PATRIOT Equity Pty Ltd v Yellow Crest SA Pty Ltd - [2022] SADC 110

District Court of South Australia
(Civil: Application)
PATRIOT EQUITY PTY LTD v YELLOW CREST SA PTY LTD
[2022] SADC 110
Reasons for Ruling of his Honour Chief Judge Evans
9 September 2022
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - REMOVAL - PARTICULAR CASES
Application pursuant to s 191 of the Real Property Act 1886 to extend the caveat over property until applicant’s claim is determined at trial.
The Respondent is the registered proprietor of land which it proposes to develop. The applicant offered to provide finance to the Respondent for the development. The Respondent signed a document referred to as a Term Sheet.
The Applicant claims an interest in the land pursuant to the terms of the Term Sheet.
The respondent disputes the applicant has any interest in the land and says further that the Term Sheet was no more than an agreement to agree.
The Respondent asserts there is no prima facie case that the substantive relief sought is available and that the balance of convenience does not favour the extension of time for removal of the caveat.
HELD: There is a prima facie case and the balance of convenience favours extending the caveat. I order that the time for the removal of the caveat be extended.
Real Property Act 1886 (SA) s 191, referred to.
Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198; Nexus Mortgage Securities Pty Ltd v Mawson KLM Holdings Pty Ltd & Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474 ; Paringawood Nominees Pty Ltd v Baulderstone [1999] SASC 380 ; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; Acmnet Pty Ltd v Ai Tel Pty Ltd [2007] SASC 96 ; Li v Wang [2020] SADC 97 ; Cini v Pets Paradise Franchising (SA) Pty Ltd (2008) 102 SASR 177 ; Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, considered.

PATRIOT EQUITY PTY LTD v YELLOW CREST SA PTY LTD
[2022] SADC 110
Introduction

The respondent is the registered proprietor of certain land at Evanston Park, South Australia comprised in Certificate of Title Register Book Volume 5456 Folio 200 and Volume 5098 Folio 618 (‘the Property’).
The applicant claims an interest in the land and on 12 April 2022 caused a caveat to be lodged over the Property.
The respondent warned the caveat.
The applicant issued an originating application seeking an order extending the time for the removal of the caveat. The applicant has not yet filed pleadings to determine the substantive issues between the parties.
On 24 June 2022, this Court made an order extending the time for removal of the caveat until further order.
A timetable was set for the filing of affidavits and a hearing on the application to extend the time for the removal of the caveat.
Written submissions and outlines of argument were filed by the parties. The matter came on for argument on 27 July 2022 and 23 August 2022.
The following affidavits have been filed and read:
1.Affidavits of Brian James Doherty, a portfolio manager of the applicant, sworn 21 June 2022 (FDN 2) and 22 August 2022 (FDN 22);
2.Affidavits of Joel Paul Nathan Poulish, a project manager of the respondent, sworn 1 July 2022 (FDN 9), 20 July 2022 (FDN 14), 11 August 2022 (FDN 19) and 17 August 2022 (FDN 21);
3.Affidavit of Stuart Alan Roach, the executive director of ‘Square Mile Capital Advisory Pty Ltd’, sworn 6 July 2022 (FDN 10);
4.Affidavits of Andrew Nathan Tarnowskyj, solicitor, sworn on 20 July 2022 (FDN 15) and 10 August 2022 (FDN 18);
I am satisfied that the applicant has established a prima facie case, or serious question to be tried in the sense referred to by the High Court in Australian Broadcasting Corporation v O’Neill[1] and that the balance of convenience favours the extension of the caveat until trial.
[1] (2006) 227 CLR 57 at [65], [70]; see also Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198, Cox J at 199, 203; Nexus Mortgage Securities Pty Ltd v Mawson KLM Holdings Pty Ltd & Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474, 477, 479.
