Sarandal Pty Ltd v Nameplan Pty Ltd
[2007] VSC 568
•7 December 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 9126 of 2006
| SARANDAL PTY LTD (ACN 069 533 857) | Plaintiff |
| v | |
| NAMEPLAN PTY LIMITED (ACN 050 098 863) & ORS | Defendants |
AND BETWEEN:
| CANDIBON PTY LTD (ACN 006 867 358) | Plaintiff by Counterclaim |
| V | |
| SARANDAL PTY LTD (ACN 069 533 857) & PRIME EQUITY DEVELOPMENTS PTY LTD (ACN 082 747 626) | Defendants by Counterclaim |
AND BETWEEN:
| NAMEPLAN PTY LIMITED (ACN 050 098 863) & SHERPY PTY LTD (ACN 084 100372) | Plaintiffs by Counterclaim |
| v | |
| SARANDAL PTY LTD (ACN 069 533 857) & ORS | Defendants by Counterclaim |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 December 2007 | |
DATE OF JUDGMENT: | 7 December 2007 | |
CASE MAY BE CITED AS: | Sarandal Pty Ltd v Nameplan Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 568 | |
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APPEARANCES: | Counsel | Solicitors |
| For the plaintiff and first defendant by counterclaim | Mr P D Crutchfield with Mr C Moller | Browne & Co Solicitors and Consultants Pty Ltd |
| For the first, second and fifth defendants | Mr J Manetta | Rigby Cooke Lawyers |
| For the sixth, seventh and Eighth defendants. | Mr S Rubenstein | Rotman & Morris Solicitors |
| For the ninth defendant and plaintiff by counterclaim and Victoree Pty Ltd | Mr P J Riordan SC with Mr P Fary | Comito, Iacovino & Co |
PROPERTY – Removal of caveat – Onus on caveator to maintain – Balance of convenience – s 90(3) Transfer of Land Act 1958
Latec Investments v Hotel Terrigal Pty Ltd (1965) 113 CLR 265
Moffatt v Dillon (1992) 2 VR 480
Jacobs v Platt Nominees Pty Ltd (1990) VR 146
HIS HONOUR:
The court has before it a summons filed on 22 November 2007 issued by Candibon Pty Ltd (“Candibon”), the ninth defendant and plaintiff by counterclaim in proceeding No.9126 of 2006, seeking orders under s 90(3) of the Transfer of Land Act 1958 that the caveats referred to in paragraph 1 of the summons be removed and under paragraph 2, an order that the Registrar of Titles be ordered pursuant to s 90(3) of the Transfer of Land Act 1958 to remove the caveats.
The respondents to the summons are the plaintiff in the proceedings, the caveator, Sarandal Pty Ltd (“Sarandal”), and the Registrar of Titles.
Candibon relies on the affidavit of Souhail Mondous (“Mr Mondous”), a director of Candibon, sworn 22 November 2007. Sarandal relies on an affidavit of Daniel Matruglio (“Mr Matruglio”), a former director of Sarandal, sworn on 3 December 2007.
Mr Matruglio deposes as follows. Sarandal is ‘his company’. Mr Matruglio is a builder by trade and from 1980 he carried on business as a property developer of commercial developments. Since approximately 1995, he has carried on business as a property developer involving subdivisions. In the main he has conducted that business in partnership with George Blau and Joseph Pierkarski.
The partnerships have been between companies associated with him, Blau and Pierkarski respectively. There have been several such partnerships. Since the disputes with Messrs Blau and Pierkarski, he has carried on his property development business without any involvement from them.
One of the partnerships was established to develop land located at Wallan in Victoria. That partnership is between Sarandal, which is his company, Nameplan Pty Ltd, which is Mr Blau’s company, and Sherpy Pty Ltd which is Mr Pierkarski’s company.
The caveats which are the subject of Candibon’s application are over all the land at Wallan other than the southern land parcels with the exception of one title which was omitted by mistake.
The lodged caveats are dated 27 June 2006. Sarandal claims an equal interest in fee simple in the whole of the land on the following grounds:
“Pursuant to a partnership agreement made on or 11 October 1998 between the Caveator and Sherpy and Nameplan, pursuant to which it was agreed to appoint Prime Equity Developments Pty Ltd as trustee for the partnership.”
By the second caveat, dated 26 June 2006, Caveat Number A440698R, Sarandal claims an equitable interest in fee simple in the whole of the land comprised in the relevant titles on the following grounds:
“Pursuant to resulting trusts whereby the caveator contributed one half of the purchase price on acquisition of the land by a contract made 29 April 1998 between the company as nominee of Daniel Matruglio as purchaser and Rengay Nominees as vendor.”
Under the heading “The Land the Subject of the Caveats” Mr Matruglio deposes as follows. At an auction on 29 April 1998, he purchased part of the land which is the subject of caveats for $720,000. This is the land referred to in paragraph 20 of the amended statement of claim. On 29 April 1998 he paid a deposit of $72,000.
Under the contract of sale he nominated as the purchaser Prime Equity Developments Pty Ltd (“Prime Equity”). The contract of sale provided for settlement to take place on 1 September 1998 and his solicitors Rotman & Morris acted for him in respect of the purchase.
He exhibits as DM2 a copy of the cover of the file opened by Rotman & Morris relating to the purchase together with the statement of accounts which show payments set out in his affidavit.
Prime Equity was to hold the land on trust for the members of the partnership: Sarandal, Nameplan and Sherpy. He produces the partnership agreement as Exhibit DM3. It is a formal agreement between Sarandal, Nameplan and Sherpy, which provides that:
“The parties hereto desire to enter into a partnership agreement wherein the terms of such a partnership are defined in writing.”
Under clause 1 it provides:
“The nature of the partnership business shall be the acquisition, development, subdivision and sale of the property situated at and known as 170 Wallan-Whittlesea Road, Wallan.”
The partners agreed to appoint Prime Equity to be trustee of the aforesaid land and to hold the same on behalf of the partners. The agreement also provides that the partners shall share in the profit of the partnership business in certain portions and Sarandal was to receive one half of the whole.
