Oakland Investments (Aus) Pty Ltd v Senior Living Pty Ltd & Anor
[2008] VSC 422
•15 October 2008
| Not Restricted |
AT MELBOURNE
COMMERCIAL & EQUITY DIVISION
No. 6197 of 2008
| OAKLAND INVESTMENTS (AUS) PTY LTD (ACN 109 836 044) | Plaintiff |
| v | |
| SENIOR LIVING PTY LTD (ACN 100 914 403) | First Defendant |
| and | |
| REGISTRAR OF TITLES | Second Defendant |
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JUDGE: | WILLIAMS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 10 and 11 June 2008 | |
DATE OF JUDGMENT: | 15 October 2008 | |
CASE MAY BE CITED AS: | Oakland Investments Pty Ltd v Senior Living Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 422 | |
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PROPERTY LAW – Caveat – Lease – Whether lease a sham – Whether lessee estopped from asserting leasehold interest – Alleged misrepresentation about existence of lease – Whether lease terminated – S 42(2)(e) Transfer of Land Act 1958 – Balance of convenience.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S. T. Marantelli | Wisewoulds Lawyers |
| For the First Defendant | Mr C. E. Shaw | Armstrong Lawyers Pty Ltd |
| For the Second Defendant | No appearance |
TABLE OF CONTENTS
The Application.................................................................................................................................. 2
Material before the Court................................................................................................................. 3
Submissions and Conclusions...................................................................................................... 16
HER HONOUR:
The Application
The plaintiff (“Oakland”) seeks the removal of caveat No. AF387888V (“the caveat”) lodged on 25 September 2007 by the first defendant (“Senior Living”) in relation to the property described in Certificate of Title Volume 11000 Folio 992 and situated at 560 Station Street, Carrum (“the property”).
Saint Vitius Pty Ltd (ACN 123 446 640) (“St Vitius”) has been the registered proprietor of the property since 16 February 2007. Oakland is the registered first mortgagee. Senior Living claims an interest in the property as a lessee under a lease from PBZA Constructions Pty Ltd (“PBZA”) dated 30 September 2005 (“the lease”).
Oakland applies for the removal of the caveat under s 90(3) of the Transfer of Land Act 1958 (“the Act”). It also asserts that the caveat was lodged without reasonable cause and seeks compensation from Senior Living under s 118 of the Act.
St Vitius borrowed $2,340,000 from Oakland on 12 February 2007 (“the loan”). The loan was to be used to refinance the property, paying out existing lenders. It was secured by Oakland’s mortgage which was registered on 16 February 2007 (“the mortgage”). The loan was due to be repaid on 11 June 2007, but the date for repayment was extended to 4 August 2007. It was not repaid and St Vitius was treated as being in default from 5 August 2007. The loan has not been repaid and there was an outstanding balance of $5,178,445.17 on 15 May 2008.
On 6 September 2007, Oakland appointed David Michael Stimpson and Terry Grant van der Velde (“the receivers and managers”) joint and several receivers and managers of St Vitius under the mortgage. It was in those circumstances that Senior Living lodged the caveat claiming an interest under the lease on 8 October 2007.
The receivers and managers have now negotiated a sale of the property to Cetera Carrum Pty Limited (ACN 129 803 194) (“Cetera Carrum”) for $2.5M plus GST. A deposit of $137,500 has been paid and settlement was fixed for 15 April 2008. On 8 April 2008 the purchaser’s solicitors refused to settle the purchase unless they received a withdrawal of the caveat. Senior Living has refused to remove the caveat and Oakland has made this application for its removal.
The second defendant does not appear in the application.
Material before the Court
Affidavits have been sworn in support of the application by:
(a)Julie Helen Barkla of Oakland’s solicitors, on 15 May 2008 and 26 May 2008, respectively;
(b)Jacob Boon, the former registered proprietor of the property, on 13 May 2008;
(c)David Gordon Parkinson, the asset manager of Oakland, on 14 May 2008;
(d)David Michael Stimpson, one of the receivers and managers, on 14 May 2008 and 23 May 2008, respectively;
(e)Brook Alexander Monahan, a director of Oakland, on 28 May 2008; and
(f)David Handley, a director of Oakland, on 2 June 2008.
Affidavits were filed in opposition to the application sworn by:
(a)Maria Stella Casa, a director of Senior Living, on 21 May 2008;
(b)Marie Leone, the general manager of Senior Living, on 23 May 2008 and 27 May 2008, respectively; and
(c)Russell Armstrong of Senior Living’s solicitors, on 10 June 2008.
