QBE Insurance (Australia) Ltd v JGQ Developments Pty Ltd
[2017] WASC 288
•6 OCTOBER 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: QBE INSURANCE (AUSTRALIA) LTD -v- JGQ DEVELOPMENTS PTY LTD [2017] WASC 288
CORAM: BANKS-SMITH J
HEARD: 22 JUNE 2017
DELIVERED : 6 OCTOBER 2017
FILE NO/S: CIV 1743 of 2017
BETWEEN: QBE INSURANCE (AUSTRALIA) LTD
Plaintiff
AND
JGQ DEVELOPMENTS PTY LTD as Trustees for the BROWN STREET TRUST
First DefendantREGISTRAR OF TITLES (WA)
Second Defendant
Catchwords:
Real property - Application to extend caveat - Trustee's right of indemnity and equitable lien - Whether assigned - Whether caveatable interest - Balance of convenience
Legislation:
Conveyancing Act 1919 (NSW), s 12
Transfer of Land Act 1893 (WA), s 138C
Result:
Caveat extended
Category: B
Representation:
Counsel:
Plaintiff: Mr S C M Wong
First Defendant : Mr B W Duckham
Second Defendant : No appearance
Solicitors:
Plaintiff: Moray & Agnew (Vic)
First Defendant : B W Duckham & Co
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Bashford v Bashford [2008] WASC 138
Bride v The Registrar of Titles [2015] WASC 11
Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226
Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129
Grizonic v Suttor [2011] NSWSC 471
Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360
Re Nymboida River Pty Ltd (in liq) (Unreported, QSC, 30 September 1988)
Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162
Spunter Pty Ltd v Hall [2006] WASC 6
BANKS-SMITH J:
Introduction
This application for the extension of a caveat is the third set of proceedings involving the plaintiff (QBE) and the first defendant (JGQ).
In short, the primary dispute relates to a building company called Capital Works Construction Pty Ltd (Builder) that built residential homes. QBE provided the Builder with residential home builders' warranty insurance (Policies).
In May 2011, QBE required each of the directors of the Builder, relevantly Joshua Coffey and Franko Ricci, to provide a deed of indemnity in favour of QBE (First Deed).
In August 2014, QBE required each of Mr Coffey and Mr Ricci to execute a second deed of indemnity in its favour (Second Deed). It also required JGQ, being a company that was controlled by Mr Coffey, to provide a deed of indemnity (JGQ Deed). JGQ entered into the JGQ Deed in its capacity as trustee of the Brown Street Trust.
On 7 May 2015 external controllers were appointed to the Builder. Subsequently, a large number of claims were submitted under the Policies for losses allegedly arising from defective or incomplete building works. QBE settled those claims. It commenced two proceedings in this court seeking to recover under the First Deed, Second Deed and JGQ Deed the payments it made under the Policies.
The proceedings are currently in the Commercial and Managed Cases List. The first (CIV 2289 of 2015) involves claims in the aggregate sum of $4,819,306 and the second (CIV 2971 of 2016) involves claims in the aggregate sum of $3,545,795.
JGQ has filed a defence and counterclaim in both proceedings. In short, it alleges:
(a)JGQ executed the JGQ Deed in reliance upon representations made by QBE as to the period and quantum of cover;
(b)the representations were misleading or deceptive;
(c)QBE failed to provide cover for the term and to the level of indemnity as represented; and
(d)the JGQ Deed is accordingly unenforceable and should be declared void ab initio.[1]
[1] Amended defence and counterclaim of JGQ filed in CIV 2971of 2016 on 21 June 2017 (CIV 2971 of 2016 Defence) [6]; Further amended defence and counterclaim of JGQ filed in CIV 2289 of 2015 on 21 June 2017 (CIV 2289 of 2015 Defence) [5].
JGQ also alleges the JGQ Deed should be set aside on the grounds of unconscionability.[2] It alleges the First Deed and Second Deed are also unenforceable on the basis that it says Mr Coffey and Mr Ricci entered into them contrary to the terms of the Insurance Act 1973 (Cth) and says that JGQ was a party to that offence.[3]
[2] CIV 2971 of 2016 Defence [6]; CIV 2289 of 2015 Defence [5].
