Chemech Pty Ltd v Cheng
[2023] WASC 319
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: CHEMECH PTY LTD -v- CHENG [2023] WASC 319
CORAM: WHITBY J
HEARD: 22 AUGUST 2023
DELIVERED : 22 AUGUST 2023
PUBLISHED : 23 AUGUST 2023
FILE NO/S: CIV 1672 of 2023
BETWEEN: CHEMECH PTY LTD
Applicant
AND
MARY YUEN SHAN CHENG
First Respondent
REGISTRAR OF TITLES
Second Respondent
Catchwords:
Caveat extension - Building contract - Charging clause - Proprietary interest - Caveator's claim has substance - Balance of convenience favours extension of caveat
Legislation:
Transfer of Land Act 1893 (WA)
Result:
Caveat extended
Category: B
Representation:
Counsel:
| Applicant | : | Mr P G McGowan |
| First Respondent | : | Mr G A Lacerenza |
| Second Respondent | : | No appearance |
Solicitors:
| Applicant | : | Johnstone Crouse Lawyers |
| First Respondent | : | GA Lacerenza & Associates |
| Second Respondent | : | No appearance |
Case(s) referred to in decision(s):
Bateson v Jones [2013] WASC 8
Bride v Registrar of Titles [2015] WASC 11
Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179
Cheng v Lam [2020] WASC 45
Cheng v Lam [2020] WASC 45(S)
Cheng v Lam [No 2] [2018] WASC 199
Cheng v Lam [No 4] [2020] WASC 175
Cheng v Lam [No 7] [2021] WASC 417
Pezzano Enterprises Pty Ltd v Mias [2023] WASC 168
Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olice Co Ltd [2005] WASCA 236
WHITBY J:
(This judgment was delivered extemporaneously and has been edited from the transcript.)
This proceeding is one of a number of proceedings that arise from a breakdown in a family arrangement to develop properties over a 12‑year period from 2001 to 2012.
The first respondent, Ms Mary Cheng (Mary), was married to Mr Chan Lam (Chan). Their marriage ended in 2012. Prior to the end of their marriage, they had been involved in property developments with Mr Francis Lam (Frank), Chan's brother, and Frank's wife, Ms Andrea Cheng (Andrea). I will refer to each of them by their first names as has been done throughout the related proceedings with no disrespect intended.
One of the properties that the parties purchased and developed was at 78 Edgecumbe Street, Como (Como Property). The parties built 4 units on the Como Property - 78A, 78B, 78C and 78D. Mary is the registered proprietor of the 78C Edgecumbe St Unit (Unit).
Chemech Pty Ltd (Chemech), the applicant, is a building company controlled by Frank and Andrea and was the building company who completed the development at the Como Property.
On 2 March 2016, Chemech lodged a caveat over the Unit.
On 9 June 2023, 21 days' notice expiring on 3 July 2023, was given to Chemech by the Registrar of Titles advising that unless proceedings were commenced the caveat would lapse. Chemech is applying, pursuant to s 138C of the Transfer of Land Act 1893 (TLA), to extend the operation of the caveat (application).
Mary opposes the application.
For the reasons that follow, I am satisfied that the caveat should be extended until further order of the Court.
Evidence
Chemech relies upon the Affidavit of Francis Hung Lam sworn on 23 June 2023 in support of the application (Lam Affidavit).
Mary relies upon her affidavit sworn on 25 July 2023 in opposition to the application (Cheng Affidavit).
Background
The dispute between Mary, Chan, Frank and Andrea (and other parties) regarding the terms under which the purchase and development, or proposed development, of a number of properties were undertaken has been the subject of a number of decisions of this court, most relevantly for this proceeding, the decision of Chaney J in Cheng v Lam[No 2] [2018] WASC 199 (Cheng v Lam).
One of the development projects undertaken by Frank, Andrea, Chan and Mary was the purchase and development of the Como Property. The Como Property was purchased in February 2007 in the names of Mary, Frank and Andrea as tenants in common in equal shares. The contract price for the Como Property was $962,500. A loan was obtained from the Commonwealth Bank of Australia in the names of Mary, Frank and Andrea for the sum of $1,000,600 for the purchase of the Como Property.[1]
[1] Cheng v Lam [29].
