Zorostar Pty Ltd v Arian Investments Pty Ltd - [2019] WASC 415

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   ZOROSTAR PTY LTD -v- ARIAN INVESTMENTS PTY LTD [2019] WASC 415
CORAM:   SMITH J
HEARD:   14 OCTOBER 2019
DELIVERED          :   15 NOVEMBER 2019
FILE NO/S:   CIV 2051 of 2019
BETWEEN:   ZOROSTAR PTY LTD
Plaintiff
AND
ARIAN INVESTMENTS PTY LTD
Defendant

Catchwords:

Application for leave to lodge second caveat - Serious question to be tried - Whether claims of a constructive trust, resulting trust or equitable charge or lien gives rise to a caveatable interest - Balance of convenience does not favour leave being granted - Notice to deal with the property considered

Legislation:

Transfer of Land Act 1893 (WA), s 137(1), s 138A, s 138B, s 138D

Result:

Application refused

Category: B

Representation:

Counsel:

Plaintiff	:	Mr S M Davies SC & Mr V N Ghosh
Defendant	:	Mr A P Hershowitz

Solicitors:

Plaintiff	:	Symons & Co Legal
Defendant	:	Paiker And Overmeire

Case(s) referred to in decision(s):

Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Bashford v Bashford [2008] WASC 138
Bateson v Jones [2013] WASC 8
Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137
Bride v The Registrar of Titles [2015] WASC 11
Currie v Currie [No 2] [2019] WASCA 2
Difranco v Rattlebay Pty Ltd [2010] WASC 103
Hewett v Court [1983] HCA 7; (1983) 149 CLR 639
Masaka Holdings Pty Ltd v Flaxman [2019] WASC 397
McCourt v National Australia Bank Ltd [No 2] [2010] WASC 151
Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583
Pascoe v Pamela McKessar [2019] WASC 229
Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
Saleh v Romanous [2010] NSWCA 274; (2010) 79 NSWLR 453
Wilkin v Scardina [2003] WASC 144
Woodley v Woodley [2018] WASC 333
Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348

SMITH J:

Summary - application for leave to lodge a second caveat

The applicant, Zorostar Pty Ltd (as trustee for the Zorostar Family Trust), filed an application on 17 June 2019 for leave of the court, pursuant to s 138D of the Transfer of Land Act 1893 (WA) (TLA), to lodge a second caveat. The second caveat sought to be lodged is a 'subject to claim' caveat over all of the land comprised in Certificate of Title Volume 1913, Folio 111, commonly known as 61 York Street, Subiaco (the property).
On 24 December 2007, Zorostar and the respondent, Arian Investments Pty Ltd, purchased the property for $2.2 million as tenants in common in shares of 30% (Zorostar) and 70% (Arian).
On 29 November 2012,[1] Zorostar entered into an agreement to sell its interest in the property to Arian for $540,000 (the deed). On 6 December 2012, the parties signed a transfer instrument. Arian is currently the sole registered proprietor of the property.
[1] Although the date of entry into the deed was originally controversial, counsel for the plaintiff clarified, in the hearing of the application, that it agreed the date of entry to be 29 November 2012. Counsel for the plaintiff clarified that, although it is pleaded, in [38] of the statement of claim, that the deed was executed on 6 December 2012, that is an error.
On 31 October 2016, Zorostar failed to obtain an order from the court to extend a caveat to protect what it said, at that time, was an interest in the property as an unpaid vendor.[2]
[2] Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348.
Zorostar seeks to lodge a second caveat to preserve, what it claims are, its equitable proprietary interests in the property while and until proceedings in this court in CIV 2282 of 2018 (between Zorostar and Arian) are determined or resolved.