[3] CIV 2971 of 2016 Defence [9.5]; CIV 2289 of 2015 Defence [6.5].
In the alternative JGQ says that it was an implied term of the insurance policies that QBE would not settle claims without giving JGQ prior notice and would only settle for reasonable amounts. It says that because there was no due notice it is not liable under the JGQ Deed.[4]
[4] CIV 2971 of 2016 Defence [15], [18]; CIV 2289 of 2015 Defence [11], [14].
Both Mr Coffey and Mr Ricci have been made bankrupt since the proceedings were issued and do not currently have a role in the litigation.
On 1 March 2017, QBE lodged absolute caveat N566465 against the title of two properties owned by JGQ (Caveat). QBE claims an interest in the land as chargee of an equitable lien pursuant to the terms of the JGQ Deed. On 19 April 2017, and on JGQ's application, the Registrar of Titles issued notices to QBE under s 138B of the Transfer of Land Act 1983 (WA) informing it that the Caveat would lapse on 16 May 2017, absent an order from this court. Accordingly, QBE has brought this application to extend the operation of the Caveat pending determination of matters relevant to the enforceability and construction of the JGQ Deed.
The operation of the Caveat has been extended on an interim basis pending the outcome of this application.
Property covered by the caveat
JGQ as trustee of the Brown Street Trust is the registered proprietor of Unit 4/22 Brown St, East Perth (Brown Street) and 60 Villena Parade, Alkimos (Villena Parade).
The certificate of title for Brown Street records a mortgage registered in favour of the National Australia Bank on 24 October 2011, a caveat lodged by Sure People Solutions Pty Ltd on 9 April 2015, a caveat lodged by Sundance Investment Group Pty Ltd (Sundance) on 13 July 2015, a caveat lodged by Jetstone Holdings Pty Ltd (Jetstone) on 28 July 2015 and the Caveat.[5]
[5] Affidavit of Brett Collier filed 9 May 2017 (First Collier affidavit), BC4, page 9.
The certificate of title for Villena Parade records a mortgage in favour of the National Australia Bank registered on 20 September 2013, a caveat lodged by Northern Corridor Developments Ltd (Northern Corridor) on 8 June 2015, the same caveats as lodged on Brown Street by Sundance and Jetstone, and the Caveat.[6]
[6] First Collier affidavit, BC4, page 11. Affidavit of Brett Collier filed 13 June 2017 (Second Collier affidavit) [7].
Relevant terms of the JGQ Deed
Under the JGQ Deed, JGQ agrees to unconditionally and irrevocably indemnify QBE for any loss or other costs or expenses incurred under or in connection with the Policies.[7]
[7] First Collier affidavit, BC4, page 15, cl 1.1.
There are trustee provisions in favour of QBE as follows:[8]
[8] First Collier affidavit, BC4, page 16.
9.Trust provisions
9.1If any party to this document acts as a trustee of a trust, the trustee warrants to us that:
(a)the trustee enters into and executes this document both in its own capacity, and in its capacity as trustee for the trust;
(b)the trust is validly created and subsisting, and that the trustee has been validly appointed as the sole trustee of the trust;
(c)the trustee is entitled to be fully indemnified out of the assets of the trust in respect of its liability under this document;
(d)this document, and any other document entered into by the trustee in connection with the insurances is duly executed and granted pursuant to and in proper exercise of its powers and trustee of the trust and all formalities of required by the trust have been complied with; and
(e)it will not cease to be the sole trustee of the trust or allow the trust to be determined or varied, or the trust assets to be disposed of without our consent.
9.2The trustee unconditionally and irrevocably assigns to us its right of indemnity against the trust assets and grants us direct access to the trust assets to recover all amounts which it does not pay under this document.
Interest notified by Caveat
QBE relies upon cl 9.2 of the JGQ Deed in support of the Caveat. The Caveat notifies that an estate or interest is claimed as follows: [9]
[A]s chargee of an equitable lien over the interest in the land of the registered proprietor … pursuant to terms of a deed dated 21 August 2014 made between the registered proprietor and the caveator.
