Yotchev v Georgievski - [2019] SADC 61

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
YOTCHEV & ANOR v GEORGIEVSKI & ANOR
[2019] SADC 61
Judgment of His Honour Judge Durrant
21 May 2019
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - EXTENSION
EQUITY - GENERAL PRINCIPLES - EQUITABLE CHARGES AND LIENS - CREATION AND WHAT CONSTITUTES - MONEY EXPENDED OR BENEFIT CONFERRED ON PROPERTY OF ANOTHER
Application to extend caveat until determination of claimed equitable interest in land - consideration of prima facie case for declaration of constructive trust for monies expended to subdivide and construct houses on subject land - balance of convenience- injury arising from default of obligation to repay loan.

EVIDENCE - ADMISSIBILITY
Consideration of admissibility of without prejudice communication and exception where partial disclosure.
Held: Caveat extended until further order.
Real Property Act 1886 (SA) ss 119(1)(g), 191(1)(f); Evidence Act 1929 ss 67C(1), 67C(2)(c), referred to.
Cini v Pets Paradise Franchising (SA) Pty Ltd (2008) 102 SASR 177; Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] 1 LT(A)R 281; McInnes v Davies (2014-2015) 121 SASR 219; Australian Broadcast Corporation v O’Neil (2006) 227 CLR 57; Baumgartner v Baumgartner (1987) 164 CLR 137; Muschinski v Dodd (1985) 160 CLR 583; Excel Quarries Pty Ltd v Payne [2000] QCA 213; Natuna Pty Ltd v Cook [2007] NSWC 121, considered.

YOTCHEV & ANOR v GEORGIEVSKI & ANOR
[2019] SADC 61
Background

These proceedings arise out of a dispute concerning the development of land at 65 Sir Ross Smith Avenue, North Haven, SA 5018 (Parcel 1) and 67 Sir Ross Smith Avenue, North Haven, SA 5018 (Parcel 2).
On 4 July 2018, the plaintiffs lodged Caveat No. 12953439 (the Caveat) over Parcel 1 and Parcel 2 claiming:
An equitable interest in fee simple in some at present indefinable share or shares of the land above described having contributed to the improvement of all of the land described above pursuant to an agreement partly in writing on or about April 2017 and partly oral between Caveators and the Caveatees.
On 15 February 2019, the defendants filed a notice of Removal of Caveat and by Summons dated 7 March 2019 the plaintiffs sought two orders. First, an order pursuant to s191(1)(g) of the Real Property Act extending the period provided for under s191(1)(f) of Real Property Act 1886 in respect of the Caveat and second, a declaration that the plaintiffs have a beneficial equitable interest in Parcel 1 and Parcel 2 to such extent and in the nature that the Court determines.
These reasons are in respect of the order for extension of the period of the Caveat.
Common Facts
There is some common ground between the parties in respect of the development.
The first defendant Mr Deni Georgievski and the second defendant Mrs Yasmeni Georgievski were previously the registered proprietors of a single parcel of land at 37 Osborne Street North Haven, South Australia on which there was a house.
In late 2016, the first plaintiff Mrs Varnia Mileva Yotchev and the second plaintiff Mr Valeri Marinov Yotchev and Mr Georgievski agreed to undertake the development of 37 Osborne Street including by way of demolition of the house on the land, the subdivision of the land into Parcel 1 and Parcel 2 and the construction of a new house on each of Parcel 1 and Parcel 2.
37 Osborne Street was subdivided into Parcel 1 and Parcel 2, at the cost of the defendants, and the defendants were recorded as the registered proprietors. Both Parcel 1 and Parcel 2 are subject of a mortgage to the Commonwealth Bank held as security for a loan advanced to the defendants.
The plaintiffs funded the demolition of the existing house at 37 Osborne Street and the design and construction of two partially completed houses on Parcel 1 (House 1) and on Parcel 2 (House 2). It is broadly agreed that, from the intended proceeds of sale of House 1 and House 2: the costs incurred by the parties would be reimbursed; the loan would be repaid; and, the sum remaining would be split equally between the plaintiffs and the defendants.
