Alka Developments P/L v Lemery Holdings P/L
[2005] NSWSC 1335
•7 October 2005
CITATION: Alka Developments P/L v Lemery Holdings P/L [2005] NSWSC 1335
This decision has been amended. Please see the end of the judgment for a list of the amendments.HEARING DATE(S): 7 October 2005
JUDGMENT DATE :
7 October 2005JUDGMENT OF: Brereton J
CATCHWORDS: EQUITY - remedies - injunctions - Mareva injunctions - approach to grant of Mareva relief - whether prima facie cause of action - whether risk of dissipation - relevance of strength and quantum of potential prima facie claim - CONVEYANCING - Vendor and Purchaser - position of parties after completion - merger - whether damages may be claimed after completion for failure to convey unencumbered title.
CASES CITED: Frigo v Culhaci (1998) NSWCA, 17 July 1998
Jackson v Sterling Industries (1987) 162 CLR 612
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 72 ALJR 873
Patterson v BTR Engineering Australia Limited (1989) 18 NSWLR 319PARTIES: (5058/05) Alka Developments Pty Limited (plaintiff)
Lemery Holdings Pty Limited (first defendant)
VQ Realty Pty Limited (second defendant)(5036/05) Lemery Holdings Pty Limited (plaintiff)
VQ Realty Pty Limited (first defendant)
Alka Developments Pty Limited (second defendant)FILE NUMBER(S): SC 5058/05; 5036/05
COUNSEL: A Ivantsoff (plaintiff, Alka)
T Hall (solicitor) (first defendant, Lemery)SOLICITORS: Doherty Partners (plaintiff)
Tzovaras Legal (first defendant)
Delfino & Delfino (second defendant)
LOWER COURT JURISDICTION:
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
BRERETON J
Friday 7 October 2005
5058/05 Alka Developments Pty Ltd v Lemery Holdings Pty Ltd
5036/05 Lemery Holdings Pty Ltd v VQ Realty Pty Ltd t/as Orange Realty
JUDGMENT (ex tempore - revised 19 December 2005)
1 HIS HONOUR: The plaintiff Alka Developments Pty Ltd is the purchaser, and the first defendant Lemery Holdings Pty Ltd is the vendor, of a shop at 227 Macquarie Street, Liverpool, under contract dated 31 March 2004. The second defendant, VQ Realty Pty Ltd, which trades as Orange Realty, was the selling agent. So far as the evidence goes, Ghandi Faizi Sobbi appears to be the principal of Lemery, and Mr Karasmanis is the principal of Alka.
2 The contract included the following relevant provisions.
3 Clause 1 defined "Adjustment Date" as the earlier of the giving of possession to the purchaser, or completion.
4 Clause 14.1 provided that the vendor would be liable for all rates, water, sewerage and drainage service and usage charges, land tax and all other periodic outgoings up to and including the Adjustment Date, after which the purchaser would be so liable.
5 Clause 16.3 provided that on completion, the vendor must cause the legal title to the property to pass to the purchaser free of any mortgage or other interest, subject to any necessary registration.
6 Clause 16.10 provided that on completion, the deposit belongs to the vendor.
7 Special Condition 14 provided that completion should take place within 42 days from the date of the contract, and made provision for the issue of a notice to complete if settlement was not effected within that time.
8 Upon exchange, Alka paid a deposit of $110,000 to Orange Realty, and in April 2004, Alka paid $45,994 to the Office of State Revenue by way of stamp duty payable on the contract.
9 Pursuant to Special Condition 14, settlement was due to take place on 12 May 2004. By agreement, time for completion was extended to 19 May 2004. Prior to settlement appointed for that day, the purchaser discovered that a caveat had been lodged in respect of the property by one Sam Peter Cassaniti. As a result, settlement did not take place that day and it was deferred, first to 8 June, and then successively to 10 June, 23 June, 15 July and 16 July 2004. On each of those occasions settlement did not take place, because the Cassaniti caveat had not been withdrawn. However, on 8 July 2004, Mr Karasmanis was handed the keys to the shop, and, I infer, Alka was given possession.
10 In about July 2004, the purchaser learnt that Reliance Financial Services, a company of which Mr Cassaniti is the principal, had apparently taken a charge over the assets of Lemery, and that there was a dispute between Reliance, Lemery and the Sobbi family regarding money said to have been lent by Reliance to Alan Sobbi, the son of Ghandi Sobbi.
