Vikki Louise Cummins v Ballyshannon Pty Limited

[2004] NSWSC 889

CITATION:	Vikki Louise Cummins v Ballyshannon Pty Limited [2004] NSWSC 889
HEARING DATE(S):	06/09/04; 07/09/04; 29/09/04; 20/10/04
JUDGMENT DATE:	21 October 2004
JUDGMENT OF:	Nicholas J
DECISION:	para 39
CATCHWORDS:	REAL PROPERTY - Caveats - Application for withdrawal of caveat - s74MA(1) Real Property Act 1900 (NSW) - Whether material change in circumstances justifies discharge of order extending caveat - Whether purchaser should be denied claim for specific performance and confined to remedy in damages
LEGISLATION CITED:	Real Property Act 1900 (NSW) s 74MA(1)
CASES CITED:	Baltic Shipping Company v Dillon (1991) 22 NSWLR 1 Brimaud v Honeysett Instant Print Pty Limited (unreported, 19 September 1988) Forder v Cemcorp Pty Limited (2001) 51 NSWLR 486 General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125 Jensen v Giugni (1994) 6 BPR 13,677 Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987 Martyn v Glennan (1979) 2 NSWLR 234 Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146 R D McKinnon Holdings Pty Ltd v Hind (1984) 2 NSWLR 121 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418
PARTIES :	Vikki Louise Cummins - Plaintiff Ballyshannon Pty Limited - Defendant
FILE NUMBER(S):	SC 03094/03
COUNSEL:	P Beazley (solicitor) - Plaintiff C Harris - Defendant
SOLICITORS:	Beazley Singleton - Plaintiff Willis & Bowring - Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

21 October 2004

03094/03 Vikki Louise Cummins v Ballyshannon Pty Limited

JUDGMENT

1 His Honour: By its notice of motion filed 23 July 2004 Ballyshannon Pty Limited (the Defendant) seeks orders against Vikki Louise Cummins (the Plaintiff) that she withdraw caveat number 9585440 within seven days, and that the Defendant retain out of the proceeds of any sale of townhouse 8 at 17-19 Henry Kendall Avenue, Padstow Heights, the sum of $327,000.00 to be held in trust in the joint names of the solicitor for the Plaintiff and the solicitor for the Defendant, to abide the outcome of these proceedings.

2 By consent, these proceedings and a similar application in Barakat v Ballyshannon Pty Limited (04049/03) were heard at the same time. Although no order was made that the evidence in one matter should be taken as evidence in the other both were conducted on the basis that the oral evidence of Mr Scott Hyslop was common to both.

Background

3 The Defendant carries on business as a real estate developer and has done so for about 10 years. Mr Hyslop is its managing director and his wife is the other director. They own all the shares in the company which is their only source of income. It has completed six developments, the finance for which has been provided by commercial lenders on security which included the home of Mr and Mrs Hyslop and their children.

4 The Defendant embarked upon the construction of 10 townhouses at 17-19 Henry Kendall Avenue, Padstow Heights, finance for which was obtained by way of a loan of $1.5 million from Illawarra Mutual Building Society Limited secured by a first mortgage over the property and over the Hyslops’ home, a credit facility of $950,000.00 from IMB Limited (IMB) similarly secured, and a loan of $880,000.00 from Wetarange Pty Limited Staff Superannuation Fund (Wetarange) in the form of unsecured mezzanine finance, the interest rate on which was 20% per annum increased from 1 July 2004 to 30% per annum capitalised monthly.

5 By contract for sale dated 5 October 2001 the Defendant agreed to sell to the Plaintiff lot 8 for the price of $337,000.00. Under special condition 9.2 either party might rescind the contract if the strata plan was not registered within eighteen months of the contract date. Special condition 9.3 required the Defendant to use all reasonable endeavours to have, inter alia, the strata plan registered on or before the date stipulated in 9.2.

6 By letter dated 2 May 2003 to the Plaintiff’s solicitors the Defendant’s solicitors purported to rescind the contract as the strata plan was not yet registered.

7 On 8 May 2003 the Plaintiff registered caveat number 9585440 claiming an equitable interest under the contract in lot 8.

8 On 2 June 2003 the Plaintiff commenced these proceedings by summons in which she seeks orders that the caveat be extended, and for specific performance of the contract. It is accepted that there are serious questions to be tried as to the Plaintiff’s caveatable interest, and as to whether or not the Defendant was entitled to rescind, and whether it failed to use reasonable endeavours in breach of special condition 9.3. In her affidavit sworn 2 June 2003 the Plaintiff stated that she would not oppose any application of the Defendant for expedition.

