Qin v Smith
[2013] VSC 158
•12 April 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
PRACTICE COURT
No. 5748 of 2012
| KATRINA QIN | Plaintiff |
| v | |
| SIMON SMITH and KAREN SMITH | Defendants |
---
JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 February 2013 | |
DATE OF JUDGMENT: | 12 April 2013 | |
CASE MAY BE CITED AS: | Qin v Smith | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 158 | |
---
REAL PROPERTY – Caveat – Application to remove caveat – Transfer of Land Act 1958 s 90(3) – Serious question to be tried – Estate or interest in land – Balance of convenience
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Watters | Victor Tse & Associates |
| For the Defendant | Mr T Sowden | Ken Smith & Associates |
HER HONOUR:
Issue for Determination
The issue for determination is whether the Court should exercise its discretion under s 90(3) of the Transfer of Land Act 1958 (‘the Act’) to remove a caveat lodged by a purchaser claiming an interest in property pursuant to a contract of sale.
Factual Background
By contract of sale dated 25 July 2012, the plaintiff (‘the purchaser’) purchased from the defendants (‘the vendors’) the property situate at and known as Unit 312, 86 Macaulay Road, North Melbourne, being the property described in Certificate of Title Volume 11227 Folio 345 (‘the property’). The purchase price was $417 000, with settlement due on 24 September 2012. The contract provided that vacant possession of the property be given on settlement.
Vacant possession of the property was a specific requirement on the part of the purchaser, as she intended to move into the property. Prior to signing the contract, the issue of vacant possession of the property was raised by the purchaser with the vendors’ agent. The agent informed the purchaser that he had mentioned to the vendors that she required vacant possession.[1] At that time, the agent informed the purchaser that he would insert a special condition that would ‘void’ the contract in the event that vacant possession was not provided. The contract ultimately provided that the sale was not subject to any lease, but the special condition was left out. The words ‘not applicable’ were inserted under general condition 1.1, which governed any lease, and the clause was initialled by both the vendors and the purchaser.[2]
[1] Affidavit of Katrina Chao Qin sworn 15 February 2013, [4]; Exhibit KQ-001 to the Affidavit of Katrina Chao Qin sworn 15 February 2013.
[2] The purchaser submitted that, because of cl 1.1, she considered it unnecessary to insert the special condition.
Prior to signing the contract, the purchaser was provided with a statement required by s 32 of the Sale of Land Act 1962, signed by the vendors (‘the vendors’ statement’). The vendors’ statement dated 25 July 2012 disclosed a lease signed by the vendors more than six months earlier, with an expiry date of 4 January 2013. The vendors rely on this fact to show that the purchaser was aware that the property was subject to a lease before she signed the contract of sale.
After the contract was signed, the vendors, through their agent and their solicitors, informed the purchaser that the tenants had refused to vacate the property by the settlement date and that the vendors would not be able to give vacant possession. The purchaser was told that she could either cancel the contract or purchase the property subject to the lease. The purchaser, through her solicitors, informed the vendors that she wanted vacant possession of the property on the settlement date. Negotiations continued between the parties but a compromise was not reached.
On 20 September 2012 the purchaser lodged a caveat on the title to the property claiming an interest in the property by reason of the contract of sale. On 21 September 2012, the purchaser’s solicitors informed the vendors’ solicitors that the purchaser was willing and able to settle on 24 September 2012, provided that vacant possession of the property be given on settlement.
Settlement did not occur on 24 September 2012. On the same day, the vendors served a notice of default on the purchaser alleging a failure to pay the residue of the purchase price on the due date and providing notice that, if the default was not remedied within 14 days, the contract would be terminated. The purchaser has not paid the balance of the purchase price. The vendors claim that the contract has been terminated.
On 10 October 2012, the purchaser issued proceedings against the vendors seeking specific performance of the contract and an injunction restraining the vendors from terminating the contract on the basis of the rescission notice served by the vendors. It stated, inter alia:
a) the failure to settle arose from the vendors’ failure to provide vacant possession on the settlement date;
b) the vendors were entitled to serve a notice to vacate on the tenants under s 259(2A) of the Residential Tenancies Act 1997 and did not do so;
c) the failure to settle by the vendors was a breach of contract and a breach of their contractual duty of cooperation to do all things necessary to enable the purchaser to have the benefit of the contract;
d) the purported termination of the contract was unconscientious, as the vendors breached the contract by not providing vacant possession on the settlement date; and
e) at all times the purchaser was ready, willing and able to comply with her obligations under the contract.