Background Facts
The respondent entered into conditional contracts to purchase three tracts of land. The first two tracts, referred to by the parties as lots 226 and 228, are the two titles that make up the Property. The third is lot 236. The respondent entered into these contracts with the intention of subdividing and developing the land and selling the newly created individual residential lots (‘the Development’).
In order to settle these contracts and to finance the Development, the respondent required and sought funding.
The applicant carries on the business of providing and arranging finance.[2]
[2] Affidavit of Brian James Doherty, a portfolio manager of the applicant, sworn 21 June 2022 (FDN 2) at [6].
The applicant offered to provide finance to the respondent subject to the terms and conditions set out in a letter dated 5 October 2021 (‘the Term Sheet’).
The Term Sheet[3] set out a number of conditions precedent, which were said to be ‘usual for a facility of this nature’ including with respect to achieving a certain value of complying pre-sales, an executed civil works contract, and a current Environmental report.
[3] Exhibit BJD-3 to Affidavit of Brian James Doherty, sworn on 21 June 2022 (FDN 2).
The Term Sheet provides that ‘This Offer is available for acceptance until 10 Nov 2021 and if not accepted by that time, will lapse’. This was a condition for the Applicant’s benefit which it waived.
The Term Sheet was signed for and on behalf of the respondent on 29 November 2021. Immediately above the execution clause, the Term Sheet provided ‘The Borrower understands and hereby accepts the Offer on the terms and conditions outlined herein’.
The Term Sheet further provided that:
·If the Offer is accepted, the following shall apply:
1. A Commitment Fee of $10,000 plus GST which is immediately payable…
2. In addition to payment of the Commitment Fee, the Borrower and the Guarantors accept liability to pay all other fees outlined herein including (but not limited to) the Establishment Fee, legal fees plus interest on the Principal Facility Limit for a 1-month period prior to or simultaneously with advice of this Facility.
·If the Borrower does not proceed with the Loan within 1 month after the receipt by the Lender of a signed copy of this Term Sheet, all fees, interest and Costs referred [to immediately above] shall become immediately due and payable.
·The Borrower and the Guarantors hereby charge the Property and all interest which the Borrower and the Guarantors have in the Property for payment of the above fees, interest and Costs and any loss incurred by the Lender in the event the Borrower does not proceed with the Loan within one month after acceptance of this Term Sheet.
·The Lender shall be entitled to lodge and maintain a caveat over the Property listed above (or any part of it), in protection of the charge contained in this section of the Term Sheet and the Borrower and Guarantors shall not take any action to remove such caveat until and unless payment in full has been made of the Fees, interest, Costs and loss incurred by the Lender referred to or associated with or arising from this Term Sheet.
The respondent paid the Commitment Fee.
By 29 December 2021, certain of the conditions precedent had not been complied with. The respondent had not obtained approval for construction and building works, there was no executed civil works contract, complying pre-sales had not reached the required value, and several reports had not been obtained.
The applicant, through its nominee Balanced Securities Limited offered finance to the respondent by letter dated 22 February 2022.[4]
[4] Affidavit of Brian James Doherty, sworn 21 June 2022 [17], Exhibit BJD-5.
In late January, early February, 2022, the respondent had begun making enquires to source alternative finance.
In late February or early March 2022, the respondent accepted an offer for alternative finance from Commercial Finance Australia. Using the alternate source of funding, the respondent purchased the Property.
In March 2022, the respondent informed the applicant that they had sourced alternate funding to settle on the Property. The respondent did not accept the offer of finance by Balanced Securities Limited.
As the loan did not proceed, the applicant claims that the respondent owes it $381,642.50 pursuant to the conditions of the Term Sheet.[5]
[5] Affidavit of Brian James Doherty, sworn 21 June 2022, [20].
On 12 April 2022, the applicant lodged a caveat claiming:[6]
An estate or interest as chargee pursuant to an agreement in writing made between the caveator and the caveatee wherein the caveatee agreed to charge their estate and interest in favour of the caveator dated 29 November 2021.