The parties’ allegations as to the history of relevant dealings with the property are recorded in the affidavits.
Dr Boon states that he was the registered proprietor of the property from 27 February 1989 to 16 February 2007 when it was transferred to St Vitius. For some time, Dr Boon and his brother, Mr Harry Boon, held the property as tenants in common. A retirement village or “supported residential service”, as defined in s 3(1) of the Health Services Act 1988, was operated at the property from 1989.
Between 1996 and 2000, Mr Zlatko (or Zac) Andrejic was the director and chief executive officer of Zams Investments Pty Ltd (“Zams”) which leased the property and operated the supported residential service there.
In about 2000, Zams assigned its lease to PrimeLife Corporation Limited. Mr Andrejic continued to operate the business for PrimeLife, according to Dr Boon. PrimeLife did not renew the lease after about 2002.
On about 4 July 2002, Dr Boon incorporated Senior Living to hold the assets and operate the supported residential service from the property. Dr Boon was Senior Living’s sole director and secretary from its incorporation to 30 August 2005. He also owned its one share beneficially.
In about April 2004, Dr Boon began negotiating with Mr Andrejic to manage his business from about October that year. Dr Boon states that Mr Andrejic agreed to take on the role, in return for an option to purchase the property and the business.
On 26 May 2004, the City of Kingston issued Planning Permit KP685/03 which allowed the construction of alterations and additions to the existing aged care facility building on the property.
On 30 November 2004, Mr Andrejic incorporated PBZA to purchase the property. Mr Brett Haywood was a director of PBZA from 1 December 2004 to 31 January 2007. Mr Andrejic was a director of PBZA between 31 January 2007 and 31 March 2007 and, again, from 1 December 2007.
As at 2 January 2008, Mr Andrejic remained a director of the company. PBZA was the trustee of the Bayside Terrace Property Trust, a unit trust owned by a discretionary trust under which Mr Andrejic and his family were the beneficiaries.
After Mr Andrejic had exercised the options, Dr Boon agreed to transfer Senior Living to him. This was to help Mr Andrejic retain Senior Living’s Department of Human Services registration of the supported residential service and to avoid the need for a fresh application for registration. Mr Andrejic asked Dr Boon to execute a lease from PBZA to Senior Living as part of the documentation relating to the transactions.
Dr Boon explains that the Department of Human Services required proprietors of supported residential services to provide a copy of a lease, to maintain registration to operate such a facility. He had not had a formal lease when he was both the registered proprietor of the property and the effective owner of Senior Living.
There are two “Law Institute of Victoria May 2003 Revision” copy lease documents before the Court. One appears to be dated 30 September 2005 (the date of the settlement of the transaction between Dr Boon and Mr Andrejic), and the other is undated. One document bears Dr Boon’s signature as guarantor and the other does not. Otherwise, both are executed by Mr Haywood, on behalf of PBZA as lessor, and Dr Boon, on behalf of Senior Living as lessee. Each provides for a 25 year term, commencing on 1 October 2005, with options for three further terms of the same length.
I note that Dr Boon states that he and Mr Andrejic agreed that Dr Boon would have no further involvement with the operation of the business at the property after 30 September 2005, despite the fact that he is stated to be guarantor of Senior Living’s obligations under the lease .
Ms Stella Maria Casa (whom Dr Boon describes as an employee of Mr Andrejic from the time he operated the business through Zams) became Senior Living’s sole director and company secretary from 30 September 2005. Dr Boon transferred his shareholding in Senior Living to Tyrrell Place Pty Ltd (ACN 100 693 267) (“Tyrrell Place”) which did not hold it beneficially.
Ms Marie Leone, Senior Living’s general manager, claims a 50 per cent beneficial entitlement in Senior Living. She also says that Senior Living’s assets are owned by the Senior Living Trust, in which Mr Andrejic’s daughter, Ms Billiana Sucur, and Mr Andrejic have beneficial interests. Tyrrell Place was wound up on 10 July 2006.
Ms Leone claims that Senior Living’s business had been run down by Dr Boon and had been operating at a loss. In March 2006, Mr Andrejic discussed with Ms Leone her becoming involved in the ownership and management of Senior Living’s business at the property. They agreed that she would assume the role and take a half share of the units in the trust of which, according to her, Senior Living was the trustee. Ms Leone says that she does not recall ever receiving the relevant documents and states that she paid nothing for her interest in the business which had been operating at a loss.