Thus, under the partnership agreement, Sarandal was a beneficial owner of half of the relevant land and as such had an equitable fee simple interest in the land.
As at 1 September 1998 the directors of Prime Equity were Mr Matruglio, Natalie Nudel (nee Blau) (Ms Nudel is Mr Blau’s daughter). Mr Matruglio was also the company secretary of Prime Equity. The shareholders were his sister, Ms Anna Popovski, Tamara Blau, who is Mr Blau’s wife, and Mr Pierkarski.
The deed of trust is Exhibit DM4 to his affidavit. In the recitals, after listing the deed of trust made between Prime Equity and the three partners, who are described as beneficiaries, it says, amongst other things, that:
“It was intended that the property be purchased by the trustee on trust for the benefit of the beneficiaries as tenants in common for their respective entitlements.”
Under Clause 1 it is provided that:
“The trustee acknowledges that it holds its interest in the property pursuant to this deed absolutely and beneficially for the beneficiaries as tenants in common in equal shares and the trustee hereby agrees that it will at the request and cost of the beneficiaries make all such applications and execute and do all such acts and things and sign all such instruments and documents as may be necessary for the procuring of the interest of the Beneficiaries as tenants in common in equal shares and to deal with the Property at such times and in such manner as the Beneficiaries shall jointly direct. “
Paragraph 4 is an important clause. It says:
“The trustee hereby acknowledges that it shall keep and maintain the property, mortgage, sell, transfer, dispose of or deal with the property in such manner as the beneficiaries shall jointly decide upon.”
Accordingly, any decision to sell the land requires the joint decision of the three beneficiaries.
Mr Matruglio then deals with the purchase of the road which fronts the Wallan land. On 30 June 1999 the partners purchased from the Commonwealth of Australia two parcels of land comprising a disused roads easement.
Mr Matruglio then deals with the discussions with Mr Blau concerning the sale of the land. In approximately mid 2003 he had two meetings with Mr Blau at which they discussed the land at Wallan.
The first meeting took place at a café in Melbourne. At that meeting Mr Blau said the purpose of the meeting was to ask him to agree to the sale of the land, that he had a buyer for it and that the offer was a good one. Mr Blau said that the price was $8 million.
Mr Matruglio disagreed. He comments that:
“We had purchased the land as a long term investment and that the price offered by the would be buyer was a fraction of the real value of the land.”
Mr Blau said the market was about to go through a downturn. Mr Matruglio deposed:
“We had agreed that the land was a long term investment, that the time was not right to realise a proper return on the investment and that I would not agree to sell the land, particularly given that the proposed purchase price grossly undervalued the potential of the full scale development contemplated by the partnership.”
He then says that -
“Blau said words to the effect, 'Well, in that case I’ll just sell it, I am a half owner.”
MrMatruglio deposes:
“I said words to the effect that you can’t do that, we have a partnership agreement, you need my consent.”
“Blau said words to the effect that he intended to sell the land and that I could sue him if I did not agree.”
“Blau suggested the partners divide the block in two so that he could sell his half.”
Mr Matruglio told Mr Brau that he would agree to a division of the block straight down the middle with both blocks to have equal frontage to the main road, the one on the Wallan-Whittlesea Road. Mr Matruglio deposes:
“He and Pierkarski were to have the western side near the freeway and I would have the eastern side near the railway.”
He says:
“At the meeting Blau produced copies of the titles.”
The land on the western side allocated to Messrs Blau and Pierkarski is hereafter referred to as Lot 1 and the land on the eastern side allocated to Mr Matruglio is hereafter referred to as Lot 2.
Mr Matruglio’s affidavit then goes on to indicate the titles that Mr Matruglio was to retain. He says in order to agree, he told Mr Blau he would have the exclusive right to undertake any commercial development on the site and that any agreement between the partners was subject to approval from all relevant authorities. He also says that he said to Mr Blau that he wanted proper legal documents to be drawn up by solicitors. He says that -
“Blau said that any subdivision as ultimately agreed would need to be subject to planning approval from the relevant authorities.”
Mr Matruglio deposes that the plan of the proposed subdivision of the land discussed between Mr Blau and himself was to the effect of the plan referred to as Plan 1, and he exhibits a copy of Plan 1 in DM5.
Mr Matruglio deposes to a further meeting with Mr Blau at the same café in Melbourne some time after the first meeting. He says the meeting may have been a few weeks later and:
“At that meeting Blau produced a plan in the form of Plan 2.”
He exhibits Plan 2. He says that Plan 2 differed from Plan 1 in that on it further frontage to the Wallan-Whittlesea Road was allocated to the western portion of the proposed subdivision (Lot 1), that is, the side to be allocated to Messrs Blau and Pierkarski and the line dividing the eastern and western portions of the proposed division had been shifted to the west as if to adjust the allocation on the frontage to the western portions and maintain the respective equal size of the east and western portions. He says at that meeting, he says:
“All things being equal I would consider agreeing to this allocation on the basis that if the subdivision did not proceed in accordance with the further plan there would be no subdivision and no sale of the western block to the proposed purchaser.”
He says he asked Mr Blau to go back to the proposed purchaser and to ask whether Plan 2 reflected the land which the buyer proposed to buy. He says that -
“Blau said words to the effect, ‘Daniel, I can assure you that if the buyer does not agree to this plan it will not go ahead’.”
He says this was the last that he heard from Mr Blau concerning the proposed subdivision of land and there is no challenge to that statement. He says that after he heard nothing from Mr Blau he assumed that the proposed division and sale had come to nothing and he gives his reasons for coming to that conclusion.
He says he never received any documents from Mr Blau or Mr Pierkarski. The documents he refers to are the application for planning permits and the like. He says it is unthinkable that he would dispose of Sarandal’s interest in the land, which he believed was worth tens of millions of dollars on the basis of a rough sketch with no further discussion and no documentation on the detail or how they might proceed.
That observation of Mr Matruglio is of some relevance because shortly thereafter, detailed subdivisional plans were prepared and submitted to the council.
Mr Mondous says in his affidavit - and I will come to the detail of it in a moment - that some time between 24 June 2003 and 1 July 2003 Prime Equity granted to him and/or his nominee an option to purchase 86.938 hectares of the land at Wallan for $3,615,411.90m and he has exhibited that option in SM14.