Issue in Dispute
There are a number of matters of dispute between the parties, including, in respect of: the timing and manner of repayment of the loan; whether and how the construction costs incurred by the defendants should be assessed; and, as to the timing of the reimbursement of the construction costs incurred by the plaintiffs.
The plaintiffs allege the agreement with the defendants, partly in writing and partly oral, is that House 1 would be completed and sold first and half the proceeds of sale would be used to reimburse the construction costs incurred by the plaintiffs and half of the proceeds would be paid to the Bank in part satisfaction of the Commonwealth Bank loan. From the sale proceeds of House 2, the plaintiffs allege that it was agreed the balance of the bank loan would be repaid, the defendants’ cost of subdivision would be reimbursed and the balance of the plaintiffs’ construction costs would then be reimbursed. They allege the remainder would then be divided equally between the plaintiffs and defendants.
The defendants allege an agreement that from the sale of House 1 the whole of the bank debt would be repaid first and any balance would then be used to fund the finalisation of the construction of House 2. They allege it was agreed that once House 2 was sold, there would be an accounting of the costs of construction of House 1 and House 2 and an assessment made as to the reasonableness of the building costs incurred by the plaintiffs. They allege that the reasonable costs would then be reimbursed and any surplus divided equally.
Neither House 1 or House 2 is complete. House 1 was placed for sale, in its incomplete state, in about May 2018. Since mid-2018, the parties have been in dispute concerning completion, the sale of House 1 and how the sale proceeds of House 1 and House 2 are to be applied to the contributions of the parties to the development.
Relevant Authorities
The purpose of a caveat is to restrain the registered proprietor from dealing with land in a way which would defeat or derogate from the caveator’s interest until such time as the respective rights of the parties have been determined[1].
[1] McInnes v Davies (2014) 121 SASR at 184 at [10] to [14].
Cini v Pets Paradise Franchising (SA) Pty Ltd[2] held that the principles governing the exercise of a Court’s discretion to grant an interlocutory injunction apply in respect of applications made pursuant to s191 of the Real Property Act.
[2] (2008) 102 SASR 177 at [41], Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] 1 LT(A)R 281 at [113] to [116].
In McInnes v Davies[3] Stanley J held, in relation to an application for the extension of a caveat, that a Court must decide the application by reference to Australian Broadcast Corporation v O’Neil:[4]
[3] (2014-2015) 121 SASR 219 at [10] to [11].
[4] (2006) 227 CLR 57 at [19] per Gummow and Hayne JJ.
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:
The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted.
By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal:
How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks.
(Footnotes omitted.)
This Court must therefore consider whether the plaintiffs have a prima facie case in respect of the claimed interest in the land and, if they have, where the balance of convenience lies.
In respect of the balance of convenience, Stanley J remarked in McInnes:
If the facts relevant to the balance of convenience are evenly balanced, then the respective strength of the parties’ cases can be taken into account, but only if there is no credible dispute that one party’s case is disproportionally stronger than the other party’s case. Where, however, the reality of the matter is such that the refusal to extend the caveat will have the practical effect of destroying the caveator’s claimed equity in the land, the caveat ought to be extended if the consequence of failing to do so is to deny the caveator an effective right to a trial on the merits of his or her claim, unless it can be demonstrated himself or herself, in acting to protect the claimed equity in the land, that a court can conclude that the balance of convenience does not favour the extension[5].
[5] Supra at 20.
Objection to evidence
The plaintiffs relied upon and read affidavits of Mrs Yotchev sworn 7 March 2019 and 15 March 2019.
The defendants relied upon and read an affidavit of the first defendant sworn 6 May 2019 and, subject to the plaintiffs’ objection to paragraphs 53 to 55, relied upon and read an earlier affidavit of the first defendant sworn 20 March 2019. Paragraphs 53 to 55 extracted, but did not exhibit, part of a letter dated 10 August 2018 from the then solicitors for the plaintiffs to the defendants. The affidavit acknowledged the letter was headed “Without Prejudice” and the plaintiffs objected to paragraphs 53 to 55 on the basis it extracted a without prejudice communication and was inadmissible. A copy of the letter in its entirety was provided to the Court to rule on the objection.