The material pleaded facts in CIV 2282 of 2018

Zorostar and Arian's purchase of the property

On 24 December 2007, Zorostar and Arian entered into a contract of sale to purchase the property for $2.2 million as tenants in common in the following shares, Zorostar: 30% and Arian: 70%. Zorostar claims (and Arian denies) that it contributed 58% or, alternatively, 44% of the purchase price.[3] It appears to be common ground that the upfront contributions of cash by the parties to the purchase price and settlement sum were not made in the proportions of 30% and 70%.[4]
[3] Statement of claim [24]; defence [24].
[4] Defendant's outline of submissions [4]. 30% of the settlement sum claimed by Arian would be approximately $737,014.
The parties agree that Zorostar paid a deposit of $100,000.[5]
[5] Statement of claim [12]; defence [12].
There is dispute as to the total settlement sum. Zorostar claims that, including the deposit, the settlement sum was, or was around, $2,556,712.15.[6] In submissions filed in this application, Arian submits that the total sum payable to complete settlement was $2,456,712.30; however, in its defence, Arian pleads a sum of $2,548,824.75 and that it paid an additional $124,380 for stamp duty.[7]
[6] Statement of claim [22].
[7] Defence [22] - [23].
Nevertheless, the plaintiff claims that the purchase of the property was funded by:[8]
(a)a market rate facility of $1.54 million and an overdraft facility of $220,000 both in the name of Arian and Zorostar (the joint facilities);[9]
(b)contributions of Zorostar (totalling $498,356.15) of:
(i)$455,099.34[10] from a NAB mortgage facility of Zorostar; and
(ii)$44,826.81 from a NAB account of a director of Zorostar, Mr Khosravi; and
(c)a contribution of Arian of $198,356.
[8] Plaintiff's outline of submissions [6] - [7].
[9] There is common ground on these figures.
[10] The defendant claims that this amount was $453,529.34, and therefore claims a total of $499,926.15.
There is dispute concerning the $1.54 million market rate facility and the extent of Zorostar and Arian's intended liability under it. Although not currently pleaded, Zorostar submits that, as between Zorostar and Arian, the $1.54 million facility was intended to finance only Arian's share in the property.[11] Consequently, Zorostar says it should not have paid 30% of the interest on the market rate facility. It claims, and Arian disputes, that Zorostar paid a sum of $110,875 from 31 May 2008 to 31 March 2011 in interest on the market rate facility (that, actually, Arian owed).[12]
[11] Plaintiff's outline of submissions [7].
[12] Statement of claim [27]; defence [27].
Consequently, Zorostar's plea is that:
(a)whilst it acquired a 30% legal interest in the land, it contributed 58%, or alternatively 44%, of the purchase price; and
(b)subsequent to the purchase of the property it paid $110,875 in additional payments of interest that it did not owe (that Arian owed).
In October 2008, an additional $250,000 was loaned under the market rate facility to fund renovations. Zorostar claims it contributed money towards payment of renovations, and claims payment of a sum of $16,927.87.[13] Arian agrees that Zorostar contributed to the renovations (but does not say how much) and claims it contributed $132,140.18 and was reimbursed $93,943.88.[14]

Sale of Zorostar's share of the property to Arian

[13] Statement of claim [31].

[14] Defence [31].

