West Coast Developments Pty Ltd v Lehmann
[2014] VSC 293
•20 June 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4484 of 2013
| WEST COAST DEVELOPMENTS PTY LTD (ACN 151 865 075) | First plaintiff |
| WEST COAST COMMERCIAL PTY LTD (ACN 151 864 176) | Second plaintiff |
| v | |
| PAUL JAMES LEHMANN | First defendant |
| GWENDOLINE ADA KAY | Second defendant |
| VIVIENNE LYEL HORWOOD | Third defendant |
| REGISTRAR OF TITLES | Respondent |
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JUDGE: | McMillan J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 19 June 2014 | |
DATE OF JUDGMENT: | 20 June 2014 | |
CASE MAY BE CITED AS: | West Coast Developments Pty Ltd v Lehmann | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 293 | |
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Property — Caveat — Torrens system — Application to remove caveat — Relevant tests — Balance of convenience —Charge to support non pecuniary obligation — Prima facie entitlement to caveat — Transfer of Land Act 1958, s 93.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr M Clarke with Ms J L Turfrey | HWL Ebsworth |
| For the Defendants | Ms C Button | Ashurst Australia |
HER HONOUR:
The defendants owned farming land north of Torquay, which was re-zoned as industrial and residential land in 2005. In June 2007, they agreed to sell a portion of the land to the plaintiffs, with an option to purchase two further blocks, Lot A and Lot B. In May 2012, the plaintiffs agreed to purchase the further blocks. Settlement for the Lot A land occurred in September 2012. The Lot A land, which was later subdivided, is the land over which the defendants have now lodged caveats that the plaintiffs seek to have removed. The caveats are over five unsold subdivided titles within Lot A, although the defendants consent to the caveat being removed over one of the titles. The Lot A land comprises developed lots with titles available for sale.
The plaintiffs now make an urgent application for the removal of the two caveats lodged by the defendants to allow a refinance secured by first and second mortgages to be granted by the first plaintiff in favour of Optima Funding Pty Ltd and Balanced Securities Ltd to replace the existing mortgages.
Currently, Wilbow Group Property Finance Pty Ltd (‘Wilbow’) are owed approximately $1.97 million, secured against the five Lot A properties. Although the facility that they provided expired in September 2013, they have extended it on a monthly basis since that time, and indicated on 30 May 2014 that it would not be extended past 20 June 2014. That is why the application has been brought urgently. Although initially listed for 4 June 2014, it was adjourned to 18 June 2014 to enable settlement discussions.
The plaintiffs now wish to have the current financiers of the Lot B land, Balanced Securities Ltd (‘Balanced’) and Optima Funding Pty Ltd (‘Optima’) extend their facilities to cover the debt over the Lot A land. At present, there is owed over $4.5 million on Lot B. This would mean the defendants’ position would alter whereby their the obligations to them owed by the first plaintiff presently secured against Lot A, a fully developed lot, to a position where there is cross collateralisation between Lot A and Lot B. By extending the Lot B facilities, a further $1.6 million would be added to the facility with Balanced and Optima with the remaining titles in the Lot A land as well as the Lot B land being used as security for the extended facility.
The defendants do not stand in the way of the plaintiffs re-financing the Wilbow security but do not wish their security over fully developed lots where they are owed $2 million to be altered to a position whereby their charge over the Lot A land could be possibly rendered worthless, as they would stand behind Balanced and Optima who would then be owed over $6 million.
The defendants’ caveats claim an equitable estate or interest as charge. The grounds for the claim are stated to be:
as chargee pursuant to a charge given by the registered proprietor in favour of the caveator in accordance with Special Condition 5.3 of the Contract of Sale of real Estate dated 2 May 2012 between the Caveator and the Registered Proprietor.