[9] First Collier affidavit, BC4, page 2.
Legal principles
The general principles relating to an extension of a caveat under s 138C of the Transfer of Land Act are well established. They were summarised by Edelman J in Bride v The Registrar of Titles as follows:[10]
[10] Bride v The Registrar of Titles [2015] WASC 11 [11] ‑ [16] (footnotes omitted). See also Bashford v Bashford [2008] WASC 138 [42] ‑ [56].
Section 137 of the Transfer of Land Act 1893 (WA) enables a beneficiary or other person claiming an estate or interest in land to lodge a caveat. Section 138C(2) provides for the Supreme Court's powers when a caveator applies to the Supreme Court for an order extending the operation of a caveat, as follows:
'(2)On the hearing of an application under subsection (1), the Supreme Court -
(a)if satisfied that the caveator's claim has or may have substance -
(i)may make an order extending the operation of the caveat for such period as is specified in the order; or
(ii)may make an order extending the operation of the caveat until the further order of the court; or
(iii)may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;
and
(b)if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and
(c)may make such ancillary orders in relation to the application as it thinks fit.'
In assessing whether to grant the extension of the caveat the two broad issues are (1) whether the caveator's claim in respect of the estate or interest in land 'has or may have substance' and (2), whether the balance of convenience favours the retention of the caveat and the appropriate orders to be made.
The first issue is whether the caveator's claim in respect of the estate or interest in land 'has or may have substance'. This is sometimes expressed as whether the caveator can show that there is a serious question to be tried, or whether the caveator can prove a prima facie case. In assessing whether the caveator has proved that the claim has, or may have substance, the court does not ordinarily evaluate the applicant's evidence or undertake a preliminary trial.
The requirement that the caveator's claim of substance be in respect of a claim of an 'estate or interest in land' has been held to mean that the claim must concern a proprietary interest in land.
The second issue is the balance of convenience in extending the caveat. The court considers the balance of convenience when it decides whether to exercise its discretion to extend the caveat. The balance of convenience is not independent of the strength or weakness of the caveator's claim. Rather, the apparent strength or weakness of the case for relief at trial is a relevant consideration on the balance of convenience.
An important factor in considering the balance of convenience is if the failure to extend a caveat will have the effect of destroying, or substantially impairing, the benefit of the proprietary interest which is claimed.
Competing positions
There are three limbs to QBE's argument. First, it says that JGQ's right of indemnity as trustee of the Brown Street Trust is a caveatable interest. Second, it says that JGQ assigned that right of indemnity. Third, it says that in addition to the lien, JGQ has granted it direct access to the trust assets under cl 9.2.
JGQ says there has been no proper assignment of the right of indemnity because QBE did not comply with the notice of assignment provision of the applicable legislation, being the Conveyancing Act1919 (NSW). It says the JGQ Deed is not enforceable in any event for the reasons pleaded in its defence. It also says that QBE has not approached the court with clean hands because of the circumstances of its entry into the JGQ Deed. It says the balance of convenience favours JGQ because the Caveat is delaying settlement of sales of land and there is in any event no equity for QBE.
The nature of the right of indemnity
In Octavo Investments Pty Ltd v Knight,[11] the joint judgment of Stephen, Mason, Aickin and Wilson JJ sets out some critical trust principles:[12]
It is common ground that a trustee who in discharge of his trust enters into business transactions is personally liable for any debts that are incurred in the course of those transactions: Vacuum Oil Co Pty Ltd v Wiltshire(1945) 72 CLR 319. However, he is entitled to be indemnified against those liabilities from the trust assets held by him and for the purpose of enforcing the indemnity the trustee possesses a charge or right of lien over those assets: Vacuum Oil Co Pty Ltd v Wiltshire. The charge is not capable of differential application to certain only of such assets. It applies to the whole range of trust assets in the trustee's possession except for those assets, if any, which under the terms of the trust deed the trustee is not authorized to use for the purposes of carrying on the business: Dowse v Gorton (23).