From early 2011, the parties undertook negotiations for Zorostar to sell its share in the property to Arian. Zorostar claims that, during these negotiations, Mr Bordbar, on behalf of Arian, admitted that Zorostar contributed $367,787.39 in excess of the amount required for a 30% share in the property.[15] Zorostar relies on evidence of emails exchanged between Mr Bordbar to Mr Khosravi in February and March of 2011 that include:
[15] Statement of claim [33]; Arian denies Mr Bordbar made an admission to this effect: defence [33].
(a)An email from Mr Bordbar to Mr Khosravi of 9 February 2011 stating:[16]
[16] Affidavit of Mr Ardeshir Khosravi sworn 10 June 2019, AK-33, page 108.
Based on the information provided by Travis at NAB, your contribution towards York St purchase was:
$100,000 deposit
$453,529.34 from Zorostar line of credit
$44,826.81 from A & E Kosravi
Total - $598,356.15.
This is what I need to bay [sic] to buy you out of York St. I will be seeking finance on this basis.
(b)A return email from Mr Khosravi of that same day stating, among other things:[17]
[17] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-33, page 107.
The figures you have mentioned are correct and are the main figures similar to my earlier calculations except a couple of additional items:
•Payment of additional interest made by Zorostar over and above the 30%.
•Payments made during construction.
(c)A further return email from Mr Bordbar of 11 February 2011 stating, among other things:[18]
[18] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-33, page 107.
•Can you provide the calculations for the additional interest cost.
•My understanding was that all costs were reimbursed by the bank. Can you provide details of these costs so I can check my records.
…
Can you confirm the costs in first and second dot points as I am applying for finance now and I need to confirm the amount asap.
(d)A later email of 27 February 2011 from Mr Khosravi to Mr Bordbar stipulating 'Interest paid to 31 March 2011 is $245,271.01' and setting out Zorostar's alleged payments made during construction.[19]
(e)An email of 2 March 2011 in which Mr Bordbar replied to Mr Khosravi's 27 February 2011 email stating:[20]
The amount you paid for the purchase of York St over and above your 30% is $367,787.39. Can you tell me how you have calculated the interest on this amount from settlement till 31 March 2011 to be $245,271.01!?
(f)A subsequent email of 25 November 2011 from Mr Khosravi to Mr Benham in which Mr Khosravi states, among other things:[21]
As we both know the sale value inserted in the deed document is not the true reflection of my portion of this property and I am extremely concerned & uncomfortable if something goes wrong I will not have a leg to stand on. What are your thoughts on this ??
We also need to spend a couple of hours and finalise the final sale figure.
(g)A reply email from Mr Benham of that same day stating, among other things:
I am taking this process step by step. The first and most important step is to release your obligations on York St, release your residential home, repay your loan to NAB and stop payment of interest. For the purpose of refinancing with the bank this is the maximum amount we can specify.
[19] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-34, page 110.
[20] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-34, page 109.
[21] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-38, page 115.
By the deed, on 29 November 2012, Zorostar sold its (legal) interest in the property to Arian for $540,000.
It is common ground that the $540,000 purchase price was paid by discharge of Zorostar's liability under the joint facilities. However, there is a dispute as to whether an additional agreement was made between Arian and Zorostar that entitled Zorostar to additional amounts arising out of the payments it had made to the purchase price and payments of interest.
Arian claims that:[22]
(a)by the end of 2012 there had been a significant drop in the value of the property; and
(b)Zorostar and Arian agreed that the final amount to be paid by Arian to Zorostar or Zorostar to Arian after the sale of Zorostar's interest in the property, could only be determined after the dissolution of the 'partnership' and adjustments of all amounts owed and owing by Zorostar under the partnership.
[22] Defence [32].
Zorostar denies that it was in partnership with Arian,[23] and claims in the alternative that if a partnership is found to exist that their capital contributions to the purchase and development of the property would be 30/70%.[24]
[23] Reply [1].
[24] Reply [2] ‑ [5].
Zorostar claims that the parties entered into an agreement (pleaded as a related agreement) on 3 December 2012 and that it entered into the deed based on the promises it contained.[25] Arian denies that it entered into the related agreement.[26]
[25] Statement of claim [34] - [36].
[26] Defence [34].
Zorostar claims that the terms of the related agreement were that:[27]
(a)the $540,000 paid under the deed was not a reflection of the amounts owed by Arian to Zorostar in relation to the property;
(b)the $540,000 represented 30% of the sum required to refinance the joint facilities only;
(c)Arian would pay $15,000 to Zorostar on or before 21 December 2012; and
(d)the full amount owed by Arian to Zorostar would be finalised in January and February of 2013.
[27] Statement of claim [35].
In respect of the related agreement, Zorostar relies on evidence of the following email exchange between Mr Bordbar and Mr Khosravi after the deed was signed:
(a)On 2 December 2012, Mr Khosravi sent an email to Mr Bordbar in the following terms:[28]
[28] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-39, pages 118 - 119, 120 ‑ 121.
Following our earlier discussions please be advised as follows:
•In accordance with the 30 June 2011 Financial statements for the Arian Investment Trust & Zorostar Family Trust the amount to be paid out to Zorostar Family Trust $577,582 but say $577,000. Please note the deed should be modified accordingly.
•Further to our earlier discussions of (2‑12‑2012) please be advised that Arian P/L [i]s required to pay a sum of money in the order of $577,000.00 ‑ $690,000.00 to Zorostar Family Trust, the exact amount to be determine and confirmed by both parties urgently.
•An initial transfer of funds is required to acknowledge the money that is owed to Zorostar Family Trust for the settlement of the 30% transfer of ownership, I would like to propose Arian agrees to provide a bank cheque for a sum of $14,425.00 (2.5% of $577,000.00) as an initial deposit, to which the balance of funds will be paid in instalments over an agreed period of time.
•As per our agreement Arian P/L agrees to pay Zorostar the monthly interest on the outstanding money owing to Zorostar starting from January 2013.
•A formal written agreement will be exchanged between both parties as soon as possible.
Could you please confirm you [sic] acceptance of the above by signing and returning this email.
(b)A return email dated 3 December 2012 from Mr Bordbar to Mr Khosravi stating: 'Please see attached. Can you please sign also and return to me for my records.'[29]
[29] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-39, page 118.
(c)A document drafted as an email from Mr Bordbar to Mr Khosravi and signed on 3 December 2012 that reads:[30]
[30] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-39, pages 120 - 121.
Further to our meeting and discussions yesterday and as agreed I provide the following comments and clarifications on relevant points in your email. I will then sign and email you this document.
•The Deed amount is based on 30% of the refinance figure of $1.8M for York St and it is not a reflection of the money owed to Zorostar Family Trust.
•The amount owed to Zorostar Family Trust will be confirmed and finalised in January/February 2013.
•An amount of $15,000 towards the amount owed to Zorostar Family Trust will be paid on or before 21 December 2012.
•Agreed.
•This email constitutes the written agreement, however as per second dot point the amount needs to be confirmed and documented.
In addition:
•The Deed and Land Transfer form will be signed by both parties on Monday 3rd December 2012.
Zorostar also relies on the following annotation of Mr Khosravi on the transfer of land form, signed and dated 3 December 2012:[31]
Zorostar has transferred in good faith 30% of land ownership of Lot 32 York St to Arian so that funds could be raised by Arian and in turn payment of monies owing to Zorostar could be made in a timely manner as per email of 3/12/12.
[31] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019, AK-40, page 122.
Subsequently, Arian has paid $38,000 to Zorostar. The first payment was for $15,000 and was paid on or around 21 December 2012. Subsequently, six payments of $3,000 and one payment of $5,000 were made.[32] Arian denies that these payments relate to the related agreement Zorostar alleges is in force and pleads the payments were made as part of adjustments between Zorostar and Arian in relation to their partnership.[33]
[32] Statement of claim [40]; defence [40.1].
[33] Defence [40.2] - [40.3].

