New South Wales Supreme Court CITATION : Redglove Projects v Ngunnawal Local Aboriginal Council [2004] NSWSC 880 HEARING DATE(S) : 10/09/04 JUDGMENT DATE : 24 September 2004 JUDGMENT OF : White J DECISION : 1. Appeal from Master's decision dismissed; 2. Plaintiff to pay the first defendant's costs of and incidental to the appeal. CATCHWORDS : Application to extend operation of caveat - Whether negative covenant not to encumber or dispose of land constituted or created an estate or interest in the land - Troncone v Aliperti considered. Real Property Act 1900 (NSW) LEGISLATION CITED : Aboriginal Land Rights Act 1983 (NSW) Crown Lands Act 1931 (NT) Burns Philp Trustee Co Limited v Viney [1981] 2 NSWLR 216 Composite Buyers Limited v Soong (1995) 38 NSWLR 286 Troncone v Aliperti (1994) 6 BPR 13,291 Murphy v Wright (1992) NSW ConvR 55-652; 5 BPR 11,734 Townsend v Coyne (1995) 6 BPR 13,935 Chiodo v Murphy & Doherty [1996] ANZ ConvR 160 Go-Tell Nominees Pty Ltd v Nichols (07/02/97, Supreme Court of Victoria, Cummins J, unreported, BC9700713 at 6) Neoform Developments & Interiors Pty Ltd v Town & Country Marketing Pty Ltd (2002) 49 ATR 625 Brandling v Weir [2003] NSWSC 723 Jones v Baker (2002) 10 BPR 19,115 Thu Ha Nguyen v Larry Quoc Huy On & Ors (2004) NSW ConvR 56-065 Doherty v Allman (1878) 3 App Cas 709 Crafstman Colour Newcastle Pty Ltd v Scotman (McLelland CJ in Eq, 06/09/93, unreported, p 2) Mackay v Wilson (1947) 47 SR (NSW) 315 Sahade v BP Australia Pty Ltd [2004] NSWSC 512 Tittman v Traill (1957) 74 WN (NSW) 284 CASES CITED : H H Halls Limited v Lepouris (1964) 65 SR (NSW) 181 Cowell v Rosehill Racecourse Co. Ltd (1937) 56 CLR 605 Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173 at 202 Hounslow London Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233 Graham H Roberts v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93 Meagher Gummow Lehane, Equity Doctrines & Remedies 4 ed Gartside v Inland Revenue Commissioners [1968] AC 553 Spellson v George (1987) 11 NSWLR 300 Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 The Queen v Toohey; Ex P Meneling Station Pty Ltd (1982) 158 CLR 327 Legione v Hateley (1983) 152 CLR 406 KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164 Stern v McArthur (1988) 165 CLR 489 Chan v Cresdon Pty Ltd (1989) 168 CLR 164 Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 Tanwar Enterprises Pty Ltd v Cauchi (2003) 77 ALJR 1853 Redglove Projects Pty Limited PARTIES : v Ngunnawal Local Aboriginal Land Council FILE NUMBER(S) : SC 1984/04 COUNSEL : Plaintiff: Mr L Aitken Defendant: Mr D A Smallbone, Mr D Rayment Plaintiff: Morgan Lewis Alter Lawyers SOLICITORS : 1st Defendant: M J Woods & Co 2nd Defendant: Chalk & Fitzgerald Solicitors LOWER COURT Supreme Court (Master) JURISDICTION : LOWER COURT 1984/04 FILE NUMBER(S) : LOWER COURT Master McLaughlin JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION ONE DAY LIST WHITE J Friday, 24 September 2004 1984/04 REDGLOVE PROJECTS PTY LTD v NGUNNAWAL LOCAL ABORIGINAL LAND COUNCIL JUDGMENT 1 HIS HONOUR: This is an appeal from a decision of Master McLaughlin given on 22 March 2004 in which the learned Master refused to make an order pursuant to s 74K of the Real Property Act 1900 extending the operation of a caveat. 2 The appellant, whom I shall continue to call the plaintiff, sought an order pursuant to that section extending the operation of Caveat No. AA379993 until further order, or in the alternative, an order granting leave pursuant to s 74O of the Real Property Act to file a further caveat in the same terms as Caveat No. AA379993. 3 Caveat No. AA379993 was purportedly lodged under s 74F of the Real Property Act. That section permits a person to lodge a caveat in respect of land under the provisions of the Act if he or she claims to be entitled to a legal or equitable estate or interest in the land. 4 The caveat in question did not identify the nature of the estate or interest claimed. It referred to a deed dated 13 June 2002 between the plaintiff and the first defendant as the instrument that gave rise to the estate or interest claimed. 5 The first defendant is a Local Aboriginal Council established pursuant to the Aboriginal Land Rights Act 1983. The deed in question provides for the establishment of a joint venture between the plaintiff and the first defendant for the development of land of which the first defendant is the beneficial owner and registered proprietor. The plaintiff submitted that if the agreement were performed, it would be entitled to 50% of the net proceeds of sale of the land after its development. The agreement did not provide for the transfer to the plaintiff of the land or any interest in it. It did not contain any charge over the land in favour of the plaintiff. It did not declare a trust. The clauses in the deed upon which the plaintiff relies for its claimed estate or interest in the land are clauses 6.4, 8(a) and 8(e). 6 By clause 6.4 the plaintiff and the first defendant agreed that, except in defined circumstances, neither of them would do various things, such as making loans, giving guarantees, or acquiring capital assets. The clause prohibits the first defendant, without the plaintiff's approval, from encumbering the land or disposing or agreeing to dispose of the land except in the course of the development or management of the land by the joint venture in accordance with the terms of the deed. By clause 8(a) the first defendant covenanted that it would enter into lending and mortgage arrangements on security of the land to raise funds for the purposes of the joint venture. The plaintiff does not suggest that the first defendant promised to enter into any lending or mortgage arrangements of the kind referred to in clause 8(a) with it. By clause 8(e), the first defendant again covenanted not to encumber or dispose of the land other than for the purposes of the joint venture. 7 The plaintiff claimed that the first defendant's covenants against dealing with the land except for the purposes of the joint venture gave it a legal or equitable interest in the land. 8 The learned Master held that such mere negative covenants not to encumber or dispose of the land did not create or constitute an estate or interest in the land. The plaintiff challenges this conclusion. 