King v Barrett
[2023] WASC 234
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: KING -v- BARRETT [2023] WASC 234
CORAM: ARCHER J
HEARD: 19 JUNE 2023
DELIVERED : 28 JUNE 2023
FILE NO/S: CIV 1432 of 2023
BETWEEN: MARGOT LOUISE KING
FRANCO FORTIS
Applicants
AND
OANA ANCUTA BARRETT
GARETH JOHN BARRETT
First Respondents
THE REGISTRAR OF TITLES
Second Respondent
Catchwords:
Caveat extension - Equitable lien - Payments to project manager for agreed variations to development - Contract to purchase terminated
Legislation:
Transfer of Land Act 1893 (WA), s 138C
Result:
Caveat extended
Category: B
Representation:
Counsel:
| Applicants | : | R R Joseph |
| First Respondents | : | J A Robertson |
| Second Respondent | : | No appearance |
Solicitors:
| Applicants | : | Solomon Brothers |
| First Respondents | : | Williams & Hughes |
| Second Respondent | : | Not applicable |
Case(s) referred to in decision(s):
Bashford v Bashford [2008] WASC 138
Bateson v Jones [2013] WASC 8
Boccamazzo v Kangaroo Corner Farm Pty Ltd [2020] WASC 234
Bride v The Registrar of Titles [2015] WASC 11
Hewett v Court (1983) 149 CLR 639
Lavery v R & I Bank of Western Australia Ltd (Unreported, WASCA, Library No 950468, 7 September 1995)
Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
Pindan Pty Ltd v Property Nominees Pty Ltd (2006) ANZ ConvR 430; [2006] WASC 91
Willmott Growers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed) (In Liquidation) [2013] HCA 51
Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348
ARCHER J:
Introduction
The applicants (Buyers) apply for an order extending the operation of a caveat over property owned by the first respondents (Sellers).
The Sellers are the registered proprietors of 18 Cowper Road, Sorrento, Western Australia, more particularly described as Lot 1 on Strata Plan 83913 being the whole of the land the subject of Certificate of Title Volume 4008 Folio 205 (Property).
On 13 March 2022, the Buyers entered into a contract for the purchase of the Property from the Sellers (Contract).[1] The Contract provided for the construction of a residential dwelling on the Property prior to settlement.
[1] Affidavit of Margot Louise King filed 2 May 2023 (First King Affidavit) [5] and Attachment MLK‑4.
The construction of the building was project managed by Projective DM Pty Ltd (Projective DM). The Sellers operate and control Projective DM and are its only directors and shareholders.[2]
[2] Affidavit of Gareth John Barrett filed 18 May 2023 (Barrett Affidavit) [23] and the First King Affidavit Attachment MLK‑5.
The Contract set out a process by which variations to the development could be made. Following that process, the Buyers sought and received the Sellers' approval for a number of variations. The Buyers ultimately paid $90,873.79 to the project manager (Variation Payments) for the approved variations (the Variations).[3]
[3] First King Affidavit [8] ‑ [9] and Attachments MLK‑6, MLK‑7 and MLK‑8.
On 26 July 2022, the Buyers and Sellers exchanged multiple emails regarding the Variations and the finalisation of the construction of the building. Both parties stated they remained committed to the Contract.[4]
[4] First King Affidavit [12] and Attachment MLK‑11.
On 23 August 2022, the Buyers issued the Sellers with a default notice.[5]
[5] First King Affidavit [13] and Attachments MLK‑12 and MLK‑13.
On 14 March 2023, the Buyers lodged subject to claim caveat P479362 in relation to the Property (Caveat). The Buyers claimed to be an equitable chargee, having an equitable lien over the Property arising from the Variation Payments.
On 24 March 2023, the Buyers gave the Sellers a notice terminating the Contract and issued a deposit holder notice.[6] The termination notice alleged that the Sellers had breached, or alternatively repudiated, the Contract.
[6] First King Affidavit [18] and Attachments MLK‑18, MLK‑19 and MLK‑20.
On 12 April 2023, the Registrar of Titles sent a notice to the Buyers pursuant to s 138B of the Transfer of Land Act 1893 (WA). By virtue of the notice, the Caveat would lapse at midnight on 4 May 2023 if its operation was not extended.