Mr Matruglio describes the option agreement as that “hatched on the plan attached hereto”, which is the land that accords with Plan 2, which he discussed with Mr Blau, as I have referred to previously.
Mr Matruglio then deals with his resignation from Prime Equity and the appointment of Mr Tourounzis as a director.
On 24 March 2001, on account of ill health he resigned as a director and company secretary of Prime Equity and on that date John Tourounzis was appointed a director of Prime Equity to represent Sarandal's interest in the partnership.
Mr Matruglio then deposes as to the land that was actually sold to Candibon and he exhibits a copy of the contract of sale and refers to the plan attached to that which he refers to as Plan 3.
It is sufficient for me to observe that Plan 3 provides for an area of several hectares fronting the Wallan-Whittlesea Road which was originally in Lot 2 to be retained by Sarandal. Under Plan 3 the two lots no longer share a frontage to the Wallan-Whittlesea Road. The whole of the frontage to the Wallan-Whittlesea Road and the land for several hundred metres back was now to be incorporated into Lot 1 to be sold to Candibon. I will come in a moment to how that came about.
Mr Matruglio deals with those differences in his affidavit. He confirms, as I have just said, that Plan 3 proposed that the boundaries of the land be realigned in a way that deprives Lot 1 the eastern portion of the land of any frontage to the Wallan-Whittlesea Road. He says that -
“A subdivision on the lines of Plan 3 is hopeless from Sarandal’s point of view. Under it, given the lack of frontage to the Wallan-Whittlesea Road, the eastern portion of the land is incapable of being developed separately from the land purportedly sold to Candibon, or at least developed and sold for anything like the same price it would be if it had frontage to the Wallan-Whittlesea Road. The subdivision means that the eastern portion has greatly diminished in value.”
As I will come to in a moment, that prognosis is probably overstated, as the evidence discloses that the western block (Lot 1) is required to allow access over the land fronting the Wallan-Whittlesea Road to Sarandal’s portion (Lot 2). There appears to be no reason why Lot 2 cannot be developed and sold as a subdivision as it will have access to the Wallan-Whittlesea Road.
Mr Matruglio deposes that he did not discuss Plan 3 with anyone and he says he was not consulted as to the change to the boundaries to Plan 1 and Plan 2, nor was he made aware of it at any time prior to the contract of sale being entered into with Mr Mondous.
He says that in particular, the realignment of the boundary was not drawn to his attention prior to the contract of sale being entered into on 19 December 2003.
He says that it was purely by chance that he discovered that the land had been subdivided. He says that in about late July/August 2004 he went for a drive with John Tourounzis. They decided to go past the Wallan land and there he saw that the fences appeared to have been realigned along the entire frontage to the Wallan-Whittlesea Road.
He and Mr Tourounzis drove to the office of the Mitchell Shire Council and insisted on seeing the plans relating to the land, and saw that the land was not divided with equal frontage to the main road as he had discussed with Mr Blau.
He says at the date that he visited the council with Mr Tourounzis, it was still not clear to him that the partnership property had in fact been sold. He says that shortly afterwards he engaged Arnold Bloch Leibler to act on his behalf to obtain access to the documents concerning the subdivision and to get advice as to Sarandal's rights. He subsequently engaged Chester Metcalfe & Co and finally Brown & Co to assist him to obtain documents. He says:
“The process of obtaining information took two years during which period persistent requests for documents were refused.”
He exhibits a bundle of correspondence relating to endeavours by him to obtain the documents, and I will come to the detail of some of those documents in a moment because they go to indicate two things; his knowledge of what had actually taken place back as early as July 2004 and secondly, the difficulty he had in obtaining documentation about this sale. He says:
“The delays in the provision of documents are continuing.”
He says he was informed by his solicitors and believes that further discovery has been requested of Candibon and other parties to this proceeding, but that Candibon and other parties have not responded to those requests and have not yet provided copies of discovered documents requested over a month ago. I will come, in a moment, to the evidence which tends to establish that Sarandal was not aware of very important information as late as March of this year when it made its claim against Candibon.
If Mr Matruglio’s evidence is to be believed, and I have no reason to doubt it, the sale by Prime Equity, the trustee, was unauthorised and in breach of the express trust. The trust deed required the beneficiaries, including Sarandal, to jointly authorise a sale, and on the evidence before me no such authority was given to the sale in the form of which it took place.
Mr Matruglio deposes as to the consequences for Sarandal of the removal of the caveats. He says that if the caveats are removed there is nothing to stop Candibon from becoming a registered proprietor of the land at Wallan and he fears that once Candibon becomes registered, Sarandal’s prior equitable interest in the land will be defeated. In my view this is correct. He says:
“The loss and damage likely to be suffered by Sarandal if Candibon is registered is greatly in excess of the purchase price of both the parcel of land purchased by Candibon.”
He says based on his experience with comparable developments, notably a development at Mernda which was carried out in partnership with companies associated with him, Mr Pierkarski and Mr Blau:
“The present day value of the Wallan land undeveloped is substantial and in my belief it is likely to be in excess of $40m. If developed the land would be worth substantially more than $40m.”
He further states, based on his experience, as at the date of sale to Candibon, the land, in his opinion, was worth well in excess of the approximately $8m paid by Candibon. He says he is familiar with the movements of property prices for comparable properties based on the acreage comprised of the Wallan land and its potential for future development, which could accommodate more than 2000 residents. He says:
“The value of land I have described is conservative. This does not take into account the commercial development allowed for in the plan of subdivision to the north-east corner for which I cannot place a value without proper discovery being given by Candibon.”
I take that to be a reference to the possible commercial development which could take place right on the frontage of the Wallan-Whittlesea Road. Without setting out a map in my judgment, if one can perceive that the road is to the north of the Wallan land, the Wallan land lies in a rectangle to the south of the road, the land that may be commercially developed abuts the road and just to its south is a drain which runs from east to west before one then travels south into the balance of Lot 1 or south into Lot 2.
