Apartment Developments Pty Ltd v Johnson
[2013] VSC 136
•26 March 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 519 of 2013
| APARTMENT DEVELOPMENTS PTY LTD (ACN 131 583 705) | Plaintiff |
| v | |
| ANNE MY JOHNSON | First Defendant |
| - and - | |
| THE REGISTRAR OF TITLES for Victoria | Second Defendant |
---
JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 February 2013 | |
DATE OF JUDGMENT: | 26 March 2013 | |
CASE MAY BE CITED AS: | Apartment Developments Pty Ltd v Johnson | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 136 | |
---
REAL PROPERTY – Caveat – Application to remove caveat – Transfer of Land Act 1958 s 90(3) – Serious question to be tried – Estate or interest in land – Balance of convenience
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Burgess, solicitor of Henderson and Ball Lawyers | |
| For the First Defendant | Mr J Searle | John Dunne and Associates Lawyers |
HER HONOUR:
Issue for Determination
The issue for determination is whether the Court should exercise its discretion under s 90(3) of the Transfer of Land Act 1958 (‘the Act’) to remove a caveat lodged by the first defendant claiming an interest in the property pursuant to a resulting, implied or constructive trust.
Factual Background
The plaintiff company is the registered proprietor of the property known as 199–201 Rouse Street, Port Melbourne (‘the property’). On 8 August 2011, Mr Ross Johnson, the husband of the first defendant, Mrs Anne Johnson, lodged a caveat on her behalf, claiming an estate in fee simple in the property.
The grounds of claim in the caveat stated: ‘The registered proprietor holds the property as trustee for itself and the caveator pursuant to a resulting implied or constrcutive [sic] trust’.[1]
[1]Exhibit D to the affidavit of Leslie Francis Sandy sworn 1 February 2013.
The background to the claim by Mrs Johnson arises from the development of the property. At that time, Mr Johnson was the sole director and shareholder of the plaintiff company. Mr Johnson told Mr Leslie Sandy that the plaintiff had secured an option to purchase the property. Mr Johnson needed funding to develop the project and he offered Mr Sandy a half share in the project and in the plaintiff company if Mr Sandy advanced the necessary funding to the plaintiff. Mr Sandy agreed with the proposal and, on 20 October 2009, Mr Johnson transferred half of the shares to a company controlled by Mr Sandy, known as Les Sandy & Associates Pty Ltd (‘LSA’). At the same time, Mr Johnson transferred the remaining 50 per cent of the shares in the plaintiff to Mrs Johnson and she was appointed a director of the plaintiff.
Subsequently, negotiations took place between the plaintiff and the owners of land adjoining the property and it was agreed to undertake a joint development on both properties. It was also agreed to offer a share of the project to the nominated builder, Mr Fred McKenzie. The result of these negotiations and agreements was that the shareholding of the plaintiff was then held by Mr Sandy through another company owned by him, known as LFS Properties Pty Ltd, as to 50 per cent, Mr Fred McKenzie as to 25 per cent and Mrs Johnson as to 25 per cent. Mr Sandy and Mr McKenzie were appointed directors of the plaintiff and Mrs Johnson resigned as a director.
The settlement of the purchase of the property was due on 3 November 2010, with the purchase price being funded by a loan from LSA to the plaintiff together with shareholders’ contributions. Mrs Johnson borrowed her share of the contributions from Mr Sandy as she did not have the funds for her share of the contribution. The parties entered into a shareholders’ agreement as well as various loan and security documents in respect of these arrangements.
So that construction finance could be organised, the development of the two properties required pre-sales of the apartments. Further injections of capital were also required for expenses until the construction finance was approved.
On 22 July 2011, the plaintiff resolved to make a call for funds of $100 000. Mrs Johnson failed to pay her contribution of $25 000. The caveat was lodged on 8 August 2011, although, for the reasons set out below,[2] Mr Sandy and Mr McKenzie were not aware of the caveat until January 2013.
[2]See below paragraph [14].
On 16 August 2011, the plaintiff sent formal notices to Mrs Johnson notifying her that by failing to make the payment of $25 000 her shares in the plaintiff were liable to be forfeited.
On 1 September 2011, a further notice was forwarded by the plaintiff to Mrs Johnson stating that, if she failed to make the required payment within 14 days, her shares would be forfeited.
Mrs Johnson failed to make the payment and her shares in the plaintiff were forfeited. Mrs Johnson disputes that the shares were validly forfeited.
Both Mr Sandy and Mr McKenzie or companies controlled by them thereafter paid any further calls required for the continued development of the project.