By a defence and counterclaim, the vendors maintain, inter alia:
a) at all times the purchaser knew the property was subject to a lease and that there were tenants in possession of the property;[3]
[3] The vendors rely on the vendors’ statement and oral statements made by the vendors’ agent to the purchaser prior to 25 July 2012.
b) they were not under any obligation to serve a notice under s 259(2A) of the Residential Tenancies Act 1997 and any failure to do so was not a breach of contract;
c) there was not any breach of contract or unconscionable conduct on their part;
d) a failure to deliver vacant possession does not constitute grounds to refuse to settle the contract or for specific performance where the purchaser has failed to pay the balance of the purchase price; and
e) to the extent that the contract purports to confer a right to vacant possession, the contract contains a mistake entitling the vendors to an order for rectification of the contract to include the lease in the special conditions of the contract.
In response, the purchaser says that any mistake as alleged was unilateral and, in the absence of unconscionable conduct, the vendors are not entitled to rectification of the contract for unilateral mistake.
Applicable Principles
Section 90(3) of the Act provides:
Any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit.
The relevant principles with respect to an application under s 90(3) of the Act were summarised by Warren CJ in Piroshenko v Grojsman:
Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. In so far as their registration is an administrative act, it is when application is made for their removal that the onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief. … This two-stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish that the balance of convenience favours the maintenance of the caveat on the Register of Titles until trial.
…
Therefore, consistently, in order for a caveator to satisfy the first limb of the test applied by the courts when deciding applications under s 90(3) of the Act, he or she must satisfy the court that:
1.there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and
2.that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.[4]
[4] (2010) 27 VR 489, 491, 493 (citations omitted).
As explained by Macaulay J in Percy & Michele Pty Ltd v Gangemi:
The reference to ‘probability’ in the first limb of what her Honour said must be satisfied is plainly qualified by the character of that probability as described in the second limb. Recalling what the High Court said in Australian Broadcasting Commission v O’Neill, showing a ‘prima facie case’ does not mean that a plaintiff must show that it is more probable than not that he or she will succeed at trial.[5]
[5] [2010] VSC 530 (24 November 2010) [47].
Serious Question to Be Tried
In order to establish that there is a serious question to be tried, the caveatrix must establish a ‘prima facie case with sufficient likelihood of success to justify the maintenance of the caveat’.[6]
[6] Piroshenko v Grojsman (2010) 27 VR 489, 494.
For the purposes of this proceeding, the onus falls on the purchaser as the caveatrix to establish that she has an interest in the property by reason of the contract of sale for the purchase of the property. As stated by Warren CJ:
Caveats are not ‘bargaining chips’. It is not sufficient for the caveator to establish a prima facie case that they have contractual, equitable or statutory rights against the caveatee; their interest or rights must attach to the property with respect to which the caveat has been lodged.[7]
[7] Ibid 495.
Purchaser’s Submissions
In arguing that the caveat should not be removed, the purchaser relies on the following:
a) the vendors represented to the purchaser that vacant possession of the property would be given on settlement;
b) the fact that the lease was included in the vendors’ statement is not relevant, because it merely discloses that a lease existed at that time. It does not mean that vacant possession would not be given, particularly where the contract specifically provides for vacant possession on settlement;
c) the vendors failed to provide vacant possession on settlement yet insist that the purchaser pay the purchase price on the settlement date and take the property subject to the existing lease;
d) the vendors maintain they are not under any obligation to provide vacant possession to the purchaser, which is unconscientious in the circumstances;
e) if settlement subject to the existing lease had occurred, the purchaser would then have been exposed to the obligations of being the landlord to the tenants of the property, an obligation that she neither wished to take on nor agreed to take on at any time;
f) the purchaser has always said that while seeking performance she was ready, willing and able to settle and continues to be ready, willing and able to settle provided that vacant possession of the property be provided; and
g) a claim for rectification of the contract by the vendors is untenable where the clause providing for vacant possession of the property has been initialled by both the purchaser and the vendors.
