Aveling Homes Pty Ltd v Yansong Investments Pty Ltd - [2021] WASC 276

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   AVELING HOMES PTY LTD -v- YANSONG INVESTMENTS PTY LTD [2021] WASC 276
CORAM:   TOTTLE J
HEARD:   27 JULY 2021 & 11 AUGUST 2021
DELIVERED          :   11 AUGUST 2021
PUBLISHED           :   12 AUGUST 2021
FILE NO/S:   CIV 1616 of 2021
BETWEEN:   AVELING HOMES PTY LTD
Plaintiff
AND
YANSONG INVESTMENTS PTY LTD
First Defendant
REGISTRAR OF TITLES
Second Defendant

Catchwords:

Application for extension of caveat - Where plaintiff proposes alternative security in lieu of removal of caveat - Whether serious question to be tried - Whether putative agent had authority to enter into transaction on behalf of principal - Where case cannot be resolved on conflicting affidavit evidence

Legislation:

Transfer of Land Act 1893 (WA), S 138C

Result:

Application granted

Category: B

Representation:

Counsel:

Plaintiff	:	Mr M F Holler
First Defendant	:	Mr A H M Lai
Second Defendant	:	No appearance

Solicitors:

Plaintiff	:	Lavan
First Defendant	:	AH2 Legal
Second Defendant	:	No appearance

Case(s) referred to in decision(s):

Bashford v Bashford [2008] WASC 138
Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Pourzand v Telstra Corporation Ltd [2014] WASCA 14

TOTTLE J:

Introduction

By an originating summons filed on 5 July 2021 the plaintiff seeks the extension of the operation of a caveat lodged by it against the title of a suburban property owned by the first defendant (the Property). The application is made under s 138C of the Transfer of Land Act 1893 (WA).
The plaintiff is a builder and the caveat was lodged pursuant to a charging clause in a contract to build four home units on the Property. The first defendant says that the building contract relied on by the plaintiff was not executed by it. The contest between the parties is whether the person who purported to execute the building contract on the first defendant's behalf, Mr James Wang, had authority to do so.
The first defendant has entered into a contract for the sale of the Property and settlement is imminent.
The hearing was adjourned part heard on 27 July 2021 to enable the first defendant to adduce further evidence.

The evidence

The plaintiff relies on affidavits sworn by Michael Peter Aveling, a director of the plaintiff, on 5 and 26 July 2021. The defendant relies on an affidavit of Changfu Song, a director of the first defendant, affirmed 19 July 2021. Mr Song is resident in China and he cannot read or speak English. His affidavit was translated into English and is supported by an affidavit verifying the translation affirmed by Qunhua Dai, a professional interpreter and translator. The first defendant relies also on an affidavit sworn by Anfernee Hok Ming Lai on 3 August 2021.

