Northside Consultants Pty Ltd v Swanton - [2005] WASC 178

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: NORTHSIDE CONSULTANTS PTY LTD -v- SWANTON & ANOR [2005] WASC 178

CORAM: MASTER NEWNES

HEARD: 21 JULY 2005

DELIVERED : 23 AUGUST 2005

FILE NO/S: CIV 1715 of 2003

BETWEEN: NORTHSIDE CONSULTANTS PTY LTD
Plaintiff
AND
DONALD GLEN SWANTON
BEVERLEY ANN SWANTON
Defendants
ROSEWAY PTY LTD
Third Party

Catchwords:

Practice and procedure - Extension of operation of caveat - Undertaking as to damages - Subsequent application by defendant to discharge order for extension of caveat unless plaintiff provides security for undertaking - No change in circumstances - Damages of nature claimed by defendant not likely to be recoverable - Turns on own facts

Legislation:

Transfer of Land Act, s 138B

Result:

Application for security dismissed

Category: B

Representation:

Counsel:

Plaintiff:     Mr K C B Staffa
Defendants:     Ms W F Buckley
Third Party                   :     No appearance

Solicitors:

Plaintiff:     Staffa Lawyers
Defendants:     Hager & Partners
Third Party                   :     No appearance

Case(s) referred to in judgment(s):

Air Express Ltd v Ansett Transport (Operation) Pty Ltd (1981) 146 CLR 249
Hungerfords v Walker (1990) 171 CLR 125

Case(s) also cited:

Kirwanon Pty Ltd v Cabassi, unreported; SCt of WA (Templeman J); Library No 970502; 3 October 1997