The purchaser also submitted that the vendors agreed to a settlement period that would not enable them to exercise their statutory right under s 259 of the Residential Tenancies Act 1997 to terminate the lease on the grounds that it was sold to a purchaser who required vacant possession. The purchaser submitted that this was conduct that should be held against the vendors, who knew there was a lease, signed a contract that provided for vacant possession and yet did not have a reasonable basis for contracting to provide vacant possession.
The purchaser relied on Tanwar Enterprises Pty Ltd v Cauchi (‘Tanwar’)[8] and Aussie Invest Corporation Pty Ltd v Pulcesia Pty Ltd[9] and referred in particular to the following paragraphs in Aussie Invest Corporation Pty Ltd v Pulcesia Pty Ltd, in which Dodds-Streeton J explained the decision of Tanwar as follows:
They [the High Court in Tanwar] recognised that where a valid termination of contract had occurred, a defaulting purchaser could nevertheless seek specific performance of the contract on the basis of the vendor’s unconscientious reliance on its contractual right to terminate.
…
They [the High Court in Tanwar] stated:
What Lord Wilberforce in Shiloh Spinners[10] called ‘the special heads of fraud, accident, mistake or surprise’ identify in a broad sense the circumstances making it inequitable for the vendors to rely upon their termination of Tanwar’s contracts as an answer to its claim for specific performance. No doubt the decided cases in which the operation of these ‘special heads’ is considered do not disclose exhaustively the circumstances which merit this equitable intervention.[11]
[8] (2003) 217 CLR 315.
[9] (2005) 13 VR 168.
[10]Shiloh Spinners v Harding [1973] AC 691.
[11]Ibid 199–200.
In summary, the purchaser submitted that the vendors had acted unconscientiously against her in alleging that she had breached the contract by not having paid the balance of the purchase price. This was in circumstances where the vendors refused to provide vacant possession of the property on settlement. The purchaser submitted that it was unconscientious for the vendors to insist on strict compliance with the purchaser’s side of the bargain when the vendors were at no stage prepared to comply with their side of the bargain, that is, to provide vacant possession of the property at settlement. The purchaser relies on the decision in Tanwar to support her argument that the purchaser can seek specific performance of the contract in these circumstances.
By further written submissions dated 6 March 2013, the purchaser submitted that the vendors’ purported termination of the contract by notice of default was ineffective, with the result that the purchaser’s caveatable interest in the land pursuant to the contract of sale remains in tact. It was submitted that, because the obligation of the vendors to provide good title and that of the purchaser to pay the balance of the purchase price were presumptively ‘concurrent and mutually dependent’,[12] the failure of the vendors to provide vacant possession in this case relieved the purchaser of its obligation to pay the purchase price on the settlement date.
[12] Foran v Wight (1989) 168 CLR 385, 396 (Mason CJ), 417 (Brennan J), 433 (Deane J), 450 (Dawson J), 455 (Gaudron J).
In Foran v Wight, Brennan J explained:
Where the respective obligations of parties to a contract are mutually dependent and concurrent, the primary rule is that neither party who fails to perform his obligation when the time for performance arrives can rescind for the other party’s failure at that time to perform his obligation. Each party’s obligation is conditional on performance by the other; neither can complain of non-performance by the other when the condition governing the other’s obligation goes unfulfilled. But if one party intimates to the other that it is useless for the other to fulfil his obligation and the other acts on the intimation, the party to whom the intimation is given is dispensed from a nugatory tender of performance.[13]
These principles were more recently referred to with approval in Seachange Management Pty Ltd v Pital Business Pty Ltd, in which Maxwell P and Nettle JA said:
it is commonplace for parties to enter into an agreement for the sale of land or goods at a time when it is known that the vendor may have no title, or only defective title, but upon the basis that the vendor will have acquired good title by the time of completion. In such cases — be they for the sale of land or goods — the obligation to pay the purchase price and the obligation to make good title are usually mutually dependent and concurrent obligations, to be performed in exchange for each other.[14]
[13]Ibid 417.
[14](2009) 23 VR 396, 415 (citations omitted).
The purchaser submitted that cl 10.1 of the contract of sale was cast in terms that supported the presumption of concurrency and that there was nothing to suggest that either party had to ‘go first’. It was further submitted that the letter of Ken Smith and Associates dated 17 September 2012 showed that the vendors had no intention of complying with their obligation to provide vacant possession and that this amounted to an intimation to the purchaser that it was useless for her to fulfil her obligation. Accordingly, the purchaser was dispensed from providing nugatory performance, the contract remains on foot and the grounds for the caveat are sustained.