I am not satisfied that the land abutting the Wallan-Whittlesea road north of the drain can be commercially developed. The land is only given that character in an agreement between Candibon and the developer, Australand. In my opinion, that description has only been used as a shorthand way to exclude the area which is not subject to the residential development the subject of the agreement with Australand. But I may be wrong, and I take into account there is some doubt about that matter. Accordingly, I do take into account that the disputed land fronting the road may have significant value as a commercial development.
I have dealt with Mr Matruglio’s affidavit first because the authorities suggest that he bears the onus of justifying his caveat.
Mr Mondous in his affidavit deals with the circumstance in which he obtained the option to acquire Lot 1.
He says that in late May 2003 he received a telephone call from John Bosancic, a real estate consultant with whom he had previous dealings. He says that Mr Bosancic told him he had a subdivisional property in Wallan for sale and told him where Wallan was located and described the property to him. He says he told Mr Bosancic that as long as it stacked up that he would have a look at the property and he arranged a meeting at his office.
He says the next day or so Mr Bosancic attended his office with a person who he described as Rudy Kelemen and, after introducing Mr Kelemen to him, Mr Bosancic told him that Mr Kelemen had the sole agency for the Wallan land and they discussed Rudy's real estate business.
He says that Mr Kelemen then showed him a map and a plan of the property similar to the plan attached to the Option Agreement but without the hatching. Mr Kelemen told him that the land was being used for an airfield -
“He also told me that the total area was between 700 to 750 acres and was six or seven titles. He told me that the vendor was looking for around $12m.”
He says after doing some quick calculations he told Mr Kelemen that he was interested in the property and that he would need five years vendor’s terms. He said that during the meeting Mr Kelemen told him that the land to the east was occupied by a sewerage farm, but that this was not for sale (that is Lot 2). He said Mr Kelemen told him that he would prepare some documents.
He says in about June 2003 he received a facsimile from Kelemen Commercial which said that the hatched area is now the area of land which he could buy, and he exhibits a copy of the facsimile.
He says at some point around this time he had a conversation with Mr Kelemen who told him in substance that there were two owners of the Wallan land, one who wanted to sell and the other who did not -
“He told me that the southern land [land to the south of the Wallan land] was owned by the same owner as the owner who wished to sell.”
He says that Mr Kelemen told him that he could buy the southern land and the western half of the northern land (that is Lot 1) and that the northern land would need to be divided 50/50. He deposes that Mr Kelemen did not tell him the names of the owners of the land.
At a meeting held around that time, he states Mr Kelemen told him the land would need to be surveyed to ensure that the division was 50/50. Then he says that some time between 24 June 2003 and 1 July 2003, Prime Equity granted the option of which I have already dealt previously. Mr Mondous says the purchase in respect of the land under the Option Agreement and the Southern Land Option Agreement was calculated by dividing $12 million by the total area of the Wallan land to give a price per acre or hectare and multiply that by the area of the land that was to be sold to him.
He says at some point around this time he gave the plans that were attached to the Option Agreement to Peter Weeks from Reeds Consulting with instructions to prepare a plan of subdivision for a boundary line that would divide the northern land [the Wallan land] 50/50 in accordance to the plan attached to the Option Agreement. I will come in a moment to the correspondence about the plans which were lodged. He says that on 23 July 2003, Comito & Co lodged caveats over the land the subject of the Option Agreement and the Southern Land Option Agreement.
Mr Mondous deposes that Reeds Consulting subsequently prepared the planning application and plans in accordance with his instructions. The initial plans prepared by Reeds gave the owner of the western half of the land (Lot 1) 40 metres frontage on the Wallan-Whittlesea Road, and he exhibits those plans.
The evidence suggests that the frontage to the Wallan-Whittlesea road originally allocated to Lot 2 was subsequently allocated to Lot 1. In substance, the council would not accept Plan 2 as the basis for subdivision of Lot 1. The council required the frontage land allocated to Lot 2 in Plan 2 to be reallocated to Lot 1 to provide for a drain level with the Wallan-Whittlesea Road.
The plans initially lodged with the Council were in conformity with Plan 2. The council drew Candibon's attention to a council plan for the subdivision of the whole area which provided for a drain level to the frontage to the Wallan-Whittlesea Road, which I have referred to previously, and told Reeds that they would have to include in their plans for Lot 1 an area for the drain.
Following that discussion, Reeds prepared a plan of subdivision in accordance with Plan 3; contrary to the agreement Mr Brau made with Mr Matruglio. Submissions were made on behalf of Mr Matruglio that put a sinister connotation on what happened. I do not accept those connotations at this stage.
Mr Mondous says that on 24 July he and Mr Weeks attended a meeting with the council, as I have said, and submitted the plan and application for the planning permit. He says that -
“During the meeting a representative of the council advised us that the council required a floodway across the whole of the Wallan-Whittlesea Road frontage and that they would not be dealing with any subdivision of the land until the drain issue had been resolved.”
He says that -
“Following the meeting, Reeds prepared further plans which provided for a floodway across the Wallan-Whittlesea Road frontage. Numerous versions of the planning permit drawings and plans of subdivision were prepared so as to comply with the requirements of the various relevant authorities and the need to make provision for a floodway on the Wallan-Whittlesea Road frontage.”
I accept that version of the events. In his affidavit, Mr Mondous says that -
“Because of the council’s requirement that the drainage issue be resolved before they would consider a proposal for a boundary realignment or development, it was necessary for the land required for the drainage solution to form part of the land to be acquired by me so that I could resolve that matter with council.”
His affidavit then goes through all the negotiations with the council, including the fact that an agreement was entered into with the council pursuant to s 173 of the Planning and Environment Act, and that is the agreement which would, as I understand it and accept, allow Lot 1 to be subdivided and give access to Lot 2 from the Wallan-Whittlesea Road.
I should mention also that there was approval of the plan of subdivision at the end of 2003, but there was a subsequent section planning permit given on 22 May 2006, which happens to be four days before when Sarandal lodged its caveats.
Mr Mondous refers to the fact that on 10 October 2006 the plaintiff commenced these proceedings but Candibon was not joined as a defendant until 26 March 2007.
