New Galaxy Investments Pty Ltd v Thomson

[2017] NSWCA 153

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

New Galaxy Investments Pty Ltd v Thomson & Ors [2017] NSWCA 153

Hearing dates:

12 and 13 December 2016

Decision date:

23 June 2017

Before:

Basten JA at [1]
Gleeson JA at [104]
Sackville AJA at [126]

Decision:

2015/370773 – New Galaxy Investments Pty Ltd

 

(1)   To the extent that New Galaxy Investments Pty Ltd requires leave to appeal from the decision of the primary judge, grant leave to appeal.
(2)   Appeal allowed in part.
(3)   Set aside orders 2, 3, 5 and 7 made on 20 November 2015.
(4)   Set aside orders 1, 5 and 6 made on 21 April 2016.
(5) Dismiss the claims of the first to tenth plaintiffs against the third defendant (NGI) for compensation pursuant to s 74P of the Real Property Act 1900 (NSW).
(6) Dismiss the claim of the second cross-claimant (GDI) against the thirteenth cross-defendant (NGI) for compensation pursuant to s 74P of the Real Property Act 1900 (NSW).
(7)   In the event that the parties fail to agree on the appropriate costs at first instance and on appeal, direct:
(a)   any application with respect to costs be made by notice of motion filed and served, together with any supporting affidavits and written submissions (not exceeding 5 pages) within 28 days of the date of this judgment;
(b)   the respondent to any such application file and serve any affidavits, together with written submissions (not exceeding 5 pages), in reply within 7 days thereafter;
(c)   any such application will be dealt with on the papers.

 

2016/10107 – Francisco Gutierrez trading as Avondale Lawyers

 (1)   Application for leave to appeal dismissed.
(2)   The applicant (Avondale) to pay the costs of the application of the First to Tenth Respondents (the Vendors), the Eleventh Respondent (GDI), the Twelfth Respondent (MVGDD) and the Thirteenth Respondent (NGI).

Catchwords:

REAL PROPERTY – Torrens title – caveats against dealings – claim for compensation pursuant to Real Property Act 1900, s 74P – whether appellant had a caveatable interest in land – vendors of land entered into contracts of sale – contracts of sale allowed for novation of contracts to a new purchaser – appellant paid $6 million to vendors’ agent in expectation that contracts would be novated to it – whether payment made at express or implied request of vendors – no loan agreement between caveator and purchaser – money not paid to or on behalf of the purchaser – purchaser subsequently novated the contracts of sale to third party –completion of sale delayed by reason of the caveats lodged and maintained by the appellant.

 

REAL PROPERTY – Torrens title – caveats against dealings – claim for compensation pursuant to Real Property Act 1900, s 74P – whether appellants lodged caveats over land without reasonable cause – appellant advised to lodge caveats by its solicitor – whether claimants had established that caveator did not have an honest belief on reasonable grounds that the caveator had a caveatable interest in the land.

  APPEALS – leave to appeal – competing claims to fund held in court – where applicant claims immediate entitlement to funds prior to determination of all competing claims – where applicant’s claim based on deed of charge securing legal costs owing by former client – whether charge extended to any entitlement to fund in court – where applicant conceded that their claim to priority was co-extensive with any interest of former client in the Court fund – where former client found not to have any charge or lien over the Court fund.

Legislation Cited:

Real Property Act 1900 (NSW), ss 72, 74F, 74MA, 74P, 98
Real Property Amendment Act 1996 (NSW), Sch 1[19]
Real Property (Caveats) Amendment Act 1986 (NSW), Pt 7A
Trustee Act 1925 (NSW), s 59(4)

Transfer of Land Act 1958 (Vic), s 118
Transfer of Land Act 1893 (WA), s 137

Cases Cited:

Aberaman Ironworks v Wickens (1868) LR 4 Ch App 101
Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; 16 BPR 30,397
ALH Group Property Holdings Pty Ltd v Chief
Commissioner of State Revenue (NSW) (2012) 245 CLR 338; [2012] HCA 6
Arinson Pty Ltd v City of Canada Bay Council [2015] NSWCA 199; 208 LGERA 418
Arkbay Investments Pty Ltd (In Liq) v Echelon Property Management Pty Ltd (No 2) [2014] NSWSC 572
Banque Financiere de la Cite v Parc (Battersea) Ltd [1999] 1 AC 221
Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459
Bedford Properties Pty Ltd v Surgo Pty Ltd [1981] 1 NSWLR 106
Bolton v Excell (Supreme Court (WA), 22 February 1993, unrep)
Boodle Hatfield & Co v British Films Ltd (1986) NLJ 117
Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd (2007) 35 WAR 27; [2007] WASCA 179
Chattey v Farndale Holdings Inc (1998) 75 P & CR 298
Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226; [1998] HCA 4
Cid v Cortes (1987) 4 BPR 97,276
Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389
Comcare v PVYW (2013) 250 CLR 246; [2013] HCA 41
Commonwealth Bank of Australia v Baranyay [1993] 1 VR 589
David Alan Thomson v Golden Destiny Investments Pty Limited [2015] NSWSC 1176
Davies v Littlejohn (1923) 34 CLR 174; [1923] HCA 64
Evandale Estates Pty Ltd v Keck [1963] VR 647 at 652
Falcke v Scottish Imperial Insurance Company (1886) 34 Ch D 234
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323
Halifax plc v Omar [2002] EWCA Civ 121; [2002] P. & C. R. 26,377
Hewett v Court (1983) 149 CLR 639; [1983] HCA 7
Hill v Ziymack (1908) 7 CLR 352; [1908] HCA 13
Lavery v R & I Bank of Western Australia Ltd [1995] WASC 484
J&H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546
Jones v Dunkel (1959) 101 CLR 298
Lee v Ross (No 2) [2003] NSWSC 507; 11 BPR 20,991
Leveraged Equities Ltd v Goodridge (2011) 191 FCR 71; [2011] FCAFC 3
Levy v Stogdon [1898] 1 Ch 478
Lumbers v W Cook Builders Pty Ltd (In Liq) (2008) 232 CLR 635; [2008] HCA 27
Mahendran v Chase Enterprises Pty Ltd [2013] NSWCA 280; 17 BPR 32,733
Middleton v Magnay (1864) 2 Hem & M 233; 71 ER 452
Morgan v John Fairfax & Sons Ltd (1991) 23 NSWLR 374
Naismith v Smith [1954] VLR 567
Natuna Pty Ltd v Cook [2007] NSWSC 121
Northstate Carpet Mills Pty Ltd v B R Industries Pty Ltd [2006] NSWSC 1057
Nottingham Permanent Benefit Building Society v Thurstan [1903] AC 6
O3 Capital Pty Ltd v WY Properties Pty Ltd (2016) 49 WAR 517; [2016] WASCA 82
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61
Olsson v Dyson (1969) 120 CLR 365; [1969] HCA 3
Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd (2006) 149 FCR 395; [2006] FCAFC 40
Paul v Speirway Ltd [1976] Ch 220
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221; [1987] HCA 5
Quinn v Leathem [1901] AC 495
Re Bond Worth Ltd [1980] Ch 228
Re Kimberley NZI Finance Ltd v AR Barr Investments Pty Ltd [1990] FCA 54
Rose v Watson (1864) 10 HLC 672; 11 ER 1187
Ryu v Lee (1996) 7 BPR 97,588
Shaw v Foster (1872) LR 5 HL 321
State of New South Wales v Taylor (2001) 204 CLR 461; [2001] HCA 15
Stewart v Atco Controls Pty Ltd (In Liq) (2014) 252 CLR 307; [2014] HCA 15
Thomson v Golden Destiny Investments Pty Ltd [2015] NSWSC 1176
Thomson v Golden Destiny Investments Pty Ltd (No 2) [2015] NSWSC 1929
Thurstan v Nottingham Permanent Benefit Building Society [1902] 1 Ch 1
Vickery v Woods (1952) 85 CLR 336; [1952] HCA 7
Whitbread & Co Ltd v Watt (1902) 1 Ch 835
Wilkinson v Clements (1872) LR 8 Ch App 96
Wythes v Lee (1855) 3 Drewry 396; 61 ER 954

Texts Cited:

K Mason, JW Carter and GJ Tolhurst, Mason & Carter’s Restitution Law in Australia, (3rd ed 2016, LexisNexis Butterworths)
ICF Spry, The Principles of Equitable Remedies, (3rd ed 1984, Lawbook Co)
ICF Spry, The Principles of Equitable Remedies, (9th ed 2014, Lawbook Co)
J Edelman and E Bant, Unjust Enrichment, (2nd ed 2016, Hart Publishing)
Meagher, Gummow & Lehane, Equity Doctrines & Remedies (5th ed, (2015), LexisNexis Butterworths, at [9-075]-[9-115])
Woodman & Nettle: The Torrens System in New South Wales (Loose Leaf)

Category:

Principal judgment

Parties:

Matter No. 2015/370773:
New Galaxy Investments Pty Ltd (Appellant)
David Alan Thomson (First Respondent)
Tracy Spencer (Second Respondent)
Joseph Alonso (Third Respondent)
Kaye Alonso (Fourth Respondent)
John Wolfe (Fifth Respondent)
Janyce Wolfe (Sixth Respondent)
Malcolm Smith (Seventh Respondent)
Katherine Smith (Eight Respondent)
Pera Webb (Ninth Respondent)
Maureen Theobald (Tenth Respondent)
Golden Destiny Investments Pty Ltd (Eleventh Respondent)
MV Golden Destiny Development (Turramurra) Pty Ltd (Twelfth Respondent)
Yun “Louise” Lin (Thirteenth Respondent)
Kristjan Geering (Fourteenth Respondent)
Francisco Gutierrez trading as Avondale Lawyers (Fifteenth Respondent)

  Matter No. 2016/10107:
Francisco Gutierrez trading as Avondale Lawyers (Appellant)
David Alan Thomson (First Respondent)
Tracy Spencer (Second Respondent)
Joseph Alonso (Third Respondent)
Kaye Alonso (Fourth Respondent)
John Wolfe (Fifth Respondent)
Janyce Wolfe (Sixth Respondent)
Malcolm Smith (Seventh Respondent)
Katherine Smith (Eight Respondent)
Pera Webb (Ninth Respondent)
Maureen Theobald (Tenth Respondent)
Golden Destiny Investments Pty Ltd (Eleventh Respondent)
MV Golden Destiny Development (Turramurra) Pty Ltd (Twelfth Respondent)
New Galaxy Investments Pty Ltd (Thirteenth Respondent)

Representation:

Counsel:
Mr M Einfeld QC / Mr D Krochmalik (New Galaxy)
Mr F Corsaro SC / Mr M Auld (Avondale Lawyers)
Mr G Sirtes SC / Mr M Fernandes (First to Tenth Respondents)
Mr J Darke SC / Mr J Lee (Eleventh and Thirteenth Respondents)
Mr D Allen (Twelfth Respondent)

  Solicitors:
Websters Lawyers (New Galaxy)
Fox & Staniland Lawyers (First to Tenth Respondents)
Ren Zhou Lawyers (Golden Destiny)
Kekatos Legal (MV Golden Destiny)
Birchgrove Legal (Francisco Gutierrez)

File Number(s):

2015/370773; 2016/10107

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity Division

Citation:

[2015] NSWSC 1176 and [2015] NSWSC 1929

Date of Decision:

21 August 2015 and 17 December 2015

Before:

Sackar J

File Number(s):

2014/228930

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant, New Galaxy Investments Pty Ltd (NGI) lodged caveats over the titles of six properties at Turramurra (Properties), claiming an equitable interest in the Properties arising by reason of NGI’s payment of $6 million to the registered proprietors (first to tenth respondents) (Vendors). On its case, NGI made a voluntary payment to the Vendors’ agent because it expected to acquire title to the Properties by novation to it of the contracts of sale between the Vendors and the eleventh respondent, Golden Destiny Investments Pty Ltd (GDI). NGI’s $6 million payment was not made at the request of the Vendors. There was no loan agreement between NGI and GDI, and NGI did not contend that the $6 million payment was a loan, or that the money was paid to or on behalf of GDI.

