International Computer Network Pty Ltd v Lumos International Pty Ltd - [2018] NSWSC 1793

Supreme Court

New South Wales

Medium Neutral Citation: International Computer Network Pty Ltd v Lumos International Pty Ltd [2018] NSWSC 1793
Hearing dates: 9 November 2018
Date of orders: 12 November 2018
Decision date: 21 November 2018
Jurisdiction: Equity
Before: Ward CJ in Eq
Decision:
1. Order pursuant to s 74MA of the Real Property Act 1900 (NSW) and in the inherent jurisdiction of the Court that the plaintiff forthwith withdraw caveat AN398997Q registered over Lot 703 in DP 854202.
2. Subject to the usual undertaking as to damages being proffered by the Second Defendant and to the second defendant filing in court a formal undertaking to the effect of the undertaking that has been proffered in the course of the hearing of the motion (namely an undertaking that it will hold the two units not the subject of contracts for sale to third parties as security for any damages to which the plaintiff may be entitled on the final hearing of these proceedings and that it will take all reasonable steps to discharge any mortgage over the property that includes those mortgages as soon as practicable) and an undertaking that on the removal of the caveat the second defendant will lodge, with the strata plan in relation to the development, the strata by-law that has been prepared in respect of the conveyance of the land the subject of the right of way to ICN.
3. Costs be costs in the cause.

Catchwords: LAND LAW – second defendant’s application to remove plaintiff’s caveat pursuant to s 74MA of the Real Property Act 1900 (NSW) or the inherent jurisdiction of the Court – plaintiff’s caveat claimed equitable interest in second defendant’s property commensurate with right to obtain specific performance of conveyance of part of the property – second defendant had constructed units on the property, subject to off-the-plan contracts – plaintiff’s caveat prevent registration of strata plan and subsequent completion of off-the-plan contracts – second defendant’s development loan called in by bank – second defendant unable to repay loan until completion of off-the-plan contracts – plaintiff offered no undertaking as to damages – balance of convenience favours the removal of caveat, subject to the plaintiff giving undertakings regarding alternative security
Legislation Cited: Conveyancing Act 1919 (NSW), s 88K
Real Property Act 1900 (NSW), s 74MA, 74P
Strata Schemes Management Act 2015 (NSW), s 139
Cases Cited: Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (1999) 9 BPR 17,533; [1999] NSWSC 524
Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459
Boscolo v TCN Channel Nine Pty Ltd (No 2) (New South Wales Supreme Court, Eq Div, 28 April 1994, unreported)
Coscom Pty Ltd v Standing Enterprises Pty Ltd [2006] NSWSC 114
Dunecar Pty Ltd (in liq) v Colbron (2001) 40 ACSR 342; [2001] NSWSC 1181
Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240
His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142
State of New South Wales v Gevaux [2011] NSWSC 758
Category: Procedural and other rulings
Parties: International Computer Network Pty Ltd (Plaintiff)
Lumos International Pty Ltd (First Defendant)
Talon Construction Group Pty Ltd (Second Defendant)
Representation:
Counsel:
GM McGrath (Plaintiff)
AP Cheshire SC (First Defendant)
JB Conomy (Second Defendant)
Solicitors:
RMB Lawyers (Plaintiff)
CVC Law (First Defendant)
Acorn Lawyers (Second Defendant)

File Number(s): 2017/00135633; 2018/00048063
Publication restriction: Nil

Judgment

HER HONOUR: This matter came before me in the Real Property List last Friday on an application by the second defendant, Lumos International Pty Ltd (“Lumos”), for an order pursuit to s 74MA of the Real Property Act 1900 (NSW) that the plaintiff, International Computer Network Pty Ltd (“ICN”), remove its caveat over certain property of which Lumos is the registered proprietor in Wollongong. That application for removal of caveat was resisted by ICN.

Background

By way of background to the current application, I note that ICN is the registered proprietor of the land comprised in folio identifier 704/854202, to which I will refer as lot 704.
The second defendant, Lumos, is the registered proprietor of land comprised in folio identifier 703/854202, to which I will refer as lot 703.
Lots 703 and 704 are adjacent to each other. ICN’s property, lot 704, is the dominant tenement in respect of an easement described as a right of carriageway over lot 703.
Lumos engaged the first defendant, Talon Construction Group Pty Ltd (“Talon”), to construct a mixed commercial and residential building on lot 703. Talon, though represented on the hearing of the notice of motion, has taken no active role in the hearing of that application.
In 2015, Lumos entered into a number of off-the-plan contracts for units in the development and from early 2016 Talon has been engaged in building an apartment block development on the land, which development has now been completed.
On 5 May 2017, ICN commenced proceedings in the Real Property List (proceedings no. 2017/135633) against the defendants seeking injunctive relief and damages for trespass and interference with ICN’s enjoyment of the easement and lot 704.
On 28 July 2017, a document entitled Heads of Agreement was signed between the parties to the 2017 proceedings. The Heads of Agreement provided as follows:

