Pumps & Systems Pty Ltd v LP Reed Investments Pty Ltd - [2009] SADC 110

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
PUMPS & SYSTEMS PTY LTD v LP REED INVESTMENTS PTY LTD
[2009] SADC 110
Reasons for Decision of Her Honour Judge McIntyre
16 October 2009
CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - CAVEATS AGAINST DEALINGS
Application for extension of caveat pending resolution of the substantive proceedings. Whether plaintiff has a caveatable interest in the land and, if so, whether the balance of convenience justifies the extension of the caveat pending trial.
Held: That there is insufficient likelihood of the plaintiff being successful at trial to justify the extension of the caveat and that, in any event, the balance of convenience does not favour the plaintiff.
Real Property Act 1886 , referred to.
McMahon v McMahon (1979) VR 239; Re Piles Caveats (1981) QD R 81; Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198; Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] NSASC 311; Australian Broadcasting Corporation v O'Neill (2006) 229 ALR 457; Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618; Caravan & General Finance Pty Ltd v Clearview Developments Pty Ltd (1976) 15 SASR 404; Hannaford v Reilly (1994) 175 LSJS 363; Phillips v Ten Voorde [2004] SASC 17; Transfield Properties Pty Ltd v Amos (1994) 36 NSWLR 321; Sterns Trading Pty Ltd v Shteinman (1988) NSW ConvR 55-414; Jonns v Tam (1999) NSW ConvR 55-906; Sahade v BP Australia Pty Ltd [2004] NSWSC 512; Walker Corporation v Pateman (1990) 20 NSWLR 624; Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321; Beneficial Finance Corporation Pty Ltd v Multiplex Constructions Pty Ltd (1995) NSWLR 510; Black v Garnock (2007) 230 CLR 438, considered.

PUMPS & SYSTEMS PTY LTD v LP REED INVESTMENTS PTY LTD
[2009] SADC 110

Pumps & Systems Pty Ltd is a tenant of LP Reed Investments Pty Ltd (“LP”). The parties entered into a lease for 73 Manton Street, Hindmarsh for the period 1 November 2004 to 31 October 2009 with a right of renewal. LP Reed Investments Pty Ltd entered into a contract to sell the Hindmarsh property to Radio Televisione Italiana subject to the lease.
Pumps & Systems claims that it has an equitable interest in the property arising under clause 13.7 of the lease which relevantly provides:
The lessor will not offer the property for public sale at any point until such time as the lessor has offered the property to the lessee for purchase.
It lodged a caveat to protect that interest on 24 June 2009 claiming:
An equitable estate or interest in fee simple as the grantee of a option to purchase all of the caveatees interest in an estate in fee simple in the land above described under and by virtue of clause 13.7 in the Memorandum of Lease dated in or about November 2004 made between the caveator and the caveatee which lease contained a first right of refusal to purchase the land and which first right of refusal triggered an option to purchase in or about March 2009 when the caveatee executed a contract to sell the land to a third party.
The caveat was extended on an interim basis on 28 July 2009. It now seeks to extend that caveat pending resolution of the substantive proceedings.
Issues
Whether Pumps & Systems has a caveatable interest in the land and, if it does whether the balance of convenience justifies the extension of the caveat pending trial.
Legal Principles
Section 191 of the Real Property Act allows a person claiming to be interested at law or in equity in any land to lodge a caveat with the Registrar General forbidding the registration of any dealing with that land.
Any existing interest at law or in equity, which is proprietary in nature, will support both lodgement and extension of a caveat.[1]
[1] McMahon v McMahon (1979) VR 239; Re Piles Caveats 1981 QD R 81
The test for determining whether an order should be made extending time for removal of a caveat is the same as the test for the grant of an interlocutory injunction.[2] The test for an interlocutory injunction was considered by the High Court in Australian Broadcasting Corporation v O’Neill.[3]There are two enquiries that must be made:
1. Is there a prima facie case in the sense that if the evidence remains as it is there is a probability that at trial of the action the plaintiff will be held entitled to relief; and
2. Whether the inconvenience or injury which the plaintiff would be likely to suffer if the order were refused outweighs or is outweighed by the injury which the defendant would suffer if the order were made.[4]
[2] Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198 Esp Cox, J @203 and Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] NSASC 311 Kourakis, J @ para 116
[3] (2006) 229 ALR 457
[4] Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618
Background
LP apparently decided to sell the Hindmarsh property in late 2008. It says that it then undertook negotiations with Pumps & Systems in conformity with clause 13.7 of the Lease. The fact that negotiations took place does not appear to be contentious although there may be some dispute as to the precise nature and dates of the discussions. There is certainly dispute as to the legal effect of the discussions. In summary it is said that in September and October 2008 discussions took place between Mr Reed of LP and Mr Young of Pump & Systems. LP says that it proposed to offer the property for sale for an amount between $665,000 and $675,000[5].