The Vendors had entered into six contracts for sale with GDI on 17 December 2013 for a total purchase price of $15.1 million, with a deposit of $1.51 million and a completion date of 17 March 2014. Those contracts allowed for their novation to another purchaser. GDI subsequently entered into a deed with NGI (Short Form Deed) granting NGI a conditional right to have the contracts of sale novated to it simultaneously with their completion. The condition of the novation was that NGI obtain funding necessary to complete the contracts.

NGI did not obtain the necessary funding. Further negotiations between the Vendors and GDI led to “new contracts” between the Vendors and GDI on 23 April 2014, which extended the date for completion, in return for an increase in the purchase price by $200,000, a part payment by GDI of the increased purchase price in the amount of $6.49 million and the release to the Vendors of the deposit of $1.51 million. The new contracts also allowed for their novation to another purchaser. Of the $6.49 million paid to the Vendors’ agent, $6 million was paid by NGI and $490,000 was paid by GDI. The Vendors were unaware that NGI had paid the $6 million to their agent.

After the new contracts were entered into, a dispute arose between NGI and GDI about the Short Form Deed, with each asserting that the other had breached or repudiated that agreement. GDI then nominated the thirteenth respondent, MV Golden Destiny Development (Turramurra) Pty Ltd (MVGDD) as the purchaser by novation under the new contracts, and the Vendors entered into contracts with MVGDD on 7 July 2014. The completion of the contracts between the Vendors and MVGDD was delayed by reason of the caveats lodged by NGI’s solicitors on 21 July 2014.

In proceedings in the Equity Division, the Vendors and GDI both sought compensation against NGI pursuant to s 74P of the Real Property Act 1900 (NSW) for pecuniary losses sustained by them by NGI’s lodgment of the caveats, and NGI’s subsequent refusal to remove the caveats when requested to do so. On the third day of the trial in the Equity Division proceedings, NGI agreed to withdraw its caveats and allow the completion of the contracts of sale between the Vendors and MVGDD. Following the completion of the contracts between the Vendors and MVGDD, the primary judge ordered that the $6 million received by the Vendors from NGI be paid into Court.

The primary judge made a declaration that the caveats had been lodged and maintained by NGI without reasonable cause and ordered compensation be paid by NGI to the Vendors in the amount of $796,026.41. Assessment of compensation payable by NGI to GDI was deferred pending the determination of other claims the subject of GDI’s cross claim against NGI.

The primary judge found that NGI had no equitable interest in the Properties and therefore did not have a caveatable interest. His Honour concluded that GDI did not make payment to the Vendors as agent of NGI or in any manner that made NGI a sub-purchaser of GDI.

The primary judge further found that NGI gave no thought at all to the validity of the caveats it had lodged, and that the objective evidence pointed overwhelmingly to there being no reasonable basis for their lodgment. The primary judge ordered NGI to pay the costs of GDI and MVGDD on an indemnity basis.

NGI, by its appeal, sought to set aside the orders for compensation made by the primary judge, and the declaration that it had lodged and maintained its caveats without reasonable cause. NGI also challenged the order of the primary judge that NGI pay the costs of GDI and MVGDD on an indemnity basis.

NGI’s appeal was heard concurrently with an application for leave to appeal by Francisco Gutierrez trading as Avondale Lawyers (Avondale). Avondale were NGI’s former solicitors and sought leave to appeal against the dismissal by the primary judge of their notice of motion seeking orders that amounts due to it for its costs of acting for NGI be paid in priority from the Court Fund.

Competing claims were made against the Court Fund by NGI, GDI, the Vendors, MVGDD and Avondale. NGI claimed that it had a charge or lien over the Court Fund by reason of having paid the $6 million to the Vendors’ agent. Avondale claimed that it had a security interest over any rights of NGI in respect of the Court Fund. The Vendors and GDI relied on money judgments in their favour against NGI in the Equity Division proceedings. MVGDD relied on an undertaking as to damages given by NGI as the price for maintaining its caveats.

The NGI appeal

Issues on NGI’s appeal

1.   Whether NGI had a caveatable interest in the Properties by reason of its payment of $6 million to the Vendors’ agent;

2:   Whether NGI had an honest belief on reasonable grounds that it had a caveatable interest over the Properties;

3:   If the caveats were lodged without reasonable cause, whether the Vendors and GDI suffered losses attributable to NGI’s wrongful lodgement of the caveats;

4:   Whether any immediate disposition should be made from the Court Fund;

5:   Whether the primary judge erred in ordering that NGI pay GDI and MVGDD’s costs on an indemnity basis.

In respect of (1); held per Sackville AJA, Gleeson JA agreeing, Basten JA dissenting:

1:   The $6 million paid by NGI to the Vendors’ agent was a voluntary payment made by NGI without the request (express or implied) or the knowledge of the Vendors. It was not contended by NGI that the payment was a loan to GDI or made at the request of GDI, and NGI was not in the position of sub-purchaser from GDI. No case was advanced by NGI against GDI founded on estoppel or subrogation.

2:   NGI had no equitable lien over the Properties as against the Vendors arising from the voluntary payment which was made without the Vendors’ knowledge or request (express or implied). Falcke v Scottish Imperial Insurance Company (1886) 34 Ch D 234; Hill v Ziymack (1908) 7 CLR 352; [1908] HCA 13; Lavery v R&I Bank of Western Australia Ltd [1995] WASC 484; Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635; Stewart v Atco Controls Pty Ltd (in liq) (2014) 252 CLR 307; [2014] HCA 15 considered

3:   NGI had no equitable lien over the Properties as against GDI arising from a voluntary payment made directly to the Vendors’ agent, not to or on behalf of GDI.Aberaman Ironworks v Wickens (1868) LR 4 Ch App 101; [2008] HCA 27; Naismith v Smith [1954] VLR 567; Shaw v Foster (1872) LR 5 HL 321 considered.

In respect of (2); held per Basten JA, Gleeson JA agreeing, Sackville AJA dissenting;

4:   The Vendors and GDI had failed to establish that NGI did not believe that it had a caveatable interest in the land at the time it lodged the caveats. The Vendors and GDI therefore failed to establish that NGI had lodged or maintained the caveats without reasonable cause. Mahendran v Chase Enterprises Pty Ltd [2013] NSWCA 280; 17 BPR 32,733 cited.

In respect of (3); held per Basten JA, Gleeson JA agreeing, Sackville AJA dissenting;

5: In view of the conclusion of the Court (by majority) in respect of (2) above, the Vendors and GDI were not entitled to compensation pursuant to s 74P of the Real Property Act 1900 (NSW).

In respect of (4); held per Sackville AJA, Basten and Gleeson JJA not deciding;

6:   No claimant to the Court Fund had established a right to immediate payment. There was no error in the primary judge’s decision to order that the sum comprising the Court Fund be frozen until further order.

In respect of (5); held per Basten JA, Gleeson JA agreeing, Sackville AJA dissenting;

7:   The appellant’s success on appeal means that the indemnity costs order at first instance should be set aside. The parties were invited to reach agreement as to the appropriate costs order at first instance and on appeal, failing which the issue of costs would be determined by the Court upon further application by the parties.

The Avondale appeal

Issues on Avondale’s application for leave to appeal

1:   Whether Avondale was entitled to an immediate payment out of the Court Fund as a result of its charge over NGI’s assets to secure its costs.

In respect of (1); held per Sackville AJA, Basten and Gleeson JJA agreeing

1:   Since NGI did not have a charge or lien over the Court Fund, Avondale has no claim to priority over other claimants to the Court Fund based on the Deed of Charge granted to Avondale by NGI. Avondale was not entitled to any immediate payment from the Court Fund.

Judgment

1. BASTEN JA: This judgment concerns two sets of proceedings, each relating to the purchase for development of six properties on the Pacific Highway at Turramurra. It will not finally determine the disputes, as there remain outstanding issues in the original proceedings in the Equity Division. After a lengthy trial, on 21 August 2015 Sackar J delivered the principal judgment in this matter, David Alan Thomson v Golden Destiny Investments Pty Ltd. [1] In practical financial terms, the proceedings concerned claims against a fund of $6 million which had been paid into court pursuant to an order made on 22 May 2015.

   1. [2015] NSWSC 1176 (“Thomson”).

1. Briefly stated the background was as follows. On 17 December 2013, the eleventh respondent to the principal appeal, Golden Destiny Investments Pty Ltd (“Golden Destiny”, also referred to as “GDI”) entered into a contract for the sale of land, by which it was to purchase all six properties for a total payment of $15.1 million. It paid a deposit of $1.5 million. It was envisaged that the development would be undertaken as a joint venture with the appellant, New Galaxy Investments Pty Ltd (“New Galaxy”, also referred to as “NGI”). Both parties encountered difficulty in raising the funds to settle on the agreed date, namely 17 March 2014. In order to keep the sale contract on foot, Golden Destiny paid a further amount of some $500,000 and New Galaxy made a payment to the vendors of $6 million. However, it was not able by the revised settlement date to raise the balance of the moneys required and Golden Destiny agreed to a novation of the sale contracts in favour of a third party. On 21 July 2014, a day before the settlement date, New Galaxy lodged caveats on each of the six titles. The central issue in its appeal was whether, as the trial judge held, the caveats were lodged without reasonable cause, with the result that the vendors were entitled to be paid compensation resulting from the delay in settlement. By orders made on 21 April 2016, judgment was entered in favour of the vendors in the sum of $796,026.41.

2. The second appeal concerned a claim by the solicitors for New Galaxy that any interest held by New Galaxy in the fund was subject to a charge securing the solicitors’ legal fees. I agree with the reasons of, and orders proposed by, Sackville AJA in relation to those proceedings.

3. With respect to New Galaxy’s appeal, in my view, the trial judge was in error in awarding compensation to the vendors under s 74P(1) of the Real Property Act 1900 (NSW), on the basis that New Galaxy had lodged the caveats without reasonable cause. To that extent, New Galaxy’s appeal must be upheld.

Legal principles - absence of reasonable cause

5. The importance of maintaining the integrity of the register of land ownership requires that the terms of s 74P of the Real Property Act be conscientiously applied so as to provide a realistic deterrent against the lodgement of inappropriate caveats, preventing dealings in land by the owners.

6. The appropriate starting point is the relevant provisions of the Real Property Act. First, s 74F permits a person claiming to be entitled to an unregistered legal or equitable interest in land to lodge a caveat prohibiting the recording of any dealing affecting the claimed interest. As explained by Buss JA in Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd:[2]

“The power to lodge a caveat is not conditional upon the caveator actually having the estate or interest in question. Rather, the caveator must ‘claim’ the relevant estate or interest.”

However, a person who, “without reasonable cause”, lodges such a caveat is liable to pay compensation to any person who sustains pecuniary loss that is attributable to the lodgement. [3]

2. (2007) 35 WAR 27; [2007] WASCA 179 at [69], discussing s 137(1) of the Transfer of Land Act 1893 (WA).