The factual background

The first defendant is a company incorporated by Mr Song on 4 July 2016 for the purposes of making investments in land in Western Australia. Mr Song was the sole director of the first defendant between the date of its incorporation and 25 July 2018 when Ms Wei Gao, Mr Song's wife, was appointed as a director. The first defendant was registered as the proprietor of the Property on 5 September 2016.
On 25 November 2016 a document that purported to be a building contract between the plaintiff as builder and the first defendant, as owner of the property, was executed. As recorded in the introduction Mr Wang purported to execute the building contract on the first defendant's behalf.
Mr Aveling deposes the building contract was negotiated by Mr Wang on behalf of the first defendant. Mr Aveling deposes Mr Wang spent 'considerable time' with the plaintiff's staff 'going through the project in great detail' and approved the drawings and modifications to them for contract quoting purposes, and approved the specification including working on the colour selections for finishes.
The first defendant contends that Mr Wang had no authority to enter into the building contract on its behalf and I will refer to Mr Song's evidence about Mr Wang shortly.
There is no evidence of any communication between anyone with undisputed authority to act on behalf of the first defendant and the plaintiff before the building contract was executed.
The building contract comprised a 'Schedule of Particulars' and terms for a Lump Sum Building Contract published by the Housing Industry Association Ltd. The terms included a charging clause, cl 6. The Schedule of Particulars described the 'Works' to be undertaken as 'Private Residence' though it is clear from Mr Aveling's evidence that the plaintiff had agreed to construct four housing units on the property. The contract price was $1,270,000 inclusive of GST and was apportioned to a 'Per Unit' price.
The building contract provided for payment of a deposit of $82,550 on execution.
Mr Aveling deposes that after entering the building contract the plaintiff:
(a)sought and obtained the necessary planning approval and building permit to allow the building works to proceed and that the fee of $5,000 was paid by Mr Song;
(b)sought and obtained home indemnity insurance;
(c)requested the first defendant to pay the deposit due under the Building Contract.
In June 2017 emails were exchanged between Mr Wang and members of the plaintiff's staff. It is apparent from these emails that the plaintiff's staff had experienced some difficulty in communicating with Mr Wang and that they wanted Mr Wang to execute a 'director's guarantee'. The plaintiff's staff were also concerned about the payment of charges for water and power to the property. On 21 June 2017, in response to an email sent to him by one of the plaintiff's staff members, Mr Wang stated in an email:
Apologies for the constant delay in sending the directors guarantee form back. I have been trying to get Mr Song to take part in the personal (director's) guarantee as he's the major shareholder in the company. I just have slight reservations about being the sole guarantor in this deal given we are relying 100% on personal funds for this project. I just need Mr Song's signature to cover myself just in case he decides to pull out of the project prior to completion. He has agreed over the phone that he will sign the form and has verbally assured me of his commitment to complete this project, but I hope you can understand my reservations in taking 100% of the risk.
At this stage, I would rather lose out on a few thousand in cost savings for the reassurance. I understand that the watercorp and western power payments may not wait until July, but am I able to pay them on Aveling's behalf in the meantime and for that amount to be credited back on the progress claims? (Emphasis supplied)
In his affidavit Mr Song gives the following account of his relationship with Mr Wang and his knowledge of the building contract:
14.Not long after I came to Australia, I met Mr Tom Wang (Tom) and we later became good friends.
15.I later met Mr James Wang (James) through Tom. James is Tom's son.
16.To the best of my knowledge, James grew up in Australia and is fluent in English. Through my interaction with him I know that he also speaks very basic Chinese.
17.Because I couldn't speak any English, every now and then I had asked James or Tom for help when I needed someone to translate or make enquires for me in English.
18.I always communicated with James in Chinese.
19.At around the time Yansong completed its purchase of the Belmont Land, I asked James if he could help me make some enquires about the costs of constructing residential houses on the Belmont Land and the likely prices for which those residential houses could be sold.
20.I was in China at the time and I understand that James was in Perth. During this we mainly communicated by phone.
21.At the time, I just wanted to find out whether it would be a viable project to construct and sell residential houses on the Belmont Land. If it is not a profitable project, I intended to hold the land as mid to long term investment.
22.James told me that he could help me make some enquires.
23.I did not know who James communicated with at the time but he later told me that he spoke to a few builders in Perth. I vaguely remember that James told me that the construction costs for four residential houses would be around $1.2 million t $1.3 million.
24.I did not remember the names of the builders that James might have mentioned to me at the time. It is very difficult for me to remember a name if it is in English.