On 2 May 2023, the Buyers filed an originating summons seeking that the operation of the Caveat be extended until further order. The Registrar of Titles was, appropriately, named as the second respondent.
The Buyers also filed an undertaking as to damages.
On 3 May 2023, the Buyers and Sellers agreed to orders extending the Caveat until, in effect, the matter could be dealt with in a special appointment. The special appointment was heard on 19 June 2023.
What follows are my reasons for extending the Caveat.
The issues
Section 138C(2) of the Transfer of Land Act gives the court the power to extend a caveat if it is satisfied that the claim has or may have substance. In Bride v The Registrar of Titles,[7] Edelman J summarised the principles that apply to the exercise of that power. I will apply those principles.
[7] Bride v The Registrar of Titles [2015] WASC 11 [11] ‑ [16].
In assessing whether to grant an extension of a caveat, there are two interdependent issues:
1.whether the caveator's claim in respect of the estate or interest in land 'has or may have substance'; and
2.whether the balance of convenience favours the retention of the caveat.
Issue 1 - claim of substance?
General principles
A claim will or may have 'substance' when there is a serious question to be tried as to whether a caveatable interest exists.[8]
[8] See Bashford v Bashford [2008] WASC 138 [73].
The caveator bears the onus of demonstrating that there is a serious question to be tried as to whether a caveatable interest exists.[9] The claim must concern a proprietary interest in land.[10] In other words, the caveator bears the onus of showing that there is a serious question to be tried as to whether he or she has a proprietary interest in land.
[9] Bashford [47].
[10] Bride [14] and Bashford [42].
In assessing whether the onus has been discharged, the Court does not ordinarily evaluate the applicant's evidence, resolve conflicts of evidence on affidavit, or undertake a preliminary trial.[11]
[11] Bride and Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348 [31].
As was said by Pritchard J[12] in Bateson v Jones (citations omitted),[13]
[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.
Equitable liens
[12] As her Honour then was.
[13] Bateson v Jones [2013] WASC 8 [19].
As noted earlier, the Buyers claim to have an equitable lien arising from the Variation Payments. An equitable lien is a caveatable interest.
The Hewett circumstances
In Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd,[14] Newnes JA (with whom Pullin JA agreed) said:
[14] Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [54].
In Hewett v Court (1983) 149 CLR 639, Deane J described an equitable lien as 'a right against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness' (663). His Honour set out the circumstances which are sufficient (albeit, not necessarily essential) for the implication, independently of agreement, of an equitable lien between the parties in a contractual relationship. Those circumstances are (668):
(a)there be a potential or actual indebtedness on the part of the party who is the owner of the property to the other party arising from the payment or promise of payment either of consideration in relation to the acquisition of the property or an expense incurred in relation to it;
(b)that property (or arguably property including that property) be specifically identified and appropriated to the performance of the contract; and
(c)that the relationship between the actual or potential indebtedness and the identified [and] appropriate[d] property be such that the owner would be acting unconscientiously or unfairly if it were to dispose of the property to a stranger without the consent of the other party or without the actual or potential liability having been discharged.
I will refer to the three circumstances as the 'Hewett circumstances'.
Building construction cases
In their submissions, the Sellers referred to a number of building construction cases, including Perron Investments.[15]
[15] First named and Second named Respondents' Outline of Submissions filed 13 June 2023 (Sellers' Submissions) [16].
After setting out the Hewettcircumstances, Newnes JA in Perron Investments turned to the facts before him. He said:[16]
An obvious, and in my view insuperable, difficulty confronts the respondent in respect of its claim in respect of this caveat; namely, that there is no evidence of any actual or potential indebtedness of the appellant to the respondent in respect of the landscaping work. Ordinarily a sub‑contractor will have no contractual relationship with the owner, even where the sub‑contractor is a nominated sub‑contractor: Hampton v Glamorgan County Council [1917] AC 13. The respondent acknowledges that its contract was a sub‑contract with Link Projects. Link Projects entered into that sub‑contract in its own right as a principal, not on behalf of the appellant. There was no contract between the respondent and the appellant in respect of the landscaping work, and the respondent has no claim against the appellant for the payment of any amount owing to it under the sub‑contract.