He says that on 1 November 2006, that is after proceedings were commenced, Candibon nominated Victoree as purchaser pursuant to the Candibon contract of sale. Then he says that on 24 January 2007 Candibon gave notice to Prime Equity that it intended to complete the purchase of the property described in the relevant certificate and on 6 March 2007 he says Victoree, Australand Industrial, Nordic Pty Ltd, Candibon and other companies and himself entered into a development management agreement. He also deposes that he, Australand Industrial, Nordic, Merlino and Australand Holdings entered into a co-venture agreement for the development of the Wallan estate, and produces the documents relevant to that.
On 26 March 2007 Candibon was joined as defendant in these proceedings.
His affidavit then turns to the moneys he has expended. In Paragraph 77 he sets out the payments that are made between 1 July 2003 and 31 December 2006 which he deposes amounts to more than $1.6m. He says between 1 July 2003 and 31 December 2006 Candibon has paid over $2m to Biloge, Extraplan and Nagle pursuant to the Southern Land Option agreement. He says that between 1 July 2003 and March 2007 Candibon has incurred costs and expenses in excess of $395,000 in relation to the proposed Wallan estate subdivision and he exhibits a spreadsheet setting out the costs and expenses.
I have looked at that spreadsheet and by my calculation, in excess of $200,000 of expenses would have been incurred between the time that Arnold Bloch Leibler wrote their letter in July 2004 (which I subsequently refer to) until when Candibon was joined in March 2007.
Under the heading of “Prejudice to Victoree and Candibon”, Mr Mondous says:
“The first Sarandal caveat and the second Sarandal caveat will prevent Candibon and Victoree from completing the settlement of the purchase of the land the subject of the Candibon contract of sale.”
I queried counsel for Candibon on that, because under the Act the transfers could be lodged on settlement but their registration would be delayed to give Sarandal a chance to challenge the sale. It was pointed out to me and I accept that a financier, and I can assume there is a financier, would not accept settlement on that basis.
Mr Mondous says he is concerned that if settlement is delayed pending the trial of this matter the development management agreement may be terminated and he sets out the clauses under which he says it could be terminated.
He says that -
“Because of the caveats Prime Equity's inability to complete the sale pursuant to Candibon contract of sale, Australand Industrial No 126 Pty Ltd has not paid a security bond of $7m in accordance with Clause 4.2.2 of the Development Management Agreement.”
And he says:
“Because of the Sarandal caveats and Prime Equity's inability to complete the sale pursuant to the Candibon contract of sale, payment by Australand Industrial No 126 Pty Ltd of further security bonds of $4m pursuant to Clause 4.2.3 and 4.2.4 of the agreement will be delayed.”
He says:
“The delay in settlement of the Candibon contract of sale will delay the receipt by Victoree of the development fee payable in accordance with clause 5.2 of the development management agreement of $70 per square metre of each and every lot capable of being sold under a sales contract in respect of the first 1500 lots sold and $80 per square metre of each lot capable of being sold under a sales contract in respect of the balance of the lots sold.”
He further says:
“A delay in settlement of the Candibon contract of sale will delay the receipt by Nordic of a 50 per cent share of the profits derived from the development of the land the subject of the Candibon contract of sale and the land the subject to the Southern Land Contract of Sale.”
He finally says he believes that each month that the settlement of the sale pursuant to the Candibon contract of sale is delayed the cost of development will increase, and there is no challenge to that in any reply affidavit.
I will now turn to the claims that have been made in the proceedings by Sarandal against Candibon. I do that because the summons before me is in the proceedings but as far as I can see, does not seek relief sought in the proceedings. Neither party raised any query about the form by which the present application has been made so I need not go any further other than to confirm that any orders that are made on the summons will be treated as orders made in the proceedings.
Under the amended statement of claim Sarandal makes the following allegations against Candibon. There are two Paragraph 94s and I will start with the second one:
“By reason of Sarandal being a beneficiary under the Trust Deed it has an equitable interest in the partnership property dated from 1 September 1998.”
I have already expressed a view about that. Under para 95 it is pleaded:
“If as and from the date of the Candibon contract of sale Candibon has any interest in that part of the partnership property the subject of the Candibon contract of sale, such interest is an equitable interest.”
Which I think is correct.
Paragraph 96 states:
“Candibon is not a registered proprietor in respect of that part of the partnership property the subject of the Candibon contract of sale.”
And para 97 states:
“An equitable interest of Candibon in that part of the partnership property the subject of the Candibon contract is subject to the prior equitable interest of Sarandal in the partnership property.”
That is a matter that is now in issue between the parties.
Paragraph 98 states:
“By reason of Sarandal being a beneficiary under the constructive trusts pleaded in Paragraphs 92 and 94 above, it has an equitable interest in the southern land parcels as and from the date of the contract of sale.”
The southern land parcels do not concern us here. The southern parcels are dealt with from Paragraphs 98 through to 101. So the first cause of action, which I have referred to previously, finishes at para 97. That is, that Sarandal has the prior equitable interest as against Candibon.
Then para 102 sets up a further claim:
“Further in the alternative, the facts indicated to an honest and reasonable person that a party other than the vendors of the land the subject of the Candibon contract of sale and the southern land contract of sale had a beneficial interest in that land and thus that the land was trust property, further or in the alternative, the subject of fiduciary duties.”
This is an allegation that an honest and reasonable person would have known those matters. It is not an allegation that Candibon in fact knew. The particulars relate to the money paid for the respective pieces of land in the Wallan subdivisions and that gives rise to the inference that an honest and reasonable person would have drawn the conclusion that the property is trust property and it was held subject to fiduciary duties.
In Paragraph 103 it is pleaded that Candibon knew the facts set out in the particulars to Paragraph 102 above. It does not allege that Candibon knew the allegation in 102 but it knew the facts in the particulars.
Paragraph 103 then pleads:
“An honest and reasonable man knowing those facts would have inquired into the identity and circumstances of the persons with an interest, whether beneficial or otherwise, in the land the subject of the Candibon contract of sale and the southern land contract of sale.”