3. The provisions are set out by Sackville AJA at [146].

7. With a possible qualification in relation to improper purpose, discussed below, a person who has an equitable interest in land is entitled to lodge a caveat to protect that interest. Whether New Galaxy had such an interest will be addressed later; the initial question is what must be shown to be lacking, assuming it did not have such an interest.

8. As enacted in 1900, the Real Property Act contained similar provisions in ss 72 and 98. When the provisions with respect to caveats were drawn together in a new Pt 7A in 1986, [4] the condition precedent to a claim for compensation was varied to require that the defendant had “wrongfully and without reasonable cause” lodged the offending caveat. The additional words (“wrongfully and”) in the amendments which commenced on 1 August 1988 were given extensive consideration by this Court in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd. [5] They were removed on 1 February 1997 and are not relevant in these proceedings. However, their insertion gave rise to judicial analysis of the change made by their inclusion.

   4. Real Property (Caveats) Amendment Act 1986 (NSW), which commenced in 1988.

   5. (1990) 21 NSWLR 459 (Kirby P, Clarke JA and Waddell AJA).

9. The term “reasonable cause” has been accepted in a number of cases (albeit with occasional qualifications) as referring to a belief on the part of the caveator, which belief should be based on “reasonable grounds”, that the caveator had an unregistered legal or equitable estate or interest in the land. Cases suggesting that something more might be necessary were relevant in 1988 because, at that stage, it became necessary to identify what might be meant by the additional requirement that the caveator act “wrongfully”.

10. In 1963, in considering the unadorned phrase “without reasonable cause”, Macfarlan J held in Young v Rydalmere Credits Pty Ltd [6] that a caveator had acted “not for the protection of his interest in the land [which was not in dispute] but for an ulterior motive and without regard to its effect on transactions to which the caveator had agreed.” That amounted to saying that a caveator who exercised the power to lodge a caveat “in order to effect an improper purpose” [7] acted without reasonable cause. Yet the result in Young v Rydalmere Credits might have been justified on the basis that the caveator had entered into an agreement which conferred on the registered owner an entitlement to deal with the land in a way inconsistent with the caveat.

    6. (1963) 80 WN (NSW) 1463.

    7.    Being the language of Clarke JA in Beca Developments at 470C-D.

11. In 1981, in Bedford Properties Pty Ltd v Surgo Pty Ltd [8] Wootten J stated: [9]

“I think the foundation for reasonable cause must be, not the actual possession of a caveatable interest, but an honest belief based on reasonable grounds that the caveator has such an interest. That, of course, may not be enough. In Young v Rydalmere Credits … a caveator was held to have acted without reasonable cause when he lodged a caveat not for the protection of his interest but for an ulterior motive and without regard to its effect on transactions to which the caveator had agreed.”

The first sentence of that statement is unimpeachable; the rest clearly adds something to the statutory language.

8. [1981] 1 NSWLR 106.

9.    Bedford Properties at 108C-D.

12. In Beca Developments, in considering whether the word “wrongfully” meant merely that the plaintiff must demonstrate that the caveator had no caveatable interest, Clarke JA stated: [10]

“It cannot be said, in my view, that a person who has a caveatable interest has no reasonable cause for lodging a caveat simply because he has some ulterior motive for lodging the caveat. The existence of the interest provides the reasonable cause. In this respect I am unable to agree with the reasoning of Macfarlan J in Young.”

10.    Beca Developments at 475A-B.

13. The different opinions which have been expressed on this issue in a number of cases were reviewed in 2007 by Buss JA in Brogue Tableau. [11]

    11.    Brogue Tableau at [82]-[84].

14. An alternative approach, which does not seek to place a gloss on the language of “without reasonable cause”, is to ask whether the purpose of lodging the caveat is to pursue a claim to be entitled to a legal or equitable estate or interest in the land, being the purpose implicit in the conferral of power under s 74F(1). If that is not the, or at least a, purpose of the caveator, the power is not engaged. That is consistent with the purpose of a caveat identified by Barwick CJ in J&H Just (Holdings) Pty Ltd v Bank of New South Wales:[12]

“Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration.”

12. (1971) 125 CLR 546 at 552.

15. The words “wrongfully and” were removed in 1997. [13] The language to be construed is therefore the phrase “without reasonable cause”. That expression, in different forms and in different contexts, is not uncommon in statutory instruments. The difficulties it creates were succinctly explained by Callinan J in State of New South Wales v Taylor:[14]

“‘Reasonable’ is an adjective apt to qualify … a state of mind, a person, or a reasoning creature, rather than an abstraction such as a cause. The way in which the test is expressed is an example of an hypallage, the transfer of the descriptive word to a different expression noun, or pronoun, from the one which it really qualifies.”

13. Real Property Amendment Act 1996 (NSW), Sch 1[19], commencing on 1 February 1997.

14. (2001) 204 CLR 461; [2001] HCA 15 at [99].

16. In the present case, the phrase applies to the conduct of the caveator. It is possible that conduct could give rise to liability regardless of the presence or absence of any mental element on the part of the actor. However, that would not usually be the case. It has long been accepted (apparently without ever being the subject of a contrary suggestion) that the phrase engages both a subjective element (a belief on the part of the caveator) and an objective element (the existence of reasonable grounds for the belief).

17. Accordingly, with one qualification, the correct understanding of the phrase “without reasonable cause” is that accepted in Mahendran v Chase Enterprises Pty Ltd, [15] adopting the reasoning of Biscoe AJ in Natuna Pty Ltd v Cook: [16]

“‘Reasonable cause’ for the lodgement of a caveat exists where the caveator has an honest belief, based upon reasonable grounds, that the caveator has a caveatable interest.”

In the same passage, Biscoe AJ identified the “subjective” element as involving the caveator’s “actual belief and whether it was honestly held.”

15. [2013] NSWCA 280; 17 BPR 32,733 at [52] (Barrett JA, Emmett and Gleeson JJA agreeing).

16. [2007] NSWSC 121 at [195].

18. The epithets are unhelpful, if not misleading. What is required is a belief as to a particular matter, held by the caveator at the relevant time, namely when the caveat was lodged. Nothing is added by calling it an “actual” belief; nor does the word “honest” carry the matter any further. [17] The belief exists or it does not. Of course, evidence as to a belief may not be honest, and the belief itself may not be reasonable. Further, as is clear from Beca Developments, any question of improper motive (properly rejected by Clarke JA) is not to be equated to a “dishonest belief”.

    17. See Morgan v John Fairfax & Sons Ltd (1991) 23 NSWLR 374 at 382G (Hunt AJA).

19. There is one further point to be noted with respect to the formulation of the correct test. Whilst acknowledging that the test involved both subjective and objective elements, in his final conclusion, as will be observed below, the trial judge elided the concepts of, on the one hand, the caveator having reasonable grounds to believe it had a caveatable interest, and, on the other, that it had “a reasonable basis to lodge the caveats”. The latter approach, by removing the mental state of the caveator from the test to be applied, focuses on the opinion of the court as to whether there was a caveatable interest or a reasonable basis in law for concluding that such an interest existed. That test will reflect the view of the trial judge, formed on the basis of the evidence in the case; it will not be limited to the circumstances known, or which should have been known, to the caveator at the time the caveat was lodged. It will also ignore any legal advice given to the caveator at that time.

20. Thus, the result may be to impose liability on the party for the conduct of its solicitor, in circumstances where it was entirely reasonable for the party to obtain and rely upon legal advice and where the solicitor had been given adequate instructions. Despite the use of the elided language (“a reasonable basis to lodge the caveats”), that was not the test expressly adopted by the trial judge, nor by the parties in this case. The Court should approach this matter on the basis that there must be an objective assessment of the reasonableness of the belief held by New Galaxy at the time the caveats were lodged.

Summary of the evidence

21. The two principal corporate entities at the heart of this dispute were Golden Destiny and New Galaxy. The active principal of Golden Destiny was Ms Yun (Louise) Lin; the active principal of New Galaxy was Ms Ling (Katherine) Gai. (They were not the sole individual protagonists.)

22. In December 2013, Golden Destiny contracted to purchase six parcels of land on the Pacific Highway at Turramurra. As noted above, the overall purchase price was $15.1 million; settlement was to occur by 17 March 2014. The contract included a provision allowing Golden Destiny as purchaser to novate the contract in favour of a new purchaser; however, novation required that there be a simultaneous exchange and completion of the new contracts. The solicitor for Golden Destiny, as noted on the contract, was Kristjan Geering.

23. These three individuals had close relationships at the time. The trial judge recorded that Ms Gai and Mr Geering were de facto partners during most of the relevant period,[18] that Mr Geering and Ms Lin were both shareholders in Mr Geering’s legal firm,[19] and that the three together had established Gold Stone Venture Capital Pty Ltd (“Gold Stone”) in 2012. [20] Gold Stone was the Trustee for a fund which was expected to attract prospective property investors. The three had also established New Galaxy as a wholly owned subsidiary of Gold Stone in early 2013. Ms Lin’s husband, Haizhon (John) Cai, was actively involved in the property business and was a director of Golden Destiny.

    18. Thomson at [8].

    19. Thomson at [7].

    20. Thomson at [20].

24. As the trial judge further noted, there were discussions between 9 December 2013 and late January 2014 between Ms Lin, Ms Gai and Mr Geering in relation to the funding of the purchase and development of the Turramurra properties. At one stage it was proposed that New Galaxy would raise $9 million and that Golden Destiny would provide $7 million to cover the purchase price and additional expenses, including stamp duty. [21] The figure to be provided by New Galaxy was increased, in the course of a discussion in February 2014, to $10.5 million, on the understanding that Golden Destiny would provide a further $4 million, in addition to the deposit of $1.5 million already paid. [22]

    21. Thomson at [27].

    22. Thomson at [28].

25. On 24 February 2014, Golden Destiny, New Galaxy and Gold Stone (and another corporate entity associated with Ms Lin) entered into a “short form deed”. The deed was prepared by Mr Geering, acting, it appears, for all parties. The recitals identified the contracts entered into by Golden Destiny, the scheduled date for completion (17 March 2014 [23] ), the purchase price and the payment by Golden Destiny of a 10% deposit. The recitals also noted that “Golden Destiny does not wish to develop the Project” but that New Galaxy did wish to develop the project, “provided certain terms and conditions are met.” The “Project” was described as the construction of 99 residential units in accordance with a conditional development approval, with which the site was to be purchased. The recitals further noted that Gold Stone Capital, as trustee of a mortgage fund, “or Golden Destiny”, wished to provide New Galaxy with “debt funding to pay the Purchase Price.”

    23.    The deed refers to 17 March 2013, but this is clearly an error.

26. The critical terms in the deed were as follows:

“2.1   Special Condition 48 (SC48) of the Purchase Contracts allows for novation thereof. As soon as practical after NGI has secured funding arrangements for the Purchase Price (including the assignment of the Deposit, clause 2.3 below), NGI will pursuant to SC 48 seek to novate the Purchase Contracts (“Novation”).

2.2   Should the Novation be successful then NGI in its capacity as trustee of the [Gold Stone property fund] will own the Project and therefore be entitled to the profit thereof and liable for the loss.

Deposit

2.3   Pursuant to SC48 the Deposit is assigned to NGI should the Novation be successful.

2.4   Contemporaneously with any successful Novation NGI will reimburse Golden Destiny the Deposit.

…

2.6   Contemporaneously with any successful Novation NGI will reimburse Golden Destiny the Golden Destiny Costs. [Being costs incurred of and incidental to the acquisition of the site.]