There is a further difficulty in that there is a substantial body of authority that the expenditure of work and materials under a construction contract does not of itself confer on an unpaid contractor any interest in the land on which the work is done: Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93, 104 ‑ 105; HG & R Nominees Pty Ltd v Caulson Pty Ltd (2000) V ConvR 54‑630 [64,519]; Kang v Kwan [2002] NSWSC 1187 [202]; Kirfield Limited v First Trade Consulting Pty Ltd [2005] WASC 277 [50] ‑ [55]; and on appeal First Trade Consulting Pty Ltd v Kirfield Limited [2006] WASCA 174 [14]. In this case, that principle seems to me to be applicable to the respondent's landscaping sub‑contract.
[16] Perron Investments [55] - [56].
The Sellers also relied on another construction case, PindanPty Ltd v Property Nominees Pty Ltd.[17] In that case, Blaxell J said:[18]
[T]he plaintiff will only have an equitable lien if it did the work under a belief that it was thereby acquiring an interest in the land, and if the first defendant in some way encouraged or induced that belief.
[17] PindanPty Ltd v Property Nominees Pty Ltd [2006] WASC 91.
[18] Pindan [29].
The Sellers placed a great deal of reliance on the word 'thereby' in that passage, and the fact that Blaxell J had used that word a total of three times in his judgment.[19]
[19] See the Sellers' Submissions [19], [23] ‑ [24] and ts 37 ‑ 41.
The Sellers contended that Pindan demonstrates that 'an equitable lien will only arise if the party doing the work did it [or commissioned it] and believed or were led to believe that by doing the work [or commissioning it] they were acquiring an interest in the land'.[20]
[20] Sellers' Submissions [23].
I do not accept this. The plaintiff in Pindan was a building contractor who had worked on the construction of an apartment complex. It is plain that Blaxell J was analysing the principles and authorities in that context.[21] His Honour found that the plaintiff did not have an equitable lien. This was an unremarkable conclusion.
Lavery v R & I Bank of Western Australia Ltd
[21] See Pindan [23] ‑ [29].
One of the cases cited by Blaxell J in Pindan as requiring that conclusion was Lavery v R & I Bank of Western Australia Ltd.[22] In Lavery, Malcolm CJ (with whom Franklyn and Owen JJ agreed) was considering whether the facts in that case gave rise to an equitable lien. After referring to Hewett, his Honour said (citations largely omitted):[23]
It follows from this analysis by Deane J that an equitable lien differs only from an equitable charge in that, while an equitable charge is created by express agreement or act of the parties, an equitable lien arises by operation of equity by reason of the relationship between the parties. The principal equitable liens are the vendor's lien for the purchase money; a purchaser's lien for his deposit or part payment of the purchase price; the trustee's and personal representative's lien for expenses; and the solicitor's lien on property he or she recovers or preserves.
The category of relationships giving rise to an equitable lien by operation of equity is not exhaustive. For example, if an intended lessee enters land under a contract to grant a lease and expends money in repairing the premises, but the lessor fails to grant the lease, the lessee will have an equitable lien for the recovery of the expenditure. There is, however, no general principle of equity to the effect that money expended by a person to preserve or benefit the property of another creates a lien on the property in his or her favour.
The cases in which equity has provided relief by finding that a proprietary interest in land has been created have been cases where the person expending the money has done so in the belief that the property would become his or hers or he or she was acquire an interest in it, or in the mistaken belief that it was his or hers, in circumstances where the true owner is estopped from denying the claim. The relevant cases comprise the two lines of authority following Dillwyn v Llewellyn (1862) 4 De G F and J 517; ER 1285; and Ramsden v Dyson (1865) LR 1 HL 219. These cases have been acknowledged as exceptions to the general rule that if a person spends money on the property of another then prima facie, he or she does not acquire any proprietary interest in or lien over the property.
[22] Lavery v R & I Bank of Western Australia Ltd (Unreported, WASCA, Library No 950468, 7 September 1995).
[23] Lavery (17 ‑ 19).
