Danthanarayana v GR8 Constructions Pty Ltd

Case [2012] FCA 231

FEDERAL COURT OF AUSTRALIA

Danthanarayana v GR8 Constructions Pty Ltd [2012] FCA 231

Citation: Danthanarayana v GR8 Constructions Pty Ltd [2012] FCA 231
Parties: WAJI DANTHANARAYANA and MARIA DANTHANARAYANA v GR8 CONSTRUCTIONS PTY LTD, GRANT WILSON, ROBERT PETROVIC and KENYON HOPKINS; GR8 CONSTRUCTIONS PTY LIMITED, GRANT WILSON and ROBERT PETROVIC v WAJI DANTHANARAYANA and MARIA DANTHANARAYANA 
File number: ACD 35 of 2011
Judge: FOSTER J
Date of judgment: 15 March 2012
Catchwords: PRACTICE AND PROCEDURE – whether the registered proprietors of Torrens title land in the A.C.T. should be released from an interlocutory undertaking given to the Court not to sell, transfer, deal in or encumber that property pending the final determination of certain proceedings brought by those proprietors against the original builder who had been retained to construct a dwelling on the said land in order to enable those proprietors to obtain further funds to complete and to rectify building works on that land – relevant principles discussed  
Legislation: Land Titles Act 1925 (A.C.T.), Pt 10, Div 10.4, s 107(2)(a), s 107C
Cases cited:

Cadorange Pty Ltd (In Liq) v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26 cited
McCosker v Lovett (1995) 12 BCL 146 cited
Pivotel Satellite Pty Ltd v Optus Mobile Pty Ltd [2011] FCA 121 cited
Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 cited

Sykes and Walker, The Law of Securities (5th ed, 1993) cited
Fisher and Lightwood’s Law of Mortgage (2nd Australian ed, 2005) cited

Date of hearing: 14 March 2012
Place: Sydney (via video link to Canberra)
Division: GENERAL DIVISION
Category: Catchwords
Number of paragraphs: 66
Counsel for the Applicants: Dr AJ Greinke
Solicitor for the Applicants: Colquhoun Murphy
Counsel for the First and Third Respondents: Mr C Erskine SC
Solicitor for the First, Second and Third Respondents: Leonie Kennedy & Associates
Solicitor for the Fourth Respondent: McCabe Terrill

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY

GENERAL DIVISION

ACD 35 of 2011
BETWEEN:

WAJI DANTHANARAYANA
First Applicant

MARIA DANTHANARAYANA
Second Applicant
AND:

GR8 CONSTRUCTIONS PTY LTD
First Respondent

GRANT WILSON
Second Respondent

ROBERT PETROVIC
Third Respondent

KENYON HOPKINS
Fourth Respondent
AND BETWEEN:

GR8 CONSTRUCTIONS PTY LTD
First Cross-Claimant

GRANT WILSON
Second Cross-Claimant

ROBERT PETROVIC
Third Cross-Claimant

AND:

WAJI DANTHANARAYANA
First Cross-Respondent

MARIA DANTHANARAYANA
Second Cross-Respondent

JUDGE:

FOSTER J

DATE OF ORDER:

15 MARCH 2012

WHERE MADE:

SYDNEY (VIA VIDEO LINK TO CANBERRA)

THE COURT ORDERS THAT:

1.The Interlocutory Application filed by the applicants on 6 March 2012 be dismissed.

2.The applicants pay the first, second and third respondents’ costs of and incidental to that Application.   

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY

GENERAL DIVISION

ACD 35 of 2011
BETWEEN:

WAJI DANTHANARAYANA
First Applicant

MARIA DANTHANARAYANA
Second Applicant
AND:

GR8 CONSTRUCTIONS PTY LTD
First Respondent

GRANT WILSON
Second Respondent

ROBERT PETROVIC
Third Respondent

KENYON HOPKINS
Fourth Respondent
AND BETWEEN:

GR8 CONSTRUCTIONS PTY LTD
First Cross-Claimant

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AGLC
Danthanarayana v GR8 Constructions Pty Ltd [2012] FCA 231
Case
[2012] FCA 231
Decision Date

CaseChat Overview and Summary

The case of Danthanarayana v GR8 Constructions Pty Ltd involved the applicants, registered proprietors of Torrens title land in the A.C.T., seeking to be released from an interlocutory undertaking given to the Court. This undertaking was to not sell, transfer, deal in, or encumber the property pending the final determination of proceedings against the original builder retained to construct a dwelling on the land. The applicants sought this release to obtain further funds to complete and rectify building works on the land. The proceedings were brought by the applicants against GR8 Constructions Pty Ltd, the original builder, in the Supreme Court of the Australian Capital Territory.