11 The purchaser, Alka, wished to proceed. In about July 2004, Mr Karasmanis asked Mr Alan Sobbi what was happening, and received an explanation which included that Mr Cassaniti wished to maintain the caveat to have security for the money to which he claimed to be entitled. Mr Karasmanis suggested that Mr Sobbi come to some arrangement with Mr Cassaniti to remove the caveat, with the proceeds of sale to be held in trust while the dispute was sorted out. He says that Mr Alan Sobbi replied, "Leave it with me".
12 Due to the delay in settlement between 12 May and July 2004, the incoming financiers arranged by Alka withdrew, and it became necessary for Alka to arrange alternative finance, as a result of which it incurred additional costs. Also, the various deferrals of completion caused Alka to incur charges, including solicitor's costs and bank fees, for the various wasted appointments for completion.
13 Settlement was ultimately arranged for 27 August 2004. Prior to that day, Alka's solicitor, Mr Alexander, spoke to Lemery's solicitors, Harpers. Harpers apparently informed Mr Alexander that the Sobbis had come to an agreement with Mr Cassaniti for withdrawal of the caveat, that a withdrawal of the caveat signed by Mr Cassaniti would be provided, and that on that basis, the matter could proceed to settlement. Accordingly, settlement proceeded on 27 August 2004, when the balance purchase money was paid and the requisite documents handed to the purchaser's representative, including a withdrawal of the Cassaniti caveat.
14 However, a few days later, on about 6 September 2004, Alka's solicitor Mr Alexander received a telephone call from Mr Cassaniti's office. Mr Cassaniti alleged that the withdrawal of the caveat handed over at settlement had been forged, and requested an investigation by the Land Titles Office. The pendency of that investigation prevented registration of the withdrawal of caveat and of the transfer to Alka.
15 Negotiations followed, and in October 2004 it became apparent that there were proceedings between Lemery, Reliance and Cassaniti pending in this Court. Alka decided to await the outcome of those proceedings, which were likely to resolve the question of any claim by Mr Cassaniti against Lemery. Those proceedings were listed for hearing before Campbell J in this Division, to commence on 28 June 2004. Reliance abandoned its defence on the morning of the hearing, and in effect conceded that the documents relied upon as giving it the charge claimed in the Cassaniti caveat did not substantiate any such claim.
16 However, the possibility that there was an equitable charge over Lemery’s assets and undertaking in favour of Reliance was left open. In a judgment delivered on 30 June 2005, which the parties have put before me without objection, Campbell J found that there was uncontested evidence that Lemery owed Reliance $645,000, that there was prima facie evidence that as much as $1.03 million was owing from Lemery to Reliance, that there was a serious question to be tried whether Lemery agreed to grant a charge to Reliance and ought now be ordered to carry that agreement into execution, and that Lemery's solicitor had correctly not put any submission to the effect that there was no risk of dissipation if the interlocutory relief sought by Reliance was not granted.
17 Although in the time available I have not ascertained precisely the sequence of events, at some stage some of the balance proceeds of the sale were paid into court, and apparently abide the outcome of the proceedings between Lemery and Reliance. At least $250,000 was paid from the balance proceeds of sale into court in that respect.
18 On 1 August 2005, Mr Karasmanis had a conversation with Victor Quinteros of Orange Realty, in which the latter said that Lemery and the Sobbis were pressuring him to release the $90,000 deposit from his trust account, and Mr Karasmanis directed that under no circumstances was the deposit to be released.
19 On 2 August 2005 Alka's solicitor, Mr Alexander, sent a letter to Orange Realty's solicitor, Mr Delfino, requesting an undertaking that the deposit would not be released, and foreshadowing proceedings for orders restraining its release if that undertaking were not received. On or about the same date, Mr Alexander received a facsimile letter, apparently dated 29 July 2005, confirming that the deposit would not be dealt with unless instructed by both parties in writing. On 22 July however, Mr Sobbi and Lemery had commenced proceedings against Orange Realty in the Consumer Trader and Tenancy Tribunal, effectively seeking release of the deposit.
20 Mr Karasmanis says that he has instructed Doherty Partners to commence proceedings in the District Court for the recovery of damages said to have been suffered by Alka as a result of Lemery's alleged breach of contract, that breach being said to be of clause 16.3 of the contract. There is no evidence that any such proceedings have in fact been commenced.