25.I asked James to make more comparisons and let me know what would be the lowest costs to build.
26.Some time later, James told me that one of the builders provided a quote of $1.2 million and that was the lowest one.
27.I cannot remember if James mentioned the name of that builder to me at the time but even if he had, I couldn't remember it because it was in English.
28.I told James that if that was the lowest costs, I would consider it.
29.Around this time, James told me that I had to pay around $10,000 as design fee. I asked him if he could ask for a discount and he later told me that I only needed to pay $5,000.
30.At the time, I did not know to whom that design fee was to be paid.
31.In around late 2016 or early 2017, I again spoke to James on the phone and he told me that he had signed a building contract.
32.I was shocked to hear that and asked him how could he signed something without my knowledge and permission.
33.I told James that I had never asked him to sign any contract and only asked him to find out how much was the construction costs.
34.James told me that he might have misunderstood me.
35.James told me that because the contract was not signed by me, I didn't have to worry about it.
36.James did not give me a copy of the contract signed by him.
37.I was not aware of the communications James had with the plaintiff after he signed the document.
On 1 August 2019 the plaintiff lodged its caveat against the title of the Property.
By letter dated 11 September 2019 the plaintiff sought clarification from the first defendant as to its intentions in the light of the delay that had occurred. In its letter the plaintiff said:
We have been led to understand by your representative Mr James Wang that the reason for the long delay can be attributed to your Perth market concerns and the ability to settle the properties on completion.
Whilst we are understanding of concerns you may have with the Perth real estate market it remains that we do have a legal and binding building contract which needs to be addressed, it cannot be left as it is currently.
We are committed to working with you to find a solution and therefore can propose the following:
(i)Pay the Deposit progress claim in the amount of $82,550 within 10 days of receipt of this letter in order to proceed under the contract to site commencement.
(ii)Pay the Deposit progress claim in the amount of $82,550 within 10 days of receipt of this letter. At which time we would commit to holdover the contract for a further 30 days pending your advice to proceed.
(iii)Cancel the contract within 10 days of receipt of this letter.
In the event option (iii) is the way to resolve this outstanding matter then we reserve our rights under the building contract to recover all reasonable costs plus a fair builder's margin, overhead costs and/or loss of profit.
We encourage you to respond formally with consideration to the time urgency expressed. Should you wish in the meantime to discuss please contact either the undersigned or Mr. Jason Bums.
By a letter from its solicitors to the first defendant dated 28 October 2019 the plaintiff demanded payment of invoices it says were rendered by it to the first defendant on 20 June 2017 for deposits in respect of the units to be constructed on the property. The invoices were for a total amount of $82,550. In addition, the plaintiff's solicitors referred to a potential claim for damages in the vicinity of $250,000. The plaintiff's solicitors said that unless the invoices for the deposits were paid within seven days proceedings would be commenced.
The first defendant instructed solicitors to respond to the plaintiff's demands and by letter dated 25 November 2019 the first defendant's solicitors informed the plaintiff's solicitors that Mr Wang had no authority to enter into the building contract and that the first defendant was not bound by the terms of the building contract.
On 28 May 2021 the first defendant entered into a contract by way of offer and acceptance to sell the Property. It is a condition of the sale contract that the caveat be removed within 60 days of the date of the contract, failing which, the contract would be terminated, and that settlement take place within 28 days of the removal of the caveat. The contract was subject to finance with finance to be approved within 28 days of the date of the contract. Although the evidence was silent on this point I infer the finance was either obtained or the 'subject to finance condition' was waived. The first defendant has negotiated a postponement of the settlement date.
Mr Aveling deposes that the quantum of the plaintiff's damages claim exceeds $200,000 and provides a breakdown of the components of the claim. By letter dated 22 July 2021 from its solicitors to the first defendant's solicitors, the plaintiff offered to remove the caveat if payment of $200,000 was made into court or into its solicitors' trust account.
Mr Lai attached to his affidavit of 3 August 2021 a copy of the first defendant's financial statements for the financial year ended 30 June 2020. He deposed that Mr Song had informed him that the first defendant's present financial position is similar to the position set out in the 2020 financial statements and that the first defendant has a liability of approximately $1.5 million in the form of loans owing to Mr Song arising from the first defendant's purchase of the Property and one other property. The financial statements record that the amount owing in respect of the loans due to Mr Song exceeds the values of the properties, as recorded in the financial statements, by approximately $10,000.