Procedural history - the first caveat

On 25 July 2016, Zorostar lodged a caveat in absolute form over the whole of the property claiming an interest as a lienee on grounds that Zorostar was an unpaid vendor under a contact of sale between the parties, being the deed. In particular, Zorostar claimed that it had not been paid the price for its 30% interest in the property, which it said extended beyond the amount of $540,000 stated in the deed.
Zorostar applied, unsuccessfully, to extend the operation of its first caveat.[34] On 31 October 2016, Beech J dismissed its application on grounds that Zorostar had not established a prima facie case sufficient to sustain an extension of the caveat. His Honour's reasoning included that:
(a)on the evidence before the court, the only reasonable interpretation of the parties' conduct and email communications between 2 December 2012 and 3 December 2012 was that any other amounts owed by Arian (in addition to the $540,000) would be dealt with subsequently; that is, the parties would, in January or February 2013, finalise a further agreement as to the amount owed in relation to their previous dealings;[35]
(b)the consideration stated in the deed and transfer was $540,000, and settlement of the sale was complete in December 2012 in circumstances where the deed made no reference to any further amounts owing and Zorostar's director, Mr Benham Bordbar, had proposed the other amounts be confirmed and finalised in January or February 2013;[36] and
(c)the caveat lodged by Zorostar asserted an interest as an unpaid vendor under the deed, and made no reference to any obligations apart from those under the deed.[37]
[34] Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348.
[35] Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348 [44] - [47].
[36] Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348 [48] - [50].
[37] Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348 [51].
His Honour also expressed the view that the caveat was defective, including in that the caveat should have been lodged as a subject to claim caveat.[38]
[38] Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348 [33] - [34].

Causes of action pleaded by Zorostar in CIV 2282 of 2018

The pleaded causes of action are materially different to the legal argument put to Beech J in 2016.
In CIV 2282 of 2018, Zorostar pleads that:
(a)Arian holds an interest in the property on constructive trust for Zorostar in proportion to Zorostar's contribution to the purchase price over and above the 30% interest it received;[39]
(b)in circumstances where Zorostar has made a contribution in excess of the legal interest it obtained, Arian holds part of its interest in the property on resulting trust for Zorostar;[40]
(c)Zorostar has an equitable charge or lien arising out of a claim of equitable (proprietary) estoppel, given its detrimental reliance on a promise from Zorostar that Arian would pay the amount by which Zorostar's contribution amount exceeded the value of Zorostar's 30% interest in the property;[41] and
(d)breach of contract (that is, the related agreement).[42]
[39] Statement of claim [43] - [46].
[40] Statement of claim [47] ‑ [48].
[41] Statement of claim [49] - [51].
[42] Statement of claim [52].

Legal framework ‑ leave to lodge a second caveat

Section 137(1) of the TLA empowers the lodging of a caveat over registered land by any beneficiary or other person claiming any estate or interest in land under the TLA or in any lease mortgage or charge under any unregistered instrument document or writing or under any equitable mortgage or charge by deposit without writing or by devolution in law or otherwise.
Where applicable, that is, in respect of a s 138A caveat:
(a)section 138B of the TLA empowers, relevantly, the proprietor of the land, in respect of which the caveat was lodged, to apply for the Registrar of Titles to serve the caveator with a notice to the effect that the caveat will lapse after 21 days if the caveator does not obtain, by application under s 138C of the TLA, and lodge a Supreme Court order extending the caveat.
(b)section 138C of the TLA provides:
(1)A caveator who is served with a notice under section 138B(1) may apply to the Supreme Court, in accordance with rules of the court, for an order extending the operation of the caveat.
(2)On the hearing of the application under subsection (1), the Supreme Court -
(a)if satisfied that the caveator's claim has or may have substance -
(i)may make an order extending the operation of the caveat for such period as is specified in the order; or
(ii)may make an order extending the operation of the caveat until the further order of the court; or
(iii)may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;
and
(b)if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and
(c)may make such ancillary orders in relation to the application as it thinks fit. …
(c)section 138D(1)(c) of the TLA prohibits, without, relevantly, consent of the proprietor[43] or leave of this court, a caveator from lodging any further s 138A caveat in respect of land where a s 138A caveat previously lodged over the same land no longer has effect because of the operation of, relevantly, a dismissal, under s 138C, by the Supreme Court.
[43] See generally, McCourt v National Australia Bank Ltd [No 2] [2010] WASC 151 [24].
In Difranco v Rattlebay Pty Ltd, Beech J stated:[44]
The power to grant leave to lodge a second caveat is a broad discretionary one to be exercised by reference to all the circumstances: Oversea-Chinese Banking Corporation Ltd v Becker [2003] QSC 301 [17].
The principles relevant to an application for leave to lodge a second caveat overlap substantially with the principles relevant to whether a caveat should be extended or removed.
An applicant under this section must also provide a satisfactory explanation as to why the earlier caveat lapsed and for any delay in making the application for leave: Yardley v Favell Gordon (Aust) Pty Ltd [2005] WASC 212 [43]. …
[44] Difranco v Rattlebay Pty Ltd [2010] WASC 103 [21] - [23].
Accordingly, the principles relevant to an application for leave to lodge a second caveat under s 138D include the principles relevant to whether a caveat should be extended under s 138C. The latter principles were outlined by Edelman J in Bride v The Registrar of Titles as follows:[45]
The first issue is whether the caveator's claim in respect of the estate or interest in land 'has or may have substance'. This is sometimes expressed as whether the caveator can show that there is a serious question to be tried, or whether the caveator can prove a prima facie case. In assessing whether the caveator has proved that the claim has, or may have substance, the Court does not ordinarily evaluate the applicant's evidence or undertake a preliminary trial.
The requirement that the caveator's claim of substance be in respect of a claim of an 'estate or interest in land' has been held to mean that the claim must concern a proprietary interest in land.
The second issue is the balance of convenience in extending the caveat. The court considers the balance of convenience when it decides whether to exercise its discretion to extend the caveat. The balance of convenience is not independent of the strength or weakness of the caveator's claim. Rather, the apparent strength or weakness of the case for relief at trial is a relevant consideration on the balance of convenience.
An important factor in considering the balance of convenience is if the failure to extend a caveat will have the effect of destroying, or substantially impairing, the benefit of the proprietary interest which is claimed. (footnotes omitted)
Additionally, a further consideration is whether there is ample alternative protection for the party seeking the caveat.[46]
[45] Bride v The Registrar of Titles [2015] WASC 11 [13] - [16] applied recently in Pascoe v Pamela McKessar [2019] WASC 229 [23] (Hill J) and Zorostar Pty Ltd v Arian Investments Pty Ltd [2016] WASC 348 [25] (Beech J); see also Bashford v Bashford [2008] WASC 138 [47], [50] (Beech J).
[46] Wilkin v Scardina[2003] WASC 144 [15] (Wheeler J).
In Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd, Newnes JA (with whom Pullin JA agreed) explained that:[47]
[T]he existence of a serious question to be tried involves showing 'a sufficient likelihood of success to justify in the circumstances the preservation of the status quo' pending trial. How strong the likelihood of success needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the order sought.
In that context, it is important to bear in mind, as Owen J (as his Honour then was) pointed out in Custom Credit (50) that the purpose of a caveat is to prevent the registered proprietor from dealing with the land in a way which will defeat or derogate from some other proprietary interest in the land, and that in many cases removal of a caveat will have the effect of destroying for all practical purposes the benefit of that proprietary interest.
The potential seriousness of the consequences of refusing relief must not, however, distract attraction from the obligation that lies on a party seeking to maintain a caveat to show a sufficient likelihood of success to justify in the circumstances the maintenance of the caveat. A party who fails to show any likelihood of success does not overcome that by showing that they would suffer very severe consequences if relief were refused. (citations omitted)
[47] Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [42] - [44] quoting Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57, 82.