Funding of the Purchase Price

2.7   It is an essential term of this Deed that in the event that the Novation is successful, the following will be provided to NGI to assist with the completion of the Purchase Contracts and payment of the Purchase Price:

(i)   Golden Destiny assigns the Deposit; And

(ii)   Gold Stone Capital in its capacity of trustee and manager of the Mortgage Fund or Golden Destiny will loan to NGI a loan amount up to and including $5,500,000 with the salient terms being ….”

27. The deed was executed by the various parties, the signatories for Golden Destiny including Mr Cai who also signed on behalf of Gold Stone Capital and the proposed manager of the project, which was also a party to the deed, Ergo Investment Management Pty Ltd.

28. On 26 February 2014, Ms Lin notified the vendors’ agent of the proposed novation in favour of New Galaxy. She also noted the need to amend the sale contracts to include reference to the development consent.

29. On 12 March 2014, Mr Geering emailed Ms Lin and Ms Gai noting that he had sent a notice of novation to the vendors’ solicitor and suggesting that “we should firm up a strategy to stage the completion, ie the amounts to pay to the vendors and when.” He also included the following paragraph:

“3.   Caveats. As per Louise’s suggestion, we should lodge caveats over title of the six properties, the caveats can be lodged by both Golden Destiny and NGI. Before we do so, I would like to discuss the different legal distinction as it relates to caveatable interests between a ‘nominee’ and an ‘assignee’. It may be the case, our side, (ie the purchasers) – Golden Destiny formally assigns its rights under the contract to NGI without gaining the vendors [sic] approval. I note the issue of the deposit is likely to be important when deciding whether NGI ‘as a nominee’ has a caveatable interest.”

30. It may be inferred from the somewhat cryptic final sentence of the part of the email set out above that Mr Geering was satisfied that Golden Destiny, as the purchaser, had a caveatable interest, but that New Galaxy, which was merely to be the novatee under an agreement between it and Golden Destiny, did not. (That reading was to be confirmed by subsequent events.)

31. On 12 March 2014 Ms Lin emailed Mr Geering, with a copy to Ms Gai, in the following terms:

“Gold Destiny is not in position to complete the Contracts. NGI will complete the contract and Gold Destiny will provide fund up to 5.5M as per Agreement signed on 24th Feb 2014.

Gold Destiny has formally assigned its right to NGI under the Agreement.

…

The deposit paid under the Contracts by Gold Destiny will be dealt in accordance with the Agreement and therefore NGI has the covetable [sic] interest to the Development site. I understand the NGI fund has been transferred yesterday and is available now.”

32. Settlement did not take place on 17 March 2014 but, as appeared from the subsequent correspondence between the vendors’ solicitor and Mr Geering, Golden Destiny in fact lodged caveats, which led the vendors’ solicitor to require a further condition in redrafted contracts which appointed him as the attorney for Golden Destiny, with power to withdraw the caveats in the event that Golden Destiny did not complete by the new completion date of 22 July 2014. (No caveats were then lodged by New Galaxy.)

32. On 23 April 2014 the contracts of December 2013 were rescinded and fresh contracts of sale were entered into, again in the name of Golden Destiny as purchaser.

33. As the trial judge noted:[24]

“Several meetings took place between 11 April and 15 April 2014 between Ms Lin, Ms Gai, Mr Cai and Mr Geering regarding the proposal made by Mr Yahl [solicitor for the vendors] that the $8 million be released to the Vendors as a condition of any new contractual arrangement between the parties.”

24. Thomson at [42].

35. When Golden Destiny entered into the new contracts on 23 April 2014, it made an additional payment of $490,000 and New Galaxy made a payment of $6 million directly to the vendors’ agent. That money was a part payment of the purchase price and was to be released immediately to the individual vendors. When the contract finally settled, $6 million was refunded to Golden Destiny and paid into court.

36. There was a large issue in the course of the trial, reagitated on appeal, as to the circumstances in which New Galaxy made the payment and the nature of any interest it may have acquired as a result of making the payment. Those issues are material when considering whether New Galaxy had reasonable cause to lodge the caveats on 21 July 2014.

37. It is clear, as will shortly appear, that Ms Lin, on behalf of Golden Destiny, (a) did not wish to develop the land the subject of the contracts, (b) doubted the ability of New Galaxy to raise the necessary funds, and (c) was not prepared to abandon the project and the money already invested by Golden Destiny (which, with the additional payment, was in the order of $2 million). There was also a risk of a claim by the vendors for damages. Apart from her own evidence at the trial, her concerns in relation to New Galaxy and her unwillingness to increase significantly Golden Destiny’s investment in the project, can be seen from the fact that during March 2014 she had investigated other potential joint venture partners, including Mr Victor Fong. A company associated with Mr Fong (MV Golden Destiny Development (Turramurra) Pty Ltd, which may be conveniently referred to as Mr Fong’s company) was later to be the substituted purchaser under a novation of the new contracts. Further, Ms Lin’s mother, Ms Zhu, who had been a shareholder and director of New Galaxy and Gold Stone, resigned on 22 April 2014 her directorships of both companies. Mr Geering and Ms Gai acquired her interests. [25]

    25. Thomson at [46].

38. In December 2013 Ms Gai and Ms Lin had obtained the agreement of a Ms Zhang to invest $5 million in the property fund. That money appears to have formed the major part of the funds used by New Galaxy to make the $6 million payment to the vendors, a course of which it may be inferred Ms Lin and Ms Zhang knew and approved at the time. On 2 May 2014, a Mr David Darmali, who described himself as the fund manager for Gold Stone Capital and appears to have been an agent for Ms Zhang, sent an email to Mr Geering referring to the discussions between Ms Lin and her husband John Cai (both directors of Golden Destiny) and Mr Fong. Mr Darmali took the view that it was a matter for the directors of Golden Destiny to determine who should be a joint venture partner. He identified his concern (raised in an earlier email) as to the basis upon which New Galaxy had taken money from a client’s trust account for the payment to the vendors. Mr Geering responded to Mr Darmali:

“With greatest respect David, this has to be made clear, its [sic] not Golden Destiny that controls the site. To be sure Golden Destiny is the named purchaser in the sale contracts, but it is there only, pending novation of the contracts, to NGI on settlement.”

39. The following day, 3 May 2014, Mr Cai sent an email to Mr Geering confirming that Golden Destiny held $6 million in trust for New Galaxy as trustee for “Gold Stone Future Property Investment Fund in the Development Site at 1444-1454 Pacific Highway, Turramurra.”

40. The inference to be drawn from Mr Geering’s email to Mr Darmali is that he relied upon the agreement set out in the short form deed, pursuant to which the proposed purchase contracts with the vendors would be novated to New Galaxy. What precisely Mr Cai intended, given that the funds had been paid to the vendors, is not clear. It may have been an attempt to claim that Golden Destiny had some control over the funds paid by New Galaxy. However, it is clear that all the principals of Golden Destiny and New Galaxy understood that New Galaxy had paid money directly to the vendors’ agent to keep the contracts on foot.

41. Discussions as to the fate of Ms Zhang’s investment continued through May, until a meeting involving all of the parties occurred on 21 May 2014. The emails continued throughout 22 May, ending with an email from Mr Geering to Ms Lin, Ms Gai and Mr Darmali considering how the investment should be shown in New Galaxy’s balance sheet, noting that it would not appear in Golden Destiny’s balance sheet as it was an amount held on trust for New Galaxy.

42. The following morning, 23 May 2014, Ms Gai, writing as director of Gold Stone, to Ms Lin and Mr Darmali, stated:

“It’s clear that your side has repudiated the Agreement with NGI and accordingly it is terminated. NGI wishes that the process of the Fund’s divestment be completed without delay.”

Ms Lin replied within the hour, stating:

“I reject your statement that our side has repudiated the Agreement with NGI. There was no contractual agreement between our side and NGI.”

Ms Lin also noted that Mr Geering had a conflict of interest and that he should no longer act for Golden Destiny or New Galaxy.

43. There was a dispute at the trial as to the status of the short form deed, whether it was repudiated, and if so when and by which side. The resolution of that dispute, however, is not presently relevant.

44. Before turning to the next events, it is necessary to note the changes in legal representation which occurred after Golden Destiny terminated Mr Geering’s retainer on 23 May 2014. New Galaxy also ceased using Mr Geering’s firm as its solicitor. For a period in early July, New Galaxy retained Minter Ellison as its solicitors. However, by 18 July 2014 New Galaxy had retained Avondale Lawyers.

45. Exchanges of email between the parties continued, as the fate of Ms Zhang’s investment in the Gold Stone fund remained unresolved. It was clear that the fund was illiquid and did not have the capacity to repay Ms Zhang. Accordingly the redemption was not to be made by way of cash, but a transfer of assets, the purpose no doubt being to give Golden Destiny the right to deal with Ms Zhang in relation to $5 million of the payment made by New Galaxy. Further, Ms Gai appears to have continued to obtain deposits on sales “off the plan” of the proposed development at Turramurra. She continued to correspond with Mr Cai in relation to those matters. However, Ms Lin raised an issue relating to the named vendor under the sale notes, being New Galaxy.

46. In the course of July 2014, New Galaxy continued to press its claim to be the new purchaser under the novated agreements. [26] However, in early July Golden Destiny had entered into a joint venture agreement with Mr Fong’s company and, on 7 July, sent copies of proposed new contracts to the vendors, naming Mr Fong’s company as the new purchaser. [27]

    26.    Thomson at [300]-[301].

    27.    Thomson at [299] and [302].

47. On 18 July, Mr Gutierrez of Avondale wrote to the solicitors for Golden Destiny in terms which are of some importance to the question whether New Galaxy believed on reasonable grounds that it had a caveatable interest in the land on 21 July 2014. (The letter stated in part that caveats “have now been lodged” over the six properties, but that did not in fact happen until three days later.)

48. Referring to Golden Destiny as “Destiny” and the properties as the “Turramurra Development”, the letter, so far as relevant, read as follows:

“By reason of an agreement (the ‘Agreement’) between NGI and Destiny (the purchaser of the land pursuant to six (6) Contracts for the Sale of Land, between Destiny and the vendors of the Turramurra Development … dated 23 April 2014) (the ‘Contracts’), the Turramurra Development is held on trust by Destiny for the benefit of NGI.

…

We advise that any third party that may replace Destiny by way of any purported novation of the Contracts on completion, such as [Mr Fong’s company], would also hold the Turramurra Development on trust for the benefit of NGI.

By reason of the Agreement, Destiny paid the sum of $6 [million] with respect to the purchase of the Turramurra Development, such sum having been paid to the vendors prior to completion, which we understand is due to take place on 22 July 2014.

NGI further asserts that the sum of $6 [million] is held on trust for the benefit of NGI and/or alternatively NGI holds a first ranking charge over the Land the subject of the Contracts.

Given that Destiny has now proceeded without having any regard to our client’s rights or interests in the Turramurra Development, our client has been left with no option but lodge caveats over each of the six (6) properties to protect its interest over those properties.”

49. On 21 July, New Galaxy lodged caveats over the titles of the Turramurra properties, that being the day before the scheduled completion date of the sale contracts.

50. In her affidavit of 24 September 2014, after referring to the correspondence between Minter Ellison and the solicitors for Golden Destiny, Ms Gai stated:

“61.   As a consequence, it became apparent to me, by virtue of the conduct of GDI, that it had no intention whatsoever to honour the short form deed, (which was the basis in which NGI advanced $6 million to the vendors) and novate the contracts [to] NGI. Accordingly, I instructed my solicitors to take steps to ensure that NGI’s interest is protected.

62.   On 18 July 2014, I caused Francisco Gutierrez of Avondale Lawyers to forward correspondence to the solicitors for the vendors, GDI, and [Mr Fong’s company] in relation to the steps that we were taking to secure our interest.”