[6] Affidavit of Brian James Doherty, sworn 21 June 2022 (FDN 2) Exhibit BJD-2.
The caveat is a permissive caveat and provides that it:
Permits the registration or recording of any instrument affecting the estate or interest of the caveatee in the land described subject to the claim of the caveator.
At the time of the hearing, the respondent was the registered proprietor of the Property but not the registered proprietor of lot 236.[7] Lot 236 is not subject to the caveat.[8]
[7] Transcript 27.07.22 at p 6.
[8] Transcript 27.07.22 at p 6.
Legal Principles
There was no real dispute as to the legal principles applicable to the consideration of extending the time for the removal of the caveat.
On the application for an extension of time for the removal of a caveat, the Court will apply the same test as that of an interlocutory injunction.[9] The Court must determine whether there is a prima facie case in the sense described below and whether the balance of convenience favours an order extending the time for the removal of the caveat.[10]
[9] Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198 at 204; Nexus Mortgage Securities Pty Ltd v Mawson KLM Holdings Pty Ltd & Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474 at 478-480.
[10] Ibid; Paringawood Nominees Pty Ltd v Baulderstone [1999] SASC 380 at [4], [14]-[16].
The applicant must make out a prima facie case in the sense that if the evidence remains as it is, there is a probability that at the end of the trial it will be entitled to relief.[11] The reference to a prima facie case does not mean that the applicant must show that it is more probable than not at trial it will succeed; it is sufficient that it shows a sufficient likelihood of success to justify in the circumstances the preservation of the status quo.[12]
[11] Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at 82 applying Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618.
[12] Ibid at 82.
The applicant must satisfy two further requirements, namely the balance of convenience (whether the inconvenience of damage that the applicant would likely suffer if the caveat is not extended, outweighs the inconvenience or damage that the respondent would suffer if the caveat is extended) and that damages are not an adequate remedy.[13] The onus lies on the applicant to satisfy these matters.[14]
[13] Acmnet Pty Ltd v Ai Tel Pty Ltd [2007] SASC 96 at [65] per Layton J.
[14] See Li v Wang [2020] SADC 97 at [34] –[36].
Prima Facie Case
The respondent disputes that it owes the applicant $381,642.50 under the Term Sheet for three main reasons.
The respondent contends that the Term Sheet is an agreement to agree, that is, that if falls into the third category of Masters v Cameron.[15]
[15] Transcript 27.07.22 at p 22.
Second, the respondent submits that, if the Term Sheet is a contract, then any fees over the $10,000 Commitment Fee paid would only become due and payable on the applicant providing the appropriate loan documentation. The size and complexity of the required loan meant that funds would only be advanced when the loan documents had been prepared, and would not have been advanced on the Term Sheet alone.[16] The respondent submits that no loan documentation was provided in accordance with the Term Sheet. The respondent submits that the offer put forward by Balanced Securities was not consistent with the Term Sheet. It submits that it was a different offer, and if the respondent was required to proceed with a loan, the loan presented had to contain consistent terms and conditions to those in the Term Sheet. That was not done and so the respondent says no money is owing to the applicant.[17]
[16] Transcript 27.07.22 at p 23-4.
[17] Transcript 27.07.22 at p 30.
Third, the respondent argues that if the Term Sheet, on a proper construction, provides for the payment of the fees claimed by the applicant, then the applicant has engaged in unconscionable conduct in contravention of s 12CB(1) of the Australian Securities and Investment Act 2001.
The applicant submits that that the Term Sheet on its proper construction is not an agreement to agree terms, it constitutes a binding agreement. The applicant accepts that the Term Sheet contemplates there will be a formal suite of financial documentation put in place prior to funds ultimately being advanced, but that does not take away from the obligations in the Term Sheet being immediately binding from the time the respondent signed the Term Sheet and paid the Commitment Fee.