In such a case there are then two classes of persons having a beneficial interest in the trust assets: first, the cestuis que trust, those for whose benefit the business was being carried on; and secondly, the trustee in respect of his right to be indemnified out of the trust assets against personal liabilities incurred in the performance of the trust. The latter interest will be preferred to the former, so that the cestuis que trust are not entitled to call for a distribution of trust assets which are subject to a charge in favour of the trustee until the charge has been satisfied: Vacuum Oil Co Pty Ltd v Wiltshire.
The creditors of the trustee have limited rights with respect to the trust assets. The assets may not be taken in execution (Savage v Union Bank of Australia Ltd (24); In re Morgan; Pillgrem v Pillgrem (25)) but in the event of the trustee's bankruptcy the creditors will be subrogated to the beneficial interest enjoyed by the trustee; Vacuum Oil Co Pty Ltd v Wiltshire; Ex parte Garland (27).
[11] Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360.
[12] Octavo Investments Pty Ltd v Knight (367).
The right of the trustee to an indemnity has been described as a first charge upon the assets vested in the trustee and as conferring upon the trustee, an 'interest in the trust property [which] amounts to a proprietary interest'.[13]
[13] Octavo Investments Pty Ltd v Knight (370); Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226, 246.
The authorities are also to the effect that the interest which arises by virtue of the indemnity and lien is a caveatable interest.[14]
[14] Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 52 ‑ 53 (Custom Credit v Ravi); Re Nymboida River Pty Ltd (in liq)(Unreported, QSC, 30 September 1988) 4 ‑ 5 (Ambrose J).
In Custom Credit Corporation Ltd v Ravi, the court confirmed that a trustee's right of indemnity with its ancillary charge or lien is a chose in action.[15] The court also held that:[16]
The right of indemnity gives the trustee access to the assets of the trust to relieve it of the consequences of its personal liability. There is, in my view, no logical difficulty in extending that principle beyond an immediate and absolute assignment (by way of an application of trust assets directly to a creditor in payment of a debt) to an assignment by way of charge to secure eventual performance of an obligation. There is simply no reason, either on authority or in principle, why the right of indemnity could not be assigned in the manner discussed.
[15] Custom Credit v Ravi (56).
[16] Custom Credit v Ravi (57).
A copy of the deed establishing the Brown Street Trust was not before the court so I am not aware of any specific terms as to JGQ's rights of indemnity. However, JGQ did not contend that Brown Street or Villena Parade were excluded assets to which JGQ could not have resort for the purpose of its indemnity. A trustee's right of indemnity is also provided under s 71 of the Trustees Act 1962 (WA) (assuming that the law of Western Australia applies to the deed establishing the Brown Street Trust).
On the basis of the authorities referred to, QBE has established an arguable case that JGQ has the benefit of a trustee's right of indemnity and ancillary lien, that such rights comprise a caveatable interest and are interests capable of assignment.
On their face, the words of cl 9.2 affect an assignment of those interests. However, even if there were some question as to the nature of the assigned interests, in my view it is arguable that in the alternative the words in that clause to the effect that JGQ 'grants us direct access to the trust assets to recover all amounts' reveal an intention to charge the trust assets in favour of QBE.
Although there are no express words creating a charge, in my view QBE's argument that a charge can be implied from the terms of cl 9.2 of the JGQ Deed has or may have substance, the threshold required on its application.
As expressed in Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd:[17]
In a contractual setting, the question is whether the contractual parties have expressly or impliedly evinced an intention to appropriate property for the discharge of a debt or other obligation and to give the creditor a present right to have the property made available.
[17] Southern Wine Corporation Pty Ltd (in liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162 [28]. See also Spunter Pty Ltd v Hall [2006] WASC 6 [23] ‑ [24].
JGQ's contention that assignment invalid
JGQ refers to the fact that under the JGQ Deed, the law of New South Wales is said to apply. It then refers to s 12 of the Conveyancing Act which provides as follows:
12Assignments of debts and choses in action
Any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same without the concurrence of the assignor: Provided always that if the debtor, trustee, or other person liable in respect of such debt or chose in action has had notice that such assignment is disputed by the assignor or anyone claiming under the assignor, or of any other opposing or conflicting claims to such debt or chose in action, the debtor, trustee or other person liable shall be entitled, if he or she thinks fit, to call upon the several persons making claim thereto to interplead concerning the same, or he or she may, if he or she thinks fit, pay the same into court under and in conformity with the provisions of the Acts for the relief of trustees.