21 On 19 September 2005, Lemery approached the Duty Judge and obtained leave to file a summons claiming an order claiming that Orange Realty pay to it the balance of any deposit held by it under the contract. Somewhat remarkably, Alka was not joined as a defendant. That summons was returnable before the Court on 23 September, when directions were made permitting a motion to be filed seeking consolidation with the associated proceedings to which I shall come, and standing the matter over to today.
22 Meanwhile, in proceedings 5058 of 2005, on 20 September Alka approached the Duty Judge and obtained leave to file a summons, which was made returnable on 22 September, in which it sought orders restraining Orange Realty from releasing the deposit, or alternatively that Orange Realty pay the deposit into court pending the determination of the proceedings and, in addition, restraining the payment out of court of $250,000 of the sum paid in pursuant to the orders made on 1 June 2004, being part of the proceeds of the sale of the shop. The final relief claimed was a declaration that of the deposit, $14,130.91 (relating to council rates, water rates, land tax and insurance) were held by Orange Realty on trust for Alka, and an order for payment of that sum to Alka, or alternatively, a declaration that Lemery held that sum on trust for Alka; and, additionally, damages in the sum of about $150,000. On 22 September, that summons also was, presumably, stood over to today.
23 When the matter came before me today, the parties agreed that a logical approach to the issues was to deal first with Alka's claim for injunctive relief, the resolution of which would essentially be determinative of Lemery's claim to the deposit. Orange Realty has not participated in the proceedings, but has indicated that it neither consents to nor opposes the orders sought by Alka, and that it wishes to pay the moneys held by it into court. I am now informed by counsel that Orange Realty has indicated that it submits to any order of the Court, save as to costs.
24 The claim for relief propounded by Alka is essentially one in the nature of Mareva relief. On an application for a Mareva order, as a general rule, an applicant has to establish first, a prima facie cause of action against the respondent, and secondly, a danger that by reason of the respondent's absconding or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the applicant, if it ultimately succeeds, will not be able to have a judgment in its favour satisfied. There must be evidence of at least a more than usual danger of assets being removed or dissipated [Patterson v BTR Engineering Australia Limited (1989) 18 NSWLR 319, 321-322 (Gleeson CJ); Frigo v Culhaci (NSWCA, 17 July 1998)].
25 In Frigo v Culhaci, the Court of Appeal emphasised that a Mareva order was an exceptional interlocutory remedy, its function being to minimise the possibility of an unscrupulous defendant rendering itself judgment proof by taking steps which were liable to produce the result that no assets within the jurisdiction could be found on the day of judgment. The Court emphasised that such orders imposed severe restrictions on a respondent's right to deal with its assets, and that their purpose was to preserve the status quo rather than to change it in favour of the plaintiff, it not being a function of the order to provide a plaintiff with security in advance for a judgment that it hoped to obtain and feared might not be satisfied, nor to improve the position of the plaintiff in the event of the defendant's insolvency. Likewise, in Patrick Stevedores Operations (No 2) Pty Ltd v Maritime Union of Australia (No 3) (1998) 72 ALJR 873, Brennan CJ and McHugh, Gummow, Kirby and Hayne JJ approved of a passage from Jackson v Sterling Industries (1987) 162 CLR 612, 619, to the effect that a Mareva order exists not to create additional rights, but to enable a court to protect its process from abuse in relation to the enforcement of its orders, it being neither a species of anticipatory execution, nor a form of security for any judgment which may ultimately be awarded.
26 It is necessary therefore first to consider whether Alka has established a prima facie cause of action in the sense referred to in Patterson v BTR Engineering. Alka puts its claim primarily as a claim for damages for breach of contract, the breach being said to be one of clause 16.3 of the contract for sale of land. It says that Lemery did not perform its obligations under clause 16.3 because it did not convey clear title upon completion, taking for that purpose completion to be the day when the purchase moneys were paid and the transfer handed over, namely 27 August 2004. And it says that is so because, while a withdrawal of caveat was handed over, that withdrawal of caveat was not in registrable form, because it was forged.
