West Coast Developments Pty Ltd v Lehmann
[2013] VSC 617
•13 November 2013
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 4484 of 2013
| WEST COAST DEVELOPMENTS PTY LTD (ACN 151 865 075) | First Plaintiff |
| and | |
| 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 |
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JUDGE: | ROBSON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 October 2013 | |
DATE OF JUDGMENT: | 13 November 2013 | |
CASE MAY BE CITED AS: | West Coast Developments Pty Ltd v Lehmann | |
MEDIUM NEUTRAL CITATION: | [2013] VSC 617 | |
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PROPERTY – Caveat – Torrens system - Application to remove caveat – Relevant tests - Balance of convenience – Prima facie entitled to caveat – Common venture in land development – Charge to support non pecuniary obligation – Validity of charge – Order for removal of caveat – Transfer of Land Act 1958, s 93.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs (Applicants) | Mr I.R. Jones SC with Ms. J.L. Turfrey | HWL Ebsworth |
| For the Defendants (Respondents) | Mr P.H. Solomon SC with Mr R.G. Craig | Ashurst Australia |
HIS HONOUR:
Introduction
The defendants are partners in a partnership known as Boondilla (the Vendors). Until June 2007 the Vendors owned a farm at Torquay known as the Boondilla land. The Vendors’ land is roughly rectangular in shape. It is bordered on the eastern boundary by the Surf Coast Highway, on the west by Messmate Road and on the south by Coombes Road. The northern boundary abuts other land. Torquay lies to the south of the Vendors’ land.
In mid 2005, the Surf Coast Shire Council compulsory rezoned part of the Vendors’ land to “Industrial 3” (the industrial zoned land) and part of the Vendors’ land to low density residential. The remainder of the Vendors land (some 11.25 Ha) is zoned farmland. The industrial land abuts the Surf Coast Highway, the residential land abuts Coombes Road to the south and the farming land abuts Messmate Road on the west.
In 2007, the Vendors and the plaintiffs (West Coast) agreed to develop the industrial land in three stages. On 12 June 2007, the Vendors sold 8.6 Ha of the industrial land to West Coast Business Park Pty Ltd. This area is known as the stage 1 land. The stage 1 land has been fully developed. The contract of sale of the stage 1 land included an option for West Coast to purchase the remainder of the industrial land in two parts Lot A (stage 2) and Lot B (stage 3).
The contracts for the sale of Lot A and Lot B were executed in May 2012. Lot A was sold by the Vendors to West Coast Developments Pty Ltd for $2,900,000. Settlement of the sale of Lot A occurred in September 2012. Lot B was sold by the Vendors to West Coast Commercial Pty Ltd for $4,500,000. Settlement of the sale of Lot B is fixed for the 5 March 2014.
West Coast has obtained a planning permit for the subdivision of Lot A into 18 lots. The planning permit was issued on 17 July 2012. It is a condition of the planning permit that before a statement of compliance can be issued under the Subdivision Act, West Coast must provide road, drainage and landscape works to the satisfaction of the responsible authority. On 31 October 2012, the Surf Coast Shire Council approved the stage 2 detailed design plans.
West Coast and the Vendors are in dispute as to West Coast’s obligations in relation to the drainage works being undertaken by West Coast in order to obtain the statement of compliance. Without the statement of compliance, West Coast are unable to complete the sale of the 18 units in the Lot A subdivision, 14 of which have been sold to third parties.
The Council has specified the drainage works it requires. The natural lie of the Vendors land is such that water flows from the north west of the Vendors’ land to the south east of the Boondilla land where it passes in a drain under the Surf Coast Highway. The Council has said that the drainage works must be such that the quality, quantity and velocity of stormwater leaving the Vendors’ land must not exceed pre-development levels.
In the future, the Vendors intend to develop the retained farmland into an industrial subdivision, similar to that being currently undertaken on the industrial land. The amount of stormwater run-off for developed industrial land is greater than for undeveloped land, as the roofs, roads and concreted areas do not absorb water.