The plaintiff, first defendant and second defendant have reached a conditional settlement of proceedings no. 2017/125633 on the following terms:

The defendants will carry out the following make good work in respect of the plaintiff’s land (Lot 704 DP 854202) and the Right of Carriageway 5.5 wide recorded in DP 854202 (“the ROW”)_ on or before 1 December 2017:

Resurface with bitumen the ROW and the car park on the plaintiff’s land;

Replace or restore the bollards in the car park on the plaintiff’s land to standard of new, undamaged bollards;

Sealing of the roof cavity of the premises on the plaintiff’s land adjacent to the building on the first defendant’s land;

Clean-up of the roof and gutters of the premises on the plaintiff’s land of building and other waste caused by the construction of the Development;

The first defendant agrees to convey to the plaintiff, and undertakes to do all things necessary, the part of Lot 703 DP 854202 burdened by the ROW (being the right of carriageway recorded in DP 854202 burdening Lot 703 and benefitting Lot 704), and the plaintiff is to bear all its expenses of the conveyance;

The plaintiff and second defendant agree to continue the access regime for the ROW and car park recorded in the short minutes of order made on 12 May 2017;

On or before 1 December 2017, and so long as items (a) and (b) above have been performed, the plaintiff will pay to the defendants the sum of $30,000, and unless directed otherwise by both defendants will make such payment by paying $15,000 to each of the first defendant and the second defendant;

Upon the performance of items (a), (b) and (d) above, the parties agree that, and each undertakes to do all things necessary to ensure that, these proceedings are dismissed with no order as to costs (that is the proceedings will be dismissed and each party will bear its own costs), on or before 8 December 2017.

Mutual releases.

This Heads of Agreement is intended to be immediately binding on the parties, however the parties may record the substance of this Agreement in a formal Deed (with defined terms, releases, etc.).

No such formal deed as contemplated in clause 3 was entered into.
The caveat lodged by ICN over lot 703 claims the following:

The caveator claims an equitable interest in the right of way upon lot 703 in deposited plan 854202 pursuant to a Heads of Agreement dated 28 July 2017.

On the present application counsel for ICN emphasises that the interest claimed in the caveat is an equitable interest in land and that it is not an interest by way of a security only.
There is a dispute between the parties as to the proper construction of the document executed as a Heads of Agreement. Though it is conceded by counsel for Lumos that it contains a statement of intention that it be immediately binding on the parties, the dispute is as to whether it is enforceable, and in particular as to whether an order for specific performance of the agreement would lie.
On 19 February 2018, ICN commenced the second set of proceedings against Talon (2018/48063) seeking orders restraining Talon from going onto lot 704.
On 3 August 2018, ICN filed a statement of claim in those proceedings, naming both Talon and Lumos as defendants. By that statement of claim various allegations are made, including complaint as to the failure by Lumos to transfer the land subject to the right of way in accordance with the Heads of Agreement, and allegations as to various trespasses by Talon during the building work that has since been completed, as well as encroachments onto the land the subject of the right of way.
Those encroachments include the projection of the building by three centimetres onto the right of way, which counsel for the plaintiff concedes would in all likelihood be the subject of an easement under s 88K of the Conveyancing Act 1919 (NSW) if the complaint were to be pressed, as well as a projection of the roof of the development by some 31.5 centimetres on to the land that is the subject of the right of way.
Under the off-the-plan contracts entered into between Lumos and the purchasers, there was specified a sunset date after which purchasers were able to rescind the contracts. That sunset date has been extended by agreement with each of the purchasers to 30 September 2018. There is evidence that since that date four purchasers have rescinded their contracts.
Lumos alleges that the Heads of Agreement are void for uncertainty or alternatively were conditional on Lumos being able to convey the land the subject of the easement by 8 December 2017.
On 3 October 2018, ICN filed an amended statement of claim, which includes a further allegation in relation to the payment of compensation in respect of sewerage works by reason of various representations allegedly made on 23 February 2018 by Talon’s managing director and supervisor to ICN’s director.
As noted above, construction of the development has now been completed and the Strata Plan is ready to be registered but for the existence of ICN’s caveat.