The central legal issue before the court was whether the registered proprietors should be released from the interlocutory undertaking given to the Court, which was preventing them from obtaining further finance. This involved a consideration of the principles governing the release of such undertakings, particularly in the context of proceedings related to building works and the need for further funding to complete those works. The court had to weigh the applicants' need for further financing against the potential prejudice to the builder if the undertaking was released.

The court held that the applicants were not entitled to be released from the interlocutory undertaking. The court reasoned that the applicants had already received significant advances from Westpac Banking Corporation, which was secured by a first registered mortgage over the property. Furthermore, the property had been leased, and the fact that it had been advertised for lease in January 2012 suggested that little or nothing needed to be done to complete the works or to rectify any defects. The court was not satisfied that the applicants had made out a case that warranted the release of the undertaking, particularly given the significant debt owed to Westpac and the apparent completion of much of the building works.

The court dismissed the interlocutory application filed by the applicants on 6 March 2012. Additionally, the applicants were ordered to pay the costs of and incidental to that application incurred by the first, second, and third respondents. This decision underscores the careful consideration required when deciding to release an interlocutory undertaking, particularly in cases involving building works and significant financial interests.

Orders

Orders of the court

1. The Interlocutory Application filed by the applicants on 6 March 2012 be dismissed.

2. The applicants pay the first, second and third respondents’ costs of and incidental to that Application.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

On 6 June 2011, the applicants applied to the A.C.T. Registrar-General to have their undertaking and the orders made on 3 June 2011 “registered” on the title to the property. The orders made on 3 June 2011 were noted on the title on the same day (6 June 2011). Similar steps were taken in respect of the orders made by the Supreme Court on 26 May 2011. SOME ADDITIONAL RELEVANT FACTS The proprietors read and relied upon affidavits sworn by the second applicant on 1 June 2011, 6 March 2012 and 13 March 2012. The builder relied upon an affidavit sworn by its solicitor yesterday (14 March 2012). The proprietors also tendered a Deed Poll dated 14 March 2012 executed by each of them which I shall mark as Exhibit “A” in the proprietors’ application to be released from their undertaking. The second applicant’s first affidavit established that:(a)The cost of the building works to be carried out under the building contract was to be financed in substantial part by loan funds provided by Westpac Banking Corporation (Westpac). This was so despite the fact that, in the building contract, the proprietors had stated that the cost of the works was to be paid from their own funds without the assistance of a lender. (b)As at June 2011, Westpac had a first registered mortgage over the property.(c)Between 28 March 2008 and 27 April 2009, progress payments totalling $661,000 were made by or on behalf of the proprietors to the builders. Of that sum, $631,000 had been advanced by Westpac. (d)On 4 September 2008, Westpac advanced to the applicants the amount of $353,898.51. (That advance was made in the same loan account as the account in which the advances totalling $631,000 were made. Presumably, all of the advances in that account are secured by the registered first mortgage granted over the property by the proprietors to Westpac.) (e)By 1 May 2009, the debit balance of the proprietors’ loan account with Westpac was $982,125. The second applicant did not suggest that, by early June 2011, that balance had been reduced. I infer that it had not. It seems, therefore, that as at 3 June 2011, the applicants’ debt to Westpac was of the order of $1 million. (f)In April and May 2011, difficulties had arisen between the proprietors and the replacement builder retained by them to complete and remedy the works on the property, Solve Projects Pty Limited (Solve Projects). In particular, Solve Projects was pressing for payment of certain outstanding invoices which the proprietors alleged that they could not pay without obtaining further advances from Westpac.(g)As at 26 May 2011, Westpac’s position was that no further advances would be made by it unless and until the builder’s caveat was removed and the title to the property cleared (save for its mortgage). The first of the two affidavits sworn recently by the second applicant proved that:(a)According to the second applicant, the proprietors need to refinance their loan and current mortgage to Westpac “… in order to complete the building works …” on the property.(b)The proprietors wish to obtain a further advance of $304,000 which will be used to complete all outstanding works at the property.(c)The proprietors’ current debt to Westpac stands at $1,997,000. (d)The security for that debt is the mortgage over the property as well as a mortgage over the property next door (No 10 Waygoose Street, Kingston, A.C.T.). This latter property is vacant land.(e)By valuations dated 18 January 2012 and 16 January 2012 respectively, Herron Todd White valued the property at $2,100,000 and No 10 Waygoose Street, Kingston, at $780,000.(f)The notation of the undertaking given by the proprietors to the Supreme Court on 3 June 2011 on the title to the property was preventing the proprietors from obtaining further finance.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

