Bares v Watson
[2013] NSWSC 29
•16 January 2013
Supreme Court
New South Wales
Medium Neutral Citation: Bares v Watson [2013] NSWSC 29 Hearing dates: 16/01/2013 Decision date: 16 January 2013 Jurisdiction: Common Law Before: McDougall J Decision: Grant defendants leave to lodge further caveat.
Catchwords: REAL PROPERTY - sale of land - contract - whether vendor ready, willing and able to complete
REAL PROPERTY - caveats - balance of convenienceLegislation Cited: Family Law Act 1975 (Cth)
Real Property Act 1900 (NSW)Category: Procedural and other rulings Parties: Gary Michael Bares (Plaintiff)
Anthony Rupert Watson (Defendant)Representation: Counsel:
J King (Plaintiff)
M Gunning (Defendant)
Solicitors:
Konstan Lawyers (Plaintiff)
Harrison Dobson & Cottrill (Defendant)
File Number(s): 2012/379424
Judgment (EX TEMPORE - REVISED 16 jANUARY 2013)
HIS HONOUR: On 21 December 2009, the plaintiffs (the vendors) and the first defendant (Mr Watson) made a contract for sale of land. Under that contract, the vendors agreed to sell to Mr Watson land at Moama, on the Murray River, which may be described sufficiently as "lot 6".
The contract for sale described the "purchaser" as:
Anthony Rupert Watson atf Anthony Rupert Watson and Josephine Sandford Watson as Joint Tenants as to the area marked "A", and
Anthony Rupert Watson atf Anthony Rupert Watson as to 25 per cent share, and [the vendors] as to the remaining 75 per cent share as tenants in common with respect to the land hatched and known as the "Vacant Lot" and marked "B" on the proposed Plan of Subdivision attached to the Second Schedule herein.
There was a proposed plan of subdivision attached to the contract. However, that formed part of the first schedule, not the second schedule. The plan of subdivision proposed plan of subdivision did indeed show one area as "A" and another, hatched, area as "B".
The reference to the plan of subdivision being contained in the second schedule is not the only confusing feature of the contract. I pause to note that the same solicitor acted for the vendors and for Mr Watson in the preparation and exchange of the contract. He appears to have continued to act for both until (to jump ahead) he issued, on the instructions of the vendors, a document purporting to be a notice to Mr Watson to complete the contract. I simply do not understand how anyone could have thought it was appropriate for the solicitor who had formerly (and in my view unwisely) acted for both parties to the contract to act for one party only once a dispute arose.
However, returning to the substance of the problems with the contract, a special condition dealt with the topic of "retransfer of vacant lot". The "vacant lot" was that referred to in the description of the "purchaser": namely, the area marked "B" on the proposed plan of subdivision.
Under special condition 20, Mr Watson was required at his own cost to use his best endeavours to procure registration of the plan of subdivision. He was then required to transfer what might be called part B, or the vacant lot, to the vendors. Clause 20.4 provided, among other things, that Mr Watson acquired a beneficial interest only in part A (or lot 6 excluding the vacant lot), no interest in the vacant lot, and that he held the legal title to the vacant lot as trustee for the vendors.
Quite how that can be reconciled with the apparently clear provisions of the description of "purchaser" is a matter that will have to be resolved at a final hearing.
Unfortunately, that dilemma is at the heart of the issue between the parties. As I have indicated, the vendors purported to give a notice to complete to Mr Watson. That notice said, among other things, that the vendors were "ready able and willing to transfer to you the land marked 'A' and being part of the land contained in [lot 6] in accordance with...the contract for sale."
The notice required completion of the purchase (without specifying whether as to part A only or the whole of lot 6) by 23 April 2012 and purported to make time of the essence.
Mr Watson did not complete in accordance with the notice. On 14 September 2012, the vendors (who by then had retained, as Mr Watson had done, independent solicitors) gave what was or purported to be a notice of termination of the contract.
Mr Watson lodged a caveat on about 14 September 2012. That caveat described the estate or interest claimed as "fee simple". It said that the interest arose by virtue of the contract for sale to which I have referred.
It is also necessary to note that Mr Watson and his wife went into occupation of either lot 6 or part thereof being part "A", pursuant to a licence agreement. The vendors have terminated, or purported to terminate, that licence agreement and have required vacant possession. They have commenced proceedings in the Common Law Division for possession.
The vendors have also given Mr Watson a lapsing notice in respect of his caveat. That matter has come before me in vacation. That is the aspect of the dispute with which I am concerned today.
Mr King of counsel, for the vendors, submitted that the form of the caveat was defective. Mr Gunning of counsel, for Mr Watson, did not accept that it was. I think that there is much to be said for Mr King's approach. I say that because the contract for sale has not been performed. The highest interest that Mr Watson can have is an equitable interest, or equity, ascertained and limited by reference to his ability first to protect that interest through interlocutory relief and, secondly, by his ability to obtain specific performance. But on no view, absent complete performance by Mr Watson, can he have an interest in fee simple in the land.