Present Application

By notice of motion dated 28 October 2018, Lumos seeks the removal of that caveat either under s 74MA of the Real Property Act or under the inherent jurisdiction of the Court.
Lumos’ submissions on this application are directed to the issue of the balance of convenience. Lumos concedes that if the Heads of Agreement document is binding and enforceable it gives rise to a caveatable interest on the part of ICN.
Further, although Lumos disputes ICN’s assertion that Lumos is liable to convey to ICN the land the subject of the right of way, it has submitted that it is endeavouring to do so.
In this regard, Lumos’ position as set out in its submissions at [17] as follows:

Since Lot 703 forms one property, that will require the Council to provide consent to a further development application to subdivide the land that is subject to the right of way from the remainder of Lot 703. Since the purchasers of the apartments (which exchanged in 2015, prior to the Heads of Agreement in July 2017) have an interest in, and rights over, Lot 703, Lumos has prepared a strata by-law in order to bind them to agreeing to the conveyance of the land the subject of the right of way and thus to the development application. That by-law needs to be lodged with the strata plan, which cannot occur until the caveat is removed. Thus the caveat prevents Lumos progressing the very thing that the Plaintiff has lodged the caveat to secure, namely the conveyance of the land that is subject to the right of way.

Further, Lumos submits that the balance of convenience favours the removal of ICN’s caveat for the following reasons.
First, it submits that it is at risk of being liable for damages in the event that some or all of the remaining 20 purchasers rescind their contracts and commence proceedings against Lumos.
Lumos relied, in support of this application, on a number of affidavits affirmed by Julian Cesta-Incani, a solicitor in the firm of lawyers who are the solicitors for Lumos, in which the estimated liability to purchasers who rescind contracts pursuant to the sunset clause is put at approximately $100,000 per unit. I will return in due course to my doubts as to the basis for that estimate.
Second, Lumos’ development loan in respect of the development, taken out with the Commonwealth Bank of Australia, was for approximately $7 million.
Mr Cesta-Incani has deposed to a conversation on 2 November 2018 with Lumos’ broker, in which the broker said to Mr Cesta-Incani: "CBA have called on the loan several times and each time I have advised them that it is in court and I will have an answer for them in the coming days. However CBA were not happy with my response as the loan facility expired in September and they are ready to take action. I believe they could take enforcement proceedings on the loan at any time”.
Annexed and marked C to Mr Cesta-Incani’s affidavit affirmed 7 November 2018 is a copy of a letter from the Commonwealth Bank of 11 September 2018 confirming that the bill facility in respect of Lumos’ account is due for repayment. The letter states that the current outstanding balance as at 11 September 2018 was $7,508,633.28 with an undrawn loan balance of $791,366.72; that monthly interest fees and charges were being capitalised to the loan; and that the current interest rate is 4.86% per annum, subject to review.
Mr Cesta-Incani deposes that Lumos’ broker has advised that interest is accruing at about $40,000 per month.
Lumos has offered what it describes as alternative security consisting of two unencumbered units in the development which are not subject to contracts for sale, and which are said to have a combined value of approximately $1 million.
Third, on the issue of balance of convenience, Lumos notes that there has been no undertaking as to damages offered by ICN.
Fourth, Lumos submits that, in circumstances where it needs the proceeds of the sale of the apartments in order to repay the development loan, it is at risk of the bank appointing a receiver or administrator in order to realise the security, and that any delay and inability to repay the Commonwealth Bank may lead to an administrator or liquidator being appointed to it. It is submitted that those risks must increase the longer Lumos is unable to complete the sale of the contracts. It is submitted that any of those steps would be likely to incur significant further costs for which Lumos would be liable, and to lead to further losses to Lumos (such as a fire sale of the remaining assets).
Further, it is submitted that the appointment of an external controller for the sale of lot 703 either as a whole or through completion of the development would be likely to lead to any obligation to convey to the plaintiff the land that is the subject of the right of way being disclaimed or at least becoming unenforceable.
It is thus submitted that the maintenance of the caveat is likely to prevent the plaintiff achieving the very thing that it was lodged to secure, namely, the conveyance of the land the subject of the right of way.
It is submitted that ICN should not, by virtue of claiming an interest in only a portion of lot 703 derived from a disputed agreement entered into in 2017, be entitled to hold up the entire development on lot 703, depriving Lumos of the benefits of that development, depriving it of the ability to repay the bank loan that has been called upon, exposing Lumos to extensive action from purchasers under contracts entered into in 2015, and exposing Lumos to action from the bank. It is submitted that allowing the caveat to remain would have serious consequences for Lumos, exposing it to a risk of appointment of an external controller, and depriving the purchasers of the units of the benefit of the contracts into which they entered in 2015.
Further, it is submitted that ICN should not be entitled to maintain its caveat where the practical effect is that it prevents the very thing that it seeks to achieve and protect, namely, the conveyance of the land that is subject of the right of way, particularly in circumstances where Lumos has offered alternative security.
Lumos submits that if the caveat is removed, the Strata Plan can be registered and the contracts of sale completed, which it is hoped would occur in sufficient time to ensure repayment to the bank before any enforcement action is taken, and which, it is hoped, would avoid any more purchasers rescinding their contracts, further putting the repayment to the bank at risk and exposing Lumos to further risk of proceedings by the purchasers.
It is submitted that if the caveat is removed then the by-law which has been drafted by Lumos can be registered with the Strata Plan, which would then permit a further development application to be made to subdivide the land that is the subject of the right of way from the remainder of lot 703, which in turn would permit its conveyance to ICN.
It is thus submitted for ICN that there is a significant dispute as to the interest the plaintiff claims by its caveat but that the balance of convenience clearly favours the removal of that caveat.
ICN, on the other hand, submits that the caveat should not be removed for a number of reasons.
ICN points to the importance it attaches to the transfer to it of that part of lot 703 which is burdened by the right of way. In that regard, ICN points to an agreement that was entered into with the owner of another adjacent property, which I will refer to as lot 22, a copy of which (entitled Keira Street Project Agreement) is annexure F to the affidavit sworn 8 November 2018 of ICN’s company director, Barry Jin Biao Yang.
That agreement, made on 7 September 2015 between ICN and a third party, Australia Wollontown Construction Pty Ltd, is for the construction of a multi-storey building with an underground car park, ground floor commercial shops, and seven levels of residential accommodation.
For the purposes of that proposed development, ICN requires the transfer to it of the right of carriageway land because there is a requirement, to which Mr Yang deposes at paragraph 12 of his affidavit, that the entrance driveway have a clear 5.5 metres minimum width. Mr Yang deposes that ICN proposes to utilise its own land and the right of carriageway land to build a driveway ramp that would descend into the underground car park of the proposed development close to Thomas Street and hence stresses the importance of the acquisition of the right of carriageway land.
ICN notes that Lumos has not sought to make any application for expedition of the hearing in these proceedings; and that, if the Strata Plan is registered the Owners Corporation will become the registered proprietor of Lumos’ property and will not be bound by any agreement to transfer the land the subject of the right of way to ICN.
It is submitted that ICN would therefore, in effect, lose its entitlement to have the land transferred to it.
ICN argues that the Heads of Agreement compromised ICN’s claim for damage and trespass against both Lumos, as owner, and Talon, as builder, and that the damages thus foregone by ICN were arguably significant as ICN had lost a valuable tenant. In this regard, reference is made to paragraphs [42] to [56] of the affidavit of Mr Yang sworn 26 May 2017 and filed on 29 May 2017 in the 2017 proceedings.