Legal principles

The principles applicable to an application for an extension of a caveat were summarised by Beech J in Bashford v Bashford as follows:[1]
[1] Bashford v Bashford [2008] WASC 138 [42] - [50].
Section 137 of the Transfer of Land Act 1893 (WA) enables a person who claims 'any estate or interest' in land to lodge a caveat. By its nature, a caveatable interest must be a proprietary interest in land: Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50.
A caveat is a form of statutory injunction preventing registration of a dealing against land until the caveator has been given a reasonable opportunity to justify the caveat by pursuing such remedies as he or she may have: J and H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546, 552, 558; Custom Credit (44 ‑ 45); Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27 [68].
Section 138C(2) of the Transfer of Land Act is in the following terms.
On the hearing of an application under subsection (1), the Supreme Court ‑
(a)if satisfied that the caveator's claim has or may have substance -
(i)may make an order extending the operation of the caveat for such period as is specified in the order;
(ii)may make an order extending the operation of the caveat until the further order of the court; or
(iii)may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;
(b)if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and
(c)may make such ancillary orders in relation to the application as it thinks fit.
It can be seen that the power of the court to make orders in favour of a caveator arises only if the court is satisfied that the caveator's claim 'has or may have substance'.
The 'caveator's claim' refers to the claim by the caveator of the estate or interest that is claimed in the caveat: Professional Services of Australia Pty Ltd v Mila Properties Pty Ltd [2004] WASC 30 [17].
On an application for an extension, the onus is on the caveator to demonstrate that there is a serious question to be tried as to whether a caveatable interest exists: Custom Credit (48); Jandric v Jandric [1999] WASC 22 [5].
In an application for an extension of caveat it is not appropriate to attempt to resolve conflicts of evidence on affidavit: Porter v McDonald [1984] WAR 271, 276.
The caveat will not be removed unless the claim to an estate or interest in the land appears to be without foundation: Porter v McDonald (276); Custom Credit (48).
The balance of convenience is a factor to be considered in an application to extend the operation of a caveat. However, interlocutory removal of a caveat will be unusual where an arguable case as to the existence of a caveatable interest has been demonstrated. That is because the purpose of a caveat is the protection of a proprietary interest. Removal of the caveat will, in many cases, have the effect of destroying the benefit of the proprietary interest claimed in the caveat: Custom Credit (50).

The opposing arguments

The plaintiff argues that the evidence is sufficient to sustain the proposition that Mr Wang had the first defendant's authority to execute the building contract on its behalf. It contends that it can be inferred that Mr Wang had such authority from Mr Wang's conduct. It relies on Mr Wang's involvement in the project, the statement in his email to the plaintiff's staff sent on 21 June 2017 that Mr Song had agreed to provide a director's guarantee and the inherent improbability that Mr Wang would execute the building contract without authority. The plaintiff contends that the issue of authority is an issue that cannot be resolved on affidavit evidence and can only be resolved at trial.
The first defendant points to the fact that the building contract was not signed in accordance with s 127 of the Corporations Act 2001 (Cth) because it was not signed, relevantly, by the sole company director, Mr Song, who was also the sole company secretary. Thus, the first defendant contends the plaintiff cannot rely on the assumptions in s 129(5) of the Corporations Act that the building contract was duly executed by it. Further, the assumptions under s 129(3) cannot be made because there is no evidence that Mr Wang was held out by the first defendant to be an officer or agent of the company.
The first defendant contends that the plaintiff has failed to demonstrate that Mr Wang had any authority to execute the building contract on its behalf. It emphasises that the statement in Mr Wang's email of 21 June 2017 that he had spoken to Mr Song and Mr Song had agreed to provide a director's guarantee was hearsay. The first defendant relies on Mr Song's affidavit evidence to the effect that Mr Wang had no authority to enter into a contract and his role was limited to making inquiries on the first defendant's behalf.
The first defendant contends that, if contrary to its submissions, the court is satisfied that the plaintiff has established a serious question, then its claim is weak and that the balance of convenience favours the removal of the caveat. The first defendant points to the fact that the plaintiff has not taken any action in respect of its claims notwithstanding that, on the plaintiff's case the deposit became payable on 26 November 2016 and it has known since November 2019 that the first defendant denied that it was bound by the building contract.

