Rowell Consulting Services Pty Ltd v Clark - [2006] WASC 95

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: ROWELL CONSULTING SERVICES PTY LTD -v- CLARK [2006] WASC 95

CORAM: TEMPLEMAN J

HEARD: 23 SEPTEMBER 2005

DELIVERED : 23 SEPTEMBER 2005

PUBLISHED : 25 MAY 2006

FILE NO/S: CIV 1588 of 2005

BETWEEN: ROWELL CONSULTING SERVICES PTY LTD (ACN 001 928 758)
Plaintiff
AND
RICHARD MELVILLE CLARK
Defendant

Catchwords:

Land - Agreement to develop strata title lots - Whether sale of various lots should be prevented - Whether caveatable interest or restrictive covenant arise from agreement - Whether a security interest should prevent removal of caveat - Turns on own facts

Legislation:

Transfer of Land Act 1893 (WA), s 138C(2), s 140

Result:

Caveat removed on conditions

Category: B

Representation:

Counsel:

Plaintiff: Mr G M G McIntyre SC
Defendant: Mr D F Beere

Solicitors:

Plaintiff: Stephen Forward
Defendant: Beere May & Meyer

Case(s) referred to in judgment(s):

Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

Case(s) also cited:

Eades v Reilly, unreported; SCt of WA; Library No 980675; 20 November 1998
Frigo v Culhaci, unreported; CA SCt of NSW; No 40414 of 1998; 17 July 1998
Hamdan v Widodo [2004] WASC 123
His Grace Metropolitan Petar v Macedonian United Society of Western Australia Incorporated [2003] WASC 15
Jackson v Goldsmith (1950) 81 CLR 446
Sanctuary Park Estate Toodyay Pty Ltd v Griffin Plant Hire Pty Ltd [2003] WASC 174
Third Chandris Shipping Corporation & Ors v Unimarine SA [1979] 2 All ER 9272