And then it states -
“Wilfully and recklessly Candibon failed to make such inquiries an honest and reasonable man would have made. Further or in the alternative, Candibon is joined as a party to the relief sought by Sarandal.”
The second claim is a Barnes v. Addy claim. It is based upon the Barnes v. Addy limb, which relies on constructive knowledge. The constructive knowledge comes about because an honest and reasonable person would have known something. It is apparent to me, from that pleading, that the pleader may not have been aware that, as admitted by Mr Mondous, he did know that there were two owners and that there was only one vendor. Accordingly he may have actually known the property was being held beneficially for others.
That is not pleaded and I have drawn the inference from the material before me that Sarandal was not aware of those matters until recently.
In the counterclaim against Sarandal, Candibon says in paragraph 97 that:
“Any interest of Sarandal in the Prime Equity property is subject to legal rights of Candibon under the Candibon contract of sale. Any interests of Sarandal in the Prime Equity property is not a ground upon which it may object to the completion of the Candibon contract of sale.
Upon settlement of the Candibon contract of sale Candibon and/or nominee will be entitled to become registered proprietor of the Prime Equity property clear of any interest of Sarandal.”
That really does not take the matter very far at all. Para 106 refers to the fact that:
“Between 1 July 2003 and 31 December 2006 Candibon paid $1,683,207.20 to Prime Equity pursuant to the Option Agreement and the Candibon contract of sale.”
It sets out the amounts and then sets out matters paid under the Southern Land Option Agreement.
Then it claims in para 108 that Candibon performed work in relation to the proposed subdivision of the between 1 July 2003 and 2007 and incurred expenses in excess of $395,000.
Previously, I have referred to Candibon claims that it has substantially enhanced the value of the Wallan estate. Particulars are given of what Candibon has done.
Candibon refers to the lodging of Sarandal’s caveat on 26 June 2006 and says, and this is important:
“By at least mid 2004 Sarandal was aware of, (a), the existence of the option agreement, (b), the existence of the Candibon contract of sale, (c), the enhancement works.”
Then in para 112 Candibon claims that:
“From 19 December 2003 until the end of 2006 Sarandal conducted itself so as to induce in Candibon a belief that the Candibon contract of sale and enhancement works were made with concurrence of all members of the Wallan partnership.”
It says further in para 113:
“On the strength of this belief Candibon acted to its substantial detriment by making payments, performing enhancement works and such like.”
In para 114 Candibon claims:
“By reason of the matters set out [that I have just referred to], Sarandal is estopped from seeking the relief sought against Candibon in the amended statement of claim. Further or in the alternative,… by reason of those matters …Sarandal has been guilty of laches, acquiescence and delay and is not entitled to any relief against Candibon. Further,… by reason of those matters… any interest of Sarandal in the Prime Equity property… is to be postponed to the interest of Candibon under the Candibon contract of sale.
Further, or in the alternative, if Sarandal is entitled to relief against Candibon such relief ought to be made conditional upon Sarandal paying to Candibon an amount equivalent to the enhanced value, alternatively, Sarandal's proportionate share of the enhanced value.
Further or in the alternative …if the plaintiff is entitled to any relief by reasonably alleged “artificial” adjustment of the purchase price payable under the Candibon contract of sale… then settlement of those contracts should be allowed to proceed and the proceeds adjusted as between the vendors.”
Then in the counter claim, after formal business about incorporation and so forth, there is the pleading of the option agreement, the terms of the option agreement, the nomination under the option agreement, its exercise, and that Candibon is ready, willing and able to complete the purchase -
“In the circumstances Candibon is and will be entitled to an order against Prime Equity for specific performance.”
And then finally:
“Candibon is entitled to an order directing Sarandal to remove the first Sarandal caveat and the second Sarandal caveat.”
Accordingly, in the proceedings there is an application for the removal of the caveat and the pleading of the matters which are set out in the affidavits.
First of all I would like to confirm once again that I am not determining the issues raised in the pleadings but only the application made under the summons for the removal of the caveat.
The issues in the proceedings go to whether or not Sarandal’s prior interest should be deferred because of the matters pleaded in the pleadings. There are other issues relating to equitable adjustment and so forth arising from moneys that have been spent on the subdivision and so forth.
Both parties seem to be agreed on the applicable legal principles and that is, first that the proceedings are analogous to interlocutory injunctions. Secondly, that the caveator bears the onus of maintaining the caveat. Thirdly that the caveator has to establish a serious question to be tried that he or she does have the claimed interest in the land. Finally, the caveator must establish that the balance of convenience favours the maintenance of the caveat until trial.
Candibon submitted, that Sarandal’s interest was a mere equity as distinct from an equitable interest. As such, Candibon submitted the mere equity would not take priority over a bona fide purchaser of value who obtains an equitable interest. Reliance was placed on the judgment of Kitto J in Latec Investments v Hotel Terrigal Pty Ltd[1].
[1](1965) 113 CLR 265.
If that be the case, it is not relevant to this particular application. Sarandal is the beneficial owner of the fee simple interest in the relevant land and the normal rules apply, that is, the first in time prevails unless there be some act or default which having regard to broad principles of justice would make it inequitable between the parties that the holder of the first interest should retain its initial priority. I have paraphrased the observations of Ormiston JA in Moffatt v Dillon[2].
[2](1992) 2 VR 480 at 77.
I also refer to Jacobs v Platt Nominees Pty Ltd[3] where the Appeal Division of this court held that in considering whether the prior equitable interest had lost its priority, all the relevant circumstances must be considered to determine whether the prior holder should retain or lose their priority.
[3](1990) VR 146.
In that case, the holder of the prior equitable interest had failed to lodge a caveat which would have warned the subsequent purchaser of the prior sale. As I said previously, that is not the subject of this hearing. There are some relevant matters to note, however.
The evidence establishes that Candibon was aware that the vendor might be a trustee for the beneficial owners. Candibon was informed that the relevant land was owned by two parties, one who wished to sell and the other who did not, and in fact as was pointed out to me by submissions, that must be so from the decision to divide the land 50/50.