For those reasons, the purchaser submitted that there was a serious question to be tried and the purchaser had ‘a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat’.[15]
[15]Piroshenko v Grojsman (2010) 27 VR 489, 494.
Vendors’ Submissions
The vendors submitted that any claim that the purchaser might have against the vendors sounds in damages and that, where a purchaser fails to pay the balance of the purchase price due under a contract of sale consequent on a failure to provide vacant possession, he or she is not entitled to specific performance, because any loss flowing from the failure sounds in damages.[16]
[16]Thomson Reuters, Voumard: The Sale of Land (at November 2012) [9290].
The vendors also submitted that a breach of contract does not relieve a purchaser from the obligation to pay the purchase price. He or she may have a cause of action sounding in damages, but it is in the nature of a cross-claim or counterclaim.[17] This being the case, the notice is valid and the contract is at an end.[18]
[17]King v Poggioli (1923) 32 CLR 222, 248.
[18]Eagle Star Nominees Ltd v Merril [1982] VR 557, 560.
In support of their submissions, the vendors relied on King v Poggioli[19] and Eagle Star Nominees Ltd v Merril.[20]
[19](1923) 32 CLR 222.
[20][1982] VR 557.
In King v Poggioli, the appellant agreed to sell the respondent certain farming land with possession to be given on a named day, when the balance of the purchase price would be paid and transfers executed. The respondent claimed specific performance and damages as compensation for the appellant’s delay in delivering possession and for the appellant’s retention and use of the land in the meantime, with damages to be deducted from the balance of the purchase price upon completion of the contract. It was found that the appellant had refused to give possession to the respondent on the named day. It was held that the damages for breach of contract arising out of failure to deliver possession in accordance with the contract were unliquidated damages and could not, therefore, be the subject of abatement of the purchase money. The purchaser was not entitled to specific performance because he had failed to prove his readiness and willingness to perform his part of the contract, as he had refused to pay the balance of the purchase price except subject to an abatement of damages that, although recoverable at law, was not recoverable in a suit where the plaintiff was not entitled to specific performance.
In Eagle Star Nominees Ltd v Merril, the purchaser of land failed to pay instalments due under a terms contract and he claimed that the failure to pay was justified and did not constitute a default under the notice. The purchaser claimed that there was a collateral obligation (not expressed in the contract of sale) that he was entitled to set off his claim for unliquidated damages under the collateral obligation against the instalments due by him under the contract of sale. Tadgell J held that a claim for unliquidated damages may not be raised by a purchaser of land to resist a claim by the vendor for possession or for payment of the purchase price unless the purchaser’s claim can be said to impeach the title to the vendor’s legal right.
By further written submissions, the vendors submitted that the requirement to provide vacant possession was not an essential term and that breach of that term would give rise only to an action in damages.
The mutually dependent obligations referred to in Foran v Wight were ‘[t]he obligation of the vendor to deliver a conveyance and the obligation of a purchaser to pay the price on completion’.[21] The purchaser was not entitled to refuse to pay the balance of the purchase price ‘on the ground of some breach of contract sounding in damages only and in no wise lessening or deteriorating the value of the property purchased’.[22]
[21]Foran v Wight (1989) 168 CLR 385, 417.
[22]King v Poggioli (1923) 32 CLR 222, 249.
Counsel for the vendors also relied on Re Whem Constructions Pty Ltd’s Caveat[23] in support of the submission that breach of a represention to give vacant possession sounds only in damages. In that case the purchaser claimed that, before the contract was entered into, the vendor’s agent had represented that the property ‘had not been filled’ when in fact there was ‘a good deal of filling on the block’. On the date for settlement of the contract, the purchaser tendered an amount $3 000 less than the contracted amount, which was to represent an abatement of the purchase price in respect of the alleged misrepresentation. The vendor rejected the tender and delivered a notice requiring that the purchaser pay the full amount owing. The purchaser then lodged a caveat. Later that month, the vendor served a notice of rescission of the contract, on grounds that the purchaser had defaulted in not paying the contracted purchase amount. It was held that, because the vendor had refused to pay the purchase amount except subject to an abatement by way of compensation, the vendor had validly terminated the contract and the caveat was not sustainable.