9 On 5 June 2003, upon the Plaintiff giving the usual undertaking as to damages, it was ordered, by consent, that the caveat be extended until further order, and directions were made as to the future conduct of the proceedings.

10 On 2 July 2003 the property at 22 Wilbung Road, Illawong was transferred to the Plaintiff.

11 On numerous occasions since 24 July 2003 the matter has been before the court for pre-trial directions.

12 By letter dated 22 August 2003 to the Plaintiff’s solicitors the Defendant’s solicitors complained that the prevention of the sale of the lot by the caveat until completion of the proceedings would result in costs of “tens of thousands of dollars” to the Defendant. They proposed that the Plaintiff remove the caveat to allow the Defendant to sell the lot and from the proceeds it would retain the amount payable under the contract and invest the balance in a trust account in the joint names of the solicitors for the parties to abide the outcome of the proceedings. It was said that if the Plaintiff agreed to the proposal the Defendant would have suffered very little loss arising from the caveat. There was no response to this letter.

13 On 20 October 2003 the strata plan was registered.

14 By letter dated 5 February 2004 to the Plaintiff’s solicitors the Defendant’s solicitors advised that whilst the lot remained unsold the Defendant was obliged to pay interest on the development loan at 20% per annum and was suffering a loss of about $2,300.00 per week which it would seek to recover from the Plaintiff if successful in the proceedings. Concern was expressed about the weakening real estate market. The earlier proposal for the sale of the lot was repeated, and a response requested as a matter of urgency. No response was forthcoming.

15 On 2 April 2004 the Plaintiff served the report of her expert, Mr Kevin O’Mara, apparently outside the time directed including extensions. His evidence is relevant to the issue of breach by the Defendant of special condition 9.3.

16 On 26 April 2004 the matter was listed for call-over on 9 June 2004 for an expected hearing in September or October. However, on 8 June 2004 the Defendant’s solicitors were informed that Mr O’Mara would be overseas for fourteen weeks from 1 September 2004 and would not be available for cross-examination if the matter was to be heard during that time. As Mr O’Mara is so required the Defendant agreed for the matter to be included in the call-over on 8 September 2004 when hearings were expected to be fixed for November and December. Apparently the Defendant has not yet served evidence in reply to that of Mr O’Mara.

17 No application for expedition has been made. At the commencement of the hearing of this application on 6 September 2004 orders were made by consent that the matter proceed on pleadings, and for the filing of the statement of claim and defence.

18 The Defendant’s evidence is that at present no payments of either principal or interest have been made to Wetarange. The amount owing to IMB under the credit facility is about $680,000.00. Mr Hyslop states that had the caveat not prevented its sale he would have sold the lot for about $550,000.00 in November 2003 and paid the proceeds in reduction of the borrowings. He says that this would have resulted in a saving of about $56,700.00 in interest charged since 30 November 2003 and a saving of $11,850.00 per month from 1 July 2004. He is concerned that the real estate market may continue to weaken over coming months with an adverse effect upon the value of the lot.

19 On 13 July 2004 IMB advised the Defendant that the mortgage over the home could not be discharged until the loan had been repaid. It also advised that whilst caveats were in place it was unable to provide further funding for another project if the lots were offered as security for future loans. Mr Hyslop has been informed by other financiers that development finance is not available unless it is secured by first mortgage over the home. He says that he and his family are unable to obtain any income until the Defendant is able to commence another development.

20 Under cross-examination Mr Hyslop said that the Defendant has had lot 9 of the development listed for sale since 2001 and has informed the agent that a price of under $500,000.00 would be accepted and awaits an offer. He also gave evidence of the sale of one lot to his son and another to his daughter under contracts made on 12 and 13 December 2001 respectively, which contracts the Defendant was entitled to rescind twelve months later by reason of the non-registration of the strata plan. He agreed that it had been open to the Defendant to rescind these contracts at any time from 12 and 13 December 2002 to alleviate its financial position but it elected not to do so because the children had no other property “ … and were not arguing the point on extras and causing difficulty” (T p 17). Settlement in each case took place on about 3 November 2003. In deciding to rescind the contracts of the Plaintiff and Mrs Barakat he said he was influenced by the fact that each had other properties and had been unreasonable in relation to extras, and that the Defendant was experiencing financial difficulty.