The Vendors say that the proposed development of the farmland by the Vendors was known by West Coast before it purchased any of the Vendors’ land. The Vendors say that unless the drainage works being constructed for the industrial land are able to accommodate the stormwater run-off, when the farmland is similarly developed to the industrial land, farmland may be lost to potential development to accommodate further storage and run-off facilities on the farmland.
The Vendors say that to ensure that appropriate drainage works were constructed on the industrial land by West Coast, the contracts for the sale of each of Lot A and Lot B contain a clause that provides that stormwater systems for Lot A and Lot B “adequately service the needs of future development and upstream requirements to the property.”
The Vendors assert that the drainage works approved by the Surf Coast Shire Council for Lot A do not adequately service the needs of future development and upstream requirements to the property (including the Vendors’ farmland) as required under the contracts for the sale of Lot A and Lot B.
West Coast have begun work on construction of the drainage works for Lot A in order to obtain the statement of compliance from the Surf Coast Shire Council and to be able to complete the sale of units on Lot A.
As part of the drainage works, West Coast have constructed a temporary sediment control pond to the south of Lot A, located on Lot B (currently owned by the Vendors but subject to a contract of sale to West Coast). The Vendors claim that the pond was constructed without their consent. West Coast have also constructed, as part of the drainage works, a drainage pit about one metre square inside the boundary of the Vendors’ farmland, to the west of Lot A, that the Vendors claim has been constructed without their consent.
The Surf Coast Shire Council has refused to issue a statement of compliance unless the Vendors provide their consent to the drainage works that have been constructed on Lot B and on the Vendors’ adjoining farmland. On 18 December 2012, the Council wrote to West Coast’s engineer, with a copy to Mr Stafford, informing West Coast that the Council was yet to sign off on the stormwater management plan for Lot A and that it would not do so unless the plan was amended to relocate the pond on the land within stage 2 or the Vendors consented in writing to the pond being located on their land.
The Vendors have indicated that they are not prepared to consent until West Coast comply with the contracts for the sale of Lot A and Lot B by agreeing to provide adequate drainage works. The Vendors say that they did not agree to the drainage works being constructed on their land and were not consulted about their construction.
West Coast allege that the Lot A drainage works do comply with West Coast’s obligations under special condition 5.1(a) of the Lot A contract. The Vendors have also started to fill in the pond built on Lot B.
Under clause 5 of the special conditions to the contract of sale of Lot A, obligations are imposed on West Coast including to design the sewerage, stormwater and environmental treatment systems to adequately service the needs of future development and upstream requirements to the Property, including the piped stormwater from the Council Depot in Messmate Road as required by the relevant authority.
Clause 5.3 of the special conditions provides that “to secure the Purchaser’s performance of its obligations under this contract … 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.”
West Coast’s application
On 27 August 2013, West Coast issued a generally indorsed writ against the Vendors. West Coast pleads the two contracts of sale and the planning permit issued by the Council which requires the statement of compliance. West Coast alleges that the Vendors have lodged a caveat on the title to Lot A in accordance with special condition 5.3 of the Lot A contract. After pleading express terms of the contract, West Coast allege that there were implied terms of each contract that each part would:
(a)not hinder or prevent the fulfilment of the other party’s purpose;
(b)do all such things as were necessary to enable the other party to have the benefit of the relevant contract; and
(c)not prevent the other party from performing the relevant contract.
West Coast plead the sale of 14 lots on Lot A and the construction of the drainage works including the construction of the pond on Lot B.
West Coast allege that wrongfully and in breach of the implied terms of the Lot A contract and the Lot B contract, the Vendors have emptied and have threatened to further empty and backfill the pond and thereby interfere with the works, and unless restrained the Vendors will empty and backfill the pond and otherwise interfere with the works.
West Coast allege that unless the Vendors are restrained the council will not issue the statement of compliance and the plan of subdivision cannot be lodged.
Further, West Coast alleges that, despite repeated demands, the Vendors will not remove the caveat over Lot A.
West Coast also allege further breaches of the contracts by the Vendors.