Disposition

The sole issue between the parties is whether Mr Wang had authority to enter into the building contract. This is not a question that can be determined on this application. The question for determination is whether the plaintiff's claim 'has or may have substance'.
At common law authority for an agent to enter into a transaction may arise in one of three ways: actual authority, apparent or ostensible authority, and ratification. On the evidence ratification does not arise.
Actual authority is:[2]
... a consensual arrangement between principal and agent whereby the principal grants to the agent, and the agent accepts, the principal's authority to act on the principal's behalf to undertake certain matters or tasks. Actual authority may itself be either express authority or implied authority.
[2] Pourzand v Telstra Corporation Ltd [2014] WASCA 14 [129].
Apparent or ostensible authority is established when a principal holds out the agent as having authority and the person dealing with the principal relies on that person's apparent authority. The foundation of apparent authority is estoppel. In Pacific Carriers Ltd v BNP Paribas,[3] the High Court described the operation of apparent authority in the corporate context as follows:
Where an officer is held out by a company as having authority, and the third party relies on that apparent authority, and there is nothing in the company's constitution to the contrary, the company is bound by its representation of authority. 'The representation, when acted upon by the contractor by entering into a contract with the agent, operates as an estoppel, preventing the principal from asserting that he is not bound by the contract.' It is not enough that the representation should come from the officer alone. Whether the representation is general, or related specifically to the particular transaction, it must come from the principal, the company. That does not mean that the conduct of the officer is irrelevant to the representation, but the company's conduct must be the source of the representation. In many cases the representational conduct commonly takes the form of the setting up of an organisational structure consistent with the company's constitution. That structure presents to outsiders a complex of appearances as to authority. The assurance with which outsiders deal with a company is more often than not based, not upon inquiry, or positive statement, but upon an assumption that company officers have the authority that people in their respective positions would ordinarily be expected to have. In the ordinary case, however, it is necessary, in order to decide whether there has been a holding out by a principal, to consider the principal's conduct as a whole.
[3] Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 466 - 467.
The evidence relied on by the plaintiff does not provide any support for a representation made by the first defendant, by conduct or otherwise, to the effect that Mr Wang had authority to enter into the building contract and there is no evidence that the plaintiff relied on any such representation. The evidence on this application does not establish a foundation for concluding that Mr Wang had apparent authority to act on behalf of the first defendant.
For the plaintiff to establish its claim has or may have substance it is required to point to evidence that Mr Wang had actual authority from the first defendant to enter into the building contract.
Mindful of the court's inability, on an application of this nature, to resolve issues on the basis of conflicting affidavit evidence, I am persuaded, though not without some hesitation, that the plaintiff may have a claim of substance based on the proposition that Mr Wang had the first defendant's actual authority to enter into the building contract. The following matters in combination lead me to this conclusion:
(a)The acceptance by the first defendant that Mr Wang had authority to act on its behalf to the limited extent of making inquiries and obtaining quotes from builders.
(b)Mr Song's evidence that Mr Wang had told him that Mr Song 'had to pay around $10,000 as [a] design fee. I asked him if he could ask for a discount and he later told me I only needed to pay $5,000' is consistent with Mr Wang having some authority to enter into agreements on behalf of the first defendant.
(c)The inherent improbability that Mr Wang would spend time finalising the details of a contract to build units on the Property if he did not have the first defendant's authority to do so.
(d)The necessity for the first defendant and Mr Song to conduct business in Australia using an English speaking agent.
(e)The absence of a compelling reason for Mr Wang to make the statement in his email of 21 June 2017 that Mr Song had assured him of his commitment to complete the project, and his, that is Mr Wang's willingness to pay disbursements to 'the watercorp and western power', when there was no reason either to make the statement about Mr Song's assurance or evince a willingness to pay the expenses if Mr Song's position was that he did not want to proceed with the building.
In my judgment the plaintiff has established a serious question to be tried and though it is not a strong case, in the absence of any compelling evidence of prejudice to be suffered by the first defendant, the balance of convenience favours making an order for the removal of the caveat conditional upon the first defendant providing alternate security in the sum of $200,000. A pre‑condition to such an order will be the provision by the plaintiff of an undertaking to commence proceedings against the first defendant based on building contract forthwith and to pursue those proceedings with expedition.
I will hear the parties as to the precise terms of the order and costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AS
Associate to the Honourable Justice Tottle
12 AUGUST 2021