MASTER NEWNES: I have before me an application by the defendants for an order, in effect, that unless the plaintiff provide security for its undertaking as to damages, the order made on 25 June 2004 extending the operation of a caveat over the defendants' land be discharged. The defendants say that security should be provided as a condition of the continuation of the operation of the caveat as the assets of the plaintiff are plainly inadequate to meet the damages for which the plaintiff will be liable if its claim to an interest in the land ultimately fails at trial.
The circumstances giving rise to this matter are relatively straightforward. The defendants are the owner of a property in Mindarie (the "Mindarie property"), which had been their residence. On 27 May 2003, they entered into a contract to sell the Mindarie property to the plaintiff, as trustee for the Lewis Investment Trust (the "Trust"), for the sum of $840,000. The sum of $10,000 was paid as a deposit by the plaintiff. The contract was conditional on the plaintiff selling its own property by 27 July 2003. The contract contained what is commonly known as a "48‑hour clause"; that is, the parties agreed that if the defendants received another acceptable offer for the Mindarie property before the condition to which the plaintiff's contract was subject had been satisfied, they could serve notice on the plaintiff of their intention to accept the new offer unless within two business days the plaintiff waived the condition. If the plaintiff did not waive the condition the contract was at an end.
On 10 June 2003, the defendants gave notice to the plaintiff that they had received another offer for the Mindarie property which they wished to accept and they required the plaintiff to give notice within 48 hours if the plaintiff intended to proceed on the basis that the contract between the plaintiff and the defendants was unconditional.
It is unnecessary to go into the detail of what followed. Suffice it to say that the defendants contend that no notice was given by the plaintiff in accordance with the 48‑hour clause and, accordingly, the contract came to an end. The plaintiff contends that effective notice was given, so that the contract is still in force and it remains ready, willing and able to perform the contract.
On about 16 June 2003, the plaintiff lodged a caveat against the title of the Mindarie property, claiming an interest as purchaser under the contract of sale. On 23 June 2003 it commenced proceedings for specific performance of the contract. A statement of claim was served on 15 July 2003 and a defence and counterclaim on 25 September 2003. The real estate agent involved in the sale was subsequently joined as a third party. The action remains on foot and appears now to be approaching the point at which it might be entered for trial.
In the meantime, on 14 March 2004 the defendants entered into a contract to sell the Mindarie property to a Mr and Mrs Arslanoski for $885,000. Ultimately, that contract could not be completed because of the existence of the plaintiff's caveat and the contract has therefore come to an end.
In late March 2004 the defendants lodged an application under s 138B of the Transfer of Land Act and, by notice dated 29 March 2004, the Registrar of Titles gave notice to the plaintiff of the application and informed the plaintiff that the caveat would lapse at midnight on 19 April 2004 unless the plaintiff obtained an order of the Court extending its operation.
On 16 April 2004, the plaintiff applied ex parte to the Court for an order extending the operation of the caveat until trial of the plaintiff's action for specific performance of the contract. It obtained on that day an interim order that the operation of the caveat continue until the substantive hearing of the plaintiff's application for the extension of the operation of the caveat.
The substantive hearing of the application came on before Master Sanderson on 25 June 2004. The defendants opposed any extension of the caveat. After a contested hearing, Master Sanderson ordered that the operation of the caveat be extended until the determination of the plaintiff's action for specific performance or further order of the Court. In the course of his reasons, Master Sanderson said that as the plaintiff was a corporation it would be appropriate that an undertaking as to damages be given by the directors personally rather than just by the plaintiff.
There was a further hearing before Master Sanderson on 30 July 2004 to resolve the form of the undertaking. At that hearing an affidavit of Mr Lewis, a director of the plaintiff, was tendered. In that affidavit, Mr Lewis said that the plaintiff was the registered proprietor of land at Currambine which it had owned since 1994 and which had a current value of between $300,000 and $320,000. An amount of approximately $110,000 was outstanding under a mortgage granted to the ANZ Bank Ltd. Mr Lewis said that other than accounts operating within normal terms of trade, the plaintiff had no other liabilities.
In relation to the assets of the plaintiff it was also submitted that if the contract was found to have come to an end there was, in addition, an amount of some $40,000 that had been paid by the plaintiff by way of stamp duty that would be recoverable and the plaintiff's deposit of $10,000.
In the light of Mr Lewis's evidence, Master Sanderson decided that he would not require the directors to give an undertaking as to damages personally, but that it would be sufficient if given by the plaintiff.
The defendant subsequently applied for liberty to apply in respect of the undertaking, in case circumstances should change. On 23 August 2004, Master Sanderson gave the parties liberty to apply in respect of the undertaking.
There then arose a dispute between the parties as to whether the plaintiff's undertaking applied to the assets of the Trust, the defendants arguing that the plaintiff was not authorised to pledge the assets of the Trust and the plaintiff denying that. After several subsequent hearings, the issue was finally resolved on 21 July 2005, on a basis that both parties were satisfied made it clear that the assets of the Trust would be available if the undertaking was called on.