51. It should be inferred that Minter Ellison had instructions from Ms Gai and had the key documents upon which she relied in asserting New Galaxy’s claims. The same inference should be drawn with respect to Mr Gutierrez, namely that he had the same instructions and material. His letter contained one error, namely that the $6 million had been paid by Golden Destiny to the vendors, without explaining why New Galaxy claimed an interest based on the payment. The payment was in fact made by New Galaxy itself.

Reasoning of trial judge

52. The trial judge gave careful consideration to the evidence given by the parties as to the events of March-June 2014. Broadly speaking, he accepted Ms Lin’s evidence as to what occurred at particular events in preference to that of Ms Gai and Mr Geering. Although the email correspondence was in large part self-explanatory, the trial judge did not accept all of the documentary material, and in particular gave no weight to a lengthy memorandum prepared by Mr Geering dated 27 April 2014, which contained an account of what had been agreed at that time between Ms Lin and Ms Gai.

53. Of present importance are the findings of the trial judge that, at least by April, (i) Ms Lin had lost confidence in New Galaxy’s ability to obtain funds to allow settlement to proceed, leaving Golden Destiny at risk of losing both an opportunity to profit from the development project and its deposit, as well as exposing it to liability to the vendors in damages; (ii) Ms Gai and Mr Geering had at all times been aware of the meetings between Ms Lin and Mr Fong; (iii) Ms Gai and Mr Geering had prior notice that Ms Zhang wished to withdraw her funds from Gold Stone, and (iv) Ms Gai and Mr Geering, knew that New Galaxy could not fill the role of the new purchasers under novated contracts, either by using its own funds or with loan moneys. The trial judge accepted that on 2 May 2014, “Ms Lin was again seeking to persuade Ms Gai and Mr Geering of the benefit of Mr Fong being part of the joint development.”[28] That possibility was resolved by Mr Fong declining to enter a joint venture with New Galaxy. [29]

    28. Thomson at [276].

    29. Thomson at [281].

54. The trial judge dealt with the question of “reasonable cause” under s 74P by outlining the submissions of both parties, at [369]-[393]. The extensive summary of submissions resulted in the following conclusion at [394]:

“I agree with the plaintiffs. I do not consider that NGI had a reasonable basis to lodge the caveats or to maintain them. It had no caveatable interest but, more to the point, it lodged them, in my view, without giving any thought at all to their validity. It defiantly maintained them until final submissions and then withdrew them. NGI, in my view, is liable to a claim for compensation under s 74P(1) of the [Real Property Act].”

55. The judge included three further comments in the course of setting out the submissions. One comment related to the question of causation of loss and may be put to one side for present purposes. [30] A second observation occurred in a paragraph dealing with the vendors’ submission that Mr Geering had not set out the basis on which he was instructed to lodge the caveats and that his silence “hardly assists NGI.”[31] There followed reference to a submission that the judge “should draw the inference that nothing meaningful could be said about it.” (That, presumably, was a reference to the principle in Jones v Dunkel. [32] ) The reasons of the judge then continued:

“I do not consider the onus could be discharged by the mere lodgement of the caveat. That, in my mind, does not carry with it any greater significance than that the solicitor was instructed to lodge a caveat or perhaps advise that it be done. It says nothing about the belief of anybody from NGI. And it certainly does not permit the court to examine whether or not the belief asserted by anyone from NGI was one based upon reasonable grounds.”

30.    Thomson at [378]-[380].

31. Thomson at [386].

32. (1959) 101 CLR 298.

56. This passage is troubling for three reasons. First, it implied an obligation or onus on New Galaxy, in response to a claim under s 74P, to justify its conduct. Secondly, the caveats were not to be disregarded as merely formal documents; their contents will be noted below. Thirdly, if the comments related to Mr Geering, at the time at which he advised the lodging of a caveat by Golden Destiny, then they were not applicable to the conduct of Mr Gutierrez in lodging caveats for New Galaxy, some months later and after Mr Geering had ceased to act for New Galaxy.

57. The third matter of comment concerned the onus of proof. Although the judge correctly recorded that the vendors (the plaintiffs before him) bore the onus of establishing that New Galaxy lodged the caveats without reasonable cause,[33] the vendors nevertheless asserted that their case was established by way of inference from the known facts, being primarily that New Galaxy had no caveatable interest, together with the absence of any affirmative evidence from officers of New Galaxy as to their beliefs and the basis for them. Accepting that submission, the judge said:[34]

“As the plaintiffs point out, silence can hardly discharge even a low onus of proof. In addition, the plaintiffs submit that they have established sufficient evidence from which a negative proposition may be inferred, in which case NGI then carries an evidential burden to advance in evidence those particular matters available to it.”

33. Thomson at [370].

34. Thomson at [385].

58. There may undoubtedly be cases in which, without any evidence one way or the other as to the belief of the caveator, the circumstances demonstrate either that whatever belief the caveator held, there were no reasonable grounds for holding the belief, or that, in an extreme case, the caveator did not hold such a belief. For reasons explained below, this was not such a case. If it were necessary for the vendors to establish that New Galaxy did not hold such a belief, a forensic decision was required as to whether or not to cross-examine Ms Gai on that topic. They did not do so. The submission that there was “no obligation to cross-examine a witness on a topic the witness fails to address”,[35] did not address the fact that an opportunity to obtain evidence in discharge of the vendors’ burden of proof was eschewed.

    35. Thomson at [385].

59. In summarising New Galaxy’s submissions, the judge noted a reference to Ms Gai’s statement in her affidavit, set out at [50] above. The judgment continued:[36]

“It is further submitted that it should be inferred that this was entirely reflective of Mr Geering’s advice. If I may say so, so what. Given his utter lack of independence, even if it could be implied he gave advice I would not give that factor any weight. Indeed, given his failure to give advice on any number of topics I am not satisfied such an interpretation is reasonably open here. That does not really fill any gaps when it was always open to Ms Gai and/or Mr Geering to say something about the topic and yet they chose not to.”

36. Thomson at [391].

60. It is hard to be sure to what precise matters the judge was referring. If he had been referring to the question of lodging caveats which arose when Mr Geering was acting for both New Galaxy and Golden Destiny, the advice he gave has been noted. Nor was it clear why that advice should not have been given any weight. Although obscurely expressed, it was correct: it envisaged that Golden Destiny, as the purchaser under a contract of sale, had a caveatable interest and that New Galaxy, which at that stage had contributed nothing and was merely a prospective assignee, had none. As noted above, caveats were lodged on behalf of Golden Destiny alone at that stage. The advice was not flawed because of any “lack of independence”. Further, while there may have been issues on which Mr Geering’s work was deficient, particularly in protecting the interests of one of his clients, namely Golden Destiny, when drawing up the short form deed, that consideration is not relevant to the present issue.

61. Finally, it is necessary to consider the finding in the judge’s conclusion that New Galaxy lodged the caveats “without giving any thought at all to their validity.”[37] If Ms Gai had lodged caveats herself, there might have been much to be said for such a finding. However, she did not take that course; rather, she retained Avondale Lawyers. Her affidavit indicated that she asked Mr Gutierrez to “take steps to ensure that [New Galaxy’s] interest is protected.” She did not say that she simply told him to lodge caveats on the titles, nor was that suggested to her in cross-examination.

    37. Thomson at [394].

62. To conclude that a solicitor, whose competence in this regard was not challenged, simply lodged caveats without having any regard to whether or not the caveator had a relevant interest to protect, is to make a finding seriously adverse to the competence and professional behaviour of the solicitor. That finding should not have been made unless it had been put in express terms to Mr Gutierrez. That was not done. Mr Gutierrez’ views may have been wrong in law, but, as the judge implicitly acknowledged in the next sentence, referring to the caveats being “defiantly maintained … until final submissions”, that view was supported by counsel appearing at the trial. In my view, that finding, somewhat dismissively expressed, was not open on the evidence.

Conclusions as to absence of reasonable cause

63. In considering the correct approach to such a case two factors must be taken into account. First, the relevant state of mind was that of a corporation and it was necessary, therefore, to identify whose state of mind was relevant. The active participants in the affairs of the company for most of the period under consideration were Ms Gai (as director) and Mr Geering (as solicitor). However, at the time that the caveats in question were lodged, the only active officer was Ms Gai. At least, there was no finding to the contrary and she was, from 22 April 2014 when her co-director Lingzhu Zhu (Ms Lin’s mother) resigned, the sole director of New Galaxy.

63. Secondly, in circumstances where the caveator is represented by lawyers who effect the lodgement of the caveats, it should usually be inferred that they received instructions, gave advice and then received instructions to do what they in fact did. To negative those inferences will require specific evidence demonstrating departure from what may be expected.

64. It is necessary then to consider the circumstances which were relevant to the two critical issues, namely whether in July 2014 Ms Gai believed that New Galaxy had a caveatable interest in the land and, secondly, whether that belief was held on reasonable grounds.

65. So far as the so-called “subjective” element is concerned, the available evidence fails to demonstrate that she held no such belief. For this purpose, it is appropriate to put aside those parts of her affidavits on which she was challenged, or about which she gave oral evidence in chief, where the evidence was not accepted by the trial judge.

66. As a matter of history, the question of protecting the interests of the purchaser first arose in circumstances where it became clear that neither Golden Destiny nor New Galaxy would be in a position to complete the contracts either on 17 March 2014 or on the second proposed settlement date under the old contracts, 22 April 2014. There is no doubt that Ms Gai, Ms Lin and Mr Geering gave consideration to the steps which could be taken to protect Golden Destiny’s interest as purchaser, including that of lodging caveats. Mr Geering’s advice, which, being provided to its director, Ms Gai, may be taken as the knowledge of New Galaxy, was, in effect, that the purchaser named in the contracts had a caveatable interest but that New Galaxy, which was merely a prospective “assignee”, did not have such an interest.

67. In the absence of any relevant cross-examination of Ms Gai, there is no basis to infer that she was not aware, from that time, of there being limitations as to the circumstances in which a caveat might be lodged, knowledge which would be relevant when the issue arose some three months later. What had changed in the meantime was that New Galaxy had provided the funding for part of the purchase price of the properties, which it had paid to the vendors. It may be accepted that the solicitor acting for New Galaxy at that time, Mr Geering, was seriously remiss in his failure to document the payment in such a way as to ensure that New Galaxy obtained a caveatable interest in the land as a result of its part payment of the purchase price. Nevertheless, whilst Golden Destiny and New Galaxy were in effect joint venturers in a common cause, Golden Destiny’s caveats might have been considered sufficient to protect the interests of New Galaxy. That protection became insecure as a result of two circumstances. The first, which was no doubt foreseeable in April 2014, if not before, was that the parties could fall out, possibly over the inability of either to obtain the necessary finance to complete the contracts. The second was the inclusion in the sale contracts of a power of attorney granted to the vendors’ solicitor, permitting withdrawal of Golden Destiny’s caveats in the event of failure to settle on 22 July 2014.

68. Much of the evidence recited above concerned the falling out of New Galaxy and Golden Destiny. However, the attempts by Golden Destiny (and Ms Zhang) to separate their interests did not necessarily cast doubt on any pre-existing belief of a director of New Galaxy that the company had an interest in the land on which the development was intended to take place. The provision by Mr Cai of an acknowledgement that the contribution to the purchase price was “held in trust” by Golden Destiny appeared to acknowledge the existence of an equitable interest of some kind. The demand, on 30 June 2014, that New Galaxy execute a deed of release with respect to the short form deed, and do so in order to allow a joint venture between Golden Destiny and Mr Fong’s company to proceed, provided support for a belief that New Galaxy had an interest in accordance with the short form deed, whether Golden Destiny had sought to repudiate it (as Ms Gai believed) or not.