Clause 5.3 of the special conditions to the Lot A contract for sale provides:
To secure the purchaser’s performance of its obligations under this contract, with effect from Settlement, the Purchaser charges its interest in the Property in favour of the Vendor. The Vendor will release or subordinate the charge as reasonably requested by the Purchaser to allow the Purchaser to progress the development of the Property in accordance with the Development Plan.
On 13 August 2013, the plaintiffs issued a generally indorsed writ against the defendants, and by summons issued on 28 August 2013 sought, amongst other things, a removal of the caveat lodged by the defendants over the Lot A land. That summons was heard by Robson J on 30 October 2013. On 13 November 2013, his Honour determined that the caveat should be removed subject to certain conditions. His Honour did so on two bases:
(a)If the charge in favour of the defendants in clause 5.3 is capable of supporting a caveat, the defendant was contractually obliged to remove it; and
(b)If the defendants were not contractually obliged to remove it, the balance of convenience favours the removal of the caveat.
On 19 December 2013 the defendants lodged a caveat over the subdivided Lot A properties, and on 22 May 2014 they lodged a further caveat over the subdivided property referred to as Lot 206. It is these caveats that are sought to be removed in this summons.
Principles governing the removal of a caveat
Section 90(3) of the Transfer of Land Act 1958 provides:
Any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit.
The principles relating to a removal of a caveat were set out by Warren CJ in Piroshenko v Grojsman,[1] and are not disputed by the parties:
Caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory injunctive relief. In so far as their registration is an administrative act, it is when application is made for their removal that the onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief. ... This two-stage approach requires the caveator to establish that there is a serious question to be tried that they have the estate or interest which they claim in the land in question, and having done so, to establish that the balance of convenience favours the maintenance of the caveat on the Register of Titles until trial.
...
Therefore, consistently, in order for a caveator to satisfy the first limb of the test applied by the courts when deciding applications under s 90(3) of the Act, he or she must satisfy the court that:
1.there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and
2.that probability is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.[2]
[1](2010) 27 VR 489.
[2]Ibid 493 (citations omitted).
In order to establish that there is a serious question to be tried, the defendants must establish a ‘prima facie case with sufficient likelihood of success to justify the maintenance of the caveat’.[3] For the purposes of this proceeding, the onus falls on the defendants to establish that they have an interest in the property. It should be noted that:
Caveats are not ‘bargaining chips’. It is not sufficient for the caveator to establish a prima facie case that they have contractual, equitable or statutory rights against the caveatee; their interest or rights must attach to the property with respect to which the caveat has been lodged.[4]
[3]Ibid 494.
[4]Ibid 494.
There are in this case two questions to be decided:
(a)Is there a serious question to be tried that the defendants have an estate or interest in Lot A, in which I must consider:
(i)Is the interest in clause 5.3 legally capable of supporting a caveat; and
(ii)If so, are the defendants contractually obliged to remove the caveat? and
(b)Does the balance of convenience favour the retention of the caveat?
Is there a serious question to be tried?
Is the obligation in clause 5.3 legally capable of supporting a caveat?
In his earlier decision in these proceedings, Robson J considered the question of whether clause 5.3 grants the defendants an estate or interest in land:
In Colbran and Jackson’s Caveats, the learned authors state:
A charge is a form of security for payment of a debt or performance of an obligation whereby the creditor has a right to receive payment out of a specified fund or proceeds of sale of specific property. Where the charge is created for the purpose of securing payment of an annuity, rent charge, or sum of money other than a debt a caveatable interest arises.[5]
[5]S Colbran and S Jackson, Caveats (FT Law & Tax, 1996), [5.20] (footnotes omitted).
This issue having only substantially arisen during the course of oral argument, I gave leave for brief further written submissions to be filed.
On this question, both parties referred to the judgment of Millet LJ in ReCosslett (Contractors) Ltd,[6] where his Honour said:
[6][1998] Ch 495.
It is of the essence of a charge that a particular asset or class of assets is appropriated to the satisfaction of a debt or other obligation of the chargor or a third party, so that the chargee is entitled to look to the asset and its proceeds for the discharge of the liability.[7]
[7]Ibid, 508.