However, that being said, Mr King accepted that if I came to the view that the substance of the interest for which Mr Gunning argued (on behalf of Mr Watson) were made good, then it would be appropriate to grant relief under s 74O of the Real Property Act 1900 (NSW).
Accordingly, I turn to the substance of the dispute.
Mr Gunning submitted that there was at least a serious question to be tried as to the validity of the notice to complete. He submitted that the notice to complete was invalid, and thus that it was not effective to make time of the essence. It followed, he submitted, that the notice of termination was invalid.
Mr King submitted that the notice to complete could be construed as a notice requiring performance of the substance of the contract (which, he submitted, with reference to special condition 20, was that Mr Watson would obtain only part A). Alternatively, he submitted, the notice should be construed as a notice requiring performance of a term of the contract, as an incident in or of the performance of the contract as a whole in due course.
If the proper construction of the contract is to be found in special condition 20, then the reality is that Mr Watson's beneficial interest (if I can use a loose but sufficient term) in the subject matter of the sale extends only to part A, and does not include part B (the vacant lot). However, it seems to me, there is a very real question indeed as to whether special condition 20 should govern the situation.
If the position were governed by the description of the "purchaser" then it is tolerably clear that Mr Watson would have a beneficial interest not only in part A but also in the vacant lot.
However, it seems to me to be seriously arguable that on neither view of the contract was the notice to complete valid. Even if the position were governed solely and exclusively by special condition 20, Mr Watson was bound to take a transfer of the whole of lot 6 and to deal with lot 6 thereafter in the manner contemplated by special condition 20. It was not enough, to require him to complete the contract, to ask him to take only the part marked A.
Nor, it seems to me, were the vendors in a position to require him to do that in any event. There is no evidence that lot 6 had been subdivided, in accordance with the proposed plan of subdivision attached to the contract; and indeed a title search as at 24 October 2012 suggests the contrary. Thus, the assertion that the vendors were ready, able and willing to transfer part A was incorrect. The only way that the vendors could do that was by transferring the whole of lot 6. They did not assert their readiness, ability or willingness to do that.
Of course, on the alternative view of the contract, a requirement to complete it by taking only part A of the land, and in fact to forgo the arguable beneficial interest in the vacant lot, is insufficient in any event.
Thus, it seems to me, there is a serious question to be tried as to the validity of the notice to complete. Since the notice of termination depends solely and exclusively on the notice to complete, that serious question affects also the notice of termination.
There is, it seems to me, another problem with the notice to complete. The evidence shows that an entity known as Tootub Pty Limited lodged a caveat against lot 6 dated 30 September 2010. That caveat claimed an equitable charge pursuant to a loan agreement made between Tootub and the vendors on 18 November 2008. The evidence shows, and it is common ground for the purposes of this application, that Tootub is some sort of service company or other entity controlled by the vendors' current solicitor, Mr Mackay.
A search of lot 6 shows that Tootub's caveat remained on the title as at 24 October 2012. In the absence of evidence of the contrary, I would infer that it was on the title as at 5 April 2012, when the notice to complete was given, and as at 14 September 2012, when the notice of termination was given. I would infer further that the caveat was also on the title on 23 April 2012, which was the date required for completion.
There is no evidence of any arrangement made to procure a withdrawal of the caveat, either on or prior to the completion on 23 April 2012 for which the notice to complete called. Had the caveat remained on the title, it would have been open to Mr Watson, attending settlement, to decline to complete. Unless the vendors were able to procure withdrawal of the caveat, it could not be said that they were (as they averred in the notice to complete) ready, willing and able to complete the contract.
For that reason also, it seems to me, there is a serious question to be tried as to the validity of the notice to complete.
Finally (although it rises no higher than the previous issues) it is necessary to note that Mr Watson has paid not only the deposit of $200,000 for which the contract provided, but also, and this is undisputed, a further sum of $800,000. If the contract has not been terminated then, by cl 2.8, Mr Watson has a charge on the land in respect of the amount paid by him. I should note that Mr Watson claims to have paid a further sum of $200,000. There is no doubt, I think, that such a sum has been paid. There is however a dispute as to whether it was paid pursuant to the contract or, instead, in satisfaction or partial satisfaction of some other liabilities owed by Mr Watson to the vendors.
If the notice of termination was invalid, then, as cl 2.8 makes clear, Mr Watson has a charge in respect of the amounts paid by him pursuant to the contract and that interest would also be capable of protection by the caveat.
There were other grounds argued as to why Mr Watson had a sufficient interest in the land to justify the lodging of a caveat. They are recorded adequately in the written submissions helpfully provided by Mr Gunning. It is not necessary to deal with them. For the reasons I have given, I am satisfied that there is a serious question to be tried as to whether Mr Watson does indeed have an interest, a caveatable interest in the land. Thus, leaving aside for the moment questions of balance of convenience, it would be appropriate to give leave under s 74O for him to lodge a further caveat describing more accurately the interest that he claims.