The defendants contend, however, that in light of the damage which they now say they have suffered, and will continue to suffer, by reason of the continued operation of the caveat, the plaintiff's undertaking is inadequate. The defendants say that on the face of it the assets of the plaintiff, including the assets of the Trust, are plainly insufficient to meet those damages. The defendants therefore seek an order that unless the plaintiff satisfies the Court that it has assets capable of satisfying an award of damages of $525,000, or provides some satisfactory security for the undertaking in an amount of $525,000, the existing order for the extension of the operation of the caveat until trial be discharged.
The plaintiff's undertaking as to damages, dated 16 April 2004, is in the usual form; that is, the plaintiff undertakes to the Court that it will pay to any party restrained or affected by the restraints imposed by "the injunction" or any continuation thereof, such compensation as the Court in its discretion may consider in the circumstances to be just.
The nature of the compensation to which the defendants would be entitled under the undertaking was in issue on this application. The defendants submitted that the plaintiff has been on express notice that, as a consequence of the caveat, the defendants would suffer loss and damage through their inability to sell the Mindarie property and use the proceeds of sale for investment purposes. The defendants say that that was evident from an affidavit of the first-named defendant ("Mr Swanton") sworn 18 May 2004. They say that since the service of Mr Swanton's subsequent affidavit of 19 November 2004, the plaintiff has been on express notice of the nature and quantum of the defendants' current and continuing losses.
I will come back to the affidavit of 19 November 2004 in due course, but in summary Mr Swanton says in it that the defendants' losses from 1 July 2003 to 31 December 2004 amount to $297,621.95 and he estimates their losses for the period 1 January 2005 to 31 December 2005 will be in the further sum of $224,800. That is based upon the sale under the Arslanoski contract having proceeded to settlement at the contract sum of $885,000 and the proceeds of sale (after expenses) being invested in petroleum companies on Canadian stock exchanges and achieving an average return of 20 per cent per annum.
The plaintiff says that the adequacy of the undertaking has already been determined and no reason has been shown for reviewing it. The plaintiff also denies that the undertaking would entitle the defendants to recover damages of the nature now alleged. It was submitted on behalf of the plaintiff that the amount recoverable under an undertaking as to damages is compensatory, in the nature of that recoverable in an ordinary case of breach of contract or duty, and that only proximate or foreseeable damage is recoverable. It was submitted that damages in the nature of interest on late payment or on the lost opportunity to invest funds are recoverable only if they would be within the usual or actual contemplation of the parties. In the present case, at the time the plaintiff sought and obtained an order for the extension of the operation of the caveat there was nothing to suggest that the defendants had an ability to obtain above‑market returns of 20 per cent or more on investments, nor could returns of that nature be said to be within the usual contemplation of the parties.
In Air Express Ltd v Ansett Transport (Operation) Pty Ltd (1981) 146 CLR 249, at first instance, Aickin J said (at 267) in relation to the damages that are recoverable under an undertaking as to damages:
"It is generally proper to adopt a view which is just and equitable, or fair and reasonable, in all the circumstances rather than to apply a rigid rule. However, the view that the damages should be those which flow directly from the injunction and which could have been foreseen when the injunction was granted, is one which will be just and equitable in the circumstances of most cases and certainly in the present case. … It will in my opinion be seldom that it would be just or equitable that the unsuccessful plaintiff should bear the burden of damages which were not foreseeable from circumstances known to him at the time."
On appeal, Gibbs J said at 312:
"… [T]he only damages to which a defendant is entitled are those which he has suffered by reason of the grant of the injunction. The generally accepted view is that the damages must be confined to loss which is the natural consequence of the injunction under the circumstances of which the party obtaining the injunction has notice."
In my view, the damages for which the plaintiff is likely to be liable under its undertaking if its claim ultimately fails are those which flow from the operation of the caveat and which were foreseeable at the time the order for the extension of the caveat was granted and the undertaking given. That is the price the plaintiff was required to pay, and that is the liability it agreed to undertake, in order to obtain the order.
I did not understand it to be in issue that the defendants would be entitled, upon proper proof, to recover foreseeable losses they sustained by reason of being deprived of the opportunity to invest the proceeds of the sale of the Mindarie property. In Hungerfords v Walker (1990) 171 CLR 125, the High Court held in relation to a breach of contract that the loss of the use of money, calculated by reference to the market rate for money, was a foreseeable loss necessarily within the contemplation of the parties at the time the contract was entered into and therefore recoverable.
Whether, and to what extent, ordinary contractual principles relating to damages are applicable to an undertaking as to damages is a matter on which there was some difference of opinion in Air Express Ltd v Ansett Transport (Operation) Pty Ltd (supra) - see Aickin J at 267, Barwick CJ at 310, Gibbs J at 312, Stephen J at 318 ‑ 320 and Mason J (albeit in dissent on other grounds) at 323 – but I do not consider there is any reason why a different conclusion would be reached in respect of an undertaking as to damages, the question of foreseeability being judged as at the time the order was made.