It is plain from this extract that Malcolm CJ was not saying that it was necessary that the person spending money believe that they would require an interest due to the expenditure. This is apparent from his Honour's words and from the example his Honour gave of the intended lessee. An intended lessee has an interest in the land before spending, and without needing to spend, any money on repairs.[24]
Boccamazzo v Kangaroo Corner Farm Pty Ltd
[24] See, for example, WillmottGrowers Group Inc v Willmott Forests Limited (Receivers and Managers Appointed) (In Liquidation) [2013] HCA 51 [61] ‑ [63] (Gageler J).
The Buyers also drew my attention to Boccamazzo v Kangaroo Corner Farm Pty Ltd.[25] In that case, Master Sanderson found that it was arguable that earthmoving works done by the caveator (earthmover) on land was authorised by the owner of the land. Master Sanderson found that it was arguable that the persons who directed the earthmover to do the works were acting as agents of the owner, and there was therefore a contractual relationship between the earthmover and the owner.
The Contract
[25] Boccamazzo v Kangaroo Corner Farm Pty Ltd [2020] WASC 234 [12] ‑ [13].
Clause 4.1 of the Special Conditions of Sale at Annexure A of the Contract (Special Conditions) provides that the Sellers are to 'carry out and achieve Practical Completion of the Development … in accordance with the Plans and Specification and Approvals'.[26]
[26] See also cl 3.
'Development' is defined in cl 1.1 to include 'the development on the Land by the construction of the Building on the Land in accordance with the Plans and Specifications and all associated works'.
'Plans and Specifications' is defined in cl 1.1 to mean 'the plans and specifications in respect of the Development and Building comprising Annexure D to this Contract, as amended, varied or supplemented from time to time'.
Clause 5 of the Special Conditions (which I will shortly discuss in detail) allows the parties to agree to variations to the Contract.
In my view, these provisions show that agreed variations would amend the Plans and Specifications in accordance with which the 'Development' was required to be carried out.
Clause 5 of the Special Conditions provides:
5.1If the Buyer wishes to make any variations to the Property (Buyer Variations) it shall apply in writing to the Seller specifying in detail the Buyer Variations required and requesting approval from the Seller, such approval not to be unreasonably withheld.
5.2If the Seller approves the variations to the Buyer then the Seller will request the Project Manager to provide to the buyer an estimate:
a)for the cost (if any) of:
i.materials and labour required to complete the variation; plus
ii.any builder's margin of up to 20% on the materials and labour required to complete the variation; plus
iii.project management fees of up to 20% the cost of (i) and (ii); plus
iv.the cost of any fees charged by a third party for any Approvals, to be charged as a disbursement; plus
v.GST; and
b)any additional time required to carry out the variation (if any),
(Estimate).
5.3If the Buyer accepts the Estimate, the Buyer must notify the Seller in writing.
5.4The Seller must procure the Project Manager to enter into a contract with the Buyer to undertake the agreed variations, the costs of which will be invoiced separately from the Project Manager to the Buyer and be payable in accordance with the terms and conditions specified in the invoice.
5.5The Date for Practical Completion will be extended by a period equivalent to the period that the variation causes additional time for the completion of the Development.
5.6In the case of any variation that is not required for Practical Completion, the parties may agree that those variation works are carried out after Settlement by the Project Manager and invoiced separately.
It can be seen from this that:
1.by cl 5.1, the Buyers must obtain the Sellers' approval for variations;
2.by cl 5.2, it is the Sellers who request Projective DM to provide any estimates;
3.by cl 5.3, any acceptance of an estimate must be communicated to the Sellers; and
4.by cl 5.4:
(a)the Sellers must procure Projective DM to enter into a contract with the Buyers; and
(b)an obligation is imposed on the Buyers to pay for the costs of the variations.
The 'Project Manager' is defined in cl 1.1 to mean Projective DM.
The 'Date for Practical Completion' is defined in cl 1.1 to mean '31 October 2022, as may be extended under clauses 5.5 and 6'.[27]
[27] Clause 6 provided for extensions caused by COVID.