The Vendor’s submissions emphasised the words “debt or other obligation”, while West Coast submitted that the chargee’s right “to look to the asset and its proceeds for the discharge of the liability” necessarily implies the existence of a pecuniary obligation which can be discharged against the property, by judicial order if needs be.
The Vendors’ written submissions make reference to a number of authorities, in which – in their submission – it has been held that a charge was found to secure some other, non-monetary, obligation.[8] The Vendors also referred to cases concerning equitable liens, which they submit provide a useful analogy in relation to non-monetary obligations.[9] The Vendors also rely upon High Court of Australia authority holding that a mortgage can be security for payment of a debt or the discharge of “any kind of obligation”;[10] the Vendors submit these statements are relevantly indistinguishable from their submission regarding charges for non-monetary obligations.
[8]Abalcheck Pty Ltd & Anor v Pullen & Ors (1990) 3 ACSR 246, 255-256; Stoklasa v Stoklasa [2004] NSWSC 518, [40]-[41]; Yuan v TE Construction Ltd [2003] BCL 916, BC200369748 (‘Yuan’), [28]-[30], [43] and [48].
[9]Re Nuport Holdings (2003) 224 Nfld & PEIR 254, [45]-[56]; Uziell-Hamilton v Keen (1971) 22 P & CR 655 (‘Uziell-Hamilton’), 660-661.
[10]Cambridge Credit Corporation Ltd v Lombard Australia (1977) 136 CLR 608, 615 (Barwick CJ, Mason J, Jacobs J) (but note this is a reference to a mortgage of land under general law, not the Torrens system, which the Court goes on to distinguish); and see also Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177, 192.
In EI Sykes and S Walker’s The Law of Securities,[11] the learned authors begin their work by stating:
[11]Law Book Co, 5th ed, 1993.
The general concept of security involves a transaction whereby a person to whom an obligation is owed by another person called the “debtor” is afforded, in addition to the personal promise of the debtor to discharge the obligation, rights exercisable against some property of the debtor in order to enforce discharge of the obligation.
In a footnote to the reference to “the personal promise of the debtor” the learned authors say that:
It must be remembered, however, that in the case of some securities, e.g. a charge created by a will, there is often no accompanying obligation at all between security-holder and person bound. Academically speaking, such a position is possible in some types of mortgage. There is no requirement, for example, that a mortgage of land which is not under the Torrens system should be in respect of a loan or other enforceable pecuniary obligation.
The last observation raises the inference that under the Torrens system there may be a requirement that a mortgage of land should be in respect of a loan or other enforceable pecuniary obligation.
There is intuitive appeal and some merit in West Coast’s submission that there is no caveatable interest in the absence of a charge supported by a pecuniary obligation. However, on balance, the Vendors have prima facie satisfied me that a non-pecuniary interest might, in certain circumstances, give rise to a charge capable of supporting a caveat. The general statements of principle by the High Court identified by the Vendors, together with some case law suggesting that a right of caveat or charge itself may constitute part of the consideration for an agreement, go towards my being so satisfied.[12] This is obviously a question where the law is not certain. This application, however, is not the proper context to attempt to resolve the question. In any event, it is not necessary for me to go any further on this issue as I have decided to order the removal of the caveat on other grounds.[13]
[12]See Yuan [2003] BCL 916 and Uziel-Hamilton (1971) 22 P & CR 655 (admittedly, these are not Australian decisions).
[13]West Coast Developments Pty Ltd v Lehmann [2013] VSC 617 (13 November 2013) [34]–[41] (Robson J).
Counsel for the defendants relied on the decision of Robson J, and the authorities cited therein. Counsel for the plaintiffs submitted that his Honour dealt with the matter only in a very general sense, dealing with whether non-pecuniary interests are caveatable, rather than whether the interest identified by reference to clause 5.3 was in fact caveatable.