TEMPLEMAN J: This is a matter which came before me on a previous occasion in March of this year when I gave a judgment in which I commenced by setting out in summary form the background to the dispute. I do not propose to repeat what I said there but rather to proceed, as it were, from where that judgment left off.
In my judgment I came to the conclusion that the Rowell interests, Rowell Consulting Services, did not have an equitable interest in the relevant land but that it had a contractual entitlement to lodge a caveat, arising under cl 14 of the agreement of 14 March 1996; that being an entitlement in the nature of a security rather than an equitable interest.
There have been two further caveats lodged in which it is sought to establish that the Rowell interests have an equitable interest in the land on other bases than I considered when I heard the matter previously.
The first is that the agreement of 14 March 1996 is a partnership agreement and that as a result, Rowell, as I will call it, has an interest in the land. In my view the agreement is not a partnership agreement. It is an agreement for the appointment of Rowell as a developer, as is said in cl 1, to do all that was necessary to enable the owner to sell strata lots on the property.
It has been said on behalf of Rowell, that the property has been converted, as it were, from a farm to a strata title development as a result of the work of Rowell. That is so: but not, in my view, on terms which result in Clark and Rowell being partners.
There is a number of provisions in the agreement which lead me to the conclusion that it is not a partnership agreement. Principally, there is cl 1, which refers to the appointment of Rowell as the developer. There is provision for payment of fees on termination by Mr Clark under cl 17. The agreement does, I think, provide for the payment of fees, albeit in a way which was calculated on the basis of net proceeds of sales. The payment is nevertheless in my view a payment of fees: indeed cl 4, under the heading of "Remuneration", refers to the payment of a success fee in certain circumstances.
Although it is true that in a sense the parties to the agreement were sharing profits, those profits were not, in my view, shared as between partners, but shared in accordance with a fee structure provided for in the agreement. But even if I am wrong in that regard, it does not follow that the mere existence of a partnership gives rise to an interest in the land for the benefit of the partner who was not previously the landowner. The legal proposition underlying the submission was expressed by Senior Counsel for Rowell in these terms:
"Where two parties enter into a partnership for the purposes of developing and selling land owned by one partner, the second partner acquires an equitable interest in the land by virtue of his contribution of intellectual property which changes the nature of the property."
That is a proposition for which no authority has been cited and which in my view is contrary to principle. I do not accept it. So even if I am wrong in my view that there is no partnership, I do not think that if there was a partnership it would have the result contended for by the Rowell interests.
The second basis is that there are restrictive covenants arising as a result of the strata management agreement or provisions and that those restrictive covenants run with the land and are binding on Mr Clark and can be used as a basis for restraining him from selling to those who would wish to remove the covenants or restrictions. In my view that is not the law. Certainly if there are restrictive covenants (and I form no view as to whether the relevant agreement would give rise to such covenants) I would accept that they run with the land. That is to say they would bind whoever holds the land for the time being. But they cannot be used to prevent the sale of land even to people who wish to change or remove the covenants.
Strata title owners are always entitled to agree between themselves or to apply if they cannot agree, to have restrictions in the strata deed varied or removed. There could be no basis for restricting a sale to somebody who had that intention. So in my view, the caveats which are lodged on those bases are without foundation and should be discharged.
That leads me to the much more difficult question as to the caveat lodged under cl 14 which is, as I have said, in the nature of a security for the indebtedness of Mr Clark to Rowell. There is no doubt, and indeed it is accepted, that there is a serious question to be tried as to the extent of the financial obligation owed by Mr Clark to Rowell or indeed any obligation which exists in the opposite direction.
That is the subject of a separate action which is still, after some considerable period, at a pleading stage. But on the material before me it would be quite impossible to form any assessment of the likely outcome of that action.
There is jurisdiction in the Court to discharge a caveat notwithstanding the existence of a serious question to be tried; that is to say, notwithstanding the view that the caveator's claim has or may have substance (to use the words of s 138C(2) of the Transfer of Land Act 1893 (WA)) if the balance of convenience suggests that should be the result.
The law is set out conveniently in the judgment of Owen J, with whom Malcolm CJ and Walsh J agreed, in Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 50. His Honour said:
"In my opinion, the balance of convenience is a factor to be considered in an application under s 138. However, it seems to me that interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated, will be unusual."
Pausing there, I would have to say that if I was to discharge the caveat, that would be an unusual course. Going on with the quote:
"It is important to bear in mind the nature and purpose of a caveat under the Torrens System. By its very nature, a caveatable interest must be a proprietary interest in land."
Pausing again: in this case, of course, the interest is in the nature of a security. Going on with the quote:
"The purpose of the caveat is to restrain the registered proprietor from dealing with the land in a way which will defeat or derogate from the incidents attaching to that proprietary interest until the respective rights of the parties have been honoured (if there is agreement) or determined (if there is disagreement).
In many cases, removal of the caveat will have the effect of destroying for all practical purposes, the benefit of the proprietary interest. For example, a creditor, having a specific security interest in land, will rank as an unsecured creditor once the property, the subject of the specific security, no longer exists. This will often be the result of removal of a caveat which permits the registered proprietor to sell the property free from any practical obligation to account to the secured creditor for the proceeds of sale."