[23] [1982] Qd R 177.
Conclusions
In my view, the purchaser has a prima facie case with sufficient probability of success, whether on the argument that it was unconscientious for the vendors to rely on their contractual right to terminate or that the purchaser was relieved of her duty to perform. In this case, one party was unable or unwilling to perform its obligations under a contract and that party now seeks to avoid liability for its own breach by cancelling the contract on the basis of the other party’s breach. The purchaser’s claim, in my view, does not sound only in damages but may impeach the title to the vendors’ legal demand. This is a sufficient basis to justify the caveat’s remaining on the title to the property.
In Australia, an innocent party must be ready, willing and able to perform his or her obligations under a contract if there is a call for performance, such as an action for specific performance or injunction.[24] Further, a party should not be seen to be benefitting from its own wrong if it seeks, by cancellation, to deprive the other party of the benefit of the contract in circumstances where the other party’s breach is the direct result of a breach committed by the party seeking to cancel the contract.
[24] J W Carter, Carter’s Breach of Contract (LexisNexis Butterworths, 2011) 313.
I am also satisfied in the circumstances that the purchaser’s argument that the respective obligations of the vendor and the purchaser were presumptively ‘concurrently and mutually dependent’, and that the purchaser was therefore relieved of the need to fulfil her obligation to provide payment, raises ‘a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat’.[25]
[25]Piroshenko v Grojsman (2010) 27 VR 489, 494.
In my view, King v Poggioli and Eagle Star Nominees Ltd v Merril, which the vendors rely on to support their submission that the purchaser’s claims sound only in damages, can be distinguished from the present scenario, both factually and legally. In this case, the purchaser is not seeking an abatement of the purchase price and she is ready, willing and able to pay it, provided that vacant possession be given. Further, the claim by the purchaser against the vendors, if successful, would directly impeach the title to the vendors’ legal demand.
In my opinion, Re Whem Constructions Pty Ltd’s Caveat does not assist the vendors. That case concerned the purchaser’s refusal to pay the purchase price except subject to an abatement. There was no defect in title: the caveat was alleged to be supported by a mispresentation made collateral to the contract and by operation of the provisions of cl 6 of the contract of sale. Here, the purchaser seeks no abatement in the purchase price and remains ready, willing and able to perform, provided that the vendors perform their contractual obligation to provide vacant possession.
For these reasons, the likelihood of success of the interest claimed in the caveat is sufficient to justify the caveat’s remaining on the title of the property.
Balance of Convenience
When considering the balance of convenience, the Court of Appeal said of this test:
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the [Lord] Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[26]
[26]Bradto Pty Ltd v State of Victoria (2006) 15 VR 65, 73.
The vendors submitted that the balance of convenience favoured the removal of the caveat for the following reasons:
a) The property was sold by the vendors against the background of a matrimonial split up. The property was an investment property and was encumbered with a mortgage of an amount equal to the purchase price under the contract of sale.
b) The property is now untenanted and the vendors have lost the income stream derived from the rental of the property since the tenants vacated the property on 4 January 2013.
c) It is crucial that the vendors place the property back on the market so that it can be resold immediately; the caveat on the property is an obstacle to that occurring.
The purchaser submitted that the balance of convenience favoured the purchaser for the following reasons:
a) The purchaser has always wanted to complete the purchase of the property and is ready willing and able to do so. She purchased the property to live in it.
b) The breach alleged by the purchaser is not necessarily compensable in damages.
c) If the property is resold, the purchaser will not be able to obtain specific performance and her proceedings will be futile.
d) Any loss suffered by the vendors can be compensated by damages.
In my view, the continuation of the caveat on the title of the property pending the hearing of the proceeding is necessary to protect the purchaser’s claim in the proceeding. This course carries the lower risk of injustice because, if the caveat were removed, the purchaser would lose the opportunity to complete the purchase of the property, which she still wishes to do. The reasons relied on by the vendors on the balance of convenience issue fail to take account of the strength of the purchaser’s claim against them and would not allow the purchaser to complete the purchase of the property.
Conclusion
I dismiss the vendors’ application for removal of the caveat.
I shall hear the parties as to the appropriate orders for any further directions to be made in the proceeding and setting the proceeding down for trial.
I shall also hear the parties as to the costs of the application.
---
4
0