It is submitted that removing land from a strata scheme would likely require a special resolution of the Owners Corporation at a general meeting and that there is no guarantee that this will occur.
ICN argues that it is doubtful that an obligation to pass such a resolution can be imposed on the incoming lot owners by a by-law, as Lumos has suggested, because a by-law giving away common property may be seen as harsh, unconscionable or oppressive for the purposes of s 139 of the Strata Schemes Management Act 2015 (NSW) and, therefore, would be liable to be invalidated by the Tribunal; and says that in any event a by-law could be repealed. Thus it is submitted that the proposed by-law gives no comfort to ICN and has the potential to expose it to more costs and litigation and to deny it the benefit of its bargain.
ICN maintains that the forensic history to the present application is of relevance in that it sought specific performance of the Heads of Agreement by filing a statement of claim on 3 August 2018 and yet a defence was filed only on 30 October 2018, and that this is the second time within two months that Lumos has approached the Court seeking urgent assistance on an interlocutory basis rather than dealing with the substantive matters. It is argued that to the extent that there is urgency this appears to be self-created, and it is thus submitted that the forensic history of the matter is an important factor in the exercise of discretion.
ICN argues that the effect of the orders sought by Lumos would be to foreclose and to pre-judge the specific remedy sought by ICN without a fair hearing, which would be a clear breach of natural justice.
It is submitted that damages or equitable compensation would not be an adequate remedy for ICN because land is unique and because the land it seeks is adjacent to the parcel of land owned by ICN and would enhance ICN’s ability to develop that land.
It is argued that even if the purchasers under the contract for sale of the units rescind their contracts and commence proceedings against Lumos, Lumos will not suffer materially because it will own the units, which have increased in value. ICN also says that the alternative security offered by Lumos is unattractive because the units offered are currently mortgaged and there is no evidence that the mortgages will be discharged upon the registration of the Strata Plan.
Thus, ICN submits that the appropriate course in the circumstances is to expedite the proceedings to a hearing.
I note that in terms of any expedition of the proceedings to a hearing, the timeframe within which it was initially suggested by ICN that that might occur was certainly not before the end of law term this year.
It was at one stage submitted by counsel for ICN that it would be possible to expedite the hearing of part of the proceedings only, that part relating to whether or not the Heads of Agreement was binding and enforceable. However, in a rare moment of intervention by the legal representative for Talon, it was submitted that the issue as to whether the contract was valid could not feasibly be the subject of an expedited hearing before the end of the year in circumstances where it would raise issues relating to the dispute between, amongst others, Talon and ICN.
ICN submitted that “[i]t has been said that it is a rare case where a valid caveat will be removed for reasons of the balance of convenience” (written submissions at [20]).
In reply submissions, as to the question of the efficacy of the by-law that has been proposed, Lumos accepts that there may be doubt as to whether a by-law to that effect will adequately protect the position of ICN. It was, however, noted that even if the application for development consent that had been drafted by ICN’s lawyers were to be lodged it would not necessarily mean that this would follow through to an approval of the subdivision by the Council and that that would involve, in any event, further delay.
It is submitted by Lumos that there are a number of factors that might lead to the property not being conveyed (even if the Heads of Agreement were binding and enforceable), noting that ICN’s case based on the Heads of Agreement might fail on at least one of three bases.
First, a lack of certainty as to the agreement, or the fact that the December 2017 condition is not satisfied.
Second, that the Council might not approve the subdivision.
Third, that the Court might refuse specific performance.