Reliance was also placed by counsel for the defendants on the decision of the House of Lords in Swiss Bank Corporation v Lloyds Bank Ltd, where Buckley LJ said:
An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially, appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process.[14]
[14][1982] AC 582, 595 (Buckley LJ).
Counsel for the plaintiffs submitted that this case did not stand for the proposition for which the defendant relied upon it, noting that his Lordship went on to say:
It follows that whether a particular transaction gives rise to an equitable charge of this nature must depend upon the intention of the parties ascertained from what they have done in the then existing circumstances. The intention may be expressed or it may be inferred. If the debtor undertakes to segregate a particular fund or asset, the inference may be drawn, the absence of any contra indication, that the parties’ intention is that the creditor should have such a proprietary interest in the segregated fund or asset as will enable him to realise out of it the amount owed to him by the debtor.
…
But notwithstanding that the matter depends upon the intention of the parties, if upon the true construction of the relevant documents in the light of any admissible evidence as to surrounding circumstances the parties have entered into a transaction the legal effect of which is to give rise to an equitable charge in favour of one of them over property of the other, the fact that they may not have realised this consequence will not mean there is no charge. They may be presumed to intend the consequences of their acts.
In the present case, the loan agreement contained no expressed requirement that IFT should charge the FIBI Securities on the fruits or the borrowings by way of a mortgage or repayment of the loan. Such intention must be found, if at all, by implication. A binding obligation that a particular fund will be applied in a particular manner may found no more than an injunction to restrain its application another way. But if the obligation be to pay out the fund as a debt due by one party's transaction to the other, the fund belonging to or being due to the debtor, this amounts to an equitable assignment pro tanto of the fund.[15]
[15]Ibid 596.
Thus, it was submitted, the issue in this case was one of the intention of the parties, and not whether a non-pecuniary obligation can be a caveatable interest.
Counsel for the plaintiffs submitted that in order to support a caveat, the defendants must have an interest in respect of which equity will give specific relief against the land itself, and that the interest claimed in this case could not support such relief. He relied on the decision of Warren CJ in Schmidt v 28 Myola Street Pty Ltd, where her Honour said:
The view expressed by Batt J in Classic Heights was rejected by Hodgson J in Composite Buyers Ltd v Soong who stated:
In my opinion, cases such as Murphy v Wright and J & H Just (Holdings) Pty Ltd v Bank of New South Wales, as well as Bridge Wholesale and Troncone, support the view that any equitable interest in land is sufficient to support a caveat, even if the caveator does not have a registrable instrument, and even if the caveator may not be entitled to an instrument which will lead to a recording in the register.
In my opinion, what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way giving satisfaction of the interest claimed by the caveator out of the land itself, for example by ordering the sale of the land and payment out of the proceeds of an amount in respect of which the caveator has a charge.[16]
[16](2006) 14 VR 447, 451 (citations omitted)
In particular, counsel for the plaintiffs quoted from the last paragraph cited above, submitting that there was nothing alike to the circumstances in this particular case. It was also noted that clause 11 of the contract refers to caveats and submitted that had the parties intended the interest in clause 5.3 to be caveatable, it would have been expressly dealt with, although counsel for the defendants submitted that that clause dealt with caveats lodged after the signing of the contract and prior to the settlement.
Finally, reliance was placed by counsel for the plaintiffs on a number of cases in which sufficient interest was not found to support a caveatable interest.
(a)In Yuan v TE Construction Ltd,[17] the caveator was contractually entitled to lodge a caveat, and the court held that this was not a caveatable interest. Counsel for the defendants accepted that the law is clear that you cannot create a caveatable interest by giving someone a contractual right to caveat. It was said for the plaintiffs that this case is much weaker, because there was no express right to caveat, and it was said for the defendants that this case is much stronger, because it is not a contractual right to caveat, it is a contractual or equitable charge.