27 Mr Cassaniti apparently denies having signed the withdrawal of caveat. So far as the evidence goes, the withdrawal of caveat which was ultimately handed over on settlement and lodged for registration purports to be witnessed by one Ian Aiken JP 00004981 of 3 Smart Street, Fairfield. Evidence has been adduced which strongly suggests that no such Justice of the Peace exists. In the course of the proceedings today, another document entitled "Withdrawal of Caveat", relating to the same caveat, unregistered, bearing a signature similar to that which purports to be that of Mr Cassaniti in the lodged and allegedly forged withdrawal of caveat, but blank where provision is made for the signature and detail of witness, emerged and became PX06. The facsimile transmission imprints on that document reveal that it was transmitted by Alan Sobbi on Friday 20 August 2004 at 11.50 am, and then by Harpers Solicitors on the same day at 14.17pm. Alan Sobbi is the son of the principal of Lemery, Mr Ghandi Sobbi, who gave evidence before me that his son Alan, though never a director of Lemery, was assisting him at his request in the negotiations to bring about the withdrawal of the caveat. Harpers were the solicitors acting for Lemery on the instructions of the Sobbis in conjunction with the sale. These circumstances plainly establish a seriously arguable case that the Withdrawal of Caveat handed over on completion was a forgery.
28 Despite Mr Ghandi Sobbi's evidence today, I am also satisfied that there is a seriously arguable case that Lemery was party to that forgery. That does not necessarily involve any finding against Mr Ghandi Sobbi, even on the interlocutory basis on which I must deal with this matter. It suffices to say that a person authorised by Lemery to negotiate the withdrawal of the caveat is implicated, and it probably suffices to say that what was seriously arguably a forged caveat was handed over on completion with the result that Alka was induced to part with the purchase money then, rather than, as would otherwise have been the case, on a later date.
29 I am not persuaded that Lemery's success in the proceedings concerning the enforceability of the Reliance charge is inconsistent with its being implicated in procuring a fraudulent withdrawal of caveat. First, the context of the dealings as deposed to by Mr Karasmanis, and what he was told by Mr Alexander, which the latter had in turn ascertained from Harpers, fits quite closely with Mr Ghandi Sobbi's evidence of Mr Alan Sobbi's role in obtaining the withdrawal of the caveat. Secondly, different agents of Lemery may have been involved in each transaction. Third, even accepting Lemery's complete success in resisting the enforceability of the Deed of Charge, that is not inconsistent with its needing to complete the sale by 22 August 2004 (and thus having motive to procure withdrawal of the caveat).
30 Nonetheless, a finding that it is seriously arguable that Lemery was implicated in the delivery of a forged withdrawal of caveat is not conclusive of whether Alka has a prima facie cause of action for the purpose of the relief it now seeks. Counsel was not able to refer me to a case in which a purchaser of Torrens title land has recovered damages for breach of a contractual onbligations to convey clear title on completion. Questions of title usually merge on completion, and a purchaser is obliged to make all its objections and requisitions prior to completion. [Further reflection has reminded me that damages may be recovered for breach of the usual covenants for title, implied, not in a contract, but in a conveyance, of old system (but not Torrens Title) land, which in those circumstances entitle a purchaser to recover damages for certain defects in title after completion]. Thus, I very much doubt that there is any such cause of action, arising in contract, as Alka has primarily founded its claim on today.
31 But if there were, the measure of damages on such a cause of action would be the difference between Alka's position had the contractual obligation been performed, and its position resulting from the breach. Had the contractual obligation been performed, Alka would have had to pay all of the interest and all of the adjustments which forms the subject of most of its claim for damages in these proceedings in any event. The other part of its claim, which essentially relates to costs incurred by having to find alternative finance, results not from any breach of clause 16.3, but from delay in completion. Accordingly, even if there were any such cause of action as Alka propounds, on the evidence that has been put before me, the damages would be practically nil. Mr Hall is right when he points out that if there were a case for damages, it would be for lost rent; but save for a complaint by Mr Karasmanis that the purchaser had been unable to lease the property, there is no evidence that there was any loss of that kind. Alka has, after all, had possession since 8 July 2004. Accordingly, so far as the claim in contract is concerned, if there be any such valid claim, which I very much doubt, it would be for a very small amount, and nothing like the amount of the balance deposit.