Ms Leone and Ms Casa worked together managing the business from March 2006. Ms Leone states that Ms Casa showed her a copy of the lease signed by Dr Boon as guarantor in March 2006. She maintains that she regarded the lease as valid and legally binding from that date until she received a notice of default, dated 17 March 2008, from the solicitors for the receivers and managers. She maintains that she ensured that Senior Living complied with its obligations to pay rent and any outgoings of which she became aware. She exhibits to her affidavit receipts relating to a gas account addressed to Senior Living at the property, payable by 3 March 2008, and a Telstra bill payable by 24 December 2007.
Ms Casa says that, during 2006, she was aware of a proposal to develop the property, to increase its capacity from 30 to 60 beds. She decided to move the residents away during the development, after having initially considered moving them into different parts of the premises whilst the development took place. She states that, in July 2006, Senior Living agreed with PBZA that it would temporarily vacate the property so that the development could take place. She says that she was consulted about the development and the plans which were lodged for Planning and Building approval.
Ms Leone says that Mr Andrejic was someone whom she would regularly consult in respect of operational issues relating to the management of Senior Living’s business. She felt comfortable in seeking his advice because she believed that he had a 25 per cent beneficial interest in Senior Living.
On 10 July 2006, Tyrrell Place was the subject of a creditor’s voluntary winding up and a liquidator was appointed to it.
Both Ms Casa and Ms Leone refer to an agreement between Senior Living and PBZA which was evidenced by a letter on PBZA letterhead dated 28 July 2006. They state that the agreement related to the redevelopment of the property and provided that the rental due under the lease would be abated from 1 September 2006.
The 28 July letter was signed by Mr Haywood as a director of PBZA and is in the following terms:
Re: Agreement for Rental Abatement
Pty: 560 Station Street, Carrum, Victoria, 3197
This is to confirm that PBZA Constructions Pty Ltd as landowner and Senior Living Pty Ltd as tenant pursuant to a lease date (sic) 30 September 2005 between the parties, agrees (sic) to abate the rental on the above property from 1 September 2006 until a period of 6 months after the issue of a new occupancy certificate for the property pursuant to the proposed renovation and construction works at the property, or 3 years whichever is the earlier.
Mr Andrejic subsequently applied for mortgage finance for PBZA from Oakland. The application form stated that a loan was sought to refinance the property, at which a “running” retirement village was being carried on. The application was signed by Mr Andrejic on 14 January 2007.
The application form indicated that PBZA intended to repay the loan “through the sale of 100% pre‑sold strata units”. Particulars of the property were given. The form required the applicant to specify whether the property was “commercial”, “residential” or “land” and its “construction type”. There was provision for a reference to “age”, space to indicate beds, baths and vehicles, and then a space for inclusion of particulars after the word “other?” In that space, the words “retirement village (running) & DA 30 more units” was written. (Oakland’s director, Mr Handley, states that a lease encumbering property offered as a security would be ordinarily specifically referred to in the box marked “other?”.)
The application form does not refer to the lease.
On about 15 January 2007, Oakland was provided with an information memorandum, dated 12 January 2007, under the letterhead of “the Oberg Group” and said to have been prepared for PBZA for the purposes of obtaining finance. The cover sheet of the information memorandum states that it did not contain any warranties and representations and that lenders should make their own enquiries.
The “Proposal to obtain funding” section of the information memorandum indicated that the Bayside Terrace Property Trust was seeking to obtain a debt facility of at least $2.34M (65% of valuation) for a term of four to six months, to refinance Bayside Terrace Carrum, a retirement village. The debt would be repaid from strata sales of the apartments and would be reduced to $0 upon finalisation of all strata sales.
The information memorandum stated that PBZA was the trustee for the Bayside Terrace Property Trust and had been incorporated in 2004 by Mr Andrejic to acquire the property. Its sole unit holder was a shelf company (the name of which was to be confirmed) which was “a discretionary trust for Tyrrell Place Property Trust”. Mr Andrejic and his family were stated to be the beneficiaries of the Tyrrell Place Property Trust. The document also indicated that Senior Living held the management rights to the property as trustee for Bayside Terrace Management Trust and that Mr Andrejic was the sole unit holder of that trust .
In describing the property, the information memorandum stated that the retirement village at the property was occupied by 15 residents, eight of whom were involved in a “loan/licence arrangement” and the balance of whom were under respite care. There were 22 apartments available for licensing to residents. They were being advertised from $100,000. Those apartments were already strata titled and there was “an opportunity to sell the strata titled apartments with a lease-back to Bayside Terrace Property Trust”. The memorandum stated that all the 30 apartments had been sold and that Bayside Terrace Property Trust would licence the apartments to residents under the loan/licence or respite arrangement. The property also had “development land with a permit for a further 30 apartments”. The information memorandum went on to state that the “vacant land” for the stage 2 construction was “unencumbered”.