As to the unconscionability argument the applicant submits that the issue is raised in circumstances where both parties to the agreement are commercial entities and the question of unconscionability will only arise if the agreement is otherwise binding. In those circumstances the matter, as raised, if I am satisfied the agreement is otherwise binding, is not appropriate for determination on this application .
Balance of Convenience
The applicant asserts that removal of the caveat will destroy for all practical purposes the benefits of its security interest in the Property.[18] This is a significant factor when assessing the balance of convenience. The applicant relies on the comments of Bleby J in Cini v Pets Paradise Franchising (SA) Pty Ltd where he said:[19]
Given the statutory effect of a caveat, it may be that in many cases, if there is a serious question to be tried as to its validity, the balance of convenience will inevitably favour the caveator. The following observations of Owen J in Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd are relevant:
In my opinion, the balance of convenience is a factor to be considered in an application under s 138. However, it seems to me that interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated, will be unusual. It is important to bear in mind the nature and purpose of a caveat under the Torrens System. By its very nature, a caveatable interest must be a proprietary interest in land. The purpose of the caveat is to restrain the registered proprietor from dealing with the land in a way which will defeat or derogate from the incidents attaching to that proprietary interest until the respective rights of the parties have been honoured (if there is agreement) or determined (if there is disagreement). In many cases, removal of the caveat will have the effect of destroying for all practical purposes, the benefit of the proprietary interest. For example, a creditor, having a specific security interest in land, will rank as an unsecured creditor once the property, the subject of the specific security, no longer exists. This will often be the result of removal of a caveat which permits the registered proprietor to sell the property free from any practical obligation to account to the secured creditor for the proceeds of sale.[20]
[18] Transcript 27.07.22 at p 3.
[19] (2008) 102 SASR 177 at 192 [51].
[20] Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50.
The applicant submits that there is insufficient evidence to show that the caveat prevents further finance from being obtained. The applicant argues the evidence does little to show what steps the respondent has taken to obtain further finance.
The respondent contends that the caveat should not be extended because the scope of the project has shifted and the funding requirements have also changed, necessitating alternative funding to be arranged. The respondent submits that the caveat is preventing the project from progressing because other funders have refused to provide finance while the caveat remains in place. The respondent argues that there is a risk that the caveat may lead to the project failing, which will ultimately result in little equity remaining for the applicant.[21]
[21] Transcript 27.07.22 at p 41-3.
The respondent refers to a Victorian Supreme Court decision of Dominion Lifestyle Tower Apartment Pty Ltd v Global Capital Corporations Limited [2004] VSC 307 as being factually analogous. In that case, the caveat was not extended because doing so would have held up, if not destroyed the proposed development.[22] However, a condition of the caveat being removed was that the applicant agree to give to the respondent a charge over some or all of the unsold apartments to secure the payment of the application fee in that case.
[22] Transcript 27.07.22 at p 37-8.
The respondent contends that the delays caused by the caveat remaining in place is leading to it incurring significant financial penalties from its other lenders.[23]
[23] Transcript 27.07.22 at p 40.
The respondent submits that damages would be an adequate remedy.[24]
[24] Transcript 27.07.22 at p 41.
During the course of the hearings the respondent offered alternative forms of security which they submitted would protect the applicant or tip the balance of convenience in the respondent’s favour. One proposal was that the respondent be restrained and injuncted from dealing with the first $381,642.50 of net proceeds realised from the development which would otherwise be paid to the respondent in the nature of profits.[25] This proposal was refined during the hearing on 23 August 2022. Proposed draft orders were handed up to reflect the respondent’s open proposal. The proposed orders relevantly provided for the removal of the caveat and that:
3.The Respondent must pay to the Andreyev (Adelaide) Pty Ltd law practice trust account, the first $381,642.50 (the Controlled Amount) of net proceeds payable to the Respondent upon settlement of sales of blocks in the Development, such obligation to continue until a sufficient number of blocks have been sold to generate the Controlled Amount.