The Como Property was subdivided into four units, being 78A, 78B, 78C and 78D Edgecumbe Street, Como. 78A was registered in the name of Andrea, 78B was registered in the name of Frank, 78C was registered in the name of Mary, and 78D was registered in the names of Mary, Frank and Andrea as tenants in common in equal shares.[2]
[2] Cheng v Lam [29].
The properties were sold as follows:
(1)78A Edgecumbe Street was sold in December 2009. The contract price was $1,070,000.00. The net proceeds of sale were $1,049,463.05;
(2)78B Edgecumbe Street was sold in November 2012. The contract price was $910,000. The net proceeds of sale were $893,647.01;
(3)78D Edgecumbe Street was sold on or around April 2010. The contract price was $925,000. The net proceeds of sale were $909,997.09; and
(4)78C Edgecumbe Street, the Unit the subject of this application, remains unsold and registered in Mary's name.[3]
[3] Cheng v Lam [30].
In Cheng v Lam, Chaney J held that:
[T]he terms upon which [the Como Property development] proceeded were … [t]hat … any proceeds realised from the sale of the … property was to be applied first in payment of any borrowings used to purchase or develop the property; second, in payment of all costs and expenses incurred in the purchase and development of the property; and third, in repayment of any amounts paid by any of the participants towards the maintenance or development of the properties. Any balance then remaining was to be divided between the participants in the project in proportion to their interests registered against the title to the project property at the time of its purchase.[4]
[4] Cheng v Lam [114].
Chaney J also made the following findings which are relevant for the purposes of this application:
(1)for the property development at the Como Property, the participants entered into a lump sum building contract with Chemech for the construction of the units thereon (Cheng v Lam [127]);
(2)the building work at the Como Property was undertaken in accordance with the building contract with Chemech (Cheng v Lam [129]);
(3)the parties approached the development costs of the Como Property on a commercial basis and created a liability to Chemech which was akin to borrowings to purchase the Como Property (Cheng v Lam [129]);
(4)development costs for the Como Property should be assessed by reference to the applicable building contract (Cheng v Lam [130]);
(5)for the purpose of accounting between the parties, there was no distinction between those units in the Como Property that are sold and the one unit that is unsold (Cheng v Lam [131]); and
(6)the value of the unsold Unit, given it is in Mary's name, should be treated as a receipt by her for the value of the Property (Cheng v Lam [131]).
Chaney J ordered that Frank and Andrea account to Mary in relation to each of their respective entitlements under their partnership agreements relating to the purchase, development and sale of various properties, including the Como Property.[5] The account was ordered to be taken based upon a number of findings of his Honour which included:
(1)The accounts are to be prepared on the basis that each agreement giving rise to the interests of the parties to that agreement provided that the proceeds of the relevant development and sale of the property are to be applied first in payment of any mortgage over the property, then in payment of all costs and expenses incurred in relation to the acquisition, development or sale of the property, and then in repayment of any payments made by a party to the agreement in discharge of such costs and expenses other than by use of the parties' joint funds or joint borrowings, with the balance to be divided in accordance with the interest of the parties as reflected on the title to the relevant property at the time of its purchase by the parties.
(2)Entitlements and liabilities of either [Mary] or [Chan], whether separate or joint, are to be treated in all cases as joint entitlements.
(3)The interests of parties other than [Mary], [Frank]. [Andrea] and [Chan] in any of the projects referred to are to be taken to have been settled upon completion of those projects so that there is no further liability to account in relation to those interests.
(4)For the purpose of the account, costs of development are to be brought to account on the basis of the lump sum building contract prices for the development applicable in each case. Any balance due in relation to a building contract which remains unpaid is to be taken as an expense of the partnership and be taken as payable from the net proceeds of sale of the properties concerned.[6]
[5] Cheng v Lam [133].
[6] Cheng v Lam [134].
An account was then ultimately taken by Registrar Whitbread[7] (Registrar's Report) and the Registrar's Report was adopted (other than in relation to one item) by Tottle J.[8] His Honour made orders that required an independent accounting expert to finalise the Registrar's Report having regard to his orders.
[7] Cheng v Lam [2020] WASC 45; Cheng v Lam [2020] WASC 45(S).
[8] Cheng v Lam [No 4] [2020] WASC 175.