At the time the order of 25 June 2004 was made extending the operation of the caveat, and at the time orders as to the undertaking were made on 30 July 2004, the defendants relied on an affidavit of Mr Swanton, sworn 18 May 2004.
In that affidavit, Mr Swanton says he is a retired petroleum engineer whose income is derived from investments, particularly from trading on the share market. Mr Swanton says the second-named defendant does not earn any income and has not been in the workforce for more than 20 years. Mr Swanton says the defendants borrowed $570,000 to purchase the Mindarie property and construct the house on it. That loan is still outstanding, although the defendants do not now occupy the property and it is not let. Mr Swanton says that had the property been sold under the Arslanoski contract, the defendants would have received a net sum of approximately $300,000, which they needed to invest to earn income to support themselves.
Mr Swanton says in the affidavit that the defendants are concerned the plaintiff has not shown it has the financial resources to make good its undertaking as to damages if, after trial, it is called upon to do so. Mr Swanton goes on to say that the defendants "estimate that their losses arising from the inability to sell the property under the Arslanoski contract would include" the sum of $45,000, being the difference between the purchase price under the plaintiff's contract and that under the Arslanoski contract, holding costs for the property, holding costs for the mortgage, and "opportunity losses due to inability [sic] to use the proceeds of sale of the property for investment and other purposes".
Mr Swanton says that "at this point in time, the defendants are unable to quantify the losses [in respect of the holding costs of the property and mortgage, and the opportunity losses] with any precision but estimate that they would be in the vicinity of or exceed $100,000". Mr Swanton says he has been informed by the defendants' solicitor that the defendants will incur legal coats in the vicinity of $70,000, and possibly more, in the action.
Mr Swanton refers in his affidavit to title searches which had disclosed a property in the name of the plaintiff and another property in the name of Mr and Mrs Lewis, the directors of the plaintiff. He says that the defendants would accept, by way of security for the plaintiff's undertaking as to damages, caveats over the above properties "provided they have sufficient equity to cover our estimates of potential damages and legal costs if we successfully defend the plaintiff's claim".
The likely losses of the defendants were therefore estimated at that time as being in the order of $145,000, plus the holding costs of the Mindarie property and the mortgage. Elsewhere in his affidavit Mr Swanton estimates the holding costs of the property at $2448 per annum.
In his affidavit of 19 November 2004, Mr Swanton says that at the time of his affidavit of 18 May 2004 he was unable to estimate the damages likely to be suffered by the defendants and he had erred on the side of caution. He says he has now had the opportunity to consider fully the losses. Mr Swanton sets out the alleged losses in the affidavit. The losses, in summary, are the sum of $44,000, being the difference (after deduction of expenses) between the contract price in the plaintiff's contract and that in the Arslanoskis' contract; the loss of "direct investment earnings" on the surplus of $363,000 which would have been obtained from the plaintiff's contract, at the rate of 20 per cent per annum for 18 months, being an amount of $108,900; the loss of "direct investment earnings" on the additional $44,000 which would have been obtained under the Arslanoski contract, from 1 August 2004 to 31 December 2004 at 20 per cent per annum, being an amount of $3666; loss of "indirect investment earnings" on $450,000 at 20 per cent for 18 months, being an amount of $135,000; and carrying costs of the property in the total sum of $6055.95. The total claim for the 18‑month period from 1 July 2003 to 31 December 2004 is therefore $297,621.95.
The "indirect investment earnings" on $450,000 are said by Mr Swanton to be the earnings which would have been made by the mortgagee, Eddo Pte Ltd, on the sum of $450,000 which was owing to it by the defendants under the mortgage and which would have been repaid on settlement of the sale. In his affidavit, Mr Swanton describes the mortgage funds as "a loan from an overseas company related to the Defendants".
Mr Swanton sets out in his affidavit a similar estimate of the losses which would be suffered by the defendants and Eddo Pte Ltd for the following 12‑month period from 1 January 2005 to 31 December 2005, in the total sum of $224,800.
The rate of return of 20 per cent on the invested moneys is explained by Mr Swanton as based on the history of investments by the defendants since approximately the late 1970s, through various corporate vehicles, principally in the petroleum sector of the Canadian stock market. Mr Swanton says that over the past five years the defendants have achieved an average return of 25 per cent per annum from such investments. Mr Swanton says he has been an active investor for over 40 years and has a demonstrated ability to make successful investments.
The defendants have recently filed two further detailed affidavits of Mr Swanton, sworn on 27 May and 8 July 2005 respectively, containing extensive and relatively complex calculations directed to demonstrating that, had the funds been available, the defendants would have earned between 26 per cent and 39 per cent on the proceeds of the sale of the Mindarie property. The postulated rate of return is based on what Mr Swanton says are returns obtained by the defendants from investments they have made in publicly‑listed petroleum exploration and production companies trading on Canadian stock exchanges. Mr Swanton says he has calculated that, over the past 10 years, the average gross gain by the defendants from buying and selling listed securities on Canadian stock exchanges is 42.2 per cent per annum before expenses. The net gains are said to be in excess of 20 per cent per annum.