Whether Zorostar's claim of an estate or interest in the property does, or may, have substance?

Proceedings for the extension of a caveat under s 138C or for consent to lodge a further caveat under s 138D are not finally determinative of the rights between the parties. Consequently, like proceedings for interlocutory relief, the court should generally not engage in determining contested questions of fact or legal liability.
For the following reasons I am satisfied that Zorostar has discharged its onus to demonstrate that it has a caveatable interest in the land that may have substance.
In the application, Zorostar claims an interest in the property on the first three bases outlined at [27] above. Each is submitted to arise from the fact that:
(a)Zorostar made payments (pleaded as contributions in the statement of claim) in excess of the 30% legal interest it received in the property; and
(b)when Arian purchased Zorostar's legal interest in the property under the deed, it promised to compensate Zorostar for these additional contributions.[48]

Constructive trust?

[48] Plaintiff's outline of submissions [30].

Zorostar claims a constructive trust over the property arising from, and to the extent of, the disproportion between its contributions and the 30% share it received.[49] Its contributions are pleaded in the statement of claim as the purchase price contribution (in 2008) [23] ‑ [24], the interest contributions (from 31 May 2008 to 31 March 2011) [27] and renovation contributions (from September 2008 to August 2009) [31].
[49] Plaintiff's outline of submissions [36].
Zorostar submits that, given the land was purchased jointly for a commercial venture, its additional contributions should not be construed as a gift and that it would be unconscionable for Arian to assert beneficial ownership over 100% of the property.[50]
[50] Plaintiff's outline of submissions [43] - [45].
In Baumgartner v Baumgartner,[51] a majority of the High Court clarified a basis for the imposition of a constructive trust as unconscionable conduct in the form of a denial of an equitable interest in property. Mason CJ, Wilson and Deane JJ discussed constructive trusts, referred to Muschinski v Dodds,[52] and observed:[53]
In Muschinski v Dodds a man and woman who had lived together for three years decided to buy a property on which to erect a prefabricated house and to restore a cottage. The woman was to provide $20,000 from the sale of her house and the man was to pay the cost of construction and improvement from $9000 he would receive on the finalisation of his divorce and from loans. The property was conveyed to them as tenants in common. Although some improvements were made by the man, the erection of the house did not proceed and the parties separated. The woman contributed $25,259.45 and the man $2,549.77 to the purchase and improvement of the property. This Court declared that the parties held their respective legal interests upon trust to repay to each his or her respective contribution and as to the residue for them both in equal shares.
Deane J (with whom Mason J agreed) reached this result by applying the general equitable principle which restores to a party contributions 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. His Honour said:
'… 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 specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that 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: cf Atwood v Maude and per Jessel MR, Lyon v Tweddell.'
His Honour pointed out that the constructive trust serves as a remedy which equity imposes regardless of actual or presumed agreement or intention 'to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle'; see also at p 617. In rejecting the notion that a constructive trust will be imposed in accordance with idiosyncratic notions of what is just and fair his Honour acknowledged that general notions of fairness and justice are relevant to the traditional concept of unconscionable conduct, this being a concept which underlies fundamental equitable concepts and doctrines, including the constructive trust. (emphasis added; citations omitted)
[51] Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137.
[52] Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583.
[53] Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137, 147 - 148.
In going on to impose a constructive trust in Baumgartner, their Honours applied a criterion of, and found, unconscionable conduct, arising from the appellant's assertion of sole beneficial ownership of property purchased for a joint relationship and which was financed, and contributed to, by himself and the respondent on the basis of that joint relationship.[54]
[54] Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137, 149.
Recently, in Currie v Currie [No 2] the Court of Appeal referred to the equitable principle which operates to impose a constructive trust of the kind referred to in Baumgartner or Muschinski. It stipulated that '[t]here must be a joint endeavour which has as its purpose the acquisition, improvement or maintenance of the relevant property'.[55]
[55] Currie v Currie [No 2] [2019] WASCA 2 [246]; see also [212].
I accept, on the case as pleaded by Zorostar and evidenced by the email correspondence (detailed in [15] of these reasons) taken at its highest, that Zorostar has a prima facie case that it has some beneficial interest in the property. Zorostar's prima facie beneficial interest arises out of its purchase price contributions, interest contributions, and renovation contributions that exceeded its 30% legal interest in the land. There is, therefore, a serious question to be tried as to whether Zorostar is entitled to relief on this basis.