Determination

The real dilemma in the present case, it seems to me, is that if the caveat remains on title a number of potential outcomes might deprive ICN of its ability to obtain the conveyance of the land even if the Heads of Agreement are valid and binding. For example, further purchasers might rescind their contracts of sale or the bank might step in to exercise its rights consequent upon the expiry of the term of the bill facility for the development.
In Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240, Sackville AJA, with whom Beazley P and Payne JA agreed, noted (at [62]) that on an application for removal of a caveat the Court must pay close attention to such matters as the nature of the interest claimed by the caveator, whether there is any dispute as to the existence or extent of the interest, and the likely consequences of ordering the caveat to be withdrawn. Reference was made in the course of argument on the present application to the matters contained in his Honour’s reasons from [68] to [72]:

[68] The reasoning in Custom Credit has not escaped criticism in Western Australia. In Navarac Pty Ltd v Moondancer Holdings Pty Limited (Moondancer), the trial judge held on the authority of Custom Credit that once the caveator established an arguable case as to the existence of a caveatable interest, the caveat had to remain “unless the circumstances are so unusual as to justify its removal”. The trial Judge was not persuaded to depart from the “normal rule”. The Court of Appeal, in allowing the appeal, observed that:
“Balance of convenience issues are usually of little or no significance where the caveator claims an estate in fee simple or a leasehold estate. In those fairly common cases, it is ‘unusual’, as Owen J states, that once an arguable case is made out by the caveator that there is such a caveatable interest, that balance of convenience issues will result in removal. However, if for example the interest claimed by the caveator is a security interest or an interest in competition with another claimant against the registered proprietor, then balance of convenience issues may become decisive.”

[69] The Court considered that, on the facts of the case, balance of convenience factors were of great importance. Among other things, maintaining a caveat over a large area of subdivided land prejudiced third parties who had entered contracts to purchase lots within the subdivision, free of encumbrances. For that reason, the Court held that the trial Judge’s discretion had miscarried.
[70] Significantly, the Court added the following observations:
“although there is no ground of appeal to this effect, it appears that his Honour also erred by acting on wrong principle. His Honour treated what was said by Owen J in the Custom Credit case as the test to be applied under s 138 in deciding whether to make an order removing the caveat. His Honour seemed to envisage a two-step process in which once the caveator made out an arguable case for a caveatable interest, it must be shown that the ‘circumstances are so unusual’ that the caveat should be removed. That is not required by the statute and the comment of Owen J … that it would be ‘unusual’ to discharge a caveat, is not a proposition of law but simply a general observation as a matter of fact.” [Emphasis added by Sackville AJA.]

