JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : ROWE -v- ALBANY CHALETS PTY LTD [2015] WASC 85 CORAM : MITCHELL J HEARD : 9 MARCH 2015 DELIVERED : 9 MARCH 2015 PUBLISHED : 11 MARCH 2015 FILE NO/S : CIV 1318 of 2015 BETWEEN : DOUGLAS JOHN ROWE JOANNE PATRICIA ROWE
Plaintiffs
AND
ALBANY CHALETS PTY LTD
Defendant
Catchwords:
Real property - Application to extend caveat - Partnership property - Urgent application - Ex parte hearing - Where caveat defective
Legislation:
Transfer of Land Act 1893 (WA), s 138C
Result:
Interlocutory injunction granted
Category: B
Representation:
Counsel:
Plaintiffs : Ms C H Thompson
Defendant : No appearance
Solicitors:
Plaintiffs : Latro Lawyers
Defendant : No appearance
Case(s) referred to in judgment(s):Bashford v Bashford [2008] WASC 138Bride v The Registrar of Titles [2015] WASC 11Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321Chettle v Brown [1993] 2 Qd R 604Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352McCourt v National Australia Bank Ltd [No 2] [2010] WASC 151Meynert v Leafdale Pty Ltd [2005] WASC 102Nigam v Divjakoski [2010] WASC 185MITCHELL J: (This judgment was delivered extemporaneously on 9 March 2015 and has been edited from the transcript.)
The facts 1 This is an application to extend a caveat under s 138C of the Transfer of Land Act 1893 (WA). The plaintiffs and the defendant are registered proprietors of an estate in fee simple of land described as lot 31 on diagram 75439, being the whole of the land contained in certificate of title volume 1834, folio 955 (Land). The plaintiffs together hold a one-third interest, and the defendant holds a two-thirds interest, in the Land as tenants in common.
2 The plaintiffs and defendant are also parties to a partnership agreement for a business named Kalgan River Chalets and Caravan Park (Business). That partnership commenced in November of 2004 and, by cl 6 of the partnership agreement, will continue until dissolution. The plaintiffs made one-third, and the defendant two-thirds, of the initial capital contribution to the partnership. The partnership agreement also provides for the plaintiffs to receive a one-third, and the defendant a two-thirds share, share of partnership profits.
3 Mr Rowe deposes that the Land was purchased in October 2004 with a view to running the Business. In order to bring about that purpose, the plaintiffs entered into the partnership agreement with the defendant. The plaintiffs ran the business from February 2004, sending all relevant bookwork to Frank Pileggi, who is a director of the defendant.
4 The partnership apparently broke down in 2014 and Mr Rowe describes the position of the plaintiffs as park managers as becoming untenable at that time. He indicated that the plaintiffs 'resigned as park managers' on 28 August 2014, giving three months' notice. Since then, the plaintiffs have been refused consultation on matters relating to business decisions made on behalf of the partnership. Mr Rowe deposes that, given the nature of the business, the Land is the most significant asset of the partnership and one without which the partnership cannot exist.
5 Mr Rowe says that in 2014, the plaintiffs became aware that the defendant had entered into a sale agreement to sell its interest in the Land, and copies of a share sale agreement and a contract for the sale of the Land are attached to his affidavit. The purchaser of the property is a company called Kalgan Holdings Pty Ltd.
6 The share sale agreement is in the form of a deed dated 18 June 2014 between a Lorraine Costello, Frank and Rozlyn Pileggi and the defendant. Clause 2 provides for the sale of shares held by Ms Costello in the defendant to Mr and Mrs Pileggi. Clause 3.1 of that deed relevantly provides:
3.1 Manner of Payment of Purchase Price
(a) Subject to clause 3.1(b), in consideration of the Seller agreeing to sell and Buyer agreeing to buy the Shares, the Buyer will pay the Purchase Price to the Seller on the Settlement Date. (b) Instead of transferring the Purchase Price to the Seller by way of a monetary payment, the Buyer's obligation to pay the Purchase Price will be satisfied upon the Buyer procuring the Company to transfer to the Seller's nominee, namely Kalgan Holdings Pty Ltd … the Land Interest free from all Encumbrances on the Settlement Date.
