Colony Constructions Pty Ltd v Zain Homes Pty Ltd

[2023] VSC 529

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

PROPERTY LIST
PRACTICE COURT

S ECI 2023 03429

COLONY CONSTRUCTIONS PTY LTD	Plaintiff
v
ZAIN HOMES PTY LTD	First Defendant
(and others according to the Schedule attached)

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JUDGE:	Ginnane J
WHERE HELD:	Melbourne
DATE OF HEARING:	29 August 2023
DATE OF JUDGMENT:	29 August 2023
CASE MAY BE CITED AS:	Colony Constructions Pty Ltd v Zain Homes Pty Ltd
MEDIUM NEUTRAL CITATION:	[2023] VSC 529

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REAL PROPERTY – Caveat – Contract of sale – Caveat claiming an implied, resulting or constructive trust and an estate or interest as a chargee – Serious question to be tried as to whether contract of sale rescinded – Caveat not claiming an estate or interest under the contract of sale – Whether caveator had an equitable lien or charge over deposit paid to vendor – Caveat removed on condition that deposit held in trust account – Transfer of Land Act 1958 s 90(3).

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr B Harding	Aitken Partners
For the Defendants	Mr T Fitzpatrick	Merhi Lawyers

HIS HONOUR:

1. Colony Constructions Pty Ltd applies to remove a caveat lodged by the first defendant on the title of a property at Kilmore.[1] The caveator, Zain Homes Pty Ltd, the first defendant, to which I will refer as the defendant, is the purchaser under a contract of sale dated 18 February 2022 on a twelve-month settlement. The purchase price was $727,270 of which a deposit of $77,000 was paid. The caveat was lodged on 9 March 2023. It records the grounds of the claim as an implied, resulting or constructive trust. The estate or interest claimed by the caveat is an interest as chargee.

   [1]This is a revised version of oral reasons for judgment given on 29 August 2023.

1. In a caveat removal application, the issues are as stated by Warren CJ in Piroshenko v Grojsman:[2] whether the caveator, that is the defendant, has established that there is a serious question to be tried, that it has the estate or interest which it claims in the land and secondly, whether the balance of convenience favours the maintenance of the caveat until trial. The onus is on the caveator to establish these matters.

   [2](2010) 27 VR 489.

1. The serious question to be tried therefore must arise in respect of the estate or interest in land claimed in the caveat, which in this case is an interest as a chargee, with the grounds of the claim being an implied, resulting or constructive trust.

1. The defendant’s objective, as submitted by counsel, is to exercise its rights under the contract and obtain settlement. A planning permit has been issued in respect of the property which allows partial demolition of an existing building and the building of six units.

1. Two notices of default dated 20 February 2023 were served in respect of the contract. The vendor's notice was a Notice of Default and Rescission. The default was described as ‘failure to settle per the terms of the contract’. The Notice provided that if the default was not remedied within 14 days of its service on the defendant and if legal fees of $880.00 and interest were not paid, the contract would be rescinded. The plaintiff has subsequently resold the property and the forthcoming settlement of that contract has led to this application.

1. Zayn Investment Pty Ltd, which had been nominated as substituted purchaser of the property, also served a Default Notice under the contract. The default was described as being ‘non-compliance of general condition 24.2 & special condition regarding endorsed planning permit’. Condition 24.2 provides that the vendor must deliver the property to the purchaser at settlement in the same condition as it was in on the day of sale, except for fair wear and tear. Special condition 6 provides that the ‘contract is subject to the vendor providing the purchaser endorsed plans and permits’. The defendant, in submissions, stated that it issued the default notice to the plaintiff because of its non-performance of special condition 6 and the damaged or deteriorated condition of the property at the time of settlement in breach of condition 24.2 of the contract. The defendant’s director, Mr A Hashmi, in his affidavit described damage that he said had occurred to the property since the contract had been entered into. The Notice stated that the purchaser intended to exercise its rights unless the default was remedied and legal costs of $660.00 were paid within 14 days of the service of the Notice upon the plaintiff. The defendant contended that endorsed plans provided to it did not contain a valid planning permit as stipulated in special condition 6 to enable the undertaking of the building works that I have mentioned. The defendant’s Default Notice did not itself terminate the contract, but on 9 March 2023, the defendant's lawyers emailed the conveyancer for the plaintiff stating:

We note that the vendors have not rectified the breach, as a result, [the] notice period has expired. We confirm that [the] contract is at an end.