69. There is no doubt that Ms Gai sought advice from Minter Ellison as to how to protect New Galaxy’s “interest” in the proposed development. It should be inferred from their letter that Minter Ellison were given the short form deed and instructions as to the payments which had been made to the vendors, in accordance with the sale contracts of 23 April 2014.

70. The circumstance in which New Galaxy transferred its instruction from Minter Ellison to Avondale Lawyers is not in evidence, but the funding agreement which Avondale later obtained suggests that there may have been difficulties with respect to the payment by New Galaxy of its solicitors’ fees. No finding is required.

71. The letter by Mr Gutierrez set out above[38] revealed the instructions he had been given which, with the exception of the party paying the $6 million to the vendors, were in accord with the evidence at the trial. The letter included reference to New Galaxy’s assertion that it held “a first ranking charge over the land the subject of the contracts.” The reference to New Galaxy having been left with “no option but [to] lodge caveats” is consistent with Mr Gutierrez having advised Ms Gai that New Galaxy had a caveatable interest in the land. That inference should be drawn in circumstances where there was no challenge to Mr Gutierrez’ independence, and it was not put to him that he would have taken such a step without regard to whether the company had a caveatable interest.

    38. See [48] above.

72. In an unchallenged part of her affidavit of 24 September 2014, Ms Gai stated that following the response of Golden Destiny’s solicitors in July 2014, she instructed solicitors “to take steps to ensure that NGI’s interest is protected.” She did not specify that she instructed the lodgement of caveats, which was what happened. It was not established that she probably did not give adequate instructions as to the circumstances of the project, the entry into the short form deed, the contracts to purchase land (which are accurately identified by Mr Gutierrez), and as to the fact that New Galaxy had made a payment on account of the purchase price in an amount of $6 million. It is more probable than not in those circumstances that Mr Gutierrez advised her that New Galaxy had a caveatable interest and received instructions to lodge the caveats which were in fact lodged. At least, the contrary was not established.

73. In considering those inferences, it is appropriate to have regard to the terms of the caveats. Annexures A and B were undoubtedly drafted by Mr Gutierrez on the basis of information supplied to him. [39] He may have been wrong in law in concluding that the facts set out gave rise to an equitable interest justifying the lodging of caveats. However, it was not established that he probably did not advise Ms Gai in accordance with his understanding of the law, or that he acted without instructions, or that he acted in defiance of his own (assumed) advice that New Galaxy did not have a caveatable interest. The probabilities are the reverse.

    39.    The terms are set out at [200] and [201] below.

74. If Ms Gai (and hence New Galaxy) obtained and acted on legal advice, it was not explained why the court should conclude that such conduct was “without reasonable cause”. The circumstances resemble those described by Barrett JA in Mahendran v Chase Enterprises:[40]

“Relevant evidence before the primary judge was confined to a copy of the caveat and a copy of the mortgage of 18 July 2008. That evidence might well have warranted an inference that there were, in an objective sense, no reasonable grounds for a belief that Chase had in respect of the Baulkham Hills property the interest claimed in the caveat; and that inference might well have been more readily drawn because of absence of evidence from Chase as to the existence of the interest asserted by it in the caveat. But the evidence at the judge's disposal did not permit any examination of the actual belief of the caveator. That may have made problematic establishment of the matters that must be established to activate s 74P(1)(a) according to the ‘honest belief based upon reasonable grounds’ test.”

40. Mahendran at [54].

76. In these circumstances, the vendors failed to establish that New Galaxy did not believe that it had a caveatable interest in the land at the time that the caveats were lodged on 21 July 2014. There was no finding by the trial judge that any steps taken thereafter affected any beliefs then held.

77. If the vendors had established a prima facie case that Ms Gai, and hence New Galaxy, did not hold such a belief, then it would have been necessary for Ms Gai to make a forensic decision on behalf of New Galaxy to waive privilege in her communications with Mr Gutierrez. However, as that stage was not reached, on the reasoning set out above, it is not to the point that Mr Gutierrez and Ms Gai were silent as to their professional communications.

78. The next question is whether the belief held by Ms Gai was supported by reasonable grounds.

79. There may be circumstances in which a party, believing that it is entitled to lodge a caveat, cannot establish reasonable cause merely on the basis that it had legal advice to that effect. For example, it may not be able to rely upon such advice if it failed to disclose to its lawyers a material fact which might have led to different advice being given. However, there was no submission in this case that the circumstances outlined in annexure B to the caveats were wrong in any material respect, or that some known fact, or fact which should reasonably have been revealed to Mr Gutierrez, had been omitted. The vendors’ case was that the facts did not support New Galaxy having any equitable interest in the land in the circumstances revealed, so that any advice that it had such an interest was legally erroneous. For reasons given below, in my view that submission should not be accepted. However, even if that were so, it does not establish that Ms Gai acted unreasonably in relying on her legal advice.

80. There may be other circumstances in which a party cannot rely upon legal advice that it holds a caveatable interest in land, but none was relied upon either before the trial judge or in this Court.

Did New Galaxy have a caveatable interest?

81. The critical elements in New Galaxy’s case in favour of the existence of a caveatable interest may be briefly stated.

82. The first was the power contained in cl 48 of the first contracts allowing the purchaser, Golden Destiny, to novate the contracts in favour of a third party. The second was the existence of the “short form deed” of 24 February 2014, to which the primary parties were Golden Destiny and New Galaxy. The third element was the payment of $6 million to the vendors.

83. The payment arose in the context of the replacement of the first contracts of sale with the second contracts on 23 April 2014, that is, two months after execution of the short form deed. As has been explained, the total amounts required to be paid by the purchasers for the replacement of the earlier contracts with the new contracts included an amount of $6.5 million in addition to the transfer of the deposit. Of that amount, $6 million was paid by New Galaxy. It was a term of the new contracts that that amount would be released immediately to the vendors as a part payment of the purchase price.

84. There was no dispute that Golden Destiny had an equitable interest in the properties entitling it to lodge its caveats. The question was whether New Galaxy obtained such an interest as a result of paying a significant part of the purchase price, albeit in circumstances where it was not named on the contract for the sale of land as the purchaser.

85. New Galaxy submitted that its payment of part of the purchase price directly to the vendors gave it an equitable interest in the land to the extent of that payment. It further submitted that it was beside the point that it had no contractual relationship with the vendors; it was sufficient that it had a contractual relationship with the purchaser entitling it to have the contracts novated in its favour at settlement. Whether or not the vendors knew of its relationship with Golden Destiny (the purchaser under the contract of sale) was beside the point; the interest relied upon arose in equity, not as a result of any contractual relationship with the vendors, but as a result of the payment of part of the purchase price under the contract of sale. The payment was made, it submitted, with the knowledge of and at the implied request of Golden Destiny, which could not otherwise effect the exchange of the new contracts, thus protecting its deposit and liabilities under the first contracts.

86. New Galaxy contended that this interest in the land was not only supportable as a matter of principle, but as a matter of authority, referring to the judgment of Lord Cairns in Aberaman Ironworks v Wickens. [41] That case involved an estate in Wales owned by a Mr Bailey, allegedly comprising 1530 acres, on which Mr Bailey carried on an ironworks and colliery. He agreed to sell the estate, plant and business to a Mr Wickens for £250,000. Mr Wickens entered into a contract to sell the estate to a new company established by himself and others, Aberaman Ironworks Ltd, for £350,000, of which £75,000 was paid immediately to Wickens in cash and £75,000 by way of bonds. From the cash, Wickens was able to pay the sum of £50,000 as part of the purchase money to the vendor, Bailey.

    41. (1868) LR 4 Ch App 101.

87. The area of the land was far smaller than represented and the company rescinded the contract with Wickens. Wickens then brought proceedings against Bailey seeking repayment of the £50,000 deposit. The proceedings were settled. The company then brought proceedings against Wickens claiming an equitable lien over the £50,000 recovered from the vendor. Lord Cairns LC held that, in the event of the purchase going off, Mr Wickens had a lien for that amount upon the Aberaman estate belonging to Bailey. [42] However, the Lord Chancellor went further, stating: [43]

“In like manner the company, in their turn, for the purchase money which they paid Wickens would, in the event of their contract going off, have a lien upon any interest which Wickens might possess in the Aberaman estate; and, according to the decisions to which I have referred,[44] Wickens, to the extent of the £50,000 he paid, had become in equity the owner, by way of incumbrance, of a corresponding amount in value on the Aberaman estate. It appears to me, therefore, upon the authority of those decisions, to be clear that the company, supposing the £50,000 had not been repaid by Bailey to Wickens, would have been entitled to maintain a bill against Wickens and Bailey to prevent the money getting back into the hands of Wickens.”

42.    Aberaman at 109-110.

43.    Aberaman at 110.

44. Wythes v Lee (1855) 3 Drew 396; 61 ER 954; Rose v Watson (1864) 10 HLC 672; 11 ER 1187.

88. The trial judge noted the reliance placed on Aberaman by New Galaxy and set out the passage set out above. [45] He disposed of the authority in the following passage:

“[363]   Aberaman Ironworks v Wickens is not, it seems to me, authority for that which NGI contends. First, Lord Cairns did not find that the lender procured a lien over the vendor’s land. The vendor was not a party to the suit.

[364]   I do not consider either Aberaman Ironworks or Shaw v Foster establishes that part payment of a purchase price charged the relevant defendant’s interest as if they were a purchaser of the land. There is nothing in either authority to support a proposition that an equitable interest was created in the vendor’s land.”

45. Thomson at [349].

89. Neither of the two points of distinction is persuasive. As to the first, the company was not a lender; nor was New Galaxy in the present case. As to the second, the question whether a party which pays some of the purchase price has a caveatable interest in the land at the time of the payment can hardly depend on whether the vendor is a party to the proceedings. On the contrary, it is significant that in Aberaman (as here) there was no contractual relationship between the vendor and the plaintiff company. The absence of such a contractual link was immaterial in Aberaman, as it is here, because the equitable interest arises by operation of law, and not by operation of any contract, as explained by the Court of Appeal in Whitbread & Co Ltd v Watt. [46]

    46. [1902] 1 Ch 835 at 838 (Vaughan Williams LJ).

90. Shaw v Foster [47] involved a contract for the sale by Sir William Foster of leasehold interests in land to one Pooley. Mr Pooley, who was indebted to his bank, agreed to execute an assignment to the bank, upon request, of his contract with Foster, as security for the debts. Foster was given notice of the agreement by the bank, but ultimately, upon settlement, conveyed the leasehold property to the purchaser, Pooley. The question was whether the vendor, Sir William Foster, was answerable to the bank for the loss suffered by the bank in not obtaining the property. The House of Lords held that he was not so liable. The bank had failed to take the necessary steps to protect its interests. As Lord Cairns explained, [48] Mr Pooley had an interest in the property which he could devise, alienate or charge. The various ways in which the property could have been charged or assigned were noted. A charge could have been created merely by depositing the contract of sale with the bank. The agreement in fact entered into with the bank was identified as one of the modes of dealing with the property, namely an agreement to assign the contract, but only upon request. There was no request, and no notice given to Foster. The problem was, thus, not that the purchaser had no interest in the land which could be dealt with by way of charge or assignment, but that the third party and putative assignee took no steps to protect its position.

    47. (1872) LR 5 HL 321.