Resulting trust?

Zorostar claims a resulting trust over a portion of the property equivalent to the amount of its contribution to the initial purchase price exceeding 30%.[56] It submits that, given their respective 30%/70% contributions to the initial purchase, equity presumes that Arian holds the legal estate on trust for itself and Zorostar in those proportions.[57] It further submits that, in circumstances where the property was purchased jointly for a commercial venture, no presumption of advancement arises.[58]
[56] Plaintiff's outline of submissions [40].
[57] Plaintiff's outline of submissions [37] - [38].
[58] Plaintiff's outline of submissions [39].
The applicable legal principles that apply to a resulting trust were recently concisely stated by Tottle J in Woodley v Woodley as follows:[59]
[59] Woodley v Woodley [2018] WASC 333 [63].
(a)In the absence of evidence to the contrary, a registered proprietor of real estate is presumed to own the equitable interest in it. The equitable estate follows the legal estate and is said to be 'at home' with the legal title.
(b)Where, however, a person purchases property in the name of another, or jointly with another, the legal title holder who has not provided the purchase money will only obtain a beneficial interest in the property where that is the intention of the purchaser. This principle was stated by Aickin J (with whom Mason, Murphy and Wilson JJ agreed) in Napier v Public Trustee (Western Australia) as follows:
'The law with respect to resulting trusts is not in doubt. Where property is transferred by one person into the name of another without consideration, and where a purchaser pays the vendor and directs him to transfer the property into the name of another person without consideration passing from that person, there is a presumption that the transferee holds the property upon trust for the transferor or the purchaser as the case may be. This proposition is subject to the exception that in the case of transfers to a wife or a child (including someone with respect to whom the transferor or purchaser stands in loco parentis) there is a presumption of advancement so that the beneficial as well as the legal interest will pass. Each of the presumptions may be rebutted by evidence. (citations omitted)'
(c)The court is concerned to ascertain the objective, manifest intention of the purchaser not an unexpressed subjective intention.
(d)In ascertaining the true intention of the purchaser the court may admit evidence of the relationship between the parties and their acts and declarations before or at the time of the purchase, or so immediately after it that those acts or declarations constitute a part of the transaction - evidence of subsequent acts and declarations relating to a purchaser's intention is only admissible as admissions against the donor's interest. In Glynn v Commissioner of Stamp Duties Reynolds JA summarised this limitation on the evidence that is admissible as follows:
'The law is clear that the only admissible and relevant evidence (apart from admissions to which I will later refer) comprises the acts and declarations of the parties before or at the time of the purchase, or so immediately thereafter as to constitute a part of the transaction. "If that evidence is insufficient to rebut the presumption the beneficial gift, absolute or subject only to qualifications imposed upon it at the time, is complete and no subsequent changes of mind or dealings with the property inconsistent with the trust by the donor can as between himself and the donees alter the beneficial interest." (citations omitted)'
I accept that Zorostar has a prima facie case and that there is a serious question to be tried that its financial contribution to the purchase of the property did not equate to the proposition of the legal interest (30%) that it acquired so as to give rise to a presumed resulting trust.

Equitable charge or lien?

