Smith v Olatest Pty Ltd - [2010] SADC 19

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application)
SMITH v OLATEST PTY LTD
[2010] SADC 19
Judgment of His Honour Judge Brebner
15 February 2010
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS
Transfer of land. Plaintiff claimed consideration had failed. Plaintiff lodged caveat and brought action for transfer of land back to original transferors. Plaintiff sought extension of caveat or injunction inhibiting dealing in the land pending determination of the action. Serious issue to be tried. Balance of convenience favoured grant of injunction. No necessity to consider validity of caveat.
PROCEDURE - JOINDER OF PARTIES
The plaintiff sought to join an additional party. Party had an interest in the land. Possibility of multiplicity of proceedings. Application granted.
District Court Civil Rules 2006 r 74, referred to.
Australian Broadcasting Commission v O'Neil (2006) 227 CLR; Kilpatric Green Pty Ltd v State Supply Board (1991) 56 SASR 591; Cini & Ors v Pets Paradise Franchising (SA) Pty Ltd & Ors (2008) 102 SASR 177; Puo Hor Ong & Ors v Wu You Yang & Ors (2008) 103 SASR 9, considered.

SMITH v OLATEST PTY LTD
[2010] SADC 19

These applications arise out of a dispute over the terms of an agreement for the sale of land. The applications proceeded on affidavits and some additional documents were tendered.
The subject land was transferred to the defendants. The plaintiff was one of a number of transferors. The transfer has been registered. Essentially the plaintiff seeks an order transferring the land back to the original transferors, or payment of unpaid consideration or damages. The statement of claim has not yet been filed however, the plaintiff undertakes to do so within 14 days. The plaintiff has lodged a caveat on the title to the land. By interlocutory application the plaintiff seeks to preserve the status quo pending the determination of the action either by an order extending the time within which to remove the caveat or by an order for an injunction. The plaintiff also seeks an order joining an additional party. The plaintiff has given an undertaking as to damages.
The dispute is essentially a family dispute. The land concerned is occupied by a business named Kent Engineering (Kents). Prior to July 2006 the registered proprietors of the land were the plaintiff (as to one undivided fortieth part), his brother Walter Smith (as to one undivided fortieth part), the plaintiff and Walter Smith as trustees of a trust constituted under the terms of a will (as to sixteen undivided fortieth parts), two members of the Smith family (as to one undivided fortieth part each) and two other family members (as to one undivided fortieth part each as joint tenants) (collectively referred to as the transferors). Some of the transferors were shareholders in Kents.
In July 2006 the transferors transferred their interest in fee simple in the land to the defendant company (the defendant). The consideration specified in the memorandum of transfer was $990,000. The transfer was executed by each of the transferors. The director and sole shareholder of the defendant was one Kent Smith and he executed the transfer on its behalf. No money has been paid to the transferors.
The transfer resulted from an agreement between the transferors and the defendant. There is no written memorandum signed by the transferors and the defendant evidencing the terms of the agreement. According to the plaintiff, it was agreed that the land would be transferred so as to enable the defendant to pay out an existing mortgage of some $321,000, to re-structure Kents pursuant to the terms of a deed of company arrangement, and to pay directors penalty notices issued by the Australian Tax Office (ATO) to some of the directors of Kents including the plaintiff. Also according to the plaintiff, the agreement stipulated that he was to have become a director of the defendant and shares in the defendant were to be issued to those of the transferors who held shares in Kents in amounts reflecting their shareholding in Kents. Finally, according to the plaintiff, the amount which was due to the ATO was $187,000 and the amount which was ultimately to be paid to him, Walter Smith and to him and Walter Smith as trustees, in satisfaction of the specified consideration was $300,864.60.