The Contract made provision for the termination of the Contract in certain circumstances. Relevantly, by cl 24.15(d) of the Joint Form of General Conditions for the Sale of Land (General Conditions), the Buyers could terminate the Contract if the Sellers repudiated the Contract. Further, by cl 24.15(c) of the General Conditions, the Buyers could terminate the Contract if the Sellers were in default and had failed to comply with a default notice.
If the Buyers terminated the Contract under either of those two clauses, then, by cl 24.16(a) of the General Conditions, 'the Deposit and any other money paid by the Buyer under the Contract' were required to be 'promptly repaid to the Buyer'.
Application to the facts
The Buyers claim to have terminated the Contract, and to have been entitled to terminate the Contract, under cl 24.15(d) or cl 24.15(c) of the General Conditions. While this is disputed by the Sellers, the Sellers do not contend that this is not reasonably arguable.
First Hewett circumstance - indebtedness or potential indebtedness arising from payment
Indebtedness
The Buyers say that the Sellers are indebted to them on three independent bases. They allege:
1.Projective DM was acting as the Sellers' agent;
2.the Buyers have a claim for restitution against the Sellers because the Sellers have retained the improvements to the Property in circumstances where the Sellers repudiated the Contract; and
3.the Buyers have a right under the Contract, because:
(a)the Variation Payments were, on a proper construction of the Contract, paid 'under' the Contract; and
(b)on a termination for the Sellers' repudiation or default, all such money was required to be repaid.
The Sellers submit that, given the non‑homogeneous nature of the Variations, it will be very difficult to identify a 'finite debt'. They submit that there are 'no means by which this debt can be actually quarantined or identified independent of the works which have been constructed under the building contract'.[28] In my view, there is no reason to construe the indebtedness or potential indebtedness component of the first Hewett circumstance as requiring that the precise quantum be ascertainable, prior to any judicial determination.
[28] ts 38 ‑ 39.
I accept the Buyers' submission that it is arguable that Projective DM was acting as the Sellers' agent, given the following circumstances.
First, the Contract expressly identifies Projective DM as the Project Manager, and, by cl 5, conveys authority to Projective DM to:
1.provide estimates for the costs of agreed variations;
2.enter into contracts with the Buyers to undertake the agreed variations; and
3.invoice the Buyers for the costs.
Second, by the terms of cl 5:
1.the Sellers had to approve variations;
2.the Buyers had to notify the Sellers if they accepted the costs estimate; and
3.the Buyers had to pay for the agreed variations in accordance with Projective DM's invoices.
Third, under the Contract (with the Sellers), the Buyers were contractually bound to use Projective DM for the variations.
This conclusion makes it unnecessary to consider the alternative bases upon which the Buyers contend that the Sellers are indebted to them. However, I will briefly explain why I accept that each of the alternative bases is arguable.
The second basis is the Buyers' contention that it is arguable that they have a claim for restitution against the Sellers. I accept this, given the following circumstances:
1.Consistently with the procedure set out in cl 5 of the Contract, the Sellers agreed to the Variations, were told when the Buyers accepted an estimate of cost, and procured Projective DM to enter into contracts with the Buyers in relation to the Variations.
2.The Sellers did not pay for the Variations; the Buyers did.
3.The Buyers paid for the Variations because they were going to acquire the Property, under the Contract.
4.The Buyers did not acquire the Property.
5.The Sellers have retained the Property.
6.It is arguable that the Variations added value to the Property.[29]
7.It is arguable that the Sellers repudiated the Contract.
[29] See the Affidavit of Margot Louise King filed 1 June 2023 (Second King Affidavit).
In those circumstances, it would be unfair if the Sellers, by their (alleged) breach and repudiation of the Contract, were able to retain the benefit of the Variations.
The third basis is the Buyers' contention that it is arguable that they have a right under the Contract, because the Variation Payments were, on a proper construction of the Contract, paid 'under' the Contract, and, on a termination for the Sellers' repudiation or default, all such money was required to be repaid.
I accept that this is arguable, having regard to the specific terms of cl 5 and the other provisions of the Contract[30] that show that agreed variations would amend the Plans and Specifications in accordance with which the 'Development' was required to be carried out under the Contract.
Consideration or expense
[30] See the discussion under the heading 'The Contract'.