On 28 August 2013, West Coast issued a summons seeking interlocutory relief. West Coast sought an order:
(1)restraining the Vendors from backfilling or emptying the sediment pond on Lot B or otherwise interfering with the drainage works carried out by West Coast on Lot B at any time prior to settlement of the sale of Lot B; and
(2)that under s 93 of the Transfer of Land Act 1958 the caveat on Lot A be removed.
Partial resolution during the hearing
During the hearing of the application, the parties agreed to a resolution of the application by West Coast for injunctive relief. The plaintiffs undertook, within 12 weeks, to construct a sediment pond on Lot A for the purposes of replacing the sediment pond on Lot B; and the Vendors undertook not to backfill or empty the sediment pond on Lot B until 5pm on 5 March 2014. Upon those undertakings, paragraphs 1 and 2 of the amended summons were dismissed by consent.
Thus the issue remaining for resolution is the plaintiffs’ application that pursuant to s 90(3) of the Transfer of Land Act caveat no AK038313H dated 21 November 2012 and lodged by the defendants on certificate of title 11368 folio 111 be removed.
Certificate of title 11368 folio 111 is the title to Lot A on plan of subdivision 707424D. The Parent title was volume 11352 folio 658. The title was created by instrument PS707424D on 6 August 2012.
The registered proprietor of Lot A is West Coast Developments Pty Ltd. Encumbrances, caveats and notices recorded on the title are mortgages to National Australia Bank of 14 September 2012 and to Wilbow Group Property Finance Pty Ltd also of 14 September 2012. The disputed caveat lists the defendants as the caveators. The estate or interest claimed is “an equitable estate or interest as chargee.” The grounds of the claim are “[a]s 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. The extent of prohibition is “[a]bsolutely save and except with the consent of the Caveator.”
Principles relating to removal of a caveat under s 90(3)
Section 90(3) of the Transfer of Land Act 1958 permits any person adversely affected by a caveat lodged under s 89 of the Act to ”bring proceedings in a court against the caveator for the removal of the caveat.” Section 90(3) empowers a court dealing with such an application to ”make such order as the court thinks fit.”
In Piroshenko v Grojsman (‘Piroshenko’),[1] Chief Justice Warren held that caveats under the Torrens system are treated by the courts as analogous to applications for interlocutory relief. Her Honour held that on an application for their removal 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 relief. At the first stage, the caveator must establish that it has a prima facie case that it has an interest in the property that it claims in the caveat.
[1](2010) 27 VR 489.
On this first limb, the Chief Justice found that the caveator must satisfy the court that on the evidence before the court it will be found to have the asserted equitable rights or interest that it claims, and that this 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]
[2]Ibid 493.
If the first limb is satisfied by the caveator, then the caveator must also establish that the balance of convenience favours the retention of the caveat. In Bradto Pty Ltd v State of Victoria (‘Bradto’),[3] the Court of Appeal (Maxwell P and Charles JA) said:
… 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.[4]
[3](2006) V ConR 54-722.
[4]Ibid [35].
The Charge and caveatable interest
West Coast contends that the charge does not support a debt or other pecuniary obligation. The issue arose, therefore, whether what was described as a charge gave rise to an equitable interest that could be the subject of a caveat.[5]
[5]See Piroshenko (2010) 27 VR 489, [18] and [23].
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.[6]
[6]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,[7] where his Honour said:
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.[8]
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.
[7][1998] Ch 495.
[8]Ibid, 508.
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.[9] The Vendors also referred to cases concerning equitable liens, which they submit provide a useful analogy in relation to non-monetary obligations.[10] 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”;[11] the Vendors submit these statements are relevantly indistinguishable from their submission regarding charges for non-monetary obligations.
[9]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].
[10]Re Nuport Holdings (2003) 224 Nfld & PEIR 254, [45]-[56]; Uziell-Hamilton v Keen (1971) 22 P & CR 655 (‘Uziell-Hamilton’), 660-661.