[71] These observations are inconsistent with Mr Giles’ argument that no order can be made under s 74MA of the Real Property Act unless a finding is made that the circumstances of a case are so unusual as to justify removal of the caveat.
[72] Mr Giles also relied on two decisions of Brereton J, both of which were referred to by the primary Judge. In the first, Buchanan v Crown and GleesonBusiness Finance Pty Ltd (Buchanan), Brereton J held, correctly in my view, that:
“Where there is a seriously arguable or undisputable caveatable interest, the court retains a discretion, based on the balance of convenience, as to whether it will maintain the caveat or require its withdrawal …The circumstance that a caveator has a caveatable interest is not conclusive that the caveat will not be removed. The court will order the withdrawal even of an indisputably valid caveat where the balance of convenience favours that course.”

At [78] his Honour said that:

In some circumstances, an application by a registered proprietor for the removal of a caveat is unlikely to succeed. If the nature and extent of the caveator’s interest is undisputed and removal of the caveat will clearly destroy the caveator’s interest, it is fair to say that it would be very unusual for the application to be granted.

But his Honour went on to say, having given an example of a case such as that where the practical effect of removing the caveat would be to render a charge worthless, that while it might be unusual or perhaps extremely unusual to order the withdrawal of the caveat in those circumstances this is not to elevate “unusual” into a legal test that must be satisfied before an order can be made, and that to do so imposes unwarranted constraints on the discretion conferred on the Court by s 74MA of the Real Property Act.
His Honour went on to note (at [79]):

The authorities also recognise that the strength of the caveator’s claim to an interest in land may be significant in assessing the balance of convenience. This is consistent with the well-established principle that the apparent strength of each party’s case is a material factor in assessing the balance of convenience on an application for an interim injunction. It follows that a registered proprietor seeking an order for the removal of a caveat to permit the refinancing of a mortgage loan, may have a stronger case if there is real doubt as to whether the interest claimed by the caveator is valid and enforceable.

In the present case there is no dispute that, if the Heads of Agreement are valid and binding, they give rise to a caveatable interest as claimed in the caveat lodged by ICN; that the claim is an equitable interest as a party entitled under the terms of the Heads of Agreement to the transfer of the land; and thus that the interest claimed is not simply a security interest.
Nevertheless, it may well be that this is one of those unusual (or very unusual) cases in which the balance of convenience would nonetheless favour the withdrawal of the caveat.
In that regard, I note two cases that were referred to by Lumos’ counsel in the hearing of the notice of motion.
The first goes to the offer by Lumos of security in the form of the offer to hold unencumbered two units in the proposed development.
Reference was made in that regard to what was said by Young CJ in Eq (as his Honour then was) in Dunecar Pty Ltd (in liq) v Colbron (2001) 40 ACSR 342; [2001] NSWSC 1181 at [20], namely that:

The caveator has to show…that the balance of convenience favours leaving the caveat in place pending the hearing of the proceedings; see eg Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987. In many cases if the caveator will not accept a substitute security then it is a case where the caveator has not demonstrated the balance of convenience and the caveat will go.

That, I note, was a case where the caveat protected an interest the defendant had in the land by virtue of a mortgage to secure the payment of legal costs, not, as is the case here, to protect an interest as purchaser under an asserted agreement for the transfer of the land.
The second case on which reliance was placed was Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (1999) 9 BPR 17,533; [1999] NSWSC 524, another decision of Young J (as His Honour then was).
At [8], his Honour said:

Accordingly, one does not have to go quite so far as to find exceptional or special circumstances as per the Southern Tableland case [Southern Tableland Insurance Brokers Pty Ltd v Schomberg (1986)11 ACLR 337] but one does start with a bias towards making the caveator give an undertaking as to damages.