The Sellers dispute that the Variation Payments were part of the consideration in relation to the acquisition of the Property or an expense incurred in relation to it. They submit that the Variations 'of themselves sit outside and are quite independent' of the Contract.[31]
[31] ts 41.
I accept that Projective DM was (by cl 5.4 of the Contract) to enter into a contract (separate to the Contract) with the Buyers to undertake agreed variations. However, I do not accept that this means that the Variation Payments could not be characterised as part of the consideration in relation to the acquisition of the Property or an expense incurred in relation to it.
Having regard to the specific terms of cl 5 and the other provisions of the Contract[32] that show that agreed variations would amend the Plans and Specifications in accordance with which the 'Development' was required to be carried out under the Contract, I consider that it is arguable that, once variations had been agreed, the variations amended what the Contract required to be delivered. I accept it is arguable that, therefore, the Variation Payments formed part of the consideration required to be paid for what was to be delivered under the Contract.
[32] See the discussion under the heading 'The Contract'.
Having regard to those same matters, I accept it is arguable that the Variation Payments, made for the purpose of the (agreed) Variations, formed part of the overall cost of the 'Development' and were expenses incurred by the Buyers in relation to the Property.
Second Hewett circumstance - property identified
The Sellers contend that the second Hewett circumstance was not met. They submit that it was not met because the Variations involved a mixture of goods, services, fixtures and fittings and there was no evidence about what had actually been integrated into the construction of the dwelling.[33]
[33] ts 41 and ts 44.
I do not accept this. The second Hewett circumstance requires that property (or arguably property including that property) be specifically identified and appropriated to the performance of the contract. The 'property' which must be identified and appropriated to the performance of the contract is the property alleged to be the subject of an equitable lien.
In this case, the property alleged to be the subject of an equitable lien is the Property the subject of the Contract. It is, self‑evidently, identified and appropriated to the performance of that Contract.[34]
Third Hewett circumstance - unconscientious or unfair
[34] And see the discussion in Hewett v Court (1983) 149 CLR 639, 669 ‑ 671 (Deane J).
In relation to the third Hewett circumstance (that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if it were to dispose of the property to a stranger without the consent of the other party or without the actual or potential liability having been discharged), the Buyers submit[35]
an equitable lien of a purchaser for purchase money paid to the vendor on a sale that has gone off through no fault of the purchaser arises as the security for the money which is justly due.[36] The [Buyers] made the Variation Payments, to the benefit of the Property held by the [Sellers], in the belief that the Property would become theirs pursuant to the terms of the Contract.[37]
[35] Applicants' Outline of Submissions filed 7 June 2023 (Buyers' Submissions) [27].
[36] See Hewett v Court (1983) 149 CLR 639, 645 (Gibbs CJ).
[37] See the discussion in Pindan Pty Ltd v Property Nominees Pty Ltd (2006) ANZ ConvR 430; [2006] WASC 91, [18] ‑ [29] (Blaxell J). The benefit is identified in the Second King Affidavit, [12] ‑ [15].
The Sellers submit that it would not be unfair. They submit that, under the Contract, the Sellers were not going to benefit from the Variations because the Variations would not increase the amount that they would receive on settlement.[38] The Sellers further submit that there is no evidence that they encouraged or induced the Buyers to make the Variation Payments, and no evidence that they said that, if the Buyers did, a security interest would arise.[39]
[38] ts 42 (in which the purpose of the submission was identified. The submission was also made at ts 38).
[39] ts 44.
I do not accept that the matters raised by the Sellers prevent the Buyers from establishing the third Hewett circumstance.
For the reasons given earlier, it is arguable that:
1.the Sellers are indebted to the Buyers in three independent ways;
2.the Variations increased the value of the Property; and
3.the Sellers repudiated the Contract.
In addition:
1.any such indebtedness would have arisen from the Variation Payments;
2.the Sellers did not pay for the Variations; the Buyers did;
3.consistently with the procedure set out in cl 5 of the Contract, the Sellers agreed to the Variations, were told when the Buyers accepted an estimate of cost, and procured Projective DM to enter into contracts with the Buyers in relation to the Variations;
4.the Buyers paid for the Variations because, under the Contract, they were going to acquire the Property;
5.the Buyers did not acquire the Property; and
6.the Sellers have retained the Property.