(b)In Epple v Wilson,[18] Gowers J noted that an interest in the proceeds of sale of land does not necessarily involve an interest in the land itself. It was submitted by counsel for the plaintiffs that as the counter-claim by the defendants seeks only damages, and not an order as to specific performance, there was no caveatable interest. Pleadings in this case have previously been amended, and may be amended in the future, even up to trial. An order that property be specifically appropriated in order to meet a debt, whether that debt is already extant or the result of the decision of a competent court that damage was suffered as a result of breach of contract, would be available in this case.
(c)In Chiodo v Murphy,[19] Ashley J was of the view that either an equitable charge upon land without more, or an equitable charge upon land accompanied by an agreement that the charge may lodge a caveat, may give rise to a caveatable interest. The submission of counsel for the plaintiffs was that on its facts, Chiodo stands only for the narrower of those submissions. In response, counsel for the defendants submitted that to the extent that Chiodo might be read as limiting the circumstances in which an equitable charge could support of caveat, it was overtaken by the decision of Hodgson J in Composite Buyers v Soong, summarised in the headnote in the New South Wales Law Reports as follows:
Any equitable interest in land is sufficient to support a caveat, even if that caveator does not have a registrable instrument and even if the caveator may not be entitled to an instrument which will lead to the recording in the register. What is necessary is that there be an interest in respect of which equity will give specific release against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way, giving satisfaction of the interest claimed by the caveator over the land itself.[20]
[17][2003] BCL 916
[18](1972) VR 440, 443
[19](Unreported, Supreme Court of Victoria, Ashley J, 25 August 1995).
[20](1995) 38 NSWLR 286 (reported by Mr N J Haxton).
In my view, the defendants have established there is a serious question to be tried as to whether they have the equitable interest in the land that they claim. As Robson J noted, the law in this area is unsettled. However, in the contract, the plaintiffs have expressly undertaken that the land will be charged in favour of the defendants. That language is not accidental. They intend to create some right referrable to the land. Indeed, if no right against the land was intended to be created, it is difficult to see what operation clause 5.3 actually has. The plaintiffs have obligations owing to the defendants under the contract, and have expressly undertaken that to secure the performance of those obligations, the land will be charged. A court in its equitable jurisdiction, acting in personam, would not treat such an express undertaking lightly. If they have failed in those obligations, as is alleged by the defendants in their counter-claim in these proceedings, it would appear to me that the Lot A land is under clause 5.3 available for a Court to award a form of specific performance against. To my mind, that is a sufficient interest.
Are the defendants contractually obliged to remove the caveats?
Under clause 5.3, the defendants undertook to ‘release or subordinate the charge as reasonably requested by the purchaser to allow the purchaser to progress the development of the property in accordance with the Development Plan’. In the earlier decision in this matter, Robson J determined that the caveat over the existing Lot A was required to be removed pursuant to this clause, because the subdivision of the block was contemplated and in fact assumed in the Development Plan.
As counsel for the defendants submitted, clause 5.3 requires that the charge be subordinated to allow the progress of the development of the property, the property being a defined term that refers to Lot A. Although the Development Plan refers to matters relating to both Lot A and Lot B properties, the Lot A contract does not require the defendants to subordinate their charge over Lot A property to allow the development of Lot B.
The development of Lot A is complete with the first plaintiff having no need to do anything further to progress the development of Lot A. In my view, steps to refinance the debt over the remaining lots in Lot A are not steps that allow the purchaser to progress the development of the property in accordance with the Development Plan. The circumstances are entirely different to the circumstances faced by Robson J, which fell comfortably within the Development Plan.
Nor is it reasonable in the circumstances as the refinance of the debt is, in effect, to force the defendants to forego the security already provided to them by the four unsold lots and stand behind a new financier to whom more than $6 million would be owed if the proposed arrangements went ahead.