    48.    Shaw at 338.

91. As stated by Lord Hatherley LC (sitting on an appeal from his own judgment at first instance): [49]

“It seems to me that this case comes clearly within the principle laid down in the case cited, of Rose v Watson,[50] namely, that it is one in which the persons claiming the benefit of the charge allowed … the contract to go on between the original parties, and did not interfere with the execution of the contract, and apparently did not so interfere for the very express reason that they were unwilling themselves to take any steps to complete it, and sought, in fact, to obtain the benefit of the charge without performing the burdens still remaining to be discharged, burdens affecting the contract before it could be held to be fully completed.”

49.    Shaw at 357-358.

50. (1864) 10 HLC 672; 11 ER 1187.

92. It is therefore true that the issue in point in Shaw v Foster differed from that which arose in the present case; on the other hand, it is also clear that the reasoning was consistent with the proposition that a third party having a contractual entitlement to take an assignment of the purchaser’s interest had an equitable interest which, in the current statutory scheme, could be protected by a caveat.

93. There was reference in the reasoning of the primary judge to the motives of the individual parties in making payments. Thus it was said that New Galaxy paid the $6 million “to assist” Golden Destiny to purchase the land or “to allow” Golden Destiny to comply with the contract [51] and “as a matter of sheer pragmatism in order to preserve the possibility of participating in the Turramurra project and avoid GDI suffering loss for which NGI might be liable.”[52] Those statements were no doubt accurate as to motivation, but they did not qualify the legal analysis which must be that New Galaxy paid part of the purchase price to protect its (conditional) entitlement to have the contracts novated in its favour at settlement, pursuant to the short form deed. Further, while it is true that the deed, at the date of execution, referred to the first contracts, the parties treated the deed as continuing upon rescission of the first contracts and their replacement by the second contracts.

    51.    Thomson at [366] and [361] respectively.

    52. Thomson at [236].

352. The primary Judge considered that since the sum of $6 million paid by NGI to the Vendors had come from the Property Fund of which NGI was the trustee, that sum was trust property. However, that conclusion did not assist Avondale. The Deed of Charge between NGI and Avondale made it tolerably clear that any charge in favour of Avondale applied only to assets held by NGI in its own right and did not extend to trust assets. [201] Thus Avondale had a charge over NGI’s own assets, but not over the Property Fund. Even if the $6 million had been impressed with a trust, Avondale’s charge did not apply to the moneys.

     201.    Second Judgment at [129]-[132].

353. In the alternative, Avondale’s recourse to the assets of the trust was merely by way of subrogation to the trustee’s right of indemnity and of exoneration from liability. It was arguable that Avondale, as a sub-chargee, had priority over other unsecured creditors of NGI such as the Vendors, but it was not necessary to decide that issue. [202]

     202. Second Judgment at [133].

354. In his Honour’s view, the critical issue was what constituted the assets of the Property Fund at the date of the hearing. When NGI paid the $6 million to the Vendors, there was no mutual intention that the Vendors should become trustees of the moneys so paid. Nor did the Vendors ever constitute themselves trustees of those moneys. [203] Equally, GDI could not be regarded as a trustee of the moneys as it had never owed fiduciary duties to NGI and, even if such duties existed, GDI had not breached them. [204]

     203. Second Judgment at [147].

     204. Second Judgment at [147]; Primary Judgment at [529].

355. The primary Judge reached the following conclusions: [205]

     205.    Second Judgment at [148]-[149], [155]-[157].

“[148]   Once the monies were paid away to the [Vendors], without it [sic] being impressed with a trust, it became the [Vendors’]. It was no longer NGI’s money or the beneficiaries’. Upon rescission of the original contracts, of course, the [Vendors] were obliged to repay the $6 million to GDI. At this point there existed a chose in action. GDI was indebted to NGI, subject to its right of set-off.

[149]   GDI accepts that but for the order directing the monies be paid into Court it would otherwise have had an obligation to pay the monies to NGI. It may also be accepted that had that repayment occurred NGI would hold those monies afresh on trust for the beneficiaries subject to its right of indemnity under the terms of the deed. The monies in Court, however, cannot be characterised as an asset of NGI, nor are they any longer impressed with a trust. Avondale is left to enforce its charge according to its terms against other assets etc of NGI. On the other hand, once repatriated to NGI, had that occurred, the monies would, in my view, have in any event been beyond the reach of Avondale for the reasons stated.

…

[151]   In my view the Court as custodian of the funds has a very wide discretion ultimately as to how the funds should be dealt with. It will no doubt take into account a number of factors so as to ensure the funds are properly administered.

[152]   Those factors include, but are not limited to: the extent to which NGI has a right to indemnity under the deed and/or the general law; whether NGI has any other assets; whether for any reason Avondale should rank ahead of other parties; and whether, if not, all claimants should be dealt with pari passu or on some other basis, to identify just a few.

…

[155]   [B]ecause of the outstanding claims (in particular the cross claim), and set-off yet to be determined, it is clear that the time for payment out has not yet arrived. There are a number of steps to be taken including the appeal in the main proceedings which will or may have an impact on the potential demands on the funds. The competing claims have not yet fully crystallised and hence quantified.

[156]   The funds in Court should not, indeed cannot, be paid to anyone at present given the various extant issues. When all issues are determined the Court as custodian of the funds will be in a position to ensure they are properly administered, and all issues can be fully and finally determined.

[157]   For the time being, then, I am of the view no order can or should be made for the payment out of any funds to any party before the Court.”

361. His Honour considered that a further reason for not ordering disbursement of the Court Fund was that any order should be stayed pending determination of the appeals.

362. Orders were made by the primary Judge on 21 April 2016. One of the orders made on that date dismissed Avondale’s motion.

Submissions in this Court

NGI

363. NGI submitted that the primary Judge should not have ordered the Vendors to pay $6 million into Court. Instead, his Honour should have given effect to NGI’s charge or lien by directing the Vendors to pay that sum directly to it. Alternatively, given that NGI paid the sum to the Vendors “upon the premise that NGI would become the purchaser of the Properties”, once that purpose failed, the $6 million should have been repaid to NGI on restitutionary principles.

364. NGI, in its written submissions, advanced a further argument based on its claim to have an equitable charge over trust assets to secure its right to be indemnified against expenses incurred in its capacity as trustee of the Property Fund. NGI said that the right of indemnity and the equitable charge that secured it arose as an incident of NGI’s role as trustee, by virtue of s 59(4) of the Trustee Act 1925 (NSW) (Trustee Act), [206] equitable principles and the constitution of the Property Fund. NGI contended that while the assets of the Property Fund were diminished by the sum of $6 million paid to the Vendors, the Property Fund has the benefit of a chose in action, being the claim against the Vendors to recover that sum. NGI submits that the Court Fund remains subject to the charge.

GDI

206. Section 59(4) of the Trustee Act provides as follows:

365. GDI submitted that the primary Judge’s decision not to order any payment out of the Fund was a discretionary decision and that NGI had shown no basis for interfering with it. More fundamentally, GDI submitted that it is premature for this Court to order any part of the Fund to be paid out. It relied on the primary Judge’s finding that NGI is liable to GDI on the latter’s claim of misleading and deceptive conduct (not challenged on appeal), and for damages under s 74P(1) of the RP Act. [207] GDI also relied on the primary Judge’s order requiring NGI to pay GDI’s costs of the proceedings on an indemnity basis. GDI contended that it can set off its entitlement to damages and costs against its (conceded) obligation to repay $6 million to NGI.

     207.    Primary Judgment at [503]-[504]. The primary Judge said that on his understanding the damages in respect of each cause of action would be identical.

366. In any event, so GDI argued, it is premature to order payment out of the Fund because NGI’s liability to GDI has not yet been fully quantified. In particular, NGI is liable to GDI for any liability GDI has incurred to MVGDD by reason of the latter’s Cross-Claim against GDI. As the primary Judge noted, MVGDD’s claim for indemnity against GDI could be for as much as $9.3 million. [208] The quantum of the claim for indemnity therefore depends upon the outcome of MVGDD’s unresolved Cross-Claim against NGI.

     208. Second Judgment at [9].

367. GDI further submitted that Avondale’s claim to part of the Fund can only be maintained if NGI is entitled to some part of the Fund. Since it is not possible to determine whether NGI will have any entitlement to the Fund, no part of the Fund can as yet be paid out to Avondale.

Avondale

368. Avondale, NGI’s former solicitors, claimed to have a security interest in the Court Fund. Its claim was not precisely quantified, but the Court was told by Mr Corsaro SC, who appeared with Mr Auld for Avondale, that NGI now owed approximately $300,000 in respect of unpaid professional costs (some $700,000 having already been paid).

369. Mr Corsaro described Avondale’s claims as depending entirely on whether NGI had a security interest in the Court Fund. For that reason, Mr Corsaro adopted NGI’s submissions insofar as they related to NGI’s claim to a lien or charge over the Court Fund.

370. On the assumption that NGI can establish such a lien or charge, Avondale challenged the primary Judge’s holding that a Deed of Charge, entered into by NGI and Avondale, grants Avondale security only over assets held by NGI in its own right and not in its capacity as trustee. [209] Mr Corsaro submitted that the Deed of Charge, on its proper construction, conferred a charge over assets held by NGI in its own right and in its capacity as trustee of the Property Fund.

     209. Second Judgment at [132].

371. Mr Corsaro further submitted that Avondale was entitled to priority over any secured interest NGI had in the Court Fund. This was because the Deed of Charge bound NGI and necessarily postponed any interest it has in the Court Fund to Avondale’s charge.

MVGDD

372. MVGDD’s counsel, Mr Allen, disclaimed any suggestion that MVGDD had a security interest in the Court Fund. He said that MVGDD wished to be heard on the appeals because NGI’s Amended Notice of Appeal sought an order that MVGDD’s Cross-Claim be dismissed. However, as was pointed out in argument, no submissions were advanced in support of that relief.

373. Mr Allen submitted that, assuming MVGDD’s Cross-Claim remained on foot, MVGDD had an interest in supporting the primary Judge’s order that the Court Fund should remain in Court because MVGDD had an order for indemnity costs in its favour.

Reasoning

374. For the reasons I have given:

• NGI’s payment of $6 million to the Vendors discharged GDI’s obligation to pay that amount to the Vendors on exchange of the Second Contracts;

• the payment by NGI did not create an interest in it by way of a lien or charge over the interests of the Vendors or GDI in the Properties;

• upon rescission of the Second Contracts, the Vendors were bound to repay the $6 million to GDI; and

• upon receipt of the sum of $6 million from the Vendors, GDI came under a personal obligation to repay that amount to NGI.

NGI’s interest in the Court Fund

375. It follows from these conclusions that, in the absence of any other contention, NGI does not have a lien or charge over the Court Fund (comprising the $6 million paid into Court by the Vendors). NGI’s written submissions contended that NGI had a lien or charge over the Court Fund by reason of its right of indemnity against liabilities incurred in the discharge of its functions as a trustee. Mr Einfeld did not develop the argument in oral submissions and, in any event, I do not think that it advances NGI’s case.

376. It is well established that a trustee who in discharge of the trust duties incurs liabilities is entitled to be indemnified against those liabilities from trust assets. [210] For the purpose of enforcing the indemnity, the trustee has a charge or lien over the trust assets. The charge or lien amounts to a proprietary interest in the trust property[211] and, in the case of land, will support a caveat. [212] However, as the primary Judge pointed out, NGI’s right of indemnity is enforceable only against the assets of the trust. [213] NGI did not have a lien or charge over the Properties and would not have had a charge over the $6 million had that sum been paid by the Vendors to GDI upon rescission of the Second Contracts. There is no basis for concluding that the Court Fund constitutes an asset of the trust of which NGI is the trustee. Thus NGI’s right of indemnity is not secured by a charge or lien over the Court Fund.

