CTI Resort Holdings Group Pty Limited v Jingquan Chen

[2015] NSWSC 2086

Supreme Court

New South Wales

Medium Neutral Citation:	CTI Resort Holdings Group Pty Limited v Jingquan Chen [2015] NSWSC 2086
Hearing dates:	2 July 2015
Date of orders:	02 July 2015
Decision date:	02 July 2015
Jurisdiction:	Equity - Duty List
Before:	Brereton J
Decision:	Plaintiff have leave to lodge further caveats; not to prevent registration of transfer; and to take effect after registration of transfers.
Catchwords:	REAL PROPERTY – Torrens title – caveats against dealings – application to extend caveats – where alleged interest in property under constructive trust by virtue of second defendant’s breach of fiduciary duties – strongly arguable case as to breach of fiduciary duties – whether present interest, while property in title of first defendant, caveatable – held, leave granted to lodge further caveats to take effect following transfer of property.
Legislation Cited:	(NSW) Real Property Act 1900, s 74O
Category:	Procedural and other rulings
Parties:	CTI Resort Holdings Group Pty Ltd ACN 603 076 026 (plaintiff) Jingquan Chen (first defendant) Full River Pty Ltd ACN 601 737 231 (second defendant)
Representation:	Counsel: M Kloucek (plaintiff)   Solicitors: Shohmelian Legal (plaintiff) Ren Zhou Lawyers (defendants)
File Number(s):	2015/181299

Judgment (ex tempore)

1. HIS HONOUR: These proceedings were commenced, for reasons which are not apparent, in the Common Law Division, by a statement of claim filed on 19 June 2015, whereby the plaintiff CTI Resort Holdings Group Pty Ltd claims an order that the second defendant Full River Pty Ltd deliver up to the plaintiff, upon the plaintiff paying $1.35 million, all documents required for the plaintiff to be able to register itself as the legal owner of Lots 128–132 on Cabbage Tree Island near Old Bar on the North Coast, including the certificates of title and executed transfers. By notice of motion, leave to file which is sought today, the plaintiff seeks an order extending the operation of two caveats lodged by it in respect of the subject land and, alternatively, an order pursuant to (NSW) Real Property Act 1900, s 74O, giving leave to lodge further caveats based on essentially the same facts.

2. Both the caveats currently lodged in respect of the subject land are significantly deficient in form. They do not identify any particulars of the estate or interests claimed, and thus fail to be a valid caveat. They describe the facts supporting the claim as:

Caveator was defrauded by one of its directors Jingquan Chen when he thwarted the company's purpose to purchase the Torrens title land in its name and exchanged contracts under the name of another company Full River P/L.

3. The plaintiff's case appears to be that it was incorporated as a result of a pre-incorporation heads of agreement between its director Mr Wakim, the first defendant Jingquan Chen and two others, to purchase the subject property for a price of $1.38 million from the mortgagee, the National Australia Bank; and that as a result of correspondence between the plaintiff (which was ultimately incorporated on 26 November 2014) and the solicitors for the bank, an offer by the bank to sell for $1.35 million was accepted on 9 December 2014 on behalf of the plaintiff by a letter signed by Mr Wakim and the first defendant as directors of the plaintiff.

4. The offer made on behalf of the bank was expressed to be "subject to documentation in the form of a contract for the sale of land", and stated that no enforceable obligations would exist until exchange of contracts. There is no suggestion that there was ever any exchange of contracts between the bank and the plaintiff, nor is it suggested that there was any contractual or other arrangement between the plaintiff and the registered proprietors – Mr and Mrs Ford, as to some of the land, and a company presumably owned by them, Ford Investments, as to the balance.

5. It is a remarkable curiosity of these proceedings that although when they were commenced Shohmelian Lawyers were acting for the plaintiff, a firm of which the said Mr Ford is a principal is now acting for the plaintiff.

6. The plaintiff's case is that, whereas under the heads of agreement it had been agreed that the first defendant would advance the deposit on exchange, he failed to do so, and as a result the plaintiff was unable to proceed to exchange; and that instead, on 30 January 2015, the property was sold to Full River Pty Ltd, a company of which the first defendant is a 50% shareholder and a director.

7. It is not entirely clear on the evidence whether that sale was by the mortgagee, or by the registered proprietors with the mortgagee's consent. The fact that the recent title searches and lapsing notices indicate that the transfer is designated plain "T" in each case and not "TP" suggests that the transfer is by the registered proprietor and not by the mortgagee pursuant to a power of sale. On the other hand, the fact that the transfers appear to have been lodged accompanied by discharges of the mortgage to the bank indicates that whatever has happened has been with the consent of the bank.

8. If the plaintiff's case is correct, then it is at least arguable that, by taking advantage of the opportunity to acquire the land for a company of which he was a shareholder and director rather than for the plaintiff, the first defendant acted contrary to his fiduciary and, potentially, statutory obligations. Given that he is a 50% shareholder and director of the second defendant, it would seem strongly arguable that the second defendant had notice for relevant purposes of that breach. In those circumstances, it seems distinctly arguable that the second defendant has acquired the property as a result and with notice of the first defendant's breach of fiduciary duty, and thus that it is at least arguable that it acquired the property subject to a constructive trust in favour of the plaintiff. The relief claimed by the plaintiff in the subject proceedings, in seeking a transfer of the property to it, in return for reimbursement to the second defendant of the price it has paid, is consistent with such a case.

9. None of that, however, demonstrates that the plaintiff has a caveatable interest in the land at present while it remains in the title of the Ford interests and subject to the mortgage to the National Australia Bank. None of those matters would entitle the plaintiff to an injunction to prevent a sale by them as vendors, although they would at least arguably give the plaintiff rights against the first and second defendants.

10. In those circumstances, the appropriate course is not to extend the existing caveats, but to give leave to lodge further caveats upon terms that they not prevent registration of the relevant transfers and take effect after those transfers have been registered.

11. As these orders will be made ex parte, they should be regarded as interim in nature, subject to the usual undertaking as to damages and subject to a reservation of liberty to the defendants to apply on short notice for the removal of the caveats if so advised.

12. Upon the undertaking of Mariah Maltezos, solicitor, to pay the appropriate filing fees, the Court orders that:

1. The plaintiff CTI Resort Holdings Group Pty Ltd have leave to file a notice of motion in the form initialled by me, dated this day and placed with the papers.

2. The motion be returnable on 21 July 2015 at 9.45 before me.

3. The proceedings be transferred from the Common Law Division to the Equity Division.

Upon the plaintiff by its counsel giving to the Court the usual undertaking as to damages, the Court further orders that:

4. Pursuant to Real Property Act, s 74O, the plaintiff have leave to lodge further caveats in respect of the land comprised in folio identifiers 128/754440 129/754440, 132/754440 and Auto Consol 13267/105, claiming an interest as beneficial owner pursuant to a constructive trust arising from the acquisition of the land by the registered proprietor, the second defendant Full River Pty Ltd, as a result and with notice of a breach of fiduciary duty by the first defendant Jingquan Chen, upon terms that such further caveats do not prevent the registration of transfer AJ 515610 and transfer AJ 515574 and take effect after the registration of those transfers.

5. Liberty be reserved to the defendants to apply for removal of the said further caveats on three days' notice.

13. These orders are to be entered forthwith.

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Decision last updated: 19 August 2016