Zorostar claims an equitable charge or lien over the property in the amount of the further promised payments arising from its entrance into the deed in reliance on the promises contained in the alleged related agreement.[60]
[60] Plaintiff's outline of submissions [41] - [43].
An equitable charge or lien is a:[61]
[R]ight against property which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness (see Re Beirnstein [1925] Ch 12 at 17‑18; Re Bond Worth Ltd [1980] Ch 228 at 251; Snell's Principles of Equity 28th ed (1982) at pp 450‑1). Though called a lien, it is, in truth, a form of equitable charge over the subject property (see Landowners West of England and South Wales Land Drainage and Inclosure Co v Ashford (1880) 16 Ch D 411) in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale in pursuance of court order or, where the lien is over a fund, by an order for payment thereout (Bowles v Rogers (1800) 6 Ves 95 (n) (31 ER 957) Re Stucley [1906] 1 Ch 67 at 76‑7 and 80; Davies v Littlejohn (1923) 34 CLR 174 at 184; Seton's Judgments & Orders 7th ed (1912), vol 3, pp 2220‑5). Equitable lien differs from traditional mortgage in that it does not transfer any title to the property and therefore cannot be enforced by foreclosure. While it arises by implication of some equitable doctrine applicable to the circumstances, its implication can be precluded or qualified by express or implied agreement of the parties (Davies v Littlejohn, supra, at 195‑6; Re Bond Worth, supra, at 251). It can exist over land or personalty or both (Davies v Thomas [1900] 2 Ch 462 at 468; Re Stucley, supra, at 75‑6 and 79‑80).
[61] Hewett v Court [1983] HCA 7; (1983) 149 CLR 639, 663 (Deane J).
Zorostar only relies upon the related agreement in respect of its pleaded case of an equitable charge or lien over the property, which cause of action relies on not only proof of the alleged agreement and its terms, but the representations by Arian that Zorostar says it detrimentally relied upon when entering into the deed to transfer its 30% legal interest in the land to Arian on 29 November 2012.
Arian submits that Zorostar can assert no claim of substance in circumstances where the parties entered into the deed on 29 November 2012 and acknowledged that the terms of the deed contained the whole agreement between the parties.[62] It submits that Zorostar is estopped from denying the terms of the deed and foreshadows an amendment to its defence in that respect.[63] Arian submits that there is no explanation for Zorostar's entrance into the deed, in its terms, if Arian had agreed to compensate Zorostar further.[64] Arian ardently contests the existence of the alleged related agreement and submits that it is not borne out by the email correspondence upon which Zorostar relies[65] which it says amount to an offer and a counter offer and not a concluded agreement. It further disputes the evidentiary basis for payments Zorostar claims to have made.[66]
[62] Defendant's outline of submissions [32].
[63] Defendant's outline of submissions [39].
[64] Defendant's outline of submissions [33].
[65] Defendant's outline of submissions [35], [37].
[66] Defendant's outline of submissions [34], [38].

However, Arian concedes that the equitable doctrine of promissory estoppel trumps the legal rules about 'entire contract' clauses.[67] Promissory estoppel is not enforced as a contract, but as an equitable restraint on the exercise or enforcement of the promisor's rights.[68]
[67] Saleh v Romanous [2010] NSWCA 274; (2010) 79 NSWLR 453 [52] ‑ [68] (Handley AJA, Giles JA & Sackville AJA agreeing)
[68] Saleh v Romanous [2010] NSWCA 274; (2010 79 NSWLR 453 [62] (Handley AJA, Giles JA & Sackville AJA agreeing).
I accept that Zorostar has a prima facie case of an equitable charge or lien and there is a serious question to be tried on its pleaded case and the email correspondence upon which it relies.

Balance of convenience - should leave be granted?