The effect of all that is that if the caveat was to be lifted without any other order being made, that would have the result of defeating Rowell's security. That is a result which I could not contemplate given that there is a serious question to be tried as to the extent of that interest.
However, what is said on behalf of Mr Clark is that that would not be the position here for two reasons. One is that if the caveat were to be lifted, Mr Clark would consent to an absolute caveat being lodged on the balance of lot 25 and would consent to three‑quarters of a million dollars out of the proceeds of sale of the property, which is the subject of the contract he wishes to perform, to be paid into a joint account with the solicitors, so as to secure that money. The question I have to consider is whether that would make a sufficient difference to justify the caveat now being lifted.
The balance of convenience must take into account a number of factors. One of those, of course, is Mr Clark's financial position. I said on the previous occasion that it was parlous. The evidence is now that his financial position is worse than it was then. I have Mr Clark's affidavit of 2 August filed on 11 August 2005 in which, in par 27, he says that his "current financial position is even worse than it was when I swore the affidavit on 22 February 2005". That is the affidavit on the basis of which I came to the conclusion that his position was parlous.
Of particular concern is that there is a real risk, he says, that Perpetual Trustees Australia Ltd, which is the mortgagee of the residential property owned by Mr Clark and his wife, will exercise its power of sale because the amount of the loan secured on that property has, he said, almost reached its limit and he is unable to service the interest payments. He refers to various other debts of greater or lesser urgency.
It is also said that if the caveat was to remain, but was ultimately held to have been lodged improperly, Rowell which has given an undertaking in damages would not be able to meet that undertaking or indeed to pay damages under s 140 of the Transfer of Land Act, being only a $3 company. However, there is no evidence as to the company's actual worth and that therefore seems to me a proposition about which I cannot form any proper view.
On the other side it is said that the land which Mr Clark proposes to sell at the moment is to be sold at an undervalue. However, there is no compelling evidence or valid evidence that that is so. There is no proper valuation evidence before me about that matter.
Rowell has filed an affidavit sworn by Richard Mitford Rowell on 21 September 2005 in which he deposes to the fact that Rowell has in hand offers from a number of prospective purchasers which are said to represent fair market value. Mr Rowell is not qualified to express that opinion and furthermore he does not exhibit to his affidavit any of the offers. He does exhibit two offers which he says are examples and I have had regard to those. They show Rowell as the vendor, which it clearly would not be, although, as Mr McIntyre says, I can assume that Rowell is accepting the offer merely as agent for Mr Clark. However, there is no existing agency and Mr Clark would have to consent to that agency, which he is apparently unwilling to do.
There are conditions attached to the offer, in particular a condition that Rowell would be appointed as agent, which Mr Clark would not consent to, as I have said, although I am told from the bar table that that condition would be waived. There is also the curious fact that the offer is dated 7 May 2005 whereas the conditions are dated somewhat differently, one on 19 September 2005 and one on 11 December 2004, long before the offer was presented.
There has been an application for an adjournment so that all of the offers can be put before the Court in a proper form. That application was opposed by Mr Beere for Mr Clark, justifiably in my view. But in any event Mr Beere tells me that his client would be unable to accept the offers because in so doing he would be in breach of his contract with the prospective purchasers or the option holder and that would make it impossible for him to accept the offer in any event.
On behalf of Rowell it is said that the agreement with the option holder is invalid, but again, it is not possible for me to form any concluded view about that matter.
If lot 25 is sold pursuant to the option to which I have referred, then it would gross $2.1 million. Three‑quarters of a million dollars is on offer, if I can put it that way, from Mr Clark in relation to the existing contract of sale, making a total of $2.85 million or something less than that because of the costs of sale.
Against that, the amount claimed by Rowell is something of the order of $4 million. But that is on the basis that the 1996 agreement has been terminated: a basis which is inconsistent with Rowell's claims in the action. It there contends that the agreement has not been terminated. The result would be, of course, and it has been accepted by Mr McIntyre, that the claim would not be $4 million, but would be somewhat less. Precisely how much less I do not know, but I am told by Mr Beere that it would be about $1.7 million.
The position I am coming to therefore is that the principle set out in the Custom Credit case (supra), although applicable, must take into account the unusual circumstances of this case. In this case, the removal of the caveat would not have the effect of destroying the benefit of the proprietary interest, that is, the security interest, if I was to make an order requiring the lodgement of the absolute caveat on lot 25, and requiring three‑quarters of a million dollars out of the proceeds of sale of the land currently contracted, to be put into an interest‑bearing account in the joint names of the solicitors or some such similar order which would preserve that fund. That is an order which I could make as an ancillary order under s 138C(2)(c).
I am concerned about Mr Clark's financial position. That is something which must be weighed up and in my view carries very considerable weight in the balance of convenience. Although I am not able to make any real assessment of the value of the Rowell claim, I suspect that it would be very substantially covered - if not completely covered - by an amount of $2.85 million. So in those circumstances, and after some hesitation, I have come to the conclusion that it would be appropriate to discharge that caveat also, and allow the sales to go forward on the basis that I have outlined.
I will therefore make appropriate orders in those terms.