4.The Controlled Amount is to be held in Andreyev Lawyers’ trust account until further order.
5.Pursuant to rule 111.1(1) of the Uniform Civil Rules 2020 (SA), the Respondent be restrained and injunction is granted restraining it, whether by itself, its servants or agents, from dealing with the Controlled Amount (or any part thereof) until it has satisfied the order in paragraph 3.
[25] Affidavit of Joel Paul Nathan Poulish sworn on 11 August 2022 (FDN 19) [4].
Conclusion
On the evidence on the application, I am satisfied that the applicant has established a prima facie case that, on the signing of the Term Sheet and the payment of the Commitment Fee by the respondent, there was a binding agreement between the parties on the terms set out in the Term Sheet. Further, that whilst there is a genuine dispute as to the correct interpretation of the Term Sheet, I am satisfied for the purpose of the application that the Term Sheet creates an obligation on the respondent to pay those amounts claimed by the applicant and that it has created a proprietary interest in the land which is the caveatable interest claimed by the applicant.

The benefit of the proprietary interest in the land to the applicant is that it provides specific security for the payment of the amount claimed pursuant to the Term Sheet.
The removal of the caveat would have the effect for all practical purposes of destroying the applicant’s proprietary interest in the land and would leave the applicant as an unsecured creditor in relation to the amount claimed.
It is apparent from the material that the respondent will require funding to progress the development. I am concerned on the evidence before me that if the caveat is removed, other financiers may take security in preference to the applicant in circumstances where the applicant’s proprietary interest is earlier in time than that of any subsequent financier.
For the purpose of considering where of the balance of convenience lies it can be accepted that the presence of the caveat, albeit a permissive caveat with the amount it is protecting having been quantified at $381,642.50 made it difficult for the respondent to obtain finance and that without finance the development could not proceed. Mr Doherty in his affidavit sworn the 22^nd of August 2022 said that in his experience the existence of a caveat would not prevent a lender from considering an application for finance. On all of the material before me, I am not satisfied that the presence of the caveat, of itself, would necessarily prevent the respondent from obtaining finance to enable it to undertake the Development.
I am not satisfied that the draft order proposed by the respondent addresses the issues sufficiently to tip the balance of convenience in its favour. The order contemplates payment into a solicitor’s trust account of the first $381,642.50 of ‘net proceeds payable to the respondent upon settlement of sales of blocks on the development’. An immediate difficulty with that concept is the uncertainty as to the meaning of ‘net proceeds’. It is not difficult to anticipate that any financier advancing funds may require repayment of funds advanced as blocks are sold. It may be that there will be a requirement that results in there being no ‘net proceeds’ available from the sale of any one block until all or some of the funds advanced by a prospective financier have been repaid.
I do not consider it would be appropriate to grant an injunction in those terms as it leaves too many terms that need to be interpreted, some of which will depend as to the terms of yet to be entered into financing arrangements.
The material does not enable me to have confidence in relation to the certainty of any protection the applicant. I am not satisfied that damages would be an adequate remedy.
The net proceeds of sales of some or all of the blocks may not be able to be readily ascertained, or in fact may be zero.
The proposal does not provide for a charge over any of the Property in order to secure payment of the monies the applicant claims as owing pursuant to the Term Sheet.
The respondent also raises an issue as to the ability of the applicant to meet any undertaking as to damages.
The applicant has indicated that it is willing to consider any reasonable proposal the respondent may put forward for the provision of alternate security which provides real protection to its interest in the Property.
I am satisfied that on all of the material before me that there is a prima facie case that the relief is available. Further, I am satisfied that the balance of convenience favours an extension of the time for the removal of the caveat, which will maintain the status quo.
I give liberty to the parties to apply if other alternative security becomes available.
I will hear the parties as to the appropriate orders and the question of costs.