JGQ contends that the section operates to require notice of the assignment to have been given to all creditors of JGQ on the basis that, it says, they all have an entitlement to the benefit of the trustee's lien that has been assigned. The identity of any such creditors was not disclosed, nor was it clear on what basis it was said that they had an existing right to be subrogated to the trustee's right of indemnity out of trust assets (if indeed that is JGQ's argument).
One potential difficulty with JGQ's argument is that as a matter of construction the JGQ Deed purports to assign the right of indemnity against trust assets but for a limited purpose, that is to recover amounts which JGQ does not pay under the JGQ Deed. It is obliged to pay amounts indemnified.[18] Amounts indemnified are limited to 'Loss' and other expenses incurred in connection with the policies and the JGQ Deed.[19] 'Loss' is defined to mean the aggregate of all payments made under the Policies including amounts to settle disputes, unpaid premiums and interest.[20] In other words, the assignment is to meet a certain liability.
[18] First Collier affidavit, BC4, page 16, cl 9.2.
[19] First Collier affidavit, BC4, pages 15 ‑ 16, cl 1.1, cl 11.1.
[20] First Collier affidavit, BC4, page 16, cl 11.1.
In Custom Credit v Ravi, the court confirmed it was open to assign part only of the trustee's right of indemnity: that is, that part of the right which is referable to the actual liability to which it relates. In that case, the relevant clause (cl 11.3) provided:[21]
[T]he Covenantor as beneficial owner while any moneys remain outstanding hereunder charges all the interest which the Covenantor may have or hereafter acquire in any freehold or leasehold property by way of security for payment of the monies hereby secured.
[21] Custom Credit v Ravi (46).
The Covenantor was the respondent to the application, and in effect was a guarantor of liabilities of a borrower. It was the trustee of a trust which held real property. It provided the guarantee in its capacity as trustee. The court held that the clause was effective to charge the respondent's right of indemnity as trustee and supporting equitable lien. The court continued:[22]
In my opinion, the trial judge was quite correct when he said that the right of exoneration could only be applied against the actual liability incurred but that, it seems to me, is exactly what has happened. The respondent incurred a liability to the appellant. The liability was incurred in the performance of the trust. A right of indemnity arose on the incurring of that liability. The effect of cl 11.3 is, prospectively, to set aside or apportion away the right of indemnity to the extent necessary to discharge that liability if and when it fell due. The setting aside is not absolute but by way of assignment or security for payment of that liability.
[22] Custom Credit v Ravi (57) (original emphasis).
That approach is instructive in this matter. It is not JGQ's right of indemnity as a whole that is assigned by the JGQ Deed, but only to the extent necessary to discharge the obligation under the JGQ Deed. If other creditors have rights to be indemnified by way of subrogation, those rights remain.
Such matters remain to be determined at trial but in my view do not undermine QBE's contention that its claim to a caveatable interest has substance.
QBE says that there is a real argument in any event as to whether or not s 12 of the Conveyancing Act is engaged in the circumstances of the JGQ Deed.
In this case, the assignment is by JGQ of a right of indemnity that it holds to QBE. JGQ as trustee is the assignor and QBE is the assignee. Generally, such a notice provision operates to ensure a debtor knows which entity to pay and to ensure the assignee receives payment. It protects both the debtor and the assignee. In this case, there is no third party entity in the position of a debtor. There is no debt being assigned. Nor is there a third party to a chose in action in the sense anticipated by the provision. The JGQ Deed operates so that JGQ as trustee assigns its own right to an indemnity from the trust assets of JGQ to QBE.