The memorandum indicated that Bayside Terrace Property Trust derived revenue from investments of licence fees, amongst other things. There was also an addendum to the information memorandum containing a diagram which showed PBZA, as trustee for Bayside Terrace Property Trust, selling a strata lot to an investor who would lease the lot to Senior Living at a guaranteed rent of 7% “for 25 x 4 years” and appoint Senior Living as manager. Senior Living was shown as granting an occupation licence to a resident, taking a “licence fee/bond” of $200,000 plus service fees and a deferred management fee.
On 8 February 2007, Mr Andrejic, as the sole director of St Vitius, made a declaration in relation to the property under the Oaths Act 1900 (NSW). He declared, amongst other things:
9.I have not created any unregistered or equitable interest in the property by Deed, Licences, Lease or in any other manner or otherwise.
10.I am not aware of any rights of way, easements or other rights affecting the property which are not disclosed in the Title of the property and/or any dispute, claims or proceedings in respect of the property.
11.I acknowledge that the Lender [Oakland] will rely on the contents of this Statutory Declaration, which I/we declare and warrant to be true, accurate and complete to the best of my/our knowledge.
Ms Leone states that Mr Andrejic had no authority to make any representation of behalf of Senior Living in or about January 2007. She also says that she was unaware of the application for finance from Oakland.
Mr Bernard Tan of the firm Cutler Hughes and Harris was nominated as PBZA’s solicitor in the application for finance from Oakland and the information memorandum. Mr Tan subsequently wrote to Senior Living’s solicitors, stating that he did not act for Senior Living in the loan transaction and that Senior Living was not a party to that transaction. In the letter, Mr Tan did acknowledge acting for PBZA and St Vitius in relation to the refinancing of the property with Oakland Investments.
Mr David Handley was an Oakland director, actively involved in processing the loan application. He states that Oakland made the loan in reliance upon Mr Andrejic’s representations in the declaration. He says that neither he nor any agent or employee of Oakland had been advised that the property was encumbered by a lease and that they had treated the representations as evidence that no such interest existed. He asserts that Oakland treated the application for mortgage finance, the information memorandum and the declaration made by Mr Andrejic as assurances that no such lease existed. He contends that Oakland also relied upon the absence of any reference to a lease or a caveat on the Register.
Mr Monahan, another Oakland director, states that it was advised that the borrower would be St Vitius, although the application had been from PBZA. He says that he understood that both companies were controlled by Mr Andrejic. He states that Oakland did not deal with anyone apart from Mr Andrejic and his mortgage brokers in relation to the loan application.
Mr Monahan says that, at the time he received the information memorandum and at all times before October 2007, he (and to his knowledge, Oakland,) believed that the statement that the vacant land was unencumbered in the information memorandum was true. He also believed the matters to which Mr Andrejic swore in the declaration relating to the property.
In very similar words to those in Mr Handley’s affidavit, Mr Monahan states that Oakland advanced the loan to St Vitius on 12 February 2007, relying upon the representations in the application, the information memorandum and the declaration. He also says that neither he nor any agent or employee of Oakland had been advised that the land was encumbered by a lease at the time Oakland made the loan to St Vitius. He says that Oakland treated the representations in those documents as evidence that no such interest existed.
Each man refers to Oakland requiring its solicitors to search the title to the property before the loan was made and each records that the searches did not reveal any registered lease or caveat protecting the interests of the tenant. According to them, Oakland relied upon the correctness of the Register in that regard.
Mr Handley goes on to state:
Because of the potential ramifications of the existence of a lease affecting the land at the time it made the loan, [Oakland] required assurances from PBZA Constructions, Saint Vitius Pty Ltd (ACN 123 446 640) (as it was then known) and Andrejic that no such lease existed. I regarded the Application for Mortgage Finance, the Information Memorandum and the Declaration Regarding Security Property as providing assurances that no such lease existed.
Mr Monahan uses almost the same words, but says that “ample” assurances were provided by those documents.
Mr Monahan states that Oakland did not agree to provide a loan secured by land encumbered by a lease. It did not agree to any variation of the lease in the way described in the rental abatement letter. It did not agree to provide a loan secured by land encumbered by a lease varied so that the tenant had a right of exclusive possession with no obligation to pay rent for up to three years.
On 16 February 2007, PBZA transferred the property to St Vitius which became its registered proprietor. Oakland’s mortgage from St Vitius was registered on the same day.