The development of the project is nearing completion at a cost of $12 million. All but 10 of the apartments have been pre-sold, with settlement due to occur 14 days after registration of the plan of subdivision and the issue of occupancy permits. Mr Sandy expects this to occur by the end of March to mid-April 2013.
In January 2013, Mr Sandy’s solicitor searched the certificate of title to the property. The search revealed to Mr Sandy, for the first time, the existence of the caveat lodged by Mrs Johnson. His explanation for not knowing of the existence of the caveat until the search was obtained was that, when settlement of the purchase of the property by the plaintiff was completed, the address of the plaintiff on the title was stated to be Mr Johnson’s business address, so that the plaintiff did not receive any notification of the lodgment of the caveat at the time it was lodged by the Johnsons.
Mrs Johnson’s Position
Mrs Johnson submitted that, although the plaintiff was used as a vehicle through which the development of the property was to be conducted, because it is the only asset owned by the plaintiff, the property is held on trust for its shareholders.
Mrs Johnson claims that she was removed wrongly as a director of the plaintiff and disputes that her shareholding in the plaintiff has been forfeited. She maintains that her shareholding was not validly forfeited and, until the alleged forfeiture of her shareholding in the plaintiff, there were three ‘partners’ who owned an interest in the property. In the alternative, Mrs Johnson submitted that, if her shareholding in the plaintiff were forfeited, this could only occur if she received full and adequate compensation for her shareholding and this had not occurred.
It was contended that, as Mrs Johnson was a shareholder of the plaintiff, she was entitled to a 25 per cent share of the property. She also contended that, after her shares were forfeited, she was still entitled to a 25 per cent share of the property and entitled to lodge a caveat to protect her shareholding in the company.
Mrs Johnson submitted that, if the caveat were removed, then the plaintiff should be required to hold the settlement funds so that her financial position be protected. Mrs Johnson claimed that she is not in a position to offer an undertaking as to damages because the actions of the plaintiff, Mr Sandy, Mr McKenzie and their associated entities have ‘effectively “cut her out” of the … development and the share of profits due to her’.[3]
[3]First Defendant’s Outline of Submissions dated 28 February 2013, [26].
Applicable Principles
Section 90(3) of the Act provides:
Any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit.
The relevant principles with respect to an application under s 90(3) of the Act were summarised by Warren CJ in Piroshenko v Grojsman:
Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. In so far as their registration is an administrative act, it is when application is made for their removal that the onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief. … This two-stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish that the balance of convenience favours the maintenance of the caveat on the Register of Titles until trial.
…
Therefore, consistently, in order for a caveator to satisfy the first limb of the test applied by the courts when deciding applications under s 90(3) of the Act, he or she must satisfy the court that:
1.there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and
2.that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.[4]
[4] (2010) 27 VR 489, 491, 493 (citations omitted).
As explained by Macaulay J in Percy & Michele Pty Ltd v Gangemi:
The reference to ‘probability’ in the first limb of what her Honour said must be satisfied is plainly qualified by the character of that probability as described in the second limb. Recalling what the High Court said in Australian Broadcasting Commission v O’Neill, showing a ‘prima facie case’ does not mean that a plaintiff must show that it is more probable than not that he or she will succeed at trial.[5]
[5] [2010] VSC 530 (24 November 2010) [47].
Serious Question to Be Tried
In order to establish that there is a serious question to be tried, the caveator must establish a ‘prima facie case with sufficient likelihood of success to justify the maintenance of the caveat’.[6]
[6] Ibid 494.
For the purposes of this proceeding, the onus falls on Mrs Johnson as the caveator to establish that she has an interest in the property by reason of a resulting implied or constructive trust. As stated by Warren CJ:
Caveats are not ‘bargaining chips’. It is not sufficient for the caveator to establish a prima facie case that they have contractual, equitable or statutory rights against the caveatee; their interest or rights must attach to the property with respect to which the caveat has been lodged.[7]
[7] Ibid 495.
Until September 2011, when her shares in the plaintiff were forfeited, Mrs Johnson held a 25 per cent shareholding in the plaintiff. She lodged the caveat at the time she held the shares. After September 2011, her shares were forfeited.
It is settled law that a share in a company does not confer upon the holder legal or equitable interest in the assets of the company, a share being a separate piece of property.[8] Shares in a company are personal property and, therefore, the interest of a share holder in the share capital of a company does not extend to the property or assets that the company owns.
[8] Charles v Federal Commissioner of Taxation (1954) 90 CLR 598, 609 (Dixon CJ, Kitto and Taylor JJ).