In any event, QBE says that whatever notice was required has been given. It says that the relevant parties are on notice by the JGQ Deed itself. JGQ as the registered owner of the properties is on notice as its former director, Joshua Coffey, was on notice as he executed the JGQ Deed. JGQ as trustee of the Brown Street Trust and QBE are on notice as parties to the JGQ Deed. Further, although Joshua Coffey is no longer a director, a replacement director, Brian Coffey, was given notice of the assignment by letter dated 23 December 2016, prior to the Caveat being lodged.[23] Section 12 of the Conveyancing Act does not require any particular form of notice.[24]
[23] First Collier affidavit, BC5, page 1; ts 27 ‑ 29.
[24] Grizonic v Suttor [2011] NSWSC 471 [25].
Taking into account all of these matters, I consider QBE has established that its claim to a caveatable interest by way of the JGQ Deed has or may have substance as required.
JGQ's contention that JGQ Deed unenforceable
It is clear from the nature of the pleaded claim that the issues between the parties involve contested positions as to the meaning of communications between the parties and reliance on representations. By way of submissions through counsel, JGQ also alleged the JGQ Deed had been entered into under duress. None of these issues can be resolved without a trial. They involve conflicts of evidence. It is not appropriate to make findings of fact in such cases.[25]
[25] Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129, 141.
I need only refer to one aspect of the evidence in order to be satisfied that QBE has an arguable case by way of its statement of claim and defence to counterclaim.
One of JGQ's complaints is that Joshua Coffey says he was misled into executing the JGQ Deed because it was represented to him that the eligibility limit provided by QBE would be $32 million. In the end, the eligibility limit provided for a certain time period was $10 million. Joshua Coffey suggests the deeds of indemnity were signed before he knew about any alleged reduction, or at least there is some controversy in that regard.[26] In particular, JGQ relies on a Certificate of Eligibility issued 29 August 2014 which refers to eligibility cover in the amount of some $33 million to 3 September 2015.[27] JGQ says that it provided to QBE all relevant information required by it.[28] JGQ says cover ceased on 16 March 2015.[29]
[26] ts 36 ‑ 39.
[27] CIV 2971 of 2016 Defence [5(f)]; affidavit of Joshua Coffey filed 25 May 2017 (Coffey affidavit), JC4.
[28] Coffey affidavit [16].
[29] CIV 2971 of 2016 Defence [5(f)].
The allegations are contradicted. QBE refers to an email dated 20 August 2014 in which Peter Lane on behalf of QBE writes to Lisa Paradiso of SRG Group (which appears to have represented JGQ in its insurance communications) and refers to various writs that have been issued against the Builder, JGQ or Joshua Coffey. The email states that deeds of indemnity will be required from the JGQ directors and JGQ.[30]
[30] Affidavit Peter Lane filed 9 June 2017 (Lane affidavit), PL1, pages 19 ‑ 20.
QBE then refers to an email from Mr Lane to Ms Paradiso providing QBE's indicative, non‑binding terms for the directors' consideration, being, relevantly, that there be an eligibility limit of $32 million up until 2 September 2014 and then $10 million from 3 September 2014 until additional information has been provided.[31] QBE denies all requested additional information was provided.[32]
[31] Lane affidavit, PL1, page 23.
[32] ts 49; Plaintiff's reply and defence to counterclaim in CIV 2971 of 2016 filed 19 June 2017 [3.1].
There is then an email dated 27 August 2014 by which it seems clear Joshua Coffey was made aware of the reduction in the eligibility limit for the period from 3 September 2014.[33] Ms Paradiso writes to Joshua Coffey saying, relevantly:
[S]ee below communication from QBE which resolves immediate problem but the outcome for the next renewal period commencing 3 september is not as good as hoped but cannot see what else you can do other than accept their conditions … it might be a good idea to push as many as possible by the 2nd sep.
[33] Lane affidavit, PL1, page 24.
There is then an email dated 28 August 2014 from Ms Paradiso to Mr Lane saying:[34]
Thanks for your promptness in reviewing this clients documentation and on discussing your non-binding terms with Josh Coffey, while he is disappointed that the renewal from 3/9 is only $10m he is ok with the security and conditions so happy to proceed.
We have attached the 2 indemnity forms for your attention.
We will now process all outstanding certificates understanding that the current eligibility has increased to $32m so there should not be any further delays and look forward to confirmation by return.