Having regard to these matters, I consider it to be arguable that the relationship between the actual or potential indebtedness and the Property is such that the Sellers would be acting unfairly if they were to dispose of the Property to a stranger without the consent of the Buyers or without discharging the actual or potential liability.
Conclusion on issue 1 - claim of substance
I am not required to finally determine whether the Buyers do have a proprietary interest in the Property. Rather, I am simply required to determine whether they have shown that there is a serious question to be tried as to whether their claim has substance. In my view, they have done this.
Issue 2 - balance of convenience?
The second issue is the balance of convenience in extending the caveat.
There is no rule that once an arguable case for a caveatable interest has been established, removal of the caveat will only be ordered if it is shown that the circumstances are so unusual that the caveat should be removed.[40]
[40] Zorostar [32].
The apparent strength or weakness of the Buyers' case for relief at trial is a relevant consideration on the balance of convenience. In my view, the Buyers' case is relatively strong.
An important factor in considering the balance of convenience is whether the failure to extend a caveat will have the effect of destroying, or substantially impairing, the benefit of the proprietary interest which is claimed. In this case, if the Caveat is not extended, the Buyers would have no security in relation to the Variation Payments.
The Sellers' submissions
The Sellers oppose the extension of the Caveat.
Improper purpose
The Sellers assert that it can be inferred that the Buyers have no intention to enforce the alleged claim for a lien to recover the Variation Payments and 'just wish to apply commercial pressure to the Sellers by clogging the title to the Land, holding up or injuncting construction - or forcing the Sellers into conflict with their bank/ mortgagee arising from the incomplete construction and imperfect security now held by Westpac with a half built Dwelling and a looming priority dispute between Westpac and the Buyers - as purported caveators'.[41]
[41] Sellers' Submissions [35.7].
This is a very serious allegation.
The Sellers assert the inference arises from the following:[42]
1.the Contract did not expressly permit the lodgement of a caveat;
2.the Buyers had previously lodged a caveat, and this was around the same time as the Buyers' solicitors had accused the Sellers of misleading and deceptive conduct and breach of contract and were asking to terminate the Contract;
3.from this point on, the Sellers alleged, the relations between the parties deteriorated and the Buyers were not providing instructions;
4.the Caveat (the second caveat) was lodged shortly before the Buyers sent the termination notice and the deposit holder notice;
5.the Buyers have still not commenced substantive proceedings, since terminating the Contract three months ago; and
6.the Buyers have still not 'agitate[d] their interest' in the Deposit in that three month period.
[42] See ts 46 ‑ 54 and the Sellers' Submissions [35.5] and [35.6].
I do not accept the inference arises.
First, a party wishing to terminate a contract may lodge a caveat purely to protect their interests. In my view, the fact that each caveat was lodged at about the same time as the Buyers were indicating a desire to terminate the Contract does not suggest, either in isolation or in combination with the other matters, any improper purpose.
Second, there are many reasons why a party may lodge a second caveat. For example, a party may lodge a second caveat when the first caveat did not properly describe the nature of the interest being claimed, or when the interest claimed in the first caveat was no longer held. It appears that the latter reason is why the second Caveat was lodged in this case. The first caveat claimed an equitable interest as purchasers of the Fee Simple.[43] Once the Contract had been terminated, the Buyers no longer had that interest.
[43] First King Affidavit, Attachment MLK‑10 page 204.
Third, three months is not an unusually long time in the context of the commencement of substantive proceedings. Further, in modern times, conferral is a pre‑requisite.
Prejudice
The Sellers submit (reference omitted):[44]
It can be inferred the caveat, alleged lien and the amount claimed for the Variations of $90,843 - in competition with Westpac for priority to the equity in the Property - will cause no end of damage and financial distress in circumstances where the Buyers have done nothing to pursue the realisation of the debt or obligations comprising the Variations let alone take any steps to pursue the alleged breach of contract claim.
[44] Sellers' Submissions [47].
