accordance with arrangements approved by the court or tribunal. (3) A court or tribunal may admit in evidence an unexecuted copy of an instrument that effects a dutiable transaction, or is chargeable with duty in accordance with the provisions of this Act, if the court or tribunal is satisfied that: (a) the instrument of which it is a copy is duly stamped, or is stamped in a manner approved by the Chief Commissioner, or (b) the copy is duly stamped under section 299." 17 Given the prohibition on allowing unstamped documents into evidence, it seems to me that it is appropriate that I should revoke my earlier order admitting into evidence the unstamped contracts. However, section 304(2) enables the Court to admit into evidence a document that effects a dutiable transaction if the Court is satisfied that after its admission the instrument is transmitted to the appropriate duty authorities in accordance with arrangements approved by the Court, or alternatively approved by the Court or Tribunal. The wording of s 304(2) is somewhat confused in its tenses, but it seems to contemplate that a document can be admitted into evidence, although not then stamped, if the Court approves an arrangement for the document to be thereafter submitted for stamping, or for the Chief Commissioner to be given the information which will enable him or her to extract the duty from the person liable to pay it. * * * * * * * 18 This matter having been discussed with counsel for the liquidator, I am offered the undertaking of Michelle Ester Harpur, solicitor for the liquidator, to advise the Chief Commissioner of the name and address of Mr Suleman (the purchaser under the contracts) and to forward to the Chief Commissioner a copy of each of the contracts relating to the purchase of units 41 and 42. That undertaking is an arrangement which I approve, and accept. In those circumstances, I re-admit the contracts relating to the purchase of units 41 and 42 into evidence, pursuant to section 304(2) of the Duties Act. 19 That does not dispose of the entirety of the argument which the defendant has raised concerning dutiable transactions. The defendant has referred me to the decision of Young J (as his Honour then was) in Australian Property and Management Pty Limited v Dev Pty Limited (7 April 1997) unreported. That decision held that, under the wording of the former section 29 Stamp Duties Act, it was not possible for a caveatable interest to arise in land by reference to an unstamped contract. 20 That decision of Young J was made on the previous legislation. It seems to me that there is a serious question to be tried about whether the terms of section 304 of the Duties Act are different in this respect to the terms of the former section 29 Stamp Duties Act 1920. It seems to me that there is an argument that, notwithstanding the apparently peremptory and unqualified terms of subsection 1 of 304, which prohibits the court from both making any use of, and admitting, any unstamped document, subsections 2 and 3 go on to create an exception to both limbs of that apparently unqualified law. Section 304(2) expressly creates an exception to no unstamped documents to be admitted" limb of s 304(1). However, there would be no point in admitting the unstamped document into evidence if the court could not make use of it, once admitted. It seems to me there is a serious question to be tried about whether s 304(2) also impliedly creates an exception to the "no unstamped documents to be used" limb of s 304(1). 21 It would involve substantial research and argument to come to a final conclusion about this question of law. While it is sometimes appropriate to decide questions of law on an interlocutory application, this is not such an occasion. The caveat is due to expire today, the argument yesterday was heard in the middle of a busy duty list, and there simply will not be time today to devote any more of my attention to the question. When there is a serious question to be tried about the ability of the unstamped contracts to give rise to an interest, it seems to me that, if the balance of convenience favours the maintaining of the caveat, it should be maintained. 22 The factors which are against the maintaining of the caveat, so far as the balance of convenience goes, are, essentially, that the vendor has terminated its contracts to sell to Mr Suleman, and forfeited the deposit. It wishes to resell. The present indications are that the purchase price on a resale will be substantially lower than the purchase price obtained from Mr Suleman. All that, it seems to me, is a matter which can be met by a claim for damages under the undertaking as to damages. There is no reason to believe that the interests of the defendant in this respect will not be adequately protected by that undertaking as to damages. If I were to allow the caveat to remain, however, I would require an undertaking from the plaintiffs to pursue with expedition their claim to have a right by way of charge in the two home units. I am told by counsel that the liquidator is prepared to give such an undertaking. 23 There remains one matter which is in some ways a technicality, but one which must be properly dealt with. There is no provision in the Real Property Act , so far as I can see, for a caveat to be extended in part. The relevant provisions of the Real Property Act provide for a caveat to either lapse, or not lapse, to be extended, or not extended. Here, the liquidators do not seek to preserve their caveat concerning unit 43, and have abandoned their claim to a two fee simple in units 41 and 42. The appropriate way to deal with this situation is to grant leave to the liquidators, under section 740 of the Real Property Act, to lodge a fresh caveat which deals with those aspects of the present caveat which I have upheld. I will therefore not extend the present caveat, but will grant leave for a fresh one in more limited terms to be filed. 24 Upon the plaintiffs by their counsel giving the usual undertaking as to damages, and upon the plaintiffs by their counsel undertaking to the Court to pursue with expedition their claim to have an equitable charge over the land in units 41 and 42 SP65936, I give leave to the plaintiffs to lodge a further caveat against the land comprised in folio identifier 41/SP65936 and folio 42/SP65936, claiming an estate or interest in the same terms as the estate or interest claimed in caveat number 8465864, but deleting the words "equitable owner of the fee simple or alternatively". These orders may be entered forthwith. 25 The plaintiffs claim costs. They say that they have been successful. 26 This is only partly true, in that they did not seek to support the claims relating to unit 43, or the claim for fee simple. Nonetheless, it must be recognised that they have had a substantial measure of success. In my view the appropriate order is that the plaintiffs' costs of the present application should be the plaintiff's costs in the cause. **********

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