Counsel for the defendants submitted that, while the letter contained an offer of settlement, the extracted portion did not relate to that offer and was correspondence which set out the plaintiffs’ instructions to their solicitors as to the terms of the agreement the subject of this dispute. He argued that the extract was simply not a without prejudice communication and therefore was admissible to support a submission that the plaintiffs had changed their position as to the terms of the agreement in dispute and that such conduct was relevant to the Court’s discretion to extend the Caveat.
The defendants, alternatively, submitted that the exception contained in s67C(1)(c) of the Evidence Act applied and the extract was admissible as it related to the substance of evidence partly disclosed in the affidavit of Mr Georgievski, namely the alleged agreement. Counsel for the defendants contended that the disclosure of the extract was reasonably necessary for the Court to properly understand the evidence of Mr Georgievski as to the alleged terms of the agreement and to avoid unfairness to the defendants.
I have reviewed the relevant letter and find it is part of, and refers to, a chain of earlier correspondence concerned with offers and counter offers between the parties. The letter asserts facts and legal conclusions in respect of the dispute and in doing so, addresses the respective merits of each party’s case.
A review of all the correspondence in its entirety would provide full context to the exchange. However, it is clear from my consideration of the letter, that it responded to an earlier without prejudice offer of the defendants and to factual and legal assertions made in support of that offer. The letter rejected those legal and factual assertions and a without prejudice offer of the defendants and restated a without prejudice offer of the plaintiffs. The extract formed part of the rejection of factual and legal assertions made by the defendants and was part of an explanation by the plaintiffs’ solicitors of the merits of the plaintiffs’ case and as to why the defendants should accept the restated earlier offer. The extract therefore formed part of the without prejudice negotiation of this dispute and, subject to any exception, is not admissible.
s67C(1) of the Evidence Act restates the common law position that evidence of a communication made in connection with an attempt to negotiate the settlement of a civil dispute, or of a document prepared in connection with such an attempt, is not admissible in any civil or criminal proceedings.
Mr Bullock, for the defendants, relied on the exception contained in s.67C(2)(c) of the Evidence Act whereby:
(2) Such evidence is, however, admissible if:
(c) the substance of the evidence has been partly disclosed with the express or implied consent of the parties to the dispute, and full disclosure of the evidence is reasonably necessary to:-
(i)enable a proper understanding of the other evidence that has already been adduced; or
(ii)to avoid unfairness to any of the parties to the dispute.
The evidence to which the defendants say s.67C(2)(c) applies is the disputed agreement between the parties referred to in the extract. The defendants submit that topic is also the subject of evidence expressly disclosed in the affidavit of Mr Georgievski.
The ‘[s]uch evidence” to which the exception in s.67C(2)(c) applies is the without prejudice offer not the alleged agreement. There has been no partial disclosure of the letter – which is the evidence of the negotiation or the document prepared in connection with the negotiation and consideration. The exception therefore does not arise for consideration.
The plaintiffs will not be allowed to read paragraphs 53 to 55 of the affidavit of Mr Georgievski sworn 20 April 2018 as they are inadmissible and I have not had regard to those paragraphs in considering whether to extend the Caveat.
Prime Facie Case
The defendants assert that the claim articulated by the plaintiffs, as set out in the Caveat and the affidavits of Mrs Yotchev, is in contract only and the plaintiffs can be satisfied by a monetary award. They submit the claimed interest is distinguishable from the typical constructive trust, as no interest in land is promised or expected. Accordingly, the defendants argue that the plaintiffs have not identified or established a prima facie case in equity sufficient to support or attract the equitable interest claimed in the Caveat and it follows that there is no prima facie in respect of the claimed equitable interest in land and the application to extend the Caveat should be refused.
The plaintiffs submit that they have a claim in equity, in accordance with the principles set out in Baumgartner v Baumgartner,[6] to support the declaration of a constructive trust of the kind identified by the High Court in Muschinski v Dodd.[7] As Deane J stated in Muschinski:
The principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that the other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit the other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.[8]
[6] Baumgartner v Baumgartner (1987) 164 CLR 137 at 148.