[11]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,[12] the learned authors begin their work by stating:
[12]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.[13] 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]See Yuan [2003] BCL 916 and Uziel-Hamilton (1971) 22 P & CR 655 (admittedly, these are not Australian decisions).
If the charge created an interest in land
West Coast argues that assuming (but not admitting) that the covenant grants the vendors a valid charge over Lot A, clause 5.3 obliges the Vendors 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.
West Coast submits that on the proper construction of clause 5.3, the obligation on the Vendors to release or subordinate the charge is enlivened where, if reasonably requested by West Coast, West Coast requires the release or subordination of the charge over the whole of Lot A so that West Coast may either obtain the subdivision of Lot A and the issue of individual titles for the resulting lots in accordance with the subdivision, or West Coast wishes to settle on the sale of individual lots to third party purchasers.
West Coast contends that the existence of the caveat will impede or prevent the plan of subdivision for Lot A being registered by the Registrar of Titles,[14] or – at the very least – impede (or most likely prevent) settlement of the sale of the individual lots in the proposed subdivision by West Coast. As mentioned above, 14 of the 18 lots are subject to contracts of sale.
[14]See Transfer of Land Act1958 (Vic), s 91. West Coast submits none of the exceptions therein apply.
Central to this submission is the contention that obtaining registration of the plan of subdivision of Lot A and/or settling on the contracts of sale for individual lots in the proposed plan of subdivision, falls within the activities encompassed by the description “progress the development of the Property in accordance with the Development Plan.”
To resolve this contention, it is necessary to set out the relevant terms of the special conditions.
5. Development of Property
5.1 The Purchaser must:
(a) design the sewerage, stormwater and environmental treatment systems to adequate service the needs of future development and upstream requirements to the Property including the piped stormwater from the Council Depot in Messmate Road as required by the relevant Authority; and
(b) keep the Vendor regularly informed about the progress of the development of the Property and provide any information about the development of the Property reasonably requested by the Vendor.
5.2 The Purchaser must develop the Property in accordance with the Development Plan and must not amend or deviate from the Development Plan in any way, without first obtaining the Vendor’s consent.
5.3 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.
5.4 The purchaser must provide to the vendor and its officers, employees and agents reasonable access to the Property at all reasonable times after Settlement to enable the Vendor to carry out any works relating to the Retained Lot.
5.5 The purchaser must provide a copy of all documentation relating to any application for any planning permit or any Authorisation relating to the Property, the Retained Lot or the implementation of the development plan and must consult with the vendor in relation to any such application.
5.6 The purchaser must provide to the vendor and any relevant authority and their respective officers, employees and agents reasonable access to the property at all reasonable times after settlement, at the vendor’s own risk and cost, to construct stormwater drainage works on the northern edge of proposed lot 205 on the development plan and Boneyards Avenue.
In the definitions to the special conditions, “Development Plan” means “the plan titled Development Plan – Concept Plan, 40 Coombes Road, Torquay, 3228 dated ‘Amended 1.2.12’ and cross-hatched in red and black attached to Schedule 3.” Schedule 3 to the exhibit before me is a photocopy. The Development Plan in colour is Exhibit ML5 to the affidavit of Matthew Oliver Lehmann, affirmed 2 October 2013.
The Development Plan shows the plan for Lot A stage 1. On the Development plan, subdivided lots are shown. The lots are not numbered, although special condition 5.6 does refer to proposed lot 205 (which subsequent plans identify as one of the lots of the subdivision of Lot A).
The special conditions expressly refer to sales by West Coast of the lots. Clause 12 provides that:
If the Purchaser sells, transfer or otherwise disposes the Property (or any part other than an individual lot as shown on the Development Plan to an independent third party on arm’s length terms), the Purchaser must ensure that the person acquiring the Property (or relevant part) unconditionally assumes the Purchaser’s obligations under this contract.[15]
[15]Emphasis added.
Thus, the contract assumes and deals with the circumstances where individual lots as shown on the Development Plan are sold. The individual lot purchasers are not to assume West Coast’s obligations and, by implication, are not to be required to charge the land to the Vendors as security for West Coast’s obligations.