Conclusion as to whether there is a caveatable interest
In my view, there is a prima facie case that there defendants have a caveatable interest in the unsold lots in Lot A pursuant to cl 5.3 of the Lot A contract with a sufficient likelihood of success to justify the maintenance of the caveat.
Does the balance of convenience favour the retention of the caveat?
When considering the question of balance of convenience in Bradto Pty Ltd v State of Victoria, the Court of Appeal noted:
In our view, the flexibility and adaptability of the remedy of injunction as an instrument of justice will be best served by the adoption of the [Lord] Hoffman approach. That is, whether the relief sought is prohibitory or mandatory, the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been ‘wrong’, in the sense of granting an injunction to a party who fails to establish his right at the trial, or in failing to grant an injunction to a party who succeeds at trial.[21]
[21](2006) 15 VR 65, 73.
The plaintiffs were aware that that the facility was initially a one year facility expiring in September 2013, extensions were granted to the plaintiffs after September with a final extension on 26 May 2014. The first approach to the defendants concerning the refinancing and seeking the defendants’ consent was not made until 12 May 2014. This was after an earlier deadline of 5 May 2014. By e-mail dated 20 May 2014, the defendants sought details of the refinancing proposals so as to ensure their charge was not eroded.
The defendants remain unclear as to the balance of funds owed to Wilbow in respect of Lot A, and there is no evidence of any attempts to refinance the debt without securing against Lot A and Lot B. There is no evidence that the first plaintiff has sought to refinance the Wilbow debt using the security of Lot A alone, which is the current situation.
The only proposal put forward by the plaintiffs would see the defendants disadvantaged by them ranking behind a finance package of approximately $6 million from Balanced and Optima and cross-collaterising the loan between Lot A and Lots B. This has the effect of diminishing the value of the defendants’ security and financial position under the Lot A contract.
The case for the defendants on this point is that, if they were obliged to remove their caveat, the defendants’ position will be significantly diminished as their interest will be subject to a cross-collateralised security agreement covering the Lot A and the Lot B property, which will diminish the value of the defendants’ security. Instead they submit that the plaintiffs ought to be able to refinance the Lot A development on ‘like-for-like’ terms, that is, with Lot A remaining as security only for the loans in respect of the Lot A development.
The case for the plaintiffs is that they cannot obtain the ‘like-for-like’ finance that the defendants require. They also say that if the caveats are not removed, they will have no finance whatsoever, and will place them in a position of default. In support of this, they have produced an e-mail dated 30 May 2014 from the financier, Wilbow, indicating that:
As you are aware, the original loan facility secured by our 2nd mortgage expired 12 months from the date it was provided on 5 September 2012.
Given the commencement of the litigation in August 2013, we agreed to extend the facility on a monthly basis from this date.
During April 2014, you were advised that we would require the facility and interest to be repaid in full by 5 May 2014. This date was extended to 26 May 2014 to allow the execution of refinance documents with your new financiers. Given the current application to the Court to remove caveat to allow the refinance, the facility has been extended to 20 June 2014. This date is a final extension date after which the facility will expire and all monies oweing will become due and payable in full.
Counsel for the defendants submitted that to rely upon this letter alone would mischaracterise the position of the plaintiffs. In the first place, under the finance agreement with Wilbow, Wilbow is entitled to a ‘risk fee of $423,661 which is equivalent to 35% of the Stage 2 project feasibility profit’ and ‘35% of any project profit in excess of $1,210,46 on a parri passu basis with the Borrower’. It was submitted that Wilbow have more to gain by assisting in extending the finance to ensure that the development remains afoot. In the second place, counsel for the defendants submitted that given the extensions previously provided, over a period of over 9 months from the expiry date, it was unlikely that Wilbow would simply cut the project off at the knees. Reference was also made to a number of e-mails prior to the 30 May 2014 e-mail between the financiers and the plaintiffs in which, on counsel for the defendants’ submission, could not be seen as evidence that the financiers had ‘been jumping up and down demanding their money’.