[34] Lane affidavit, PL1, page 25.
QBE says the Certificate of Eligibility was provided under cover of an email dated 29 August 2014 that referred to the Certificate of Eligibility and stated that the facility would decrease on 3 September 2014 until further information was provided.[35]
[35] Plaintiff's reply and defence to counterclaim in CIV 2971 of 2016 filed 19 June 2017 [3.3(i)(a)].
Those communications are sufficient to satisfy me that there is an arguable case that QBE has a defence with respect to matters that underlie the circumstances of entry into the JGQ Deed. Clearly, those issues will be further explored at trial, but on the face of the communications Joshua Coffey was aware of the reduction in the eligibility limit at the relevant time.
JGQ contends that QBE has not deposed to and so has not contradicted matters pleaded against it in the defence. I have reviewed the pleadings, including the reply and defence to counterclaim,[36] and have reviewed the evidence including the communications between Ms Lane and Ms Paradiso. It is clear to me from the pleadings and the evidence provided for the purpose of this application that QBE takes issue with the matters pleaded against it. It is inevitable that matters will be addressed further as the matter proceeds to trial.
[36] Plaintiff's reply and defence to counterclaim in CIV 2971 of 2016 filed 19 June 2017.
It follows that I am not persuaded that QBE has approached the court for relief with unclean hands. I cannot resolve issues such as alleged unconscionable conduct in a proceeding of this nature but in any event, I am satisfied that QBE has met the threshold of establishing that its claim has or may have substance.
Balance of convenience
JGQ asserts that the balance of convenience favours removal of the Caveat because its presence is impeding the sale of the properties. It also asserts there is no equity in the properties and so no purpose to it remaining on the titles.
As to Brown Street, Joshua Coffey deposes to it having, in his view (and based on his experience and discussions with undisclosed contacts in the industry) a value of $750,000. He says it has been marketed for a year with no success. He deposes to there being encumbrances on the title reflecting indebtedness in the sum of $767,500.[37] Bearing in mind the lack of any formal valuation and the potential for movement in the market, it is not possible to say there is or will not be any equity in Brown Street, although I accept that the amount may not be substantial.
[37] Coffey affidavit [20].
I also note, however, that there is no suggestion that the Caveat is an issue in terms of selling the property. The issue appears to be the market. There is no obvious prejudice to JGQ flowing from the Caveat.
As to Villena Parade, JGQ relies on an affidavit of a real estate agent, Raymond Armstrong.[38] Mr Armstrong deposes as follows:
(a)there has been a down turn in the market since 2014;
(b)he was approached by JGQ to market Villena Parade;
(c)he was instructed that subdivision had been approved for eight residential lots ranging from 202 m2 to 292 m2;
(d)on those instructions the average price of the blocks was $140,000;
(e)the response to advertising was negligible;
(f)there is no market to sell the land in one lot; and
(g)Mr Coffey told him that the registration of the subdivision plan has been frustrated by QBE's Caveat.
[38] Affidavit of Raymond Armstrong filed 25 May 2017.
Further, JGQ says that it was ready to proceed to finalise subdivision and sale of the property with the consent of the chargees in March 2017, but this was impeded by QBE's Caveat.[39] The evidence that JGQ relies upon is a letter sent by Rianna Davies of Vicki Philipoff Settlements on 27 March 2017 to JGQ, which reads as follows:[40]
Hi Josh
We have done a Check Search prior to lodgement today and it has come up with a fresh Caveat to QBE.
Can you please advise on this as we are not able to complete lodgement without a further Withdrawal here?Thanks
[39] Coffey affidavit [21].
[40] Coffey affidavit, JC5.
There are difficulties with this evidence in terms of weight. For a start, the price placed on the lots was 'on instructions'. There is no independent evidence of market price, even on a curb side basis. Joshua Coffey says he received advice from (undisclosed) agents that the englobo valuation of the land was $600,000. There is no evidence that the lack of finalisation of the subdivision plan had any impact on the appetite for sales. The properties were advertised for sale regardless and there was no interest.