In the present case, counsel for ICN points out that there was no request for an undertaking as to damages. However, the submissions served on behalf of Lumos made clear (at [23]) the reliance placed by Lumos on the fact that an undertaking as to damages had not been offered by the plaintiff.
Reference was there made to the limited nature of compensation available under s 74P of the Real Property Act and to the decision in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459.
The position of ICN at the hearing last Friday was that instructions had been sought in relation to an offer of an undertaking as to damages but that no instructions were yet to hand.
There was also an issue as to whether, had such an undertaking been proffered, there would have been sufficient assets on the part of ICN to support the undertaking as to damages in light of the potential damages that will be suffered by Lumos if the caveat remains on title and it is unable to repay the loan obtained in relation to the development and/or further purchasers elect to rescind the contract by reason of the expiry of the sunset date.
In my opinion the balance of convenience here favours the removal of ICN’s caveat.
I accept that it is doubtful that Lumos has the capacity to bind the Owners Corporation which will be created and become the registered proprietor of lot 703 upon registration of the Strata Plan.
However, I consider that there are compelling reasons for the caveat to be removed.
First, given the prejudice likely to be suffered by Lumos if it is not removed, the lack of an undertaking as to damages weighs heavily against the extension of the caveat.
I said earlier that I would come back to the issue about the value (or quantum) of the potential damages claims. I am not necessarily persuaded that a purchaser with a right to rescind the contract by reason of the expiry of the sunset clause would also have a claim for damages by reference to the increase in value of the units over the period of time since the contract was on foot, since I would have thought there would be a reasonable argument that there has been a failure to mitigate. In those circumstances it is the purchaser’s own conduct in rescinding the contract that has led to that value not being available to the purchaser. However, I cannot discount the possibility that there would be circumstances in which a purchaser, who might have been in a position to acquire the property at a particular stage but was not able to do so at that stage because the Strata Plan had not been registered, might have a claim for some form of damages by reference to delay in completion of the contract or to having subsequently lost, for whatever reason, an opportunity to purchase the unit. I therefore cannot exclude the possibility that there could be damages claims of that amount.
Second, the prejudice to which Lumos (and for that matter each of the purchasers) would be subjected if the caveat is extended may be severe for the reasons advanced by Lumos in its submissions.
I should note that I place no weight on any prejudice that the purchasers may suffer since I am not balancing their interests in this equation, but it seems to me that the prejudice that Lumos may suffer, if the caveat remains on title, is likely to be more severe than that suffered by ICN, and in that regard I note that Lumos has offered as security the units which would be available to meet a claim for damages.
There was also a submission advanced by Lumos in the course of argument last Friday to the effect that it might well be the case that Lumos would be in a position to offer to meet any additional requirements placed by the Owners Corporation on the transfer for the land in the event that the Owners Corporation did not accept or agree to abide by the by-law that was proposed (which involves transfer of the land by the Owners Corporation to Lumos for $1).
In circumstances where the sunset date expired now some six weeks ago and Lumos is in default in repayment of the bill facility (which has expired and in respect of which the broker has advised that calls have been made), there must be a real risk that ICN will be in the position, if the caveat remains on title, that it will not be able to have the land transferred to it in any event.
In those circumstances, and there being no undertaking as to damages supported by evidence of sufficient assets, I would accede to the application for removal of the caveat.
I should note that I am by no means unmindful of the fact that the arguments for and against the availability of the remedy of specific performance are not being dealt with in a concluded hearing at this time and may ultimately be rendered otiose by the time one comes to the final hearing.
However, I am left balancing what seems to me to be the greater likelihood of prejudice to Lumos by the possibility of the bank enforcing its claims to the development loan and/or purchasers rescinding a contract as against the risk that, even if the caveat remains on title, ICN will not be able to avail itself of the rights it claims under the Heads of Agreement in any event.
Accordingly, I propose to make an order pursuant to section 74MA of the Real Property Act and any inherent jurisdiction of the Court that the plaintiff withdraw caveat AN398997Q registered over Lot 703 in DP 854202.
That order will be subject to the second defendant filing in Court a formal undertaking to the effect of the undertaking that has been proffered in the course of the hearing of the motion, namely an undertaking that it will hold the two units not the subject of contracts for sale to third parties as security for any damages to which the plaintiff may be entitled on the final hearing of these proceedings, and that it will take all reasonable steps to discharge any mortgage over the properties that includes those mortgages as soon as practicable, and an undertaking that on removal of the caveat the second defendant will lodge, with the Strata Plan in relation to the development, the strata by-law that has been prepared in respect of the conveyance of the land the subject of the right of way to ICN.
Lumos sought an order for payment of its costs on the basis that costs would follow the event, it having been successful in the present application. I was minded to order that the costs be the second defendant’s costs in the cause. Counsel for ICN has drawn my attention to two decisions; a decision of mine in State of New South Wales v Gevaux [2011] NSWSC 758 and the decision of the Court of Appeal in His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142. In the Court of Appeal case, reference was made to the manner in which Young J, as his Honour then was, had dealt with costs in relation to an application for an interlocutory application in Boscolo v TCN Channel Nine Pty Ltd (No 2) (New South Wales Supreme Court, Eq Div, 28 April 1994, unreported). There, his Honour had said (at [110]):

Although costs are always in the discretion of the Court, the usual rule that is applied in the exercise of the Court’s discretion is that if a person succeeds in getting an interlocutory injunction, costs should be costs in the cause.