In my opinion, the balance of convenience does not favour leave being granted to lodge a second caveat. There are a number of considerations which lead me to this conclusion.
The court must balance the injustice that might be suffered by Arian if the application to lodge a second caveat is granted and Zorostar later fails at trial, against the injustice that might be suffered by Zorostar if the application is not granted and Zorostar later succeeds in establishing its interest in the property.[69] An important factor in considering the balance of convenience is whether the failure to grant leave will have the effect of destroying, or substantially impairing, the benefit of the proprietary interest claimed.[70]
[69] Masaka Holdings Pty Ltd v Flaxman [2019] WASC 397 [25] (Tottle J).
[70] Bride v The Registrar of Titles [2015] WASC 11 [16] (Edelman J).
Arian points out that Beech J refused Zorostar's application to extend the first caveat on 31 October 2016 on the basis that Zorostar had not established an interest in the land. In the proceedings before Beech J, Zorostar did not assert any equitable proprietary claim in the land as is now contended. Arian argues that it cannot be said that the equitable proprietary interest now claimed amounts to a strong prima facie case.[71]
[71] Defendant's outline of submissions [45].
It is further contended by Arian that:[72]
(a)Zorostar sat back and took no steps to make any claim against Arian from 31 October 2016 until it filed a writ and statement of claim on 23 July 2018, a period of more than 21 months having elapsed;
(b)it was only in June 2019 that Zorostar took steps to seek leave pursuant to s 138D to lodge a further caveat over the land, almost three years after the first caveat had lapsed;
(c)there is no explanation or, alternatively, an inadequate explanation for the inordinate and contumeliously long delay in seeking leave; and
(d)there is no evidence of any potential disposal of the property by Arian[73] and, in any event, any disposal would not have the effect of destroying or substantially impairing the benefit of the proprietary interest claimed by Zorostar.[74]
[72] Defendant's outline of submissions [40] ‑ [43].
[73] ts 56, 14 October 2019.
[74] Defendant's outline of submissions [46].
There are significant differences in the parties' pleaded facts in the main proceedings. Given those pleaded factual disputes between Zorostar and Arian, it is inappropriate to make any findings as to the strength of Zorostar's pleaded causes of action. And it is inappropriate, in the context of applications to lodge a caveat, to resolve conflicts of evidence on affidavit. The standard applied is not an evaluation of the applicant's evidence, it is simply for Zorostar to here show that there is a serious question to be tried.[75]
[75] Bateson v Jones [2013] WASC 8 [18] (Pritchard J).
It cannot be said, however, that Zorostar has a weak underlying claim to any equitable interest in the property. Taken at its highest, the evidence of the contributions and of the email correspondence put on by Zorostar meets the threshold of the need to show that there is a serious question to be tried.
Whilst I accept that there is no evidence before the court of any potential disposal of the property, the subject to claim caveat (by its nature) would not place an undue limitation on Arian. However, I am not satisfied that Zorostar has provided an adequate explanation for the delay in bringing this application.
Zorostar concedes that whilst there has been a delay in seeking leave to lodge the second caveat, the delay is explicable on the basis that Zorostar was:
(a)for the period from July 2017 to July 2018, seeking advice as to potential claims and preparing a statement of claim that was filed on 23 July 2018;[76] and
(b)for the period from December 2018 to April 2019, engaged in a mediation in the court and 'without prejudice' negotiations in an attempt to settle the matter, which if successful would have obviated the need for a second caveat.[77]
[76] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019 [42].
[77] Affidavit of Mr Ardeshir Khosravi, sworn 10 June 2019 [44] ‑ [46].
The length of the passage of time, in itself, may not necessarily be material or decisive of an application to lodge a second caveat. I accept that the parties were engaged in attempts to settle the dispute between them from December 2018 until sometime in April 2019. However, as Arian points out, there is no explanation for the delay between the lapsing of the first caveat in October 2016 and the seeking of advice and preparation for the filing of the writ and statement of claim that commenced in July 2017. Nor is there an explanation for the period between the filing of the writ in June 2018 and the settlement negotiations which commenced in December 2018.
Arian is unable to point to any prejudice that it would suffer by the granting of leave to file a further caveat except to claim that prejudice always arises out of a caveat; even if the caveat is a subject to claim caveat it is an encumbrance on a property.[78] I do not accept this argument is open. If it were otherwise, such an argument would always be a point raised against the grant of leave to lodge a second caveat or to extend an existing caveat.
[78] ts 56, 15 October 2019.
There is, however, evidence before the court that it appears that the extent of the registered security interest on the property well exceeds its current value.[79] Consequently, it appears that if Zorostar has an equitable interest in the property, it is an interest that presently may have no value.[80] Zorostar points out that it is Arian's evidence that it intends to continue to operate its business from this property for the foreseeable future and that the current value of the property, and the mortgage commitments owed to the National Australia Bank, may change. Zorostar also argues that the fact that the property is mortgaged 'up to the hilt' at this present time is irrelevant because the further caveat sought is a subject to claim caveat.
[79] Affidavit of Mr Harold Joseph Paiker, sworn 27 September 2019, attachment HJP 1, valuation report of the property assessed as at 26 September 2019 as $1,600,000; attachment HJP 2, NAB Arian investment trust account as at 5 December 2018 and 13 May 2019 $2,100,000.
[80] ts 56, 14 October 2019.
Zorostar is prepared to offer an undertaking as to damages or to have the giving of such an undertaking a condition to the exercise of leave to lodge a second caveat. However, Arian points out that an undertaking as offered may have little worth as Zorostar is a trustee company whose shareholding is worth $2.
Arian has been unable to clearly establish any prejudice that it may suffer as a result of the granting of leave for Zorostar to lodge a second caveat in the event that Zorostar was to ultimately be unsuccessful in its claim in the main proceedings. The balance of convenience is ordinarily in the favour of an applicant who can establish an arguable or prima facie case to a claim of a proprietary interest in the land. However, in circumstances where, at the present time, it appears that the current registered mortgage exceeds the value of the land, it appears that a caveat may not be capable of any practical effect in protecting any equitable interest that Zorostar may have in the land. In light of this, notwithstanding the delay, I would have granted the application for leave to lodge a second caveat if the property was not presently encumbered to the extent that it is, and if I did so I would do so on condition that Mr Khosravi provide a personal undertaking as to damages.
I would therefore refuse leave to lodge the second caveat. I am, however, of the opinion that subject to Arian showing cause otherwise:
(a)Arian should provide an undertaking to give reasonable notice to Zorostar of any proposal to deal with the property prior to the proceedings in CIV 2282 of 2018 being finally determined; and
(b)an order should be made to dismiss this application with leave to bring any further application for a second caveat in the event that Arian gives notice to Zorostar, prior to the determination of CIV 2282 of 2018, to deal with the property.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
EH
Research Associate/Orderly to the Honourable Justice Smith
15 NOVEMBER 2019