Defendant’s submissions

21 For the Defendant, Mr C Harris of counsel submitted firstly that pursuant to SCR Pt 40, r 9(4) the court should discharge the present order extending the caveat, and pursuant to s 74MA Real Property Act 1900 (NSW) order its withdrawal, and order disposition of the proceeds of sale of the lot in accordance with the scheme proposed. He argued that the evidence discloses a material change in circumstances from the time the order for extension was made that, in the interests of justice, the court in the exercise of its discretion should make the orders sought. Secondly, it was submitted that on the evidence for the Plaintiff presently before the court in support of the summons the circumstances are such that justice requires that the Plaintiff should be confined to a claim for damages on the grounds that an order for specific performance would not be made at a final hearing because of hardship amounting to injustice to the Defendant, and that damages would be a sufficient remedy in any event.

The principles

22 I turn first to the claims for the discharge of the present order and for an order that the caveat be withdrawn.

23 An application to the court for withdrawal of a caveat is made under s 74MA(1). Under ss (2)(a) the court may order the caveator to withdraw the caveat and, under sub para (b) make such other or further orders as it thinks fit.

24 The principle applicable to an application under s 74MA is that the court is to enquire whether the caveator would, in all the circumstances, be entitled to an interim injunction and, if not, to order the caveat be withdrawn (Martyn v Glennan (1979) 2 NSWLR 234). This, in turn, raises the questions whether the claim for an interest in property raises a serious question to be tried and whether on the balance of convenience it is preferable to maintain the status quo until the trial rather than upset it. Thus in a case such as this the question is whether the plaintiff would be entitled to an interlocutory injunction restraining the Defendant from dealing with the lot inconsistently with her right to specific performance of the contract until the final determination of the summons (cf: Forder v Cemcorp Pty Limited (2001) 51 NSWLR 486 per Barrett, J paras 25-29).

25 In dealing with the question the court must also keep in mind the observations of Young, J (as he then was) in Jensen v Giugni (1994) 6 BPR 13,677 at 13,669: “Indeed, it might be said that under the Torrens System generally the court should not remove a caveat or decline to extend a caveat if there is an appearance of an arguable case … there is no doubt at all that … the policy behind Part 7A of the Real Property Act (is that) the caveat is to remain whilst the court determines the real interest between the parties, following the usual procedures in this court, and the caveat is only to go if it is one which is patently bad, or which may have no chance of success”. (See also: Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987, at 11,990).

26 With regard to the approach to be taken in deciding whether to discharge or vary an interlocutory order under Pt 40, r 9(4) Mr Harris referred to Brimaud v Honeysett Instant Print Pty Limited (unreported, 19 September 1988) in which the overriding principle was stated by McLelland, J to be whatever the interests of justice require in the particular circumstances of the case. He went on to hold that in cases where an interlocutory order is made after a contested hearing in contemplation it would operate until the final disposition of the proceedings. The ordinary rule of practice is that the applicant must demonstrate a material change of circumstances since the original application was heard.

27 In this case it is plain that, the Plaintiff having commenced proceedings for specific performance, the present order was made on 5 June 2003 by consent in contemplation that it would operate to restrain the Defendant from dealing with lot 8 until final disposition of her claim. It was thus accepted that extension of the caveat was the appropriate means to preserve the status quo.

28 Mr Harris submits that since the order was made a number of things have happened which together constitute such a material change of circumstances that in the interests of justice the caveat should be lifted to enable the Defendant to be free to sell or otherwise deal with lot 8 so that, ultimately, it will be better placed to obtain finance for another development thereby providing income for Mr and Mrs Hyslop. The matters relied upon are that the Plaintiff has purchased another residence in which she lives with her family, there has been delay in the proceedings said to have been caused by the Plaintiff’s expert, the Defendant has become aware that it is unable to pay out IMB, discharge the mortgage on the home, borrow for another project and earn income for its directors unless the caveats are removed and the properties are sold, and there has been a weakening in the real estate market.

29 In my opinion the matters relied upon by the Defendant provide no basis for interfering with the caveat and depriving the Plaintiff of her claim for specific performance. The fact that she has acquired another property for residence or otherwise does not diminish her entitlement to enforce a contract to buy another. As for delay, the tardiness of the conduct of the proceedings, whether or not attributable to Mr O’Mara’s situation, is not one about which the Defendant may reasonably complain as contributing to its present plight. From the commencement of these proceedings it has been open to it to seek expedition yet it has not done so although informed that an application would not be opposed. As its proposals to the Plaintiff of 22 August 2003 and 5 February 2004 and the lack of response to them demonstrate, the Defendant’s present situation is neither new nor unforseen. Had the Defendant perceived that the basis upon which the order was made had so changed as to warrant moving for its discharge prior to 23 July 2004 there has been ample opportunity to do so. The fact that no earlier application was made suggests to me that the balance of convenience has not shifted so that continuation of the order results in injustice to the Defendant.