Whilst a corporation may acquire an estate or interest in land that will support a caveat, shareholders of corporate land holders cannot claim an interest in land. They merely have an interest in the shares from which benefits may flow. A shareholder has no proprietary interest whether legal or equitable in the assets of a corporation in which shares are held.[9] As stated by Lord Wrenbury:
the corporator even if he holds all the shares is not the corporation, and … neither he nor any creditor of the company has any property legal or equitable in the assets of the corporation.[10]
[9] Macaura v Northern Assurance Co Ltd [1925] AC 619, 626; Ten Pin Properties Ltd v Bowlarama (NZ) Ltd (Unreported, High Court of New Zealand, Tipping J, 18 December 1989) 3; Helm Corporation Ltd v Latestar Pty Ltd (Unreported, Supreme Court of Victoria, Hayne J, 16 June 1994) 25.
[10]Macaura v Northern Assurance Co Ltd [1925] AC 619, 633.
In my view, Mrs Johnson’s claim that she has an equitable interest in the property by reason of the asserted trusts claimed in the caveat is doomed to fail. She has no prima facie case and no likelihood of success in establishing that the caveat should remain on the title to the property. Accordingly, the caveat should be removed.
Balance of Convenience
Although it is unnecessary to consider the balance of convenience, because I have concluded that the caveat should be removed, my view is that the balance of convenience favours the plaintiff, as the removal of the caveat carries the lower risk of injustice.[11]
[11]Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 73.
When considering the balance of convenience, the Court of Appeal said:
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the [Lord] Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[12]
[12] Ibid.
The development is near completion and the caveat constitutes an absolute fetter on the plaintiff’s ability to settle the 10 pre-sold apartments. The maintenance of the caveat on the property in the circumstances is a comprehensive restriction on the plaintiff‘s rights. The development has entailed substantial costs, none of which has been borne by Mrs Johnson, and the plaintiff should be placed in a position where it is able to finish the development and pay out the holding costs and expenses.[13]
[13]Pakenham Valley Pty Ltd v Firstline Homes Pty Ltd [2010] VSC 482 (15 October 2010) [15].
The lodging of the caveat by Mrs Johnson has all the attributes of a ‘bargaining chip’ in the disputes that Mrs Johnson may have against the plaintiff, Mr Sandy, Mr McKenzie or their associated companies. If Mrs Johnson does have valid claims concerning the forfeiture of her shares in or her removal as a director of the plaintiff, if so advised, she is still able to pursue these claims.
The submission that the settlement proceeds of the development should be held pending the resolution of the disputes between Mrs Johnson and the plaintiff, Mr Sandy, Mr McKenzie and the companies associated with them is flawed. She is, in effect, seeking that the Court grant a freezing order without her giving an undertaking as to damages. This is a completely unrealistic position to adopt in the circumstances and I would not make such an order if such an application were before the Court. Further, even if Mrs Johnson did provide an undertaking as to damages, I would need to be satisfied on the evidence that any undertaking as to damages by her would not be an empty undertaking.
One Further Matter
As stated, Mrs Johnson filed an affidavit opposing the removal of the caveat. She gave as her residential address an address in Box Hill South. The plaintiff’s solicitor informed the court that the address was a retirement village and was most likely the address of Mrs Johnson’s mother-in-law. Mrs Johnson is married with two children and it would be unlikely that she was living at that address, particularly as her counsel informed the Court that she was currently in Hong Kong. Counsel for the plaintiff did not challenge the statements made by the plaintiff’s solicitor.
A concern was raised by the plaintiff’s solicitor that Mrs Johnson’s affidavit did not comply with r 43.01(2) of the Supreme Court (General Civil Procedure) Rules 2005, which provides that, unless a court otherwise orders, an affidavit shall state the place of residence of the deponent and the deponent’s occupation. This concern was exacerbated by the fact that Mrs Johnson’s address in her notice of appearance was a different address, being the address of her former accountants in South Melbourne.
The concerns expressed by the plaintiff’s solicitor were held over to see whether they could be addressed and resolved between the respective solicitors for the plaintiff and Mrs Johnson. If they were not, I propose making orders compelling Mrs Johnson to comply with r 43.01(2) forthwith.
Conclusion
I order that Caveat AJ118707Y be removed from the land described in Certificate of Title Volume 10244 Folio 926 and the first defendant pay the plaintiff’s costs, including any reserved costs, on an indemnity basis, taxed in default of agreement. I shall hear the parties as to the form of order and costs.
---
0
5
0