The Court of Appeal noted at [21] that his Honour had not there explained the basis of the rule but went on to say that the rationale for making an order that costs be costs in the cause is that at the time of granting an interlocutory injunction the Court is not in a position to adjudicate on the ultimate outcome of the proceedings, but went on to explain that each case must depend upon its own facts. In Gevaux (at [12]) I had noted that in relation to the costs of interlocutory applications, it was commonplace for costs to be ordered to be costs in the cause, referring there to the decision of Hamilton J in Coscom Pty Ltd v Standing Enterprises Pty Ltd [2006] NSWSC 114.

In the present case, the matter might be tested in this way. If at the end of the day ICN is successful in obtaining a judgment to the effect that the Heads of Agreement are binding and enforceable (such that in hindsight it could be said that the caveat should not have been removed) should it therefore be in a position where it is unable to recover the costs of this present interlocutory application? When considered in that fashion, I think it is appropriate that the order to be made today is that costs be costs in the cause (not that they be the second defendant’s costs in the cause) and I will so order.

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Decision last updated: 21 November 2018

Medium Neutral Citation:	International Computer Network Pty Ltd v Lumos International Pty Ltd [2018] NSWSC 1793
Hearing dates:	9 November 2018
Date of orders:	12 November 2018
Decision date:	21 November 2018
Jurisdiction:	Equity
Before:	Ward CJ in Eq
Decision:	1. Order pursuant to s 74MA of the Real Property Act 1900 (NSW) and in the inherent jurisdiction of the Court that the plaintiff forthwith withdraw caveat AN398997Q registered over Lot 703 in DP 854202. 2. Subject to the usual undertaking as to damages being proffered by the Second Defendant and to the second defendant filing in court a formal undertaking to the effect of the undertaking that has been proffered in the course of the hearing of the motion (namely an undertaking that it will hold the two units not the subject of contracts for sale to third parties as security for any damages to which the plaintiff may be entitled on the final hearing of these proceedings and that it will take all reasonable steps to discharge any mortgage over the property that includes those mortgages as soon as practicable) and an undertaking that on the removal of the caveat the second defendant will lodge, with the strata plan in relation to the development, the strata by-law that has been prepared in respect of the conveyance of the land the subject of the right of way to ICN. 3. Costs be costs in the cause.
Catchwords:	LAND LAW – second defendant’s application to remove plaintiff’s caveat pursuant to s 74MA of the Real Property Act 1900 (NSW) or the inherent jurisdiction of the Court – plaintiff’s caveat claimed equitable interest in second defendant’s property commensurate with right to obtain specific performance of conveyance of part of the property – second defendant had constructed units on the property, subject to off-the-plan contracts – plaintiff’s caveat prevent registration of strata plan and subsequent completion of off-the-plan contracts – second defendant’s development loan called in by bank – second defendant unable to repay loan until completion of off-the-plan contracts – plaintiff offered no undertaking as to damages – balance of convenience favours the removal of caveat, subject to the plaintiff giving undertakings regarding alternative security
Legislation Cited:	Conveyancing Act 1919 (NSW), s 88K Real Property Act 1900 (NSW), s 74MA, 74P Strata Schemes Management Act 2015 (NSW), s 139
Cases Cited:	Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (1999) 9 BPR 17,533; [1999] NSWSC 524 Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 Boscolo v TCN Channel Nine Pty Ltd (No 2) (New South Wales Supreme Court, Eq Div, 28 April 1994, unreported) Coscom Pty Ltd v Standing Enterprises Pty Ltd [2006] NSWSC 114 Dunecar Pty Ltd (in liq) v Colbron (2001) 40 ACSR 342; [2001] NSWSC 1181 Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v The Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142 State of New South Wales v Gevaux [2011] NSWSC 758
Category:	Procedural and other rulings
Parties:	International Computer Network Pty Ltd (Plaintiff) Lumos International Pty Ltd (First Defendant) Talon Construction Group Pty Ltd (Second Defendant)
Representation:	Counsel: GM McGrath (Plaintiff) AP Cheshire SC (First Defendant) JB Conomy (Second Defendant) Solicitors: RMB Lawyers (Plaintiff) CVC Law (First Defendant) Acorn Lawyers (Second Defendant)
File Number(s):	2017/00135633; 2018/00048063
Publication restriction:	Nil