30 Furthermore, it must be recognised that the consequences which the caveat has upon the financial situation of the Defendant is an ordinary incident of its business which, as a property developer, it might expect to encounter in the execution of a commercial development. In any event, I attach little weight to the consequential effect of the Defendant’s difficulty in obtaining finance for another project upon persons not parties to the contract such as its directors, shareholders, and employees.

31 What is said to be the weakening of the real estate market and its impact upon the Defendant’s fortunes is left as a matter of speculation and in my opinion would also be an ordinary risk of the Defendant’s business and so should be regarded as a factor of little weight.

32 The very circumstances which have brought about the Defendant’s anxiety to dispose of the lot against the wishes of the Plaintiff reinforce the justification of maintaining the caveat for the protection of her interest pending determination of the claim. Consistent with the policy that the caveat system is intended to preserve the status quo I find that the balance of convenience remains substantially in favour of the Plaintiff and the caveat should remain pending determination of her claim.

33 To do so also accords with what was said by Gleeson, CJ in Baltic Shipping Company v Dillon (1991) 22 NSWLR 1 at p 9C: “The general policy of the law is that people should honour their contracts. That policy forms part of our idea of what is just”.

34 The second ground of challenge to the continuation of the present order is that the Plaintiff’s claim henceforth should be confined to damages because at a final hearing an order for specific performance would not be made. For the Defendant it is submitted that on the affidavit evidence of the Plaintiff so far filed in support of the summons and on the evidence as to the Defendant’s present circumstances the court should hold that the claim for specific performance is so clearly untenable that it cannot possibly succeed (General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125 pp 129, 130) and summarily dismiss it.

35 Mr Harris submits that there is no evidence that the Plaintiff wishes to live in the lot or that it is of any special value to her. It is put that from this and the evidence that she has purchased and lives in another house it may be inferred that the Plaintiff intends to profit from the resale of the lot and thus damages is the adequate remedy. It was also put that in the events which have happened a court, in the exercise of its discretion, would refuse to order specific performance because the resultant hardship to the Defendant would amount to injustice.

36 In my opinion there are insurmountable obstacles which preclude the success of this ground. As noted in para 8 it is accepted that the summons raises serious questions to be tried. It is also common ground, as it must be, that the normal remedy for breach of a contract for the sale and purchase of land is by a decree of specific performance. As pleadings have been directed only recently it cannot be said yet that the issues are settled and the parties should be confined at the trial to the evidence presently filed. At this stage of the proceedings it is simply not open to the court to decide in advance of the trial what is to be the appropriate form of final relief if the Plaintiff is successful. These factors alone are sufficient to hold that the Defendant is not entitled to the summary dismissal of a claim for specific performance.

37 Some further comments may be made. Specific performance may be refused in exceptional circumstances of hardship to a Defendant notwithstanding absence of fault in the Plaintiff. (Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; R D McKinnon Holdings Pty Ltd v Hind (1984) 2 NSWLR 121). Determination of whether such a defence is established must properly await the trial. It is not correct that a court should find damages to be the adequate remedy in cases where the purchaser intends to buy the land as an investment and/or does not demonstrate that it has some special value or feature. As the Defendant is itself a commercial property developer it is apt to refer to the observation of Barwick, CJ in Pianta v National Finance and Trustees Ltd (1964) 180 CLR 146 at p 151:

“There was a faint endeavour made on behalf of the appellants to support the refusal of a decree for specific performance on the ground that, because the respondent was a land developer, damages would be an adequate remedy. But in my opinion this proposition is without foundation in law, even if the respondent had had no other business than that of subdividing and selling land and had made a decision to subdivide and sell the subject land”.

38 For the above reasons I am satisfied that the interests of justice require that the Plaintiff’s claim for an order for specific performance be preserved until decided on the evidence of the trial. She should not lose that opportunity at an interlocutory stage before the issues have been joined and the evidence adduced and tested. The Defendant’s claim for an order that the caveat be withdrawn on the basis that the Plaintiff should be confined to relief in damages must be rejected.

39 Accordingly the orders are:

(i) The notice of motion is dismissed.

(ii) The Defendant to pay the Plaintiff’s costs.

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Last Modified: 10/26/2004