As against Candibon it can be said that it took the risk in dealing with the trustee that the sale had been authorised by the beneficial owners. That is now in dispute. Further, Candibon was aware that the land was to be subdivided differently to that originally agreed by the two owners. The difference was material. It related to the division between lots 1 and 2 of the frontage to the Wallan-Whittlesea Road. Candibon made, as far as the evidence establishes, no attempt to satisfy itself that the other owner had agreed to the change other than through inquiries made of the trustee.
Sarandal has established that there is a serious question to be tried. It has an estate or interest in the land claimed that is prior in time to that of Candibon’s.
There are matters that are relevant to the balance of convenience that also bear on the strength of Sarandal’s claim to the prior interest. It is convenient if I go back over some of the facts to give a chronology of some of the relevant matters.
As indicated previously, the discussions with Mr Blau concerning the sale on the part of Mr Mondous took part in mid 2003, and it was at that time that Mr Mondous learnt that there were two owners of the land and it was to be divided 50/50.
On 1 July 2003, Mr Mondous obtained for his company the option agreement. On 2 July 2003, Peter Weeks on behalf of Mr Mondous sent to the council the letter being Exhibit DM7. attaching the sketch showing the land that their client was seeking to purchase, which is Plan 1. There is a bit of patching on the road, but the title area is consistent with Lot 1 in Plan 1.
Then on 23 July 2003, Mr Mondous lodged a caveat over all the northern land and the southern land. On the next day, that is 24 July, Peter Weeks lodged an application for a planning permit, this time with a more formal plan of subdivision which is clearly consistent with Plan 2 that is in Exhibit SM20. On that very day, Peter Weeks and Mr Mondous attended the shire offices and found out that the council, required to approve the subdivision of lot 1, incorporated the whole of the land fronting the Wallan-Whittlesea Road to accommodate the drain.
On 4 August 2003, Peter Weeks received a letter from the shire council which specifically referred him to the study that had been done on the Wallan industrial estate development back as far as 1989, and he was asked to note that the study, among other matters, requires the construction of a trapezoidal floodway which is to be located along the Wallan-Whittlesea Road frontage of the subject land. The letter said it is envisioned a 100 metre wide area would be provided for, council would prefer that the 100 metre wide area act as a drainage reserve vested in council. The council, however, was willing to consider other options such as an easement arrangement. The council advised that it should be noted the owner of the subject land would not be required to construct the proposed floodway, council would arrange such works.
On 4 September 2003, the solicitors for the vendors Rotman and Morris wrote to the solicitors for Mr Mondous, Comito and Co. This is Exhibit SM30, saying:
“We believe the only matter outstanding is the precise calculation and delineation of the Prime Equity Property and as we understand it your client is in the process of finalising same. Please forward a copy of same to our office as soon as it has been attended to.”
It is unclear whether the reference to your client finalising the same is a reference to obtaining the agreement of the non selling partner or not. The letter is ambiguous as to whether that is an inquiry along those lines. That was on 4 September. On 10 September, Reeds submit the final plan of subdivision which shows the subdivision to be in the form of Plan 3.
On 14 November the plan was approved by the council.
We move on now for another year to the letter of 27 August 2004 sent by Arnold Bloch Leibler on behalf of Sarandal to Natalie Blau the director and company secretary of Prime Equity Developments.
The letter said, after referring to what the company owned :
“Discussions took place between the parties regarding the division of the land into two parcels each with equal frontage on to Wallan-Whittlesea Road. It was on that basis that any division of land would proceed. On about 1 December 2003 plan of subdivision PS 521779X (‘the plan of subdivision’) was registered. The plan of subdivision …”
Which they attach:
“… indicates that one of the parcels of land (marked ‘2’) has no frontage to Wallan-Whittlesea Road at all. Accordingly the plan of subdivision did not proceed on the basis discussed and nor were there any subsequent discussions or consultations regarding any varied subdivision.”
And then it says:
“On or about 19 December 2003 you caused the company to enter into a contract for the sale of the [southern] land to Candibon Pty Ltd; and to consent to the registration of a s 173 agreement between Candibon Pty Ltd and Mitchell Shire Council regarding the subdivision of the land. Our clients are concerned having regard to the above that you have taken steps without proper authority and have engaged in conduct which has caused the company loss.
In order to enable us to further advise our clients in respect of these matters please provide us with copies of all documents evidencing the sale, division and any other transaction affecting the land, together with all correspondence relating thereto. Please also provide us with an up to date copy of the company's constitution.
We further require your undertaking that you will not, until further notice, dispose of or deal with howsoever any of the assets of the company including the land, or enter into any other document or transaction in the company's name. We require your response within seven days. All our client's rights in respect of your conduct remain reserved. They include the right, in the event you fail to provide the information and documents requested, or the undertaking required, to take necessary action to protect their position.”
By letter dated 8 September, Holding Redlich respond on behalf of Nameplan and Sherpy to the letter of 27 August: DM8. I will not go through the whole letter, but there were a couple of points that were relied upon in evidence. The first one was what Holding Redlich said in Para 4 on page 2. :
“Neither of the parcel of lands created by the plan of subdivision for the properties have a frontage.”
They also say in para 5, subpara (e) on page 2:
“Our clients immediately commissioned a report from Tomkinson regarding the proposed subdivision as prepared by Candibon which report concludes:
‘the proposed boundary alignment whilst having altered to vest 4.5 hectares of land previously with Lot 2 with Lot 1 would appear to be generally consistent with the agreement between the two owners. The Department of Environment and Sustainability have requested no development occur on the subject area. Therefore from a development perspective would appear to be highly encumbered land notwithstanding an engineering solution achieving a different outcome. The issue of access to other lot off Wallan-Whittlesea Road would appear to be addressed through the 173 agreement. As to why council chose to determine the application at this early stage is unclear based on conversation with available officers at council. Therefore basing the available information and discussions with both council and Reeds consulting the changes to the original subdivision layout are reasonable and will unlikely to result in material loss to either party while allowing access to either lot from Wallan-Whittlesea Road.”