I turn to the question of balance of convenience. Mr King noted that the vendors had entered into a financial agreement pursuant to s 90C of the Family Law Act 1975 (Cth). That agreement was made on 10 October 2012. Among other things, it provided for the first plaintiff, Mr Bares, to transfer to the second plaintiff, Mrs Bares, his entire interest in lot 6. It is apparent that this agreement was made about a month after notice of Mr Watson's caveat had been given to the vendors. In the absence of evidence of the contrary, I would infer that the agreement was made with knowledge of that caveat and of the interest claimed by it.
It seems that Mrs Bares has made arrangements to carry out what she calls a "refinance" of the debt currently charged on the land. However, in truth, what is proposed goes somewhat further. Mrs Bares has negotiated a loan of $1,520,000 with the Commonwealth Bank of Australia. A conditional approval for that loan was given on 17 September 2012 - at about the same time as notice of lodging of the caveat was given to the vendors. One of the conditions of that conditional approval is that the property in question "is to be transferred solely into applicant's name with all associated debt to be repaid". The surplus funds are apparently to go to Mr Bares. (I understand the "surplus funds" to be the amount by which the loan from the Commonwealth Bank exceed the debt presently secured on the land.)
Relatively recently, Mrs Bares has been informed that if she does not take up the approval and settle the loan later this month, the approval will lapse, and she will have to reapply. That may involve, among other things, that she obtain fresh valuations of the land.
Thus, there is a significant detriment to Mrs Bares in particular if the caveat is either extended or a fresh caveat is lodged in its place. However, it seems to me, there is much to be said for the proposition that this position of detriment was one undertaken with knowledge of Mr Watson's position, as advanced through his caveat.
Further, it is to be noted that although notice of the caveat was given in September 2012, it was not until three months later, in mid December 2012, that the vendors bestirred themselves to secure a lapsing notice to be given to Mr Watson.
On the other hand, there is the position of Mr Watson. If his caveat lapses and he is not allowed to lodge a further caveat, it may be inferred that the transfer from Mr Bares to Mrs Bares will proceed and the land will be encumbered by mortgage to secure repayment of $1.52 million. If that happens, and if in due course Mr Watson makes good otherwise his claim to specific performance of the contract for sale, his claim will be defeated simply because (by hypothesis) the land will have been transferred into the name of Mrs Bares. Further, it will be encumbered by the mortgage to the bank to which I have referred.
Thus, unless the status quo is held, the position will change irremediably to the substantial prejudice of Mr Watson.
Further, at present as I understand it, the debt charged on the land is not so great as to render wholly or partially worthless the benefit of any charge that Mr Watson may have under cl 2.8 of the contract. If however the transfer to Mrs Bares proceeds, and she undertakes the loan to which I have referred, there seems to be little doubt that the charge will be substantially diminished in value. And that will be so whether the amount charged is $1 million (as the vendors appear to accept, subject to their arguments as to the notice to complete and notice of termination) or $1.2 million (as Mr Watson asserts). There is no evidence of any capacity on the part of the vendors or either of them to make good any shortfall. Nor is there any offer of alternative security.
There is an associated complication arising out of licence agreements made between the parties under which Mr and Mrs Watson occupied lot 6, or at least part A of lot 6. I do not see what that has to do with the question presently before me. The validity of the caveat depends on establishing some arguable proprietary interest. Any interest under the licence agreement is, at best, possessory.
The balancing of the competing interests, and prejudices, is a difficult matter. It may be accepted that the granting of relief is likely to occasion significant prejudice to Mrs Bares. Equally, the withholding of relief is likely (and if the claim sought to be advanced is sustained inevitably going) to occasion prejudice to Mr Watson.
In circumstances where the possible detriment to Mrs Bares arises out of transactions undertaken by her and her husband in full knowledge of Mr Watson's claim, and in circumstances where it seems to me that the arguments for invalidity of the notice to complete and hence of the notice of termination are powerful indeed, I conclude that the balance of convenience favours maintenance of the status quo.
Thus, whilst I do not propose to extend the existing caveat, I do propose to give leave pursuant to s 74O of the Real Property Act.
For those reasons, I will make an order in accordance with prayer five of the amended notice of motion, for the filing of which leave was given today.
It is desirable that the parties agree on directions to have the matter prepared for hearing as soon as possible. There is also the question of costs. Although the notice of motion sought costs, it cannot be said that the position taken by the vendors was unreasonable (particularly having regard to the form of the caveat in respect of which, until today, relief was sought). Further, it seems to me that the question of costs is one that should properly be resolved by reference to the ultimate resolution of the issues between the parties, on a final hearing. I will however hear from counsel if either party opposes an order that the costs of the application be costs in the proceedings.
[Counsel addressed.]
In addition to the order I have indicated I will make, I will order that the costs of the notice of motion and amended notice of motion be costs in the proceedings.
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Decision last updated: 04 February 2013
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