Mr Swanton estimates that if the proceeds of the sale of the house had been available for investment, the defendants would have achieved returns of between 26 per cent and 39 per cent per annum on the funds. On the basis of a return of 20 per cent per annum on funds invested, with the income being reinvested, and treating the defendants personally and Eddo Pte Ltd as one, he calculates the loss for the period 1 July 2003 to 31 December 2005 as a result of being precluded from selling the property, in the sum of $523,746.34. That includes a loss of investment earnings for the period 1 January 2005 to 31 December 2005 alone in the sum of $222,124.39.
It is notable, however, that although the defendants say that they would have invested the funds in that way, and that they have achieved such yields on their investments for a number of years, there was no mention of such investments, nor of losses of that nature or magnitude, in the affidavit of Mr Swanton of 18 May 2004 when the application for an extension of the operation of the caveat was determined. Indeed, there was no evidence to that effect at any time prior to his affidavit of 19 November 2004.
In his affidavit of 8 July 2005, Mr Swanton says that his estimate of damages in his affidavit of 18 May 2004 was only as to damages suffered to the date of that affidavit. That, however, is not how I understand the affidavit of 18 May 2004 and, based on his decision not to require personal undertakings by the plaintiff's directors, it appears that that is not how Master Sanderson understood it. Moreover, I do not consider that the affidavit is reasonably capable of being read in that way. It is also notable that no such assertion is made in his affidavit of 19 November 2004, where Mr Swanton simply says that he had been unable to consider fully the estimate of damages earlier and had erred on the side of caution in his affidavit of 18 May 2004.
The defendants also did not, prior to 19 November 2004, lead any evidence to suggest that the continued operation of the caveat would cause losses to be suffered by the mortgagee, Eddo Pte Ltd. In Mr Swanton's affidavit of 18 May 2004 the defendants' losses were calculated simply by reference to the net amount that would have been obtained by the defendants after repayment of the amount owing under the mortgage.
As I have mentioned, in Mr Swanton's affidavit of 19 November 2004 the mortgagee is described as "an overseas company related to the Defendants". In Mr Swanton's affidavit of 27 May 2005, it emerges that the defendants, by themselves and through a company they control, Ozco Pty Ltd, are the owners of 99 per cent of the issued shares in Eddo Pte Ltd. Indeed, in his affidavit of 27 May 2005 Mr Swanton describes Eddo Pte Ltd as being, in effect, "the defendants' own wholly owned/wholly controlled company".
The defendants now contend that had the defendants not been prevented from selling the land by the existence of the caveat, Eddo Pte Ltd would have recovered its funds and invested those funds in a similar way to the defendants, with similar results. The defendants say that indirectly they have suffered the losses incurred by Eddo Pte Ltd.
It is therefore contended by the defendants that in light of the recent estimate of their likely losses the order extending the operation of the caveat should be discharged unless plaintiff can establish that it could meet a claim in the sum of $525,000 under its undertaking as to damages.
I should say at the outset that there appears no reason why the matters now advanced by the defendants in support of this application could not have been raised in some form before Master Sanderson on 25 June 2004 when the order was made, or even on 30 July 2004 when Master Sanderson determined that the undertaking was sufficient if given by the plaintiff alone.
The only reason proffered for the absence, until 19 November 2004, of any evidence of losses of the nature and magnitude of those now claimed by the defendants is that Mr Swanton had not until then had an opportunity fully to consider the losses.
I do not consider, however, that that explains why the matter was not previously raised or even foreshadowed in the evidence. That returns of the order of magnitude now alleged had been achieved on their investments in the past, and could have been achieved with the proceeds from the Mindarie property, was something that must always have been known to, or readily ascertainable by, the defendants. The calculation of the revised estimate of damages set out in Mr Swanton's affidavit of 19 November 2004 is far from complicated. The revised estimate is largely the result simply of applying a rate of return of 20 per cent to the total proceeds of sale. Nevertheless, on 25 June 2004, and again on 30 July 2004, the defendants allowed the matter to proceed on the evidence contained in Mr Swanton's affidavit of 18 May 2004 as to their likely losses, and orders were made on that basis.