[7] [1985] 160 CLR 583.
[8] Muschinski at 620 per Deane J.
Put another way, the Court in Baumgartner explained[9]:
[t]he general equitable principle which restores a party’s contribution which he or she has made to a joint endeavour which fails when the contributions have been made in circumstances in which it was not intended that the other party should enjoy them.
[9] Baumgartner v Baumgartner (1987) 164 CLR 137 at 148.
The plaintiffs contend that a constructive trust should be declared to repay their respective contributions and reimbursements and then to pay the balance to the plaintiffs and the defendants in equal shares.
The plaintiffs characterise the arrangements between the parties as a co-adventure, joint venture or endeavour such as that which is a precondition for the trust contemplated by Baumgartner. They also rely on Excel Quarries Pty Ltd v Payne[10] and Natuna Pty Ltd v Cook[11]. The proceedings in Natuna arose out of a dispute in relation to the proposed joint development of rural land for a housing division. Natuna claimed Mr Cook was liable to pay a proportion of bank interest and charges on a loan taken out by the registered proprietor Natuna to fund its contribution to the joint costs of development. The case pleaded was in contract, in estoppel and by application of the general principle identified in Muschinski v Dodd and Baumgartner.
[10] [2000] QCA213 at [16].
[11] [2007] NSWC 121.
As in Natuna, the plaintiffs have indicated a claim in contract which, if pursued, will be considered by the Court before it considers equitable relief. Despite that, it is the equitable interest in land asserted that must be considered in this application. In respect of the asserted constructive trust, the defendants have identified difficulties with what is propounded and the imposition of a constructive trust is a remedy of last resort.
Notwithstanding the difficulties identified, the plaintiffs must only show a sufficient likelihood of success to justify, in the circumstances, the preservation of the status quo pending trial. I find that if the evidence remains as it is, there is a probability that at the trial of this action the plaintiffs would be entitled to the equitable relief that they seek and that they have made out a prima facie case.
Balance of convenience
The defendants want to sell House 1 and apply the whole of the proceeds of sale to discharge the secured bank debt. The Caveat prevents them doing so and was lodged to protect the plaintiffs claimed equitable interest from being extinguished.
The defendants do not propose to pay any of the proceeds of sale in reimbursement of the plaintiffs’ construction costs. Rather, they propose, by way of undertaking, that the surplus be held pending the assessment of the building costs reimbursable to the plaintiffs in accordance with the agreement they assert. They say, going to the balance of convenience, that the proposed undertaking will protect the plaintiffs’ interest.
The defendants also rely on evidence, which I accept, that the Commonwealth Bank, has notified a default and demanded repayment of its loan because the defendants have failed to pay principal and interest. They say they have defaulted because their means are modest and they cannot afford to meet their contractual obligation to the Bank. The defendants contend that the extension of the Caveat will result in the bank taking possession of Parcel 1 and Parcel 2 and selling as mortgagee and that their opportunity to sell the properties in accordance with the common elements of the agreement set out above, will be lost. They contend, consequential on the extension of the Caveat, that they will be prevented from exercising their significant right as owner to sell the land. They submit that the inconvenience or injury to be suffered by them, in those circumstances, outweighs the injury or inconvenience to the plaintiffs if the status quo is not preserved.

The obligation to the bank arising from the loan was in place before the arrangements between these parties the subject of this dispute. The potential exercise by the Bank of its right to possession and sale arises from the loan agreement between the defendants and the Bank to which the plaintiffs are not a party. The inconvenience or injury which the defendants say they will suffer is a consequence of their non-payment. The potential entitlement of the Bank to sell arises as a consequence of a default by the defendants and therefore does not go to the balance of convenience.
Even if that asserted injury did go to the balance of convenience, then the reality here is such that a refusal to extend the caveat would have the practical effect of dealing with the plaintiffs’ equitable claim on an interlocutory basis rather than at trial. It would destroy the caveators’ claimed equitable interest in the land such as to deny the plaintiffs an effective right to a trial on the merits of their claim.
I will make an order extending the Caveat until further order and grant liberty to apply.