Mr David Gordon Parkinson is an asset manager for Oakland and he states that he understood that there was a functioning aged care facility at the property on 12 February 2007, when Oakland made the loan to St Vitius.
It appears to be common ground that the residents were removed from the property and relocated in August 2007. Mr Parkinson says that he became aware that the residents had been “evacuated” in about September or October 2007.
Mr Stimpson, one of the receivers and managers, states that on 11 September 2007, after his appointment on 6 September 2007, he met Mr Andrejic at the property. Mr Andrejic told him that the former residents had been moved off the property in August 2007 because building works were proposed. Mr Andrejic showed Mr Stimpson what he described as his office at the property; he pointed out a desk, chair, telephone and filing cabinet, all of which were in what appeared to Mr Stimpson to be a former resident’s room.
On about 20 September 2007, Mr Andrejic provided the receivers and managers with a copy of the lease which commenced on 1 October 2005.
On 15 October 2007, Cutler Hughes and Harris wrote to the receivers and managers on behalf of Senior Living, noting that the firm had previously acted for St Vitius and that PBZA’s rights under the lease had been assigned to St Vitius on 9 February 2007. The letter attached another copy of the lease and a copy of what was described as “agreement for rental abatement dated 28 July 2006”. Senior Living claimed exclusive possession of the property and Cutler Hughes and Harris stated that it would enforce its legal rights if the receivers and managers sought to take any action “contrary to the lease”.
Mr Stimpson says that he made arrangements for access to the property for tradespeople and others such as marketing personnel, through Mr Andrejic or Ms Leone, who arranged keys. He states that keys to the property were provided at his request on about 3 October 2007. Ms Leone says that the keys she posted to an agent early in October 2007, to allow access to the property, were not returned. She states, however, that she continued to operate Senior Living’s business from the property after posting the keys.
Mr Parkinson says that he telephoned the advertised Senior Living telephone number and received no answer on 29 November 2007. He subsequently visited the property on 22 February 2008 and found the car park empty and graffiti on its signage. The garden appeared unkempt and overgrown to him and he saw what he describes as a build-up of mail at the front door. He noticed expiry dates of November 2007 on vouchers for pizzas. He formed the view that some of the mail had been at the premises for more than three months. He noticed a musty smell and dust inside the premises and observed that it was almost completely empty of furniture. He found a refrigerator turned off in the former kitchen and empty rubbish bins which appeared to have been washed. Mr Parkinson made unanswered telephone calls to Senior Living again on 21 and 22 February 2008.
On 17 March 2008, the receivers and managers sent a notice of default to Senior Living at its registered office, by facsimile and email. Mr Stimpson states that, by that date, he did not believe Senior Living was in possession of the property.
The 17 March 2008 notice of default denied the existence of any valid lease. Alternatively, it is alleged that defaults under particular terms constituted breaches of essential terms constituting a repudiation of the lease by Senior Living. The notice alleged that the premises had been abandoned by Senior Living and that St Vitius had re‑entered. The notice of default specified arrears of rental from 1 September 2006.
On 3 April 2008, the receivers and managers arranged for the locks to be changed at the property and purported to give possession to St Vitius, to enable it to sell as mortgagee.
Ms Leone engaged Hall & Wilcox, solicitors, to act for Senior Living in respect of the alleged default. Hall & Wilcox wrote to Oakland’s solicitors on 7 April and 9 April 2008, denying any default under the lease and, in particular, relying upon the 28 July 2006 rental abatement letter in relation to the alleged non‑payment of rent.
Hall & Wilcox’s 9 April 2008 letter noted that St Vitius had asserted that it had re‑entered the premises in the very same notice in which it was giving 14 days notice for the alleged defaults to be remedied. Hall & Wilcox contended that St Vitius had acted wrongly in purporting to re‑enter.
On 21 April 2008, VCAT Deputy President Gibson extended, to 21 April 2009, the date before which the permit required the development at the property to be commenced.
On 29 April 2008, a further notice of default from St Vitius was sent to Senior Living at its registered office. The second notice of default set out particulars of alleged breaches of covenants to pay rental and outgoings. The particulars referred to a failure to pay municipal and water rates. The notice claimed that, in order to rectify the default in relation to municipal rates, Senior Living would need to pay outstanding amounts specified. The notice then stated that St Vitius would re‑enter the premises and give possession to Oakland as mortgagee 14 days after its receipt by Senior Living at its registered office. Other breaches of Senior Living’s obligation to carry out its business efficiently and to keep premises open during business hours were also specified and the notice claimed that Senior Living had repudiated the lease.
