RJ Stock Nominees Pty Ltd v Cityedge Apartments Pty Ltd
[2013] SADC 64
•21 May 2013
District Court of South Australia
(Civil)
RJ STOCK NOMINEES PTY LTD v CITYEDGE APARTMENTS PTY LTD
[2013] SADC 64
Judgment of His Honour Judge Tilmouth (ex tempore)
21 May 2013
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS
Application to extend caveat refused on substantive and discretionary grounds. Turns on own facts.
RJ STOCK NOMINEES PTY LTD v CITYEDGE APARTMENTS PTY LTD
[2013] SADC 64
There is before the court an application for an extension of a caveat lodged by the plaintiff over a cluster of Home Units at Brompton, a suburb adjacent to the West parklands surrounding the city. The application is opposed.
In June 2010 the plaintiff entered into an agreement with a number of proprietary companies and an individual Hayssam Hamra, by which it lent to those parties jointly and severally the sum of $250,000 in June 2010. The first named borrower was Salbee Pty Ltd. In the schedule of special conditions, it is specifically stated that the sum so loaned was to be applied ‘to the development of apartments’ on the property in question. Salbee acquired the land on 31 March 2010.
The land on which the Units were to be built was sold, Salbee Pty Ltd, to the defendant on 20 April 2012 at a time when it was completely undeveloped. Contracts for the building aspects of the development were let in late 2012. It is contemplated the entire development will take some 12-13 months and cost $9 m in round figures. The court has been advised from the bar table that construction has proceeded into five months of the expected cycle. On any view of the facts the project is far from the stage of practical completion.
The interest in law or equity over the land for the purposes of s 191 of the Real Property Act 1986 (SA), is said to derive from special condition item 5(c) of the Loan Agreement. In this clause the applicant was effectively conferred an option for repayment of the principal amount by the transfer to it of a specified unit in the development in lieu of repayment.
That portion of the agreement reads:
Schedule
Item 5 Special Conditions
(c) Manner of Repayment
The Lender may be written notice given to and received by the Borrower within 1 calendar month after the Development reaches the stage of practical completion (as determined by the builder of the Development) require the Borrower to transfer to the Lender at all things at the cost of the Lender (including without limitation stamp duty and registration fees) “Apartment 304” in the Development (hereinafter “Option 1”);
This condition is said to confer a constructive trust as against the borrowers creating a sufficient legal or equitable interest in the land so as to sustain the caveat. Just how that relates to the defendant Cityedge Apartments Pty Ltd, who was not a party of the agreement, will be dealt with shortly.
An initial problem with the submission arises from the terms of special condition 5(c)(vii):
(vii) If the Borrower sells the entire Development to a third party before it reaches the stage of practical completion (as determined by the builder of the Development), notwithstanding that the Lender may have entered into a contract with the Borrower for the purchase of an apartment under Option 1, the Borrower may notify the Lender of the same, in which case the Lender agrees that the Lender shall not be entitled to such apartment (and agrees to terminate such contract) and will instead be entitled to elect whether to accept either the Principal and Interest provided for under Option 2 OR the Principal and Interest with the Interest being FIFTEEN (15) per cent of the Borrower’s profits associated with the sale of the Development (as determined by the Borrower having regard to the Borrower’s net profits …
The plain fact of the matter is that well before the caveat was lodged, the development was sold to the respondent. As a matter of simple construction the option which founds the caveat was discharged by the sale. Accordingly no interest in land arises against the original borrower by virtue of special condition s 5(c)(vii). It inevitably follows that no such interest is available to enforce as against the defendant.
In so far as the option to purchase endured to bind the defendant depends on constructive knowledge by virtue of common directorships and connections to Hayssam Hamra, or the fact that the same legal firm acted for Salbee and Cityedge Apartments for the sale, is of no consequence in view of the finding already made. In any case the supposed connections are so tenuous that it would be inappropriate to act on that basis at the interlocutory stage.
There is a further consideration. The caveat happens to be lodged over the entire property of 38 units, whereas the interest in land claimed by the applicant can only effectively be 1/38th of that. The land itself was brought for $1.7 m and the development is costing $9 m. The whole development if fully subscribed might raise something in the order of $15 m or more. The subject Unit itself might have a value in the order of $400,000.
The applicant has produced no material to suggest that the development is failing or likely to fail, or to suggest it is not likely to recover against the defendant. Accordingly damages would be an adequate remedy. In any event the balance of convenience lies substantially on the side of the defendant given the disproportionate value of the underlying claim as against the overall value of the property over which the caveat operates.
Furthermore, there are likely to be commercial consequences and thereby prejudice to the defendant, simply because a caveat over the whole property might serve as a deterrent to would-be buyers and it might have commercial implications so far as the defendant’s relations with its financiers are concerned. For all those reasons it would have been inappropriate to extend the caveat on substantial discretionary grounds.
The application to extend the subject caveat is therefore refused on substantive as well as discretionary grounds. The parties are entitled to be heard on the question of costs.
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