     210. Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360; [1979] HCA 61 at 367 (Stephen, Mason, Aickin, Williams JJ).

     211. Octavo Investments Pty Ltd v Knight at 367, 369-370; Chief Commissioner of Stamp Duties for New South Wales v Buckle (1998) 192 CLR 226; [1998] HCA 4 at 245-246 per curiam.

     212. Agusta Pty Ltd v Provident Capital Ltd [2012] NSWCA 26; 16 BPR 30,397 at [101] (Sackville AJA, Campbell JA agreeing).

     213.    Second Judgment at [134]-[136].

377. As between NGI and GDI, the former may have the better claim to receive a payment out of the Court Fund. But this will depend on the extent of NGI’s liabilities to GDI and whether they should be set off against GDI’s liability to NGI to repay the $6 million. These matters have not yet been resolved because they require determination of MVGDD’s claim against NGI (in respect of which GDI has provided the indemnity to MVGDD).

Avondale’s interest in the Court Fund

378. Since NGI does not have a charge or lien over the Court Fund, Avondale (as it conceded) has no claim to priority over other claimants to the Fund based on the Deed of Charge. This is subject to the qualification that, as between NGI and Avondale, the latter claims priority over any entitlement NGI may have to be paid moneys from the Court Fund. At this stage, it is unclear whether NGI, whether in its capacity as trustee of the Property Fund or otherwise, will be able to claim any moneys from the Court Fund. If, for example, GDI is entitled to offset claims worth more than $6 million against NGI’s entitlement to be paid that sum by GDI, any claim that NGI has to moneys in the Court Fund will be of no practical value.

379. As has been seen, the primary Judge dismissed Avondale’s motion seeking an order for immediate payment of costs due to it by NGI out of the Court Fund. His Honour did so on the ground that Avondale could not establish that it had any interest in the sum of $6 million, even assuming it was trust property of which NGI was the trustee. That conclusion followed from his Honour’s construction of the Deed of Charge between NGI and Avondale, which limited the charge to property held by NGI in its own right.

380. The primary Judge does not seem to have given consideration to whether the assets held by NGI “in its own right” included NGI’s right of indemnity against the Property Fund in respect of liabilities incurred in its capacity as trustee. In my view, the primary Judge was correct to construe the Deed of Charge as applying only to interests held by NGI “in its own right”. However, those interests include its right of indemnity.

381. The Deed of Charge defines the “Chargor” as NGI both in its capacity as trustee and in its own capacity. Recital C to the Deed of Charge records that the Chargor has agreed to grant to the Chargee (Avondale) the charge for the purpose of securing to the Chargee any moneys owing or payable to the Chargee on any account whatsoever.

382. Clause 4 of the Deed of Charge obliges the Chargor to pay in full the “Moneys Secured”. This expression is defined to mean all money for which the Chargor may become indebted on any account whatsoever. Since the “Chargor” is defined to include NGI in its capacity as trustee of the Property Fund, it is clear enough that the Deed contemplates that NGI will incur indebtedness to Avondale in NGI’s capacity as trustee of the Property Fund. This is hardly surprising, given (as I infer) that both Avondale and NGI were aware when the Deed of Charge was executed that Avondale was providing legal services to NGI in its capacity as trustee of the Property Fund.

383. This conclusion does not mean, however, that if NGI incurs legal fees in its capacity as trustee of the Property Fund, Avondale can enforce its charge directly against the assets of the trust. Clause 2.1 of the Deed of Charge creates a fixed charge in Avondale’s favour over “all of the Assets and Undertaking of the Chargor”. The expression “Assets and Undertaking” is defined to mean “all assets and undertaking of the Chargor whatsoever”. This language is apt to include NGI’s right of indemnity from the Property Fund which arises by virtue of its role as trustee. I do not think, however, that the language extends to the trust assets. NGI holds the legal title to these assets, but they are beneficially held by third parties. Clearer language would be required if the Deed of Charge is to be read as entitling Avondale to a security interest directly enforceable against the assets of the trust.

384. For present purposes, I do not think that the correct construction of the Deed of Charge matters. The relief sought by Avondale in the notice of motion dismissed by the primary Judge was the immediate payment out of moneys from the Court Fund. As the primary Judge concluded, the Court Fund does not comprise moneys held in trust for the Property Fund. NGI may ultimately be entitled to claim moneys held in the Court Fund but, if so, its entitlement will rest on its personal claim against GDI. It is unclear as yet whether NGI will be able to obtain any moneys from the Court Fund, if only because of the set offs claimed by GDI. Even if Avondale’s charge applies to any portion of the Court Fund ultimately found to be payable to NGI, the Deed of Charge does not entitle Avondale to an immediate payment out of the Court Fund.

385. Avondale’s Notice of Appeal seeks, among other orders, what amounts to a declaration that if the Court orders moneys to be paid out of the Court Fund to NGI, those moneys are subject to Avondale’s charge. This order was not sought in Avondale’s motion and was not the subject of submissions. The order should not be made.

386. Avondale’s appeal should therefore be dismissed.

Conclusion

387. None of the claimants to the Court Fund has established that it or they are entitled to an order for the payment of moneys from that Fund. Nor has any party demonstrated any appellable error in his Honour’s decision to order the sum of $6 million comprising the Court Fund to be frozen until further order.

388. There are a number of issues that remain to be resolved in the proceedings. In particular, MVGDD’s Cross-Claim against NGI has not been determined. As has been noted, the outcome of MVGDD’s Cross-Claim may have significant consequences for GDI because of the indemnity it provided to MVGDD.

389. Issues also arise as to the extent to which GDI is entitled against NGI to set off any entitlements it has under judgments in its favour and claims not yet determined. At present, it is not clear how these competing claims will be affected by the unresolved Cross-Claim and the quantification of costs orders made in the proceedings. These matters should be remitted to the primary Judge for determination in the light of this judgment and the outcome of the pending Cross-Claims.

Costs

Second Judgment

390. The primary Judge described his findings on NGI’s claim to a caveatable interest and the abandonment of the Short Form Deed as “stringent”. [214] The reference to the findings concerning the Short Form Deed is to his Honour’s conclusions (not challenged on appeal) that NGI’s contentions were “implausibl[e]”, “farfetched” and “speculative”. [215] His Honour further stated that these findings “were provoked by what [he] saw to be a detailed appreciation of the facts”. [216]

     214. Second Judgment at [37].

     215.    Primary Judgment at [427], [435].

     216. Second Judgment at [38].

391. The primary Judge continued as follows: [217]

“[39]   In my view, NGI did not have a reasonable basis for lodging and maintaining those caveats on the facts and the law as I saw it. Likewise, I do not consider, given my findings, that there was any reasonable argument available to NGI in relation to the Short Form Deed. NGI knew much more about its own case than its opponents and, for that matter, the Court. Any interlocutory process to have the caveats removed, although one was mooted by MVGDD, was in my view not a satisfactory way to proceed. That is why, in all the circumstances, given the plight of the [Vendors], I regarded an expedited final hearing as essential. That was not capable of being achieved in its most desirable form because the evidence took longer than expected and the court had to adjourn for submissions. Common sense generally in circumstances such as these points to a quick final hearing. Hence I was disinclined to encourage an interlocutory application.

[40]   There was in my view plenty of time for NGI to carefully and reasonably consider its position. Apart from the proceedings there were at least two mediations, and yet NGI steadfastly clung to its contractual arguments, its caveats, and its demand for specific performance.

[41]   In all the circumstances I am of the view that NGI unreasonably lodged and persisted in asserting it had a tenable argument concerning the caveats. In addition, its contractual claim was hopeless bearing in mind the express terms of Ms Gai’s email of 23 May 2014. In addition, it never did provide in any form a reasonable argument in response to MVGDD’s argument on special condition 48. In each of those respects it persisted in arguments which were without merit and in that sense behaved unreasonably.

[42] To the extent it is necessary to do, I agree with Brereton J in Arkbay Investments at [32] that a party found to have breached s 74P of the Real Property Act would, perhaps, for the reasons above, attract an order against it for indemnity costs.

[43]   It follows that the [Vendors], GDI and MVGDD are, in my view, entitled to their costs of the entire proceedings on an indemnity basis.”

217. Second Judgment at [39]-[43].

NGI’s submissions

392. NGI challenged the primary Judge’s indemnity costs order. Mr Einfeld submitted that his Honour should not have followed the decision of Brereton J in Arkbay Investments Pty Ltd (In Liq) v Echelon Property Management Pty Ltd (No 2) (Arkbay Investments). [218] In addition, Mr Einfeld challenged the primary Judge’s assessment of the arguments advanced by NGI.

Reasoning

218. [2014] NSWSC 572.

393. Mr Einfeld interpreted Arkbay Investments as standing for the proposition that a caveator who lodges a caveat without reasonable cause inevitably will be required to pay costs on an indemnity basis. It is clear, however, that Brereton J did not apply any such principle. His Honour took into account the unusual circumstances in which the caveator took the “bold step” of lodging a caveat, including the failure of the caveator to take reasonable steps to ascertain that the critical document was a forgery. [219] In any event, the primary Judge’s decision on costs was not dependent on Arkbay Investments, but rested on other grounds.

     219.    Arkbay Investments at [16]-[17].

394. Mr Einfeld’s challenge to the primary Judge’s critique of NGI’s conduct of the case is difficult if not impossible to evaluate because it relates primarily to findings that have not been the subject of NGI’s appeal. His Honour’s award of indemnity costs was based on his overall assessment of the conduct of NGI’s case. There is no basis for this Court to overturn his Honour’s assessment.

Orders

395. It is not clear that NGI is entitled to appeal as of right against the orders made by the primary Judge. While his Honour entered judgment in favour of the Vendors against NGI in the sum of $796,026.41, the various claims (including NGI’s) to the Court Fund have not been resolved.

396. The primary Judge dismissed NGI’s Cross-Claim, but did so without prejudice to the claim of any party to the Court Fund. There are also unresolved issues to the extent that any claim that NGI may have to the Court Fund is offset by claims that other parties have against it.

397. In these circumstances, the appropriate orders on NGI’s appeal are as follows:

1.   To the extent that NGI requires leave to appeal from the decision of the primary Judge, grant such leave.

2.   Dismiss the appeal.

3.   Order NGI to pay the costs of the appeal of the First to Tenth Respondents (the Vendors), the Eleventh Respondent (GDI) and the Twelfth Respondent (MVGDD).

398. It is difficult to see how Avondale could have succeeded in its claim before the primary Judge to be entitled to an immediate payment from the Court Fund, even if its construction of the Deed of Charge was correct. Accordingly, I propose the following orders on Avondale’s application for leave to appeal:

1.   Application for leave to appeal dismissed.

2.   The applicant (Avondale) to pay the costs of the application of the First to Tenth Respondents (the Vendors), the Eleventh Respondent (GDI), the Twelfth Respondent (MVGDD) and the Thirteenth Respondent (NGI).

399. As I have noted, there are issues concerning MVGDD’s Cross-Claim, the competing claims to the Court Fund and set-offs that remain to be resolved. These issues will need to be disposed of in the Equity Division proceedings, no doubt in conformity with these reasons for judgment. The question of whether the stay orders currently in place should be lifted should also be a matter for the Equity Division.

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Endnotes

“A trustee may reimburse himself or herself, or pay or discharge out of the trust property all expenses incurred in or about execution of the trustee’s trusts or powers.”

Decision last updated: 23 June 2017