The proprietors tendered a letter dated 21 February 2012 from Australia and New Zealand Banking Group Ltd to the first applicant. Omitting formal parts, that letter is in the following terms:Proposed Refinance Application – Westpac Banking CorporationFurther to our telephone conversation of today I wish to advise that the proposed security for your refinance application must be standard residential security and same must not be subject to a registered caveat or undertaking.Should you have any queries please do not hesitate in contacting me. The proprietors also tendered a letter from Westpac to them dated 22 February 2012. Omitting formal parts, that letter is in the following terms:Re: Application for financeThis letter is to confirm that your current loan application for $250,000 partially secured by your property at 8 Waygoose St, Kingston ACT 2604 will not progress until the title search is free of Caveat or Undertaking listings. Upon confirmation your application will be assessed and is subject to Westpac Credit Policy guidelines. In her affidavit sworn on 13 March 2012, the second applicant provided more detail of the work already carried out and to be carried out by Solve Projects at the property. She suggested that approximately $375,000 was required in order to complete and rectify the works on the property. She also said that approximately $961,000 had already been paid to Solve Projects in respect of completion and rectification works carried out by it at the property. I was told from the Bar table that the property had been leased (that is, that a lease had been signed which will commence on 16 March 2012) but that the tenant had not yet taken up occupation. Neither party tendered the lease. There was no evidence from the tenant. The respondents tendered a printout from the all homes website which suggested that, by 8 March 2012, the property had been leased. That printout also suggested that the property had first been advertised for lease on 17 January 2012. The fact that the property was advertised for lease in January 2012 in very glowing terms tends to suggest that, as matters stood in January 2012, little or nothing needed to be done to complete the works or to rectify any defects. The fact that the property has subsequently been leased adds further support to that conclusion. THE DEED OF PRIORITY The Deed of Priority is a Deed Poll executed by the proprietors on 14 March 2012. It is in the following terms:WHEREAS:AThe Owners are engaged in litigation in proceedings ACD35 of 2011 in the Federal Court of Australia (“the Proceeding”) with Gr* [sic] Constructions Pty Ltd (“the Builder”) such proceeding having commenced in the Supreme Court of the Australian Capital Territory.BThe Builder lodged a caveat over Block 5, Section 58, Kingston, being Volume 1830, folio 25, known as 8 Waygoose Street, Kingston, ACT (“the Lot”).CThe parties consented to the lapsing of such caveat upon the Owners making undertakings to the Supreme Court in respect of the Lot.DThe Owners wish to refinance, which will require the registration of a new mortgage over the Lot by their bank.EThe Owners cannot refinance without the undertakings being released, so that there is no longer a notation on the titles register for the Lot.FThe Owners make this deed poll for provide undertakings with a view to the same being accepted in lieu of the undertakings to the Court. THIS DEED WITNESSETH AS FOLLOWS:1Interpretation1.1No contra proferentem ruleNo rule of construction applies to the disadvantage of the Lender by reason that Hardings Gulhane Solicitors prepared this deed, or any clause is for the benefit of the Lender.1.2Governing Law and JurisdictionThis deed is governed by the law in force in the Australian Capital Territory. The parties agree that any dispute in relation this deed may be determined in the Proceeding in the Federal Court of Australia.2Covenants by owners2.1No sale or disposal of the LotThe Owners covenant that they will not sell or dispose of their interest in the Lot until the determination of the Proceeding, except:(a)with the written consent of the Builder, by its solicitors; or(b)by leave of the Court.2.2No registration of further mortgages or chargesThe Owners covenant that they will not permit the registration of any mortgage or charge over the Lot in priority to the charge claimed by the Builder until the determination of the Proceeding, except:(a) with the written consent of the Builder, by its solicitors; or(b) by leave of the Court.2.3Refinancing permittedThis covenant does not apply to the registration of a mortgage for the purposes of the proposed refinancing by the Owners. THE APPLICANTS’ SUBMISSIONS