The Sellers rely on paragraph 26 of an affidavit sworn by the second named first respondent, Mr Barrett,[45] in which he says:
26.The lodgement of the Caveat on the Property has, amongst other things:
26.1prevented Anca and I from accessing further funding to complete the construction of the dwelling at the Property and the other unit on the same development that we are involved in developing through Projective DM; and
26.2caused extreme financial difficulties and potentially mortgagee action by our mortgagee, Westpac Banking Corporation, - who has registered mortgage O006578 over the Property since 12 October 2018. A true copy of the Certificate of Title of the Property is attachment MLK3 to the Affidavit.
[45] Barrett Affidavit.
The Buyers say the Sellers have not provided any admissible evidence as to any prejudice that would be suffered by them if the Caveat were to be extended. The Buyers submit that what is contained in Mr Barrett's affidavit at paragraph 26 is conclusionary and speculative, and therefore inadmissible and lacks probative value.[46]
[46] Buyers' Submissions [30].
I consider that the probative value of paragraph 26.1 is limited. Mr Barrett does not give any detail as to why he asserts that it was the presence of the Caveat that prevented the Sellers from obtaining further funding, from whom the funding was sought, or the terms upon which the funding was sought.
I further consider that paragraph 26.2 is of almost no probative value. It is a bald assertion bereft of any detail. Beyond the fact that Westpac has a mortgage over the Property, there is no specific evidence as to the Sellers' capacity to borrow money from other sources or their asset position.
During the course of the hearing, counsel for the Sellers conceded the objection to an extent. However, he submitted that the evidence established, at least, that the presence of the Caveat would mean that a bank would not be willing to lend more money if the only security was the Property.[47] For the purposes of these proceedings, I am willing to accept this.
[47] See ts 8 ‑ 9
During the hearing, I asked counsel for the Buyers whether the extent of the interest claimed in the Caveat was limited to the Variation Payments. Counsel advised, in effect, that, while not express, that was the extent of the interest sought to be claimed, and that this could be seen from the contents of the matters set out in the statutory declaration accompanying the Caveat application form.[48] I accept this.
[48] ts 54 ‑ 55.
In my view, and even if I accepted what is alleged in paragraph 26.1 of Mr Barrett's affidavit in its terms, any prejudice to the Sellers could be reduced, and indeed largely eliminated, by amending the Caveat so that it is made plain that the extent of the interest claimed is limited to the Variation Payments. The Caveat is already a subject to claim caveat, not an absolute caveat.
I have the power to amend a caveat to better, or more fully, express the claimed interest.[49] The Buyers indicated that they would not oppose such an amendment.[50]
[49] Bashford v Bashford [51].
[50] ts 56.
Further, the Buyers have provided an undertaking as to damages.
Delay
The Sellers also point to delay. On 14 March 2023, the Buyers lodged the Caveat. The Buyers terminated the Contract on 24 March 2023. As at the date of the hearing of the extension application, three months later, the Buyers have not yet instituted proceedings to recover the Variation Payments.
As noted earlier, in my view, three months is not an unusually long time in the context of the commencement of substantive proceedings. If an extension is granted, I would propose to add a condition subsequent, requiring the institution of proceedings for the purpose of determining the Buyers' claim to an interest in the Property.
Quantum
The Sellers submit that the quantum of the Variation Payments is a factor weighing against the extension of the Caveat.[51] I accept this. This could, however, be addressed by amending the Caveat to specify the extent of the interest claimed in dollar terms. As noted earlier, the Buyers indicated that they would not oppose such an amendment.
Conclusion on issue 2 - balance of convenience
[51] ts 45.
Having regard to each of the above matters, I consider that the balance of convenience is in favour of the Buyers. In particular, there is no probative evidence of any substantial prejudice to the Sellers. Allowing it to lapse would destroy the protection that the Buyers currently have in relation to the Variation Payments. Accordingly, I propose to order that the operation of the Caveat be extended.
I would, however, amend the Caveat to specify the extent of the interest claimed in dollar terms, and make the extension conditional on the commencement of the substantive proceedings.
I will hear from the parties as to the appropriate orders to be made.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
NL
Associate to the Judge
28 JUNE 2023
9
0