The development of the Property referred to in the clause includes the subdivision of Lot A. Without the subdivision, there would be no material development of Lot A. In my opinion, the expression “progress the development of the Property in accordance with the Development Plan” includes the sale of the unit lots created by the subdivision of Lot A as part of the West Coast Business Park.
In my opinion, that construction is also supported by the provision for the release or subordination of the charge. In clause 5.3, such a release or subordination would be reasonably necessary to subdivide or sell the subdivided lots. In my opinion, one of the functions of clause 5.3 is to facilitate the creation of, and sale of, subdivided lots from Lot A.
The above interpretation of clause 5.3 is supported by a universally implied term containing a duty to cooperate.[16] This implied term supports a reading of the Vendors’ express obligation to remove the charge so as not to hinder the progress of the development of the Property in accordance with the agreed-to Development Plan. Such a reading of the Vendors’ obligations is strengthened by their status as West Coast’s common venturer.
[16]See, eg, Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, and generally N Seddon, R Bigwood and M Ellinghaus, Cheshire and Fifoot Law of Contract (Lexis Nexis, 10th Aust ed, 2012), [10.41].
In my opinion, even if the charge is capable of supporting a caveat as a matter of law (as discussed above), subject to what I say below, the Vendors have not made out a prima facie case that the charge is supportable under the express and implied terms of their agreements with West Coast.
Has West Coast made a reasonable request for the removal of the charge over Lot A?
In my opinion, West Coast’s demand may be premature, as it has not obtained the statement of compliance and is not likely to do so for some 10 weeks. However, once the statement of compliance is issued, West Coast will lodge the plan of subdivision for Lot A with the Registrar of Titles. At that point, I find that it is reasonable for West Coast to request that the Vendors remove the caveat to allow the new titles to be created.
There is another aspect of the contracts for the sale of Lot A and Lot B that arises. The Vendors and West Coast may not be joint venturers, but they are common venturers. Under the contract of sale for Lot A, clause 15 provides that the parties agreed that the rescission or termination of the contract for whatever reasons would automatically and without the need for any further action by either party terminate the Lot B Contract. As a condition precedent to settlement of the Property, West Coast was to pay the deposit on the purchase of Lot B.
Under the sale of Lot B, the Vendors are to retain areas of industrial land. They are to share in the benefits of the development of the industrial land as the West Coast Business Park and will benefit by the infrastructure constructed by West Coast. The Vendors have also agreed to a staggered sale of the industrial land. That staggered sale is part of a plan to develop the West Coast Business Park in three stages and in which the Vendors are to participate in stage 3.
Only 14 units are subject to contracts of sale. If the charge is a valid charge, the Vendors may be able to lodge a caveat over the four units not sold and any other land in the subdivision that is not sold. It is not necessary for me to decide this issue.
Assuming that I am wrong and the Vendors have established a prima facie case that despite the request of West Coast when the statement of compliance is issued by the Surf Coast Shire Council, the Vendors have a charge over Lot A and are not obliged under clause 5.3 to remove or subordinate that charge, then the issue arise as to where the balance of convenience lies.
The only request by West Coast is for the removal of the caveat. The Vendors’ charge, if it is valid, will still exist if the caveat is removed and the Vendors can seek such relief as they are advised about enforcing or maintaining that charge. On the other hand, the failure to remove the caveat will probably cause significant loss to West Coast. If West Coast is unable to settle the contracts for the sale of the land by early next year, then the purchasers will have the right to terminate the contracts.
Even more significant is that if West Coast cannot settle on the sales, it will have to meet the purchase price of Lot B from its own resources. No evidence was led as to whether or not this would cause any distress to West Coast. Nevertheless, in my opinion, the balance of convenience favours the removal of the caveat upon the issuance of the statement of compliance.
For these reasons, I propose to order that if and when the certificate of compliance is issued by the Surf Coast Shire Council, that the Registrar of Titles removes the relevant caveat. I direct that West Coast bring in the appropriate order that reflects this decision.
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