[5] Paragraphs 8 and 9 of the affidavit of Kym Reed sworn on 20 August 2009.
On 30 October 2008 Pump & Systems made an offer of $640,000 for the property, conditional on the sale of another property at Victor Harbor.[6]
[6] Exhibit KRR-2 to the affidavit of Kym Reed sworn on 20 August 2009
LP made a counter offer on 30 October 2008, at $650,000, with deposit conditions and a regime to deal with the sale of property at Victor Harbor.[7]
[7] Exhibit KRR-3
Pump & Systems did not accept the counter offer. It sent a fax to LP on 26 November 2008 rejecting the terms proposed concerning the need for a deposit and the non-refundable nature of the proposed deposit. It said ‘Please accept this letter as confirmation of our intent to purchase the property…Our intentions will be revoked should the sale not be made by 30 June 2009.’’
LP says that once the parties could not reach an agreement as to the essential terms of the contract it was open to it to sell the property to the public. It entered into the contract with Radio Televisione Italiano on 20 December 2008 subject to the lease with Pumps & Systems with settlement to take place on 30 June 2009.[8]
[8] Exhibit KRR-6
LP contends that if Pumps & Systems has any remedy it is only for damages. It has no proprietary interest in the land.
Does Pumps & Systems have a caveatable interest?
Pumps & Systems says that clause 13.7 represents a pre-emptive right loosely described as a right of first refusal. It should be noted that this “right of first refusal” is different to the “option to purchase” described in the caveat. That of itself in some circumstances might render the caveat invalid and an order being made for its removal.[9] However Pumps & Systems contends that when a right of pre-emption is triggered it becomes equivalent to an option thus conferring an equitable interest over the relevant property, which may be the subject of a caveat. Pumps & Systems acknowledges that this is a controversial area but relies in support of this proposition on a number of cases including Transfield Properties v Amos[10] where Santow J said
The more difficult and controversial question is whether, when the right of first refusal is, as it were, triggered by the relevant contingency, so as to then constitute an option to the grant to exercise such right and thereby acquire the relevant property, subject to compliance with the terms of the right of first refusal, does from this point the grantee of the right of refusal have an equitable interest in the land? Thus it might be said that there is no difference in principle between the situation of an option at the outset, which confers an equitable interest in land and an option which arises later upon the triggering of a right of first refusal, other than their temporal order.
[9] Caravan & General Finance Pty Ltd v Clearview Developments Pty Ltd (1976) 15 SASR 404; Hannaford v Riley (1994) 175 LSJS 363: Phillips v Ten Voorde [2004] SASC 17
[10] (1994) 36 NSWLR 321
Kearney J in Sterns Trading Pty Limited v Shteinman[11] came to a similar view
Once the right of first refusal had been triggered it was converted to an option to purchase giving the grantee an equitable interest in the land capable of defeating a later equitable interest in a competition of priorities.
[11] (1988) NSW ConvR 55-414
The plaintiff also referred to Jonns v Tam[12] where Santow J said[13]
The balance of opinion at single judge level in New South Wales, favours the view that a triggered right of pre-emption confers an equitable interest in land, though no Court of Appeal judgment has finally settled the issue.
[12] (1999) NSW ConvR 55-906
[13] at page 341
Pumps & Systems argues that its right of pre-emption or first refusal was triggered when LP entered into the contract for sale and purchase with Radio Televisione thus creating an equitable interest akin to an option in its favour. This forms the basis of its caveat.
LP contends that the Memorandum of Lease is not in the form of an option, nor did it contain a first right of refusal. It further argues that clause 13.7 was triggered once LP formed the intention to sell the property and was satisfied by it entering into negotiations with Pumps & Systems.
I must say I find LP’s position as to the trigger more appealing than that of Pumps & Systems. It seems a curious outcome, in terms of the wording of clause 13.7, if the trigger was LP entering into a contract with a third party. However, Pumps & Systems says that, even if I accept LP’s position that the trigger was the decision to sell the property, this does not matter. The issue is whether the right of pre-emption in this case remains a mere equity or whether an equitable interest has been triggered either by LP’s decision to sell or by the contract with Radio Televisione. The difficulty with this proposition is that I do not think LP’s submission that clause 13.7 was triggered by its decision to sell carries with it an acknowledgement that the effect of the trigger was to create an equitable right equivalent to an option to purchase.