According to the plaintiff, the terms of the agreement have not been honoured, no money has ever been paid to the vendors, the director’s penalty notices have not been paid, he has not been appointed as a director of the defendant, no shares were issued until after the current proceedings were instituted and the issue does not reflect the terms of the agreement in any event. The shares which were ultimately issued were not accepted by the plaintiff, either in his personal capacity or trustee, and Walter Smith says that he did not agree to the issue of shares in either of his capacities.
The defendant denies that the agreement was in these terms and it claims that it has honoured the terms that were actually agreed upon. The defendant’s side of the story emerges from the affidavit of one Butler. Mr Butler is chairman of the management committee of the defendant. According to Mr Butler, the terms of the agreement were settled at a meeting held in June 2006 which was attended by the plaintiff, Walter Smith, the other transferors and himself. A document which purports to be the minutes of the meeting are exhibited to Mr Butler’s affidavit. According to the minutes, the purpose of the meeting was to consider the re-financing of Kent’s, the security of the land and ‘an exit strategy for the proprietors of the property’. Although the terms of the minutes are not entirely clear, they convey the impression that it was resolved by those present at the meeting that the land would be transferred to the defendant, that an application for a loan of $600,000 which had already been made by the defendant would proceed, that shares would be issued to the vendors in the amounts specified in a schedule to the minutes, that the land would be retained by the defendant and that the director penalty notices issued to the plaintiff and two other members of the family would be regarded as a company debt to be paid by the defendant when a timetable had been set for its repayment. The plaintiff says that he never attended any such meeting and Walter Smith says he has no recollection of ever attending any such meeting.
Also according to Mr Butler, the appropriate shares were issued, none of the other transferors have objected to the issue of the shares, that the defendant has agreed to meet the director’s penalty notices issued against the directors of Kents, including the plaintiff but that it cannot do so and nor can it meet professional fees or make other expenditure while the caveat remains in place.
The plaintiff lodged a caveat over the land in April 2007. On 22^nd October 2009 the time for removal of the caveat was extended until further order. The defendant wants the caveat removed so it can use the land as security to raise funds to pay the director’s penalty notices and for professional fees and for other expenses.
Against that background I turn to the applications themselves.
The plaintiff seeks to join Walter Smith as a plaintiff. The plaintiff’s solicitor says that Walter Smith has instructed him to make the application and Walter Smith says that he wants to be joined. Rule 74 of the District Court Civil Rules 2006 provides that the Court may order that a person who is not a party be joined as a party if the Court is satisfied, amongst other things, “…that the person has an interest in the subject matter of the action…; or…the person should be joined …to ensure that all matters in dispute in the action are determined; or …the person should be joined … in order to …avoid multiplicity of proceedings.”
The defendant does not oppose the joinder provided that Walter Smith gives an appropriate undertaking. Walter Smith plainly has an interest in the subject land and joining him in the proceedings may have the potential to avoid multiplicity of proceedings and the application will be granted subject to Walter Smith giving an appropriate undertaking as to damages.
Although the plaintiff does not specifically seek injunctive relief in his interlocutory application, his counsel submits that if the application to extend time fails then an injunction restraining the defendant from selling or otherwise dealing in the land should be granted pending the outcome the action. As the claim is for transfer of the land back to the vendors injunctive relief is plainly available and can attach to that aspect of the claim. Counsel for the defendant submitted that the caveat was defective, that the application to extend time must fail accordingly and that injunctive relief is the only remedy which might be available to the plaintiff.
Given the approach taken by counsel for the defendant, it is convenient to consider the application for an injunction first.
In order to succeed in his application for an injunction, the plaintiff must demonstrate that there is a serious question to be tried in the sense that his prospects of success in the action which he has brought are sufficient to warrant the preservation of the status quo pending the outcome of the section, that damages will not be an adequate remedy and that the balance of convenience falls in favour of granting the injunction sought in the sense the injury or inconvenience which the plaintiff is likely to suffer if the injunction is refused is greater than the injury which the defendant would suffer if it is granted.[1] Some cases incorporate the question of whether damages will be an adequate remedy into the question of where the balance of convenience lies.[2]
[1] Australian Broadcasting Commission v O’Neil (2006) 227 CLR at [19], [65]-[72].