7 That clause needs to be read with cl 1.1(e) of the deed, which defines 'Land Interest' to mean nine undivided ninetieth shares in the Land. 8 The plaintiffs are concerned about the future of the business if the property is sold. Mr Rowe says that they do not know what the new owner's intentions are in relation to the continuation of the business or the continued use of the two-thirds share of the property for the purposes of the business. He says that the business cannot continue to operate as chalets and a caravan park if the defendant's share of the property was not available to it.
9 Mr Rowe deposes that he has been advised that the sale of the defendant's share of the Land may be in breach of the partnership agreement and may operate to terminate the partnership.
10 In support of that proposition counsel for the plaintiffs refers to the partnership agreement, in particular par 13 of the agreement, which provides that:
11 On 17 October 2014, the plaintiffs lodged a caveat number M799726C, which claimed an estate or interest 'as chargee'. A statutory declaration of Mrs Rowe was annexed to the application for a caveat and deposed, at par 8, to the Land being an asset of the partnership. The business was described in that statutory declaration, and Mrs Rowe noted that the Land is owned in the same proportions as the partners' interest in the partnership business. 12 The caveat absolutely forbids registration of any instrument affecting the estate or interest of the plaintiffs.
13 A notice was sent to the plaintiffs by the Registrar of Titles indicating that the caveat which has been lodged will lapse at midnight on 11 March 2015, unless before that time a Supreme Court order is obtained, extracted, and lodged with the Registrar of Titles.
14 The defendant was notified of the plaintiffs' application to extend the caveat by correspondence sent last Friday, 6 March 2015. At that time no hearing date was identified because a hearing had not been allocated by the court. The court advised the plaintiff late this morning of the hearing at 2.15 pm today, and this information was then passed to the director of the defendant to whom the defendant had directed correspondence in relation to the matter should be sent.
15 There was no appearance by the defendant today, although there is an email which was handed to me by counsel for the plaintiff indicating that the defendant had resolved to oppose the application for the extension of the caveat.
16 It does not appear that any notification has been given to Kalgan Holdings Pty Ltd, the purchaser of the Land. In my view, it would have been appropriate for that company to have been notified because it does have an interest in the proceedings as purchaser of the land. See McCourt v National Australia Bank Ltd [No 2] [2010] WASC 151 [4].
17 However, in view of the urgency of the matter, it seems to me to be in the interests of justice to consider whether interim relief ought to be granted so as to protect the interests of the plaintiff until such time as the defendant and Kalgan Holdings Pty Ltd are given an opportunity to be heard.
Extension of caveat: general principles
18 The general principles relating to an extension of a caveat under s 138C of the Transfer of Land Act are well established. They were outlined by Edelman J in Bride v The Registrar of Titles [2015] WASC 11 [11] - [16], in the following terms:
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. (citations omitted)
Caveatable interest in a partnership asset 19 In the present case, the plaintiffs have at least an arguable claim that the whole of the Land constitutes partnership property in which the plaintiffs have a caveatable interest.
20 Section 30 of the Partnership Act 1895 (WA) relevantly provides that:
(1) All property and rights and interests in property originally brought into the partnership stock, or acquired, whether by purchase or otherwise, on account of the firm or for the purposes and in the course of the partnership business, are called in this Act partnership property, and must be held and applied by the partners exclusively for the purposes of the partnership, and in accordance with the partnership agreement. (2) Provided that the legal estate or interest in any land which is partnership property shall devolve according to the nature and tenure thereof, and the general rules of law thereto applicable, but in trust so far as necessary for the persons beneficially interested in the land under this section.
21 Section 34 of the Partnership Act then provides for the interests of partners in the partnership property to be determined by the rules set out in that section, subject to any agreement between the partners. In this case, the provisions of cl 13 of the partnership agreement would appear to be controlling and would deny to the defendant a capacity to sell any of the partnership assets without the plaintiffs' consent, including the defendant's interest in the Land if that is a partnership asset. 22 Given the affidavit of Mrs Rowe in support of the caveat, which asserts that the Land is a partnership asset, and given the close correlation between the extent of the plaintiff's and defendant's interests in the Land and their interest in the partnership, I am prepared to infer that there is an arguable case that the Land comprises partnership property for the purposes of the Partnership Act. That is notwithstanding that I am informed by counsel for the plaintiff that the Land does not actually appear on the books of the partnership as a partnership asset.