1. However, at the hearing both the plaintiff and the defendant accepted that the defendant's Notice of Default was not valid because it was issued by a nominee who could not exercise rights under the contract.

1. So the focus turned to the plaintiff's Notice of Default and Rescission which it contended took effect to end the contract on 3 March 2023, six days before the caveat was lodged. The defendant contended that the plaintiff did not have the right to settle under the contract or serve the Notice because of its failure to provide a valid planning permit and because of the damage to the property.[3] As with many caveat removal applications, a dispute exists between the parties about their rights under the contract for the sale of the land. I find that the defendant’s contentions about whether the plaintiff had breached conditions of the contract raise an arguable issue whether or not the plaintiff had the right to serve the Notice of Default and Rescission. However, that finding does not decide whether the caveat should be removed.

   [3]In its written submissions, the defendant also relied on the right of rescission under ss 32K and 34 of the Sale of Land Act 1962.

1. The plaintiff argued that the defendant had adopted conflicting positions as to whether the contract was still on foot.[4] The defendant contended that its conduct demonstrated that it wished to settle the contract.

   [4]The plaintiff had made a previous contract for the sale of the property with Iftikhar Ali, but it is not necessary to describe that contract further for the purposes of this application.

1. The defendant’s alternative positions about the rights that it wishes to exercise under the contract are explained in Mr Hashmi’s affidavit in which he states that ‘the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property’. The defendant’s position in this regard may be explained by the fact that there is a question as to whether the contract is still on foot. But I have to decide this application on the basis of the claims made in the caveat and the interests in land which it seeks to protect. The caveat does not claim any interest as a purchaser under the contract of sale of 18 February 2023 giving rise to an estate or interest in land. The reference in the caveat to an implied, resulting or constructive trust does not claim an estate or interest in land arising under the contract.

1. However, I accept that the defendant has established a serious question to be tried as to whether it has an interest in the land in the form of an equitable lien for the return of the deposit paid.[5] I treat the caveat as asserting such an interest in land when it refers to the defendant’s interest as a chargee.[6]

   [5]Hewett v Court (1983) 149 CLR 639, 663 (Deane J); Tanwar Enterprises Pty v Cauchi (2003) 217 CLR 315, 332 [52] (Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ).

   [6]Ibid.

1. The defendant’s arguable interest in the $77,000 deposit can be protected by a removal of the caveat under s 90(3) of the Transfer of Land Act 1958 on the condition that the amount of the deposit be retained in the plaintiff’s solicitors trust account until the determination of this proceeding or further order.

1. In my opinion, the balance of convenience favours that course. I have noted and considered the emphatic submissions of the defendant’s counsel that if the caveat is removed it will lose its right to settle the property, a right which may be later established. However, as I have stated, I can only consider the claims described in the caveat and they do not rely on the contract of sale of 18 February 2022. I do not consider that the caveat protects any interest in the land other than that of an equitable lien for the deposit paid of $77,000.00.

1. For those reasons, I will order that the caveat be removed on condition that the plaintiff undertakes that the deposit of $77,000 is paid into the trust account of its solicitors until the final determination of this proceeding or further order on condition that the defendant brings a counterclaim to substantiate its claim to those funds. Upon that undertaking being given, I will order pursuant to s 90(3) of the Transfer of Land Act, the fourth defendant, the Registrar of Titles, to remove the caveat, which is dealing number AW621845R on the title of the land in volume 10823, folio 042, from the Register maintained by her.

SCHEDULE OF PARTIES

BETWEEN:
COLONY CONSTRUCTIONS PTY LTD	Plaintiff
and
ZAIN HOMES PTY LTD	First Defendant
AHMAD BILAL HASHMI	Second Defendant
ZAYN INVESTMENT PTY LTD	Third Defendant
THE REGISTRAR OF TITLES	Fourth Defendant