Although there is evidence of provision of withdrawals of caveats by Sundance and Jetstone (as at March 2017),[41] there is no evidence of a withdrawal of caveat being provided by the first caveator, Northern Corridor. Nor is there evidence of the mortgagee's position as to a sale. There is no evidence that JGQ offered to invite QBE to lift the Caveat and re‑lodge it once the subdivision plan was accepted. There is evidence of a letter demanding the Caveat be lifted to permit the lodgement of the subdivision application to proceed,[42] but there is no offer to re-lodge following any approval. There is also evidence that QBE through its lawyers made inquiries of JGQ as to the status of the lodgement of plans for subdivision and the position of the other caveators.[43] Such communications are consistent with the submission made by counsel for QBE that there should be liberty to apply and if a situation is to change (which in context I take to include a request for withdrawal for the purpose of subdivision approval and subsequent re-lodgement, and also if there is an offer to purchase) then the parties could come back and fashion an order to address such change in circumstances.[44]
[41] Second Collier affidavit, BC5, pages 98 ‑ 102.
[42] Coffey affidavit, JC6. Also ts 46.
[43] Second Collier affidavit, BC5, page 90.
[44] ts 23.
Absent evidence of any market for the properties or evidence of sales that have been threatened as a direct result of the presence of Caveat, I am not satisfied that the Caveat is a source of sufficient prejudice to JGQ to weigh the balance of convenience in its favour. Presumably if an offer for a lot were received, negotiations with all parties with an interest in the property would ensue and it may well be possible for the Caveat to be lifted insofar as any particular title is concerned. That practical issue has not been explored by JGQ. A usual liberty to apply order would facilitate the parties approaching the court if an offer were in fact received for a lot.
JGQ says that due to various encumbrances over Villena Parade, a sale of the property englobo would result in a negative equity of $192,500.[45] However, based on Mr Armstrong's evidence, if the subdivision were finalised and the eight lots were sold for $140,000 each, the gross proceeds would be $1,120,000. Joshua Coffey deposes to there being encumbrances on the title reflecting an indebtedness of $792,500. Therefore, even assuming that the valuations ascribed to the lots by Joshua Coffey are accurate, then on its face there is potentially equity in Villena Parade.
[45] Coffey affidavit [20].
As to other matters relevant to the balance of convenience, QBE refers to the fact it has provided an undertaking as to damages. It also relies on the fact that Brown Street and Villena Parade are the only assets available to it as to which there might be some recourse assuming it succeeds in its claim against JGQ. The directors are both bankrupt and it is assumed there is no prospect of any recovery from them. QBE points to a lack of evidence of prejudice from the presence of the Caveat, and that neither Brian Coffey nor any other current officer of JGQ has deposed to there being any prejudice.
Taking into account all of those matters, and the fact that proceedings are already on foot to resolve the underlying disputes between the parties, I consider that the balance of convenience favours the extension of the Caveat.
Proposed amendment to Caveat
QBE raises a question as to the wording of the Caveat. Whilst not put in issue by JGQ and QBE did not concede there was any difficulty, QBE noted that there might be an argument that whilst the Caveat explains the nature of the caveatable interest, it does not set out the extent of such interest. QBE suggested an amendment to the effect that the interest could be described as being as holder of an equitable lien over the interests of JGQ to the extent of the amount that JGQ fails to pay under the JGQ Deed.[46]
[46] ts 26.
The principles as to amendment of a caveat are summarised by Beech J in Bashford v Bashford.[47] In short, amendment may be permitted so as to enable the caveat to express better or more fully the interest which is claimed in the caveat. However, amendment is not permitted so as to alter the interest which is claimed and therefore claim a different interest. The court in that case permitted an amendment to specify the extent of the interest of an equitable co‑owner.
[47] Bashford v Bashford [51].
I am satisfied that an amendment in the terms suggested is permissible. The amendment spells out in more detail the extent of the interest claimed but does not assert a different interest.[48]
[48] Bashford v Bashford [92] ‑ [94].
Outcome
The application to extend the operation of the Caveat pending further order is granted, with liberty to apply. The parties are to provide a minute of proposed orders.
0
7
2