I might also note in passing that in his affidavit of 27 May 2005 one of the reasons given by Mr Swanton for being unable to quantify the defendants' estimate of damages earlier is the limited time available to him because he is working as a petroleum engineer and he also operates another business indirectly through Ozco Pty Ltd and another company controlled through Ozco Pty Ltd. It seems from the affidavit that he has worked as a consultant petroleum engineer since giving up full‑time work in 1989. Mr Swanton also says that since 1991 he has derived "most" of his income from investments. On the face of it, that seems inconsistent with what he said in that regard in his affidavit of 18 May 2004 in opposition to the extension of the operation of the caveat.
In any event, in the circumstances I do not consider that the defendants have established grounds upon which the adequacy of the plaintiff's undertaking as to damage should now be reconsidered. There has been no material change in circumstances since the orders of Master Sanderson were made. Rather, the defendants simply seek to put before the Court material that, in one form or another, could, and if it was sought to be relied upon should, have been advanced at the time those orders were made.
It is not, in my view, to the point that, some months after the relevant order was made and the undertaking given, the defendants put the plaintiff on notice that they will suffer losses of a nature that would not have been in the reasonable contemplation of the plaintiff at the earlier time. The position may be different where circumstances have changed or there are fresh grounds upon which the defendants would be entitled to seek to set aside the order, so that the plaintiff must determine whether it is prepared to undertake the increased liability in order to maintain the caveat. But, as I have said, that is not this case.
Moreover, on the evidence before me I do not consider there is any real likelihood that losses of the nature referred to by the defendants would be recoverable by them under the undertaking as to damages. The circumstances known to the plaintiff, at least until they received Mr Swanton's affidavit of 19 November 2004, were simply that the defendants would be prevented from selling their house, the Mindarie property, until the trial of the action. While normal losses, in the nature of holding costs, including interest charges, and some conventional opportunity losses, as a result of that restraint would certainly have been within the reasonable contemplation of the plaintiff, losses by way of forgone investment income in the order of $200,000 or more per annum, in respect of the sale of an encumbered residential property having a market value in the order of $885,000, would not.
The rates of return the defendants contend would have been achieved on the sale proceeds, invested in a specialised sector of the market on Canadian stock exchanges, are plainly well in excess of conventional commercial rates of return and on the evidence could not be said to be something that ought reasonably to have been in the contemplation of the plaintiff at the time the order was made extending the operation of the caveat. There is nothing to suggest that this is one of the rare cases referred to by Aickin J in Air Express Ltd v Ansett Transport (Operation) Pty Ltd (supra) where damages beyond those foreseeable at the time the order was made would be recoverable.
As to the losses that will allegedly be suffered by Eddo Pte Ltd, there was no evidence at the hearings before Master Sanderson to suggest any connection between the mortgagee and the defendants, and certainly nothing to suggest that while the sale of the property was prevented from proceeding the mortgagee would forego returns of the nature alleged, or indeed that it would suffer any loss at all. I do not consider, on the material before me, that such losses could be regarded as matters that ought to have been in the reasonable contemplation of the plaintiff at the time the relevant orders were made.
I might add that, although it is alleged that above market‑rate returns of more than 20 per cent per annum were, and have for some years been, readily available to Eddo Pte Ltd (and that they would immediately have been availed of by Eddo Pte Ltd upon the sale of the Mindarie property), it seems that since June 1997 Eddo Pte Ltd has chosen not to use the mortgage funds for that purpose but rather to lend them to the defendants on, as it appears from the copy of the mortgage in evidence, interest‑free terms.
I would dismiss the application. I will hear the parties on costs.