Ms Leone states that she retained Armstrong Lawyers to respond to the 29 April 2008 notice on behalf of Senior Living. They wrote to the receivers and managers on 12 May 2008, denying breaches of the lease. The solicitors claimed that Senior Living had a valid lease and had agreed with PBZA that the rent should be abated and its obligations under other covenants waived from 1 December 2006.
As for outgoings, Armstrong Lawyers argued that Senior Living was only required to pay municipal rates within seven days of a request from the landlord, but had paid them by 12 May 2008, in any event. They denied liability for payment of water rates for the same reason and alleged that those rates had been paid on the same day.
The letter argued that residents were removed from the property with the consent of the landlord evidenced by the 28 July letter. Senior Living had continued to conduct the administration of the business from the property after the relocation of the residents, according to the solicitors. Armstrong Lawyers stated that Senior Living intended to recommence operating its business from the property under any necessary licence, after the construction period was over.
The City of Kingston advised that the 12 May 2008 cheque for rates had been dishonoured. Ms Leone seeks to explain the dishonouring and claims that payment of outstanding rates was made by 14 May 2008.
Ms Leone says that she and Ms Casa continued to operate the business after the residents had been relocated. They paid its expenses and attended the office at the property on most working days. They used their mobile phones to make them more flexible. She produces the Senior Living telephone bill payable on 24 December 2007 as evidence supporting her account.
Ms Leone disputes Mr Stimpson’s claim to have visited the property after 11 September 2008. She asserts that she had conversations with a representative of the receivers and managers’ firm on at least 20 occasions after that date. She says that they made arrangements for access to the property for tradespeople and the like. She also states that the works on the property had commenced before 26 May 2008 and that the car park had been redeveloped.
Ms Leone claims that Senior Living would suffer irrevocable loss if it were to lose the lease upon any transfer of the property from St Vitius. It would not have the financial resources to establish itself at other premises. It would have no alternative but to cease business and damages would not be an adequate remedy in those circumstances. Ms Leone maintains that the closure of Senior Living’s business would be traumatic and detrimental for residents, given the intimate personal relationships which have developed between them and their families and herself and Ms Casa, who continues to apply herself to their care by attending the places at which they are staying.
Mr Monahan and Mr Handley state that Oakland may not be able to recover any more than the purchase price it has negotiated with Cetera Carrum : $2,500,000 plus GST. The existence of statutory charges securing refundable ingoing payments made by former residents to Senior Living under occupation licences makes the property extremely difficult for Oakland to market and sell to anyone other than a party related to Mr Andrejic.
Cetera Carrum is a wholly owned subsidiary of Cetera Properties Pty Ltd which does not own its shares beneficially. The shareholding in Cetera Properties Pty Ltd is owned by CeteraLife Pty Ltd. The shares are not owned beneficially. The shares in CeteraLife Pty Ltd are held by Peruncorp Pty Ltd, but not beneficially. Peruncorp itself is beneficially owned by Mr Andrejic.
As at 15 May 2008, the sum of $5,178,445.17 was owing to Oakland under the mortgage. Ms Barkla asserts that Oakland is vulnerable to service of a rescission notice once the settlement date has passed and it is unable to complete the transaction because of the caveat.
Submissions and Conclusions
It is common ground that Senior Living must justify the maintenance of the caveat by establishing that there is a serious question to be tried as to the existence of the lease. It must then persuade the Court that the balance of convenience favours the maintenance of the caveat.[1]
[1]See: Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447 at 458 per Warren CJ.
Counsel for Senior Living argues that it has discharged its burden of establishing that there is a serious question to be tried in relation to the creation of the lease, the effect of the 28 July 2006 rental abatement agreement and the continued existence of the lease.
Oakland challenges the creation of the lease. Counsel for Oakland first argues that the transaction was a sham which did not reflect the true intention of the parties or the nature of the transaction between them.[2] He contends that the Court should conclude from Dr Boon’s evidence that Mr Andrejic did not wish to be nominated as the owner of the business or to be associated with it for the purposes of registering the supported residential service on the land under the Health Services Act 1988. The lease, he submits, was not intended to create legal relations between the parties, but was rather brought into existence to retain the existing registration as at 30 September 2005. Counsel argues that this interpretation of Dr Boon’s account is supported by the evidence that the alleged rent abatement agreement took effect more than a year before the residents vacated the property in August 2007 and that no explanation for that fact had been provided in Senior Living’s material.
[2]See: Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 82 ALR 530 at 537 per Lockhart J and 551 per Beaumont J.