9 On 1 April 2004 Nicholas J granted an interim injunction to operate until further order restraining the first defendant from selling, encumbering or otherwise dealing with the development land. 10 Mr L Aitken, of counsel who appeared for the plaintiff, submitted that where a party was entitled to equitable relief by way of injunction to enforce a negative covenant to restrain a proprietor of land from dealing with the land, that person had an estate or interest in the land within the meaning of s 74F of the Real Property Act. 11 Initially he relied for that submission upon the judgments of Kearney J in Burns Philp Trustee Co Limited v Viney [1981] 2 NSWLR 216 at 223 and of Hodgson J (as his Honour then was) in Composite Buyers Limited v Soong (1995) 38 NSWLR 286 at 288. Ultimately he relied on the judgment of Mahoney JA in Troncone v Aliperti (1994) 6 BPR 13,291. He submitted that Mahoney JA's reasoning was approved by the other members of the Court of Appeal and was binding on me. 12 Neither Burns Philp Trustee Co. Ltd v Viney nor Composite Buyers Limited v Soong supports the submission. 13 In Burns Philp Trustee Co Limited v Viney Kearney J held that a beneficiary of a trust established by a will, where the estate was fully administered, was not disentitled from receiving benefits under the trust, and nor was the existence of his beneficial interest affected, by the fact that he was unable to maintain proceedings against the trustee due to his conviction for a capital felony. His Honour held that the ability of a beneficiary to enforce his claim against a trustee was an incident or characteristic of his equitable interest, rather than a pre-condition to its existence. 14 Apart from the valuable discussion of the relationship between equitable rights and interests and the right to obtain in personam relief, the case is not of assistance in resolving the appeal. It does not support the plaintiff's claim. 15 In Composite Buyers Limited v Soong, the defendant executed a guarantee which contained a charge of all freehold and leasehold interests in land which the guarantor then had or might acquire. Hodgson J held that the chargee had a caveatable interest in the land even if he was not entitled to an instrument that would lead to a recording of his interest in the register. His Honour said (at 288): "In my opinion, what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way giving satisfaction of the interest claimed by the caveator out of land itself, for example by ordering the sale of land and payment out of the proceeds of an amount in respect of which the caveator has a charge." 16 This decision does not assist the plaintiff's claim. The caveator had a proprietary interest as chargee of the land in respect of which it could obtain equitable relief to satisfy the interest out of the land by an order for sale or appointment of a receiver. Mr Aitken submitted that an order prohibiting the land from being disposed of or otherwise encumbered was specific relief against the land, and hence the criteria specified by Hodgson J were met. However such relief is not the satisfaction of an existing interest out of land. 17 In Troncone v Aliperti a borrower made an agreement with his creditors that, in respect of each loan, the creditors were authorised to lodge a caveat on any property owned by the debtor to protect their interests. Mahoney JA held (at 13,292-3): "It is a fundamental principle of construction that "Whoever grants a thing is deemed also to grant that without which the grant itself would be of no effect. ….. A caveat cannot be entered against a land unless the caveator has the relevant proprietary interest in the land: see Real Property Act 1900, s 74F(1) ("a legal or equitable estate or interest in land"). Therefore, unless there be evident an intention to the contrary, the grant to the creditors of an authority to lodge a caveat on the relevant property carried with it by implication such an estate or interest in land as was necessary to enable that authority to be exercised. There was, in the present case, no intention to the contrary. ….. In order to determine the present appeal, it is not necessary to determine what is the precise nature of the interest in the land which, by this implied grant, was passed to the creditors. It is, in my opinion, sufficient to conclude that it was an interest which, within the Real Property Act , would support the lodgment of the caveat. However, three things may be said about it. First, the interest would, of necessity, be an equitable and not a legal interest.…… Second, there is in my opinion no rule of law which prevents the creation of a limited equitable interest of this kind. Thus, if the registered proprietor of land covenants by deed that, until a loan be repaid, he will not sell or deal with the land, that covenant would, in my opinion, create in favour of the covenantee an interest in the land to the extent at least that an injunction would go to restrain the covenantor from dealing with the land in a manner inconsistent with the covenant . It is not necessary for this purpose to pursue the nature of the estates or interests in land which, under the conventional law of real property, it was or is possible to create. Nor is it necessary to distinguish between an estate and an interest in land. The right, by the enforcement of an express or an implied negative covenant, to restrain a dealing with land is in my opinion an interest in land within this branch of the law. Accordingly, such an interest would, in my opinion, be within the words "a legal or equitable estate or interest in land" within s 74F(1) . There is accordingly nothing to prevent the implication from the terms of cl5 of the grant of an interest sufficient to support such a caveat as was contemplated by cl5. ….. Third, I do not mean by this that the rights of a creditor under cl5 are necessarily limited to the creation, by lodgment of a caveat, of (as it is sometimes described) a statutory injunction. It is arguable that that which was granted by cl5 was not merely the power to