23 The nature of a partner's interest in partnership property was explained by the High Court in Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321, 327 where McTiernan, Menzies and Mason JJ observed that:
The nature of a partner's interest in the partnership property has often been explained. The partner's share in the partnership is not a title to specific property but a right to his proportion of the surplus after the realization of assets and the payment of debts and liabilities. However, it has always been accepted that a partner has an interest in every asset of the partnership and this interest has been universally described as a 'beneficial interest', notwithstanding its peculiar character. The assets of a partnership, individually and collectively, are described as partnership property (Partnership Act 1892, as amended (NSW), s 20). This description acknowledges that they belong to the partnership, that is, to the members of the partnership.
24 The court went on to conclude that the interest of a partner in the partnership property 'constitutes an equitable interest and is not a mere equity' (328). 25 The question of whether a partner's interest in partnership property was a caveatable interest was considered by Malcolm CJ in Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352. In that case, his Honour undertook a very detailed consideration of the relevant authorities and concluded that a partner did have a caveatable interest in partnership property.
26 I note that a different view was adopted by the Supreme Court of Queensland in Chettle v Brown [1993] 2 Qd R 604, which was decided at about the same time as Connell.
27 Having read both decisions, I prefer the analysis of Malcolm CJ. I note that Malcolm CJ's decision has been applied in this court: see Meynert v Leafdale Pty Ltd [2005] WASC 102 [38]. On the basis of those authorities and the evidence adduced to date, I am satisfied that there is at least an arguable case that the plaintiffs have a caveatable interest in the defendant's registered interest in the Land.
Balance of convenience
28 As to the balance of convenience, I would be satisfied that the balance of convenience favours the extension of the caveat if it were in a proper form. As Beech J noted in Bashford v Bashford [2008] WASC 138 [50]:
The balance of convenience is a factor to be considered in an application to extend the operation of a caveat. However, interlocutory removal of a caveat will be unusual where an arguable case as to the existence of a caveatable interest has been demonstrated. That is because the purpose of a caveat is the protection of a proprietary interest. Removal of the caveat will, in many cases, have the effect of destroying the benefit of the proprietary interest claimed in the caveat [50]. (citation omitted)
29 The destruction to which Beech J referred will occur once a purchaser for value becomes a registered proprietor of the transferred estate, and gains the benefits of the indefeasibility provisions of the Transfer of Land Act. 30 If I thought my power to extend the caveat in this case to be engaged, I would be satisfied that the balance of convenience favoured the extension of the caveat.
Form of the caveat
31 There is, however, one difficulty with the application for an extension of the caveat. That difficulty concerns the description of the claimed interest in the Land in the caveat itself, which, as I have indicated, described the plaintiffs as holding an interest as 'chargee'. That does not seem to me to be an appropriate description of the interests of a partner in partnership property.
32 The difficulty which faces the plaintiff in those circumstances is the principle which was described by Beech J in Bashford:
On an application to extend a caveat there is a limited power to allow the terms of the caveat to be amended. 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. …
Section 137 of the Transfer of Land Act requires a caveat be in an approved form. The approved form requires the caveator to specify the estate or interest claimed. In Leros Pty Ltd v Terara Pty Ltd (1991) 174 CLR 407, 423 Mason CJ, Dawson and McHugh JJ held that 'specify' should be understood in the sense of 'mention definitely or explicitly' (applying the Full Court decision in Kuper v Keywest Constructions Pty Ltd (1990) 3 WAR 419, 429).
…
A claim in a caveat to 'an equitable interest' is defective in form. It fails to specify the nature and extent of the interest [51], [53], [56]. (citations omitted)
33 It seems to me that the description of the plaintiff's interests as that of a 'chargee' is too broad to be a specific description of the nature and extent of their interests. It is also an inapt description of the interest which in fact they claim to hold. 34 Counsel for the plaintiff accepts that an amendment to the caveat would extend beyond that which is permissible; that is, it would alter the interest which is claimed rather than simply clarifying or expressing better or more fully the interest which was claimed in the caveat.
35 In those circumstances, in my view it is not appropriate to extend the caveat.
Injunctive relief
36 However, as Beech J also noted in Bashford [52]:
The court has power, in the context of an application to extend a caveat, to decline to extend the operation of the caveat but to impose an injunction maintaining the status quo between the parties: Lydon v Ryding [2002] WASC 308 [22]; Lee v Mavaddat [2007] WASC 18 [37]; Powell v In De Braekt [2006] WASC 264 [10].
37 To the authorities to which Beech J refers may be added the decision of Simmonds J in Nigam v Divjakoski [2010] WASC 185 [3].