LP contends that an option is either an irrevocable offer or a conditional contract. The exercise of an option gives a purchaser a right to become an unconditional purchaser by exercising the option within the relevant period provided that a legally binding agreement would be operative. LP argues that clause 13.7 does not have this effect because it does not set out any terms which would bind it to sell the land to Pumps & Systems for any particular price or on any particular terms. Specifically, there is no mechanism to determine what the price will be, LP is not obliged to accept any offer that is put and there is no mechanism to determine what the time of settlement will be and whether the contract to be entered into is subject to any conditions precedent.
The case law relied upon by Pumps & Systems is not settled. This is not necessarily fatal because of course all that is required for present purposes is a serious question to be tried. Clearly there is case law to support a proposition that a right of pre-emption may, if triggered, become an equitable right.
Even accepting that the legal controversy is resolved in favour of Pumps & Systems the case law indicates that courts must pay close attention to the actual wording of the document by which the rights are created.[14] The right Pumps & Systems contends was created is “an option to purchase”. The difficulty with that proposition is that clause 13.7 is so uncertain in its terms.
[14] Sahade v BP Australia Pty Ltd [2004] NSWSC 512
Pumps & Systems contends that certain matters can be inferred such as the fact that “offer” in context means a legally binding offer, that the price should be no higher than the price at which the vendor intends to sell and that there is an implied obligation of good faith. Whilst this may be so, the case law suggests that before a merely contractual right becomes a right that confers an equitable interest in land the conditions for the exercise of the contractual right must have all been satisfied.[15] The is further a strong body of opinion in the case law that in order to establish an equitable interest capable of supporting a caveat the terms and conditions must be such that it is possible to find offer and acceptance or, to put it another way, an enforceable contract for the sale and purchase of land.[16] As it was put, in the context of an injunction application, by Warren J in Bob Jane T-Marts Pty Ltd v Baptist Union of Victoria[17]
Ultimately the issue for consideration by me before determining whether or not to exercise the discretion to grant an interlocutory injunction is whether the plaintiff had more than a right of first refusal and arguably enjoyed an option to purchase and which interest constituted an interest in land.
[15] Sahade, note 13 above; Pritchard v Briggs & Others [1980] Ch 338; Pata Nominees Pty Ltd & Another v Durnsford Pty Ltd & Others [1988] WAR 365
[16] Walker Corporation v Pateman (1990) 20 NSWLR 624; Transfield Properties (Kent Street) Pty Ltd v Amos Aked Swift Pty Ltd (1994) 36 NSWLR 321; Beneficial Finance Corporation Pty Ltd v Multiplex Constructions Pty Ltd (1995) NSWLR 510; Palm Gardens Consolidated Pty Ltd (see above)
[17] [1999] VSC 346 at para 11
Pumps & Systems must demonstrate sufficient likelihood of success to justify the extension of the caveat pending the trial. I am not satisfied even on a prima facie basis that Pumps & Systems Pty Ltd has demonstrated sufficient likelihood of success for its contention that the contractual right in the lease became an equitable interest in the form of an option to purchase the Hindmarsh property.
Balance of Convenience
Even if I am wrong about this, I do not consider that the balance of convenience favours Pumps & Systems.
In deciding where the balance of convenience lies I must consider the risk of doing injustice to the parties and either granting or refusing the application. LP has entered into a contract with a third party which I am told is unconditional and may lead the third party to sue for breach of contract. Pumps & Systems did not lodge its caveat until 24 June 2009. This was at least eight months after it became aware that LP wished to sell the Hindmarsh property, over 6 months after the property had been sold and at least 4 months after Pumps & Systems became aware that the land had been sold to a third party. LP argues that the failure to lodge the caveat to protect its interest has meant that any equitable interest Pumps & Systems may have been able to establish ought to be postponed as a matter of law to that of the purchaser Radio Televisione.[18] I am not certain that this proposition is necessarily correct as much depends on circumstances that I am unable to ascertain on an interlocutory matter. I do however consider that the delay in lodging a caveat must weigh heavily in the exercise of the discretion. There is no explanation for the delay.
[18] Black v Garnock (2007) 230 CLR 438
Whilst Pumps & Systems has given an undertaking of damages there is no evidence to support this. The prospect of damages in view of the contract with Radio Televisione is real. Further although Pumps & Systems has made an offer to match the Radio Televisione contract this was only made as recently as 27 August 2009 in the context of these proceedings.[19]
[19] Affidavit of Matthew Dorman Exhibit MJD2
Orders
1. Application for an extension of time for the removal of the caveat refused.
2. Question of costs reserved