The final account was prepared by an independent accounting expert, Ms Susanne Delbridge (the Delbridge Report).[9]
[9] Cheng Affidavit Annexures 'E1' and 'E2'.
In a subsequent decision of Tottle J, in which Mary contended that the decision in Cheng v Lam contained a finding that there was an in‑specie distribution of the Unit to her, his Honour found there was no finding of an in-specie distribution of any of the partnership properties to any party, including the Unit to Mary.[10]
[10] Cheng v Lam[No 7] [2021] WASC 417.
Legislation and relevant principles
Section 137 of the TLA provides that any person claiming an interest in land may lodge a caveat. A caveat has the effect of preventing registration of any dealing against the land until the person who lodged the caveat has an opportunity to justify the caveat: Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179 [68].
Section 138C of the TLA provides that the court may make an order to extend the caveat:
138C.Supreme Court's powers on application by caveator
(1)A caveator who is served with a notice under section 138B(1) may apply to the Supreme Court, in accordance with rules of the court, for an order extending the operation of the caveat.
(2)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; or
(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;
and
(3)if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and
(4)may make such ancillary orders in relation to the application as it thinks fit.
The relevant principles upon an application to extend the operation of a caveat were outlined by Lundberg J in Pezzano Enterprises Pty Ltd v Mias [2023] WASC 168 [19]:
The principles this court will apply in determining an application such as the present are well settled and were summarised by Beech J (as his Honour then was) in Bashford v Bashford [2008] WASC 138. The relevant principles include the following:
(a)The onus is on the caveator to demonstrate that there is a serious question to be tried as to whether a caveatable interest exists: Bashford at [47].
(b)It is not appropriate to attempt to resolve conflicts of evidence on affidavit: Bashford at [48].
(c)The caveat will not be removed unless the claim to an estate or interest in the land appears to be without foundation: Bashford at [49].
(d)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: Bashford at [50].
As was said by Pritchard J (as her Honour then was) in Bateson v Jones (citations omitted):[11]
[t]he existence of a serious question to be tried involves showing a sufficient likelihood of success to justify the preservation of the status quo in all of the circumstances. How strong the likelihood of success needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the order sought. Consequently, whether there is a serious question to be tried, and the consideration of those factors going to the balance of convenience, are not wholly independent inquiries.
[11]Bateson v Jones [2013] WASC 8 [19].
Issues to be determined
The following issues arise for determination in the application:
(1)does Chemech claim a proprietary interest in the Unit?
(2)does Chemech's claim have, or may it have, substance?
(3)If the answer to (2) is yes, does the balance of convenience favour the exercise of discretion to extend the caveat?
Does Chemech claim a proprietary interest in the Unit?
Chemech claims a proprietary interest in the Unit pursuant to a charge contained in clause 8 of the building agreement dated 18 September 2008 between Chemech, as builder, and Mary and Chan, as owners (Building Contract).[12] The Building Contract is for the building works to complete the Unit with a contract price of $324,000.
[12] Lam Affidavit Annexures A and D.
Clause 8 of the Building Contract provides:
The Owner hereby charges the land constituting the site with the due payment to the Builder of all monies that will and/or may become payable under and irrevocably authorises and consents to the Builder lodging an absolute caveat in respect of the Site to protect the Builder's interests herein.[13]
[13] Lam Affidavit Annexure D page 14.
Chemech submits that there is an amount outstanding under the Building Contract of $324,000 and therefore, submits that the failure of Mary and Chan, as owners under the Building Contract to pay such sum entitles it to lodge a caveat over the Unit.
The claim made by Chemech clearly relates to a proprietary interest in the Unit. The parties to the Building Contract have expressly provided for the Unit to be appropriated for the discharge of an outstanding debt under the Building Contract. This gives rise to a proprietary interest in the Unit capable of protection by caveat.[14]
[14] Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olice Co Ltd [2005] WASCA 236 [40].
Does Chemech's claim have, or may it have, substance?
Mary submits that the Building Contract is not an agreement between the correct owners of the Como Property, those being herself, Frank and Andrea and that the Building Contract is not signed by her, Frank or Andrea. In those circumstances, Mary says that there is no binding building contract between her and Chemech.