Counsel for the defendants then referred to an offer made by the defendants to provide up to $1 million in refinance secured by the Lot A properties alone, on a rate interest that was favourable compared to that currently being charged. This would leave a shortfall if the Wilbow finance were to expire, but it would allow the plaintiffs to renegotiate with either Wilbow or another financier to cover the shortfall.
Contrary to the case put by the plaintiffs, in my view, the consequences of retaining the caveats would not be ‘catastrophic’. The evidence does not support such a finding. The prejudice suffered by the plaintiffs will be that they are forced to negotiate finance on terms that do not impede on the interests of the defendants in the Lot A land.
In my view, the continuation of the caveat on the title of the property pending the hearing of the proceeding is necessary to protect the defendants. This course carries the lower risk of injustice because, if the caveat were removed, the proposed refinancing will place the defendants in a disadvantageous position compared to their current position.
Further material
This matter was heard in the Practice Court on 18 June 2014. By e-mail on 19 June 2014, the plaintiffs sought to appear before the Court to file a further affidavit as a result of further progress in the negotiations. At 4.15pm, the matter was called back on.
That affidavit established that as a result of negotiations between the new proposed financiers and the existing financiers, an arrangement could be proposed whereby although the debt is cross-collateralised, the extent of that cross-collateralisation is limited. In the affidavit, it was indicated that Wilbow would remain as financier for two of the lots until they were sold.
Specifically, the proposal put forward is that the lot over which the defendants consent to the removal, lot 222, will be sold, reducing Wilbow’s debt to approximately $1.67 million and freeing that lot of the security held over it. The directors of the plaintiff will then put forward $220,000 of equity to further reduce Wilbow’s debt. Wilbow is content to remain as financier for two of the subdivided lots, securing $450,000. The plaintiffs would then pay out $1 million of Wilbow’s debt by taking on a further $870,000 in debt from Balanced, and a further $130,000 from Optima, secured against the remaining two Lot A lots.
In response to this proposal, the defendants raised concerns that although the debt to be raised from Balanced and Optima was said to be limited to the two Lot A lots, it was said to be by way of extension to the existing facilities. The defendants also inquired whether the amount owing to Wilbow was comprised of debt or of components of the risk fee and profit share arrangements. Those inquiries went essentially unanswered.
Counsel for the plaintiffs submitted that such an arrangement should be taken into consideration by the Court in considering the balance of convenience. It was submitted that such an arrangement would leave the defendants better off, in that their charge would rank ahead of the further $220,000 of equity being paid into the arrangement.
Mr O’Haire (a solicitor appearing for the defendants in the absence of counsel who was unable to attend owing to the suddenness with which the matter was brought on) noted that the summons before the Court was for the removal of the caveats. Although this new proposal had been put to the Court, there was no evidence before the Court that if the caveats were removed, such an arrangement would in fact be entered into. Secondly, he noted that the defendant had raised the inquiries noted above with the plaintiffs, and received no substantive response.
Nothing that was put forward in that affidavit alters my conclusions set out above. If anything, it only confirmed that contrary to the earlier submissions of the plaintiffs, a failure to remove the caveats will not be the death knell for this development. Despite the absolute nature with which the plaintiffs previously sought to characterise Wilbow’s threat to withdraw funding, there is now evidence before the Court that Wilbow is willing to remain involved in the financing, at least to an extent. Again, although it was earlier said that Balanced and Optima had not responded to requests for like-for-like finance, there is now evidence that they are willing to consider an arrangement whereby their recourse to the Lot A properties is limited.
If the caveats are removed, the defendants lose all security for any interest that they are able to establish in the Lot A properties. The consequences of that could be potentially dire. On the other hand, if the caveats remain in place, I am satisfied that a suitable finance arrangement will likely become available.
Conclusions
Accordingly, I dismiss the plaintiff’s application for removal of the caveat.
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