Counsel for Senior Living responds that there is no clear allegation from Dr Boon to the effect that the lease was a sham. He argues that the parties are bound by the terms of the written agreement.[3] Counsel submits that Oakland has not clearly established that the lease was a sham within the meaning attributed to the expression in SharrmentPty Ltd v Official Trustee in Bankruptcy where Lockhart J said:[4]
A ‘sham’ is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or a false front. It is not genuine or true, but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.
[3]Citing: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 483 per Gleeson CJ, McHugh, Kirby, Hayne and Callanan JJ.
[4](1988) 82 ALR 530 at 537.
Counsel for Senior Living maintains that there is no suggestion in the materials that the lease masks a different transaction.
I am not satisfied that Oakland has established that the lease was clearly a sham. I am not persuaded that the parties either did not intend to create the lease or that they intended to create different rights or obligations between themselves.[5] I am not persuaded to reject Dr Boon’s account of the negotiations between him and Mr Andrejic, in the context of governmental requirements relating to the licensing of supported residential facilities.
[5]See: Sharrment v Official Trustee (1988) 82 ALR 530 at 539 per Lockhart J.
In my view, Senior Living has established that there is a serious issue to be tried in relation to the creation of the lease.
Counsel for Oakland also argues that Senior Living is estopped from relying upon the lease because of what he characterises as Mr Andrejic’s misrepresentation to the effect that there was no lease encumbering the property. He argues that Mr Andrejic effectively controlled Senior Living and relies upon his declaration that he had not created a lease and did not know of any other unregistered rights relating to the property. Counsel cites the Court of Appeal’s decision in Midland Bank Limited v Farmpride Hatcheries Limited and Anor[6] in this regard.
[6][1981] EGD 985.
In Midland Bank it was held that it was unconscionable for a negotiating agent to remain silent about an adverse interest he claimed in a mortgaged property and to assert it subsequently, after an irrevocable change of position by the mortgagee. The case did not deal with registered land and the Court of Appeal held that the agent could not rely upon any constructive notice of his interest on the part of the mortgagee, to obtain priority for his interest under an undisclosed lease.
Counsel refers to the evidence that Oakland relied upon the absence of any registered lease and the other indications by Mr Andrejic to the effect that he had not created one.
Counsel for Senior Living responds that it has discharged its burden of establishing that there is a serious question to be tried in relation to this issue, too, citing Ms Leone’s evidence that she had not been consulted that any application for finance had been made to Oakland and her assertion that Mr Andrejic had no authority from Senior Living to make an application on its behalf. He also refers to Ms Casa’s evidence that she was not involved in negotiations or the loan transaction. He notes that she was the director and secretary of Senior Living. He argues that there are no grounds in the affidavits from Ms Casa and Ms Leone to conclude that Mr Andrejic had the authority of Senior Living to act on its behalf in any way.
Counsel for Senior Living further submits that estoppel is a discretionary remedy requiring unconscionability to be established. Counsel for Senior Living also refers, more generally, to the differences between the English property law system and the Torrens system applicable in Victoria. He contends that, in the circumstances of the conflicts raised in the evidence, the Court could not be satisfied that there was not a serious question to be tried and that Senior Living was clearly estopped from asserting its interest under the lease.
I am persuaded that there is a serious question to be tried in relation to Oakland’s argument that Senior Living would be estopped from asserting its interest under the unregistered lease, granted to it on 30 September 2006 according to Dr Boon. There are also arguably, in addition to the matters raised by counsel for Senior Living, indications in materials provided to Oakland that Senior Living would and, more significantly, had, in the past, granted licences to residents of the property. [7] It is not clear whether, if Senior Living did so, it acted as an agent of St Vitius or as a licensor with a proprietary interest in the property.
[7]See: Addendum to information memorandum entitled “Proposal to obtain funding” (Exhibit “JBH7” to 15 May 2008 Barkla affidavit); CBRE valuation report in relation to the property prepared for Oakland, (Exhibit “DH1” to 2 June 2008 Handley affidavit), at Part 4.
Counsel for Oakland then argues that it is clear that the lease was terminated by Senior Living’s defaults specified in the notices of default and, or by its abandonment of the property and St Vitius’s acceptance of those breaches of the lease as repudiation.
Counsel for Oakland argues that it is clear that Senior Living breached the covenant to pay rent. He contends that the lease provided for its amendment in writing executed by the parties, whereas Senior Living had not signed the letter of 28 July 2006.