Arnold Bloch Leibler responded to Ebsworth and Ebsworth (who were now acting for Sarandal), in part. The letter is exhibited at DM8, pp 83 to 86. Dealing with point 4 they said:
“Your assertion in Paragraph 4 that neither of the parcels of land created by the plan of subdivision for the property has a frontage is plainly wrong. The lot assigned to your client does have frontage to Wallan-Whittlesea Road, whereas the lot assigned to ours has none. There is no basis upon which you can assert otherwise.”
Further on the page there is a statement as follows:
“The agreement between our respective clients is as set out in our letter of 27 August 2004, namely that the property would be subdivided into two lots with equal frontage to Wallan-Whittlesea Road. We are instructed that it was a further term of the agreement that on division of the property as agreed, your clients’ shares in the company would be transferred to our clients and your clients or their nominees would resign as directors from the company.”
Finally on the last page:
“Our client requires your client to perform the agreement and to implement the subdivision of the property as agreed between our clients. Unless your clients do so our client will have no alternative but to take the necessary steps to enforce their rights or alternatively to seek damages.”
The assertion on behalf of Sarandal that there was an agreement to subdivide is of some importance as the affidavit material suggests that Sarandal made no such agreement. In December 2004, however, it was being asserted by Sarandal that there was an agreement and more than that, Sarandal was insisting that Prime Equity implement the subdivision as agreed.
There is a lot of correspondence in DM8 indicating the difficulties that Sarandal has had in getting information. I will refer to correspondence dated 28 June 2006, some nearly two years after Sarandal’s solicitors wrote asking for the documents. Brown and Co at this stage were acting for Sarandal and wrote again to Rotman & Morris seeking documents. It is clear from the letter in response that Rotman & Morris rejected the signed authorities provided to obtain documents from Prime Equity.
I think it is fair to say that Sarandal were still getting the run around in June 2006. At the time the caveats were lodged, and then in October 2006 the proceedings were commenced.
In March 2007 the agreement with Australand was entered into, and 20 days later Candibon was joined.
Candibon submits that both, on the balance of convenience and on the strength of Sarandal’s claim for prior interest, there has been inordinate delay, that is, that I should take the delay into account in looking at the balance of convenience and also in throwing doubt on the likely success of Sarandal being able to maintain its prior interest.
It is submitted that Sarandal knew of the subdivision and its non compliance with the agreement with its partners in July 2004 but did not take proceedings against Candibon until March 2007, about three years later. Candibon submits that during this time, Candibon has incurred hundreds of thousands of dollars of expenses and has ordered its affairs on the assumption that the subdivision would proceed. I have already read from the affidavit of Mr Mondous as to all the financial transactions which hang off this subdivision or sale proceeding.
If the title to half the entrance is retained by Sarandal, then the subdivision is threatened or at least delayed and possibly will have other significant commercial consequences which are referred to in Mr Mondous’s affidavit.
Sarandal, for its part, submits that there has been no unjustifiable delay. It points to the efforts to obtain information that were continually frustrated, and I agree that they were frustrated.
The pleading lodged in March 2007 infers that Sarandal was not aware that Candibon knew of the agreement to subdivide the land 50/50 and knew that the change to the 50/50 split would probably require the consent of the other owner’s consent, which turned out to be Sarandal.
On the other hand, there does not appear to be any material allegations or pleadings that were not known to Sarandal in 2004. I have already been through the pleadings in some detail and one can see that the pleadings are not based upon the recent information which has come to hand about Mr Mondous’s knowledge of Prime Equity not being the beneficial owner and that there were two owners of the land.
The pleadings are drawn on the priority point and the Barnes v Addy point relies upon constructive knowledge. It does not rely upon actual knowledge which I imagine might now be pleaded.
I conclude that there are no facts which have been alleged by Sarandal in its claim that was issued in March of 2007 that were not known to Sarandal some significant time earlier, probably some three years earlier or thereabouts in 2004.
The second point is, despite Sarandal having solicitors acting at all stages and firing off letters, with justification, to Prime Equity seeking documents and complaining and so forth, at no stage did they ever communicate with Candibon, even though they knew about the existence of Candibon in July 2004 advising Candibon of its interest and that it would take action if its interests were prejudiced by the subdivision proceeding. There was no attempt by Sarandal to apprise Candibon of its claim to the land fronting the Wallan-Whittlesea Road.
The next point I consider is the prejudice to Sarandal. It has, on my findings at this stage, an equitable interest in the land that fronts the Wallan-Whittlesea Road which is now part of Lot 1 which should have been part of Lot 2 and that interest will be extinguished if the caveat is removed. Theoretically, there might be possibilities of further action under the writ, but I think that they might be estopped because they have had full opportunity to ventilate all the grounds in this hearing.
It is said by Mr Matruglio that it is a valuable asset, and I accept that. On the other hand, I do not accept that the subdivision of lot 2 is prejudiced. I think the evidence that the council insists upon the s 183 access indicates that the council has in mind that lot 2 will be subdivided. Plans showing that, were tendered, and though I do not fully know all the technical consequences of having that form of access without a title, it seems to me that the intention of the council was that there be similar access to the potential subdivision on Lot 2 as there is on Lot 1.
It has been a very difficult case to decide because, contrary to the submissions by Candibon, I have got no doubt at all about the equitable interest that Sarandal had. Whether or not it has lost that equitable interest through the actions of its trustee or has lost its priority is yet to be decided. It may be that in arming its trustee there might be something said. On the other hand, the trustee did agree to act only on the consent of all the three partners. I know that nothing is pleaded about the trustee having authority to sell.
I do consider on the balance of convenience that the settlement of Lot 1 should proceed and be completed. I think that will mitigate the loss to everybody. To hold it up would only aggravate the losses.
Consequently I will order the removal of the caveat but I will only do so on terms which protect Sarandal’s rights and possible just compensation if it has lost a valuable property interest.
I note that the claim by Sarandal against Candibon seeks damages in equity and equitable compensation. I will require an undertaking by Candibon and Victoree Pty Ltd that they will undertake to abide by any order which this court may make as to damages in the event that this court should be of the opinion the defendant sustained any damages, by reason of this order, which the plaintiff ought to pay.
I also require an undertaking that the settlement proceeds be held in trust in this proceeding and be distributed according to the order of the court.
I will reserve the costs.
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