[2] Eg Kilpatric Green Pty Ltd v State Supply Board (1991) 56 SASR 591.
There is no issue between the plaintiff and the defendant that there was an agreement to transfer the land. The dispute is about the terms of the agreement and whether they have been fulfilled. As I have said, no agreement setting out the precise terms on which the land was to be transferred was executed by the vendors and the defendant except for the transfer itself and, obviously, the minutes of the meeting said to have been held in June 2006 are of dubious evidentiary value. As I have also said, the plaintiff claims the consideration was to be money which has never been paid and the defendant claims that the consideration was to be shares which have in fact been issued, albeit over three years after the transfer was registered. Thus as things currently stand, the plaintiff’s action will largely turn on credibility.
As things also currently stand, there is nothing before me which suggests that the conflict about the terms of the agreement is unlikely to be resolved in favour of the plaintiff. That being so, it cannot be said that his prospects of success, insofar as his claim relates to transferring the land back to the vendors, are insufficient to justify the grant of the injunction sought. Indeed, the fact that the defendant has not paid the director’s penalty notices and did not issue the shares until after the proceedings were commenced might well ultimately give rise to inferences adverse to the defendant’s case.
It is convenient to deal with damages under the ambit of the balance of convenience.
In many cases involving caveatable interests in land, and if there is a serious issue to be tried, then allowing the caveatee to dispose of the land or to use it as some form of security or to use it in some other way which has the potential to negate or reduce the caveator’s interest in the land or to destroy his security will mean that “the balance of convenience will inevitably favour the caveator.”[3]By parity of reasoning these considerations can assume considerable significance in considering where the balance of convenience lies on an application for an injunction restraining the sale, transfer, mortgage, encumbering or otherwise dealing with land pending the outcome of an action relating to the land.
[3] Cini & Ors v Pets Paradise Franchising (SA) Pty Ltd & Ors (2008) 102 SASR 177 at [51], [67], Puo Hor Ong & Ors v Wu You Yang & Ors (2008) 103 SASR 9 at [66].
The plaintiff relies heavily on these considerations. Counsel for the plaintiff submitted that if the defendant was not restrained from dealing in the land then there is a real risk that the property could be sold, transferred or used as security for borrowings over and above the $600,000 the plaintiff claims was the limit imposed by the original agreement. Counsel also submitted that the fact that the defendant has not paid the director’s penalty notices, as its own minutes suggest it agreed to do out of the money which was to be raised on the security of the land, raises concerns.
Counsel for the defendant submitted that the defendant would be prejudiced if it was not able to use the land as security to obtain funds to pay the ATO, re-finance the property or “to assist with the business and also to make some improvements to the property”. However, counsel did not particularise the prejudice the defendant would suffer in any more detail than that and it has not been suggested that access to further funds is vital to the defendant’s survival and the plaintiff has undertaken to pay the ATO in any event. If the defendant was in need of a significant injection of funds to continue trading, then doubts as to its continuing solvency would arise which in turn raises the possibility that it would not be in a position to pay damages were it to have sold or mortgaged the land and were the plaintiff to succeed in his remaining action for damages.
The balance of convenience thus falls significantly in favour of the plaintiff and an injunction will be granted. There is thus no need to consider the application for an extension of time to withdraw the caveat.
On Walter Smith giving an appropriate undertaking as to damages within 14 days of today I order that he be joined as a second plaintiff.
I grant a permanent injunction restraining the defendant, its servants or agents from selling, mortgaging, encumbering or in any other way dealing with the whole of the land comprised in Certificate of Title Register Book Volume 5629 Folio 772.
I order that the plaintiff, or plaintiffs, file and serve the statement of claim within 14 days of today.
I order costs in the cause.