Counsel for Senior Living responds by referring to GEC Marconi Systems Pty Ltd v BHP Information Technology[8] to argue that it could be inferred from the 28 July 2006 agreement that the parties had thereby agreed to amend the lease to allow for further amendment in such form.[9]
[8][2003] FCA 50.
[9]See: GEC Marconi Systems Pty Ltd v BHP Information Technology [2003] FCA 50 at 66 per Finn J.
Counsel for Senior Living also raises the issue as to whether there was a breach under clause 2.1.2 of the lease which provided for Senior Living to pay specified outgoings, including rates, for which it had received notice directly and to reimburse within seven days those which the landlord requested. He contends that there was no evidence as to whether Senior Living had received direct notice of municipal and water rates which were the subject of the 29 April 2008 notice of default.
I am persuaded that there are serious questions to be tried in relation to whether the lease has been terminated. Oakland has not persuaded me that it is clear that Senior Living breached essential terms as alleged or that the lease was repudiated. There are clearly areas of dispute raised in the materials.
Counsel for Senior Living argues that the balance of convenience favours the maintenance of the caveat which protects its interests under the lease. He contends that the transfer of land would have the effect of eliminating its interest under a valuable lease of 25 years with three further options of 25 years. Senior Living is dependent upon the lease to conduct its business and its business would cease to exist because it does not have the financial resources to establish itself in alternative premises.
Counsel for Oakland, on the other hand, argues that the balance of convenience overwhelmingly favours the removal of the caveat.
He contends that Senior Living is not carrying on business from the premises because the residents were relocated in August 2007. As a result, it cannot assert loss of profits by reason of the removal of the caveat.
He argues that Senior Living cannot carry on any business, within the meaning of the permitted use under the permit, because its licence to operate a supported residential service was cancelled on 6 September 2007 by the Department of Human Services. He also submits that Senior Living did not contest the re‑entry of the premises on 4 April 2008 and cannot assert it has lost any interest of monetary value.
Counsel for Oakland points to the amount of more than $5M outstanding under the loan. He notes that the amount to be recovered under the contract of sale is only $2.5M plus GST. He also refers to the difficulty of selling the property to anyone other than Mr Andrejic or a party associated with him, because of the statutory charges encumbering the property. He anticipates the loss of the contract if the caveat is maintained.
He contends that damages will provide an adequate remedy for Senior Living. He argues that it does not have a business to lose, given the lack of evidence that it has the wherewithal to do the necessary works at the property.
Counsel for Oakland also generally refers to the involvement of Mr Andrejic at every stage of the transaction and to his failure to offer an undertaking as to damages, when Senior Living did so through its counsel before the Court. Counsel argues, in relation to that offer, that any undertaking offered by Senior Living, as opposed to Mr Andrejic or its director, Ms Casa, is worthless, because its shareholder, Tyrrell Place, has gone into liquidation. He also points to the absence of any affidavit material from Mr Andrejic or Mr Tan, the solicitor who, in his submission, is deeply involved in relevant transactions.
Counsel for Oakland argues further that there is no evidence as to any available sources of funding for the redevelopment of the property necessary before Senior Living can conduct a business there.
Although s 42(2)(e) of the Act is to be construed widely,[10] the tenant must be in possession at the time of the transfer to a registered proprietor, in order to establish the priority of its lease under the exception of indefeasibility. If the transfer to Cetera Carrum were to take place when Senior Living was not in possession, it might well lose the benefit of its 25 year equitable interest under the lease, with potential consequences both for its capacity to carry on business and for those residents who would be adversely affected by its closure.
[10]See: Downie v Lockwood [1965] VR 257 at 259 per Smith J.
On the other hand, it is open to Oakland to take proceedings against Senior Living in which the relevant issues can be decided on the basis of oral evidence and with the benefit of cross‑examination. In that context, any role played by Mr Andrejic and its ramifications can be fully explored. The bona fides of Senior Living’s claims and its lodgement of the caveat can be explored.
I note, in relation to the issue of the significance of Mr Andrejic’s role, that his involvement with PBZA, St Vitius, Senior Living and Cetera Carrum and associated companies appears to have been known to those associated with Oakland throughout. Indeed, Mr Monahan says that it will be extremely difficult to sell the property to anyone other than a party related to Mr Andrejic.
I have taken into account the possibility that Oakland might lose the benefit of the sale to Cetera Carrum, Senior Living’s mounting indebtedness to it and Oakland’s offer of an undertaking as to damages, as well as the other matters mentioned in the detailed submissions from counsel for Oakland. I am, nevertheless, persuaded that in all the circumstances, the balance of convenience favours the maintenance of the caveat.
The application should be dismissed.
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