Further, Mary submits that there is no evidence to support Chemech's assertion that it is owed $324,000 for building costs associated with the Unit. Mary submits that Chemech has failed to provide any evidence that Mary was billed for the alleged construction costs in the sum of $324,000, or that Chemech issued her any notices after 3 December 2009 requesting her to pay the sum of $324,000 or issued any payment requests to her at all after that date.
Mary sought to rely upon the Delbridge Report and various transcripts of evidence given by Frank in previous proceedings to establish that the debt to Chemech under the Building Contract had been paid.[15]
[15] Cheng Affidavit [15] and Annexures 'E1' and 'E2'.
For all of these reasons, Mary submits that the claim by Chemech does not have any substance.
Chemech submits that Mary, on her own admission, is an owner of the Unit and therefore, she is bound by the findings of Chaney J in Cheng v Lam, the result being that the proceeds of development of the Unit must be applied firstly to expenses of the development of the Unit, which include the costs incurred under the Building Contract, before any surplus funds are distributed to Mary, Frank and Andrea.
I am not required to finally determine whether Chemech does have a proprietary interest in the Unit. Rather I am simply required to determine whether Chemech has shown that its claim to a proprietary interest has, or may have, substance.
I am satisfied that Chemech's claim to a proprietary interest over the Unit has, or may have, substance for the following reasons:
(1)in Cheng v Lam, Chaney J found that Mary was one of the owners of the Como Property and therefore, the Unit on the Como Property;
(2)Mary is named as a party to the Building Contract;
(3)the Building Contract contains a charging clause which gives rise to a proprietary interest in favour of Chemech to secure unpaid sums;
(4)there has been no in specie distribution of the Unit to Mary; and
(5)the parties are in dispute about whether Chemech has been paid in full under the Building Contract - Chemech relies upon the Registrar's Report,[16] and the Delbridge Report to establish that there is an amount outstanding under the Building Contract.[17] I accept that there is compelling evidence to establish the amount is outstanding under the Building Contract, however, it is not appropriate, upon an application to extend the operation of a caveat, to evaluate the evidence or undertake a preliminary trial.[18]
[16] The finding that there is an unpaid balance under the Building Contract in the amount of $1,038,000 Items 115 and 175; Agreed Facts 11.4, 11.9, 11.14, 11.19 and 9.21.
[17] Cheng Affidavit Annexures 'E1' and 'E2'.
[18] Bride v Registrar of Titles [2015] WASC 11 [13].
Does the balance of convenience favour the exercise of discretion to extend the caveat?
Chemech submits that the balance of convenience favours the extension of the caveat as the failure to extend the caveat will have the effect of destroying, or substantially impairing, the benefit of the proprietary interest which it claims. Chemech also points to the fact that the title for the Unit has a number of encumbrances registered against it, apart from this caveat.
Mary has not opposed the application on any grounds relating to balance of convenience, other than to submit that the claim which Chemech asserts gives rise to its proprietary interest in the Unit is a weak one.
When considering the balance of convenience, the strength or weakness of Chemech's claim is a relevant consideration. The Building Contract contains a valid charging clause. In my view, Chemech has a strongly arguable case that the Building Contract is binding upon Mary, as an owner of the Unit, and that it is entitled to charge the Unit to secure payment of outstanding amounts under the Building Contract.
Removal of the caveat in this case would undermine the commercial agreement that the parties recorded in the Building Contract. If the caveat is not extended, Chemech would have no security in relation to the amount it alleges is outstanding under the Building Contract. Chemech has also provided an undertaking as to damages.
Further, Mary has not raised any matters that persuade me that the removal of the caveat is justified. In all of the circumstances, I am satisfied that the balance of convenience justifies the extension of the caveat.
Summary and Orders
I am satisfied that Chemech is claiming a proprietary interest in the Unit and that it has, or may have, an arguable case. Further, the balance of convenience favours the grant of an order extending the operation of the caveat.
I order the operation of caveat number N266168 lodged against Lot 3 on Strata Plan 58636, being the whole of the land comprised in certificate of title Volume 2733 Folio 457, be extended until further order of the court.
As to costs, subject to hearing from the parties, I propose to order that the first respondent pay the applicant's costs of the action, including of the application to be taxed if not agreed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CB
Associate to the Hon Justice Whitby
23 AUGUST 2023
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