32 Belatedly, it was suggested that Alka may have a claim for damages for deceit. This may be so. If, as I have found seriously arguable, Lemery delivered a forged caveat, and with it procured payment of moneys which would otherwise not have been paid until a later date, that may well found a case of fraud. In that case, so far as I can tell at this stage, the damages would be cost of accelerating, to 27 August from the later date when clear title was given, the commencement of mortgage repayments in respect of the moneys used to fund the purchase, but offset by the benefit of accelerating possession for the same period.
33 While appreciating that the time value of money means that some loss is incurred by such acceleration, the damages on such a cause of action would once again be very limited. The mortgage will remain on foot for the same duration, albeit with an earlier commencement and a correspondingly earlier finalisation date, and will thus expire at an earlier date than would otherwise have been the case. The plaintiff claims that it paid $62,000 in interest during the relevant period of acceleration. In effect, it has had to pay that sum a year early, and in very approximate terms the damages incurred as a result of the acceleration might be 10 percent of that sum, namely something in the order of $6,000, which would then have to be reduced for the offsetting benefit of early possession.
34 Before turning to the question of dissipation, then, it needs to be borne in mind that if there is a case for final relief, it is a case, as things appear at the moment, for a very small amount.
35 As to the risk of dissipation, there is evidence that Lemery has no real property in New South Wales. There is no acceptable evidence of its assets and liabilities and financial position. There is substantial evidence that it is entwined in other litigation and has other creditors, although some of them appear to be related, and others, such as Reliance, are not immediately payable because they are tied up in litigation. In particular, it seems that there is a debt of perhaps $645,000, perhaps a million dollars to Mr Cassaniti and/or Reliance, a debt to House of Diamonds (but whether that is Mr Alan Sobbi's debt or Lemery's debt is entirely unclear), debts to the solicitors acting for them, Tzovaras Legal (which Mr Ghandi Sobbi said in the witness box amounted to about $200,000 but as to the quantum of which there is no other evidence), liabilities under costs orders previously made in this Court and, apparently, borrowings from family or associates which Mr Sobbi wishes to see repaid.
36 In his affidavit, Mr Sobbi said that Lemery was “justly and truly indebted to a number of creditors including unsecured creditors which have contributed sums of money of approximately $50,000 to accommodate the company financing requirements pending the resolution of the plaintiff's claim in these proceedings", and that Lemery intended to apply the deposit funds to satisfy any claims concerning this matter "which claims exceed the money held by Orange Realty" - but there is no other evidence as to what those claims might be. Mr Sobbi's oral evidence left entirely obscure how the deposit would be applied if released to Lemery. At the end of Mr Hall's valiant attempt in re-examination to clarify the position, it seemed that perhaps $10,000 might be paid to Tzovaras Legal, and the balance in repayment of debts to associated persons. Having heard Mr Ghandi Sobbi's evidence and given the lack of adequate explanation as to how he proposes that any funds related would be applied, I would infer that there is a serious risk that they will be paid to his associates and family members, and quite possibly put beyond the reach of creditors. Thus, I would be satisfied that there was a risk of dissipation.
37 However, I have to look at that question in the context of the nature and substance of the prima facie case. Although I have taken into account Campbell J's recording that before him, Lemery's solicitor correctly did not submit that there was no risk of dissipation, the context there was quite different, because Reliance's claim was many times larger than the prospective claim here, being somewhere between $645,000 and $1.53 million, and because Reliance claimed that it was a secured creditor.
38 Having regard to the balance of convenience, notwithstanding the risk of dissipation, the doubtful substance of Alka’s case and the very small amount likely to be recoverable by Alka if it succeeds combine to persuade me that there is not a sufficiently seriously arguable case for final relief of such magnitude as would justify the extraordinary interlocutory remedy of a Mareva order.
39 Accordingly, I decline to make the order sought by Alka in its summons. It follows that the balance deposit should be released to Lemery.
40 In proceedings 5058 of 2005, I make the following orders:
(1) Dismiss the application for interlocutory relief contained in paragraphs 1, 2 and 3 of the summons;
(3) Stand the summons over to 9.30am on 21 October 2005 before the Registrar.(2) Order that the plaintiff pay the defendant's costs of the application;
41 In proceedings 5036 of 2004, I make the following orders:
(1) Order that Alka Developments Pty Ltd be joined as second defendant;
(2) Order in terms of paragraph 1 of the summons;
(4) Make no order as to costs, to the intent that all parties bear their own costs.(3) Order that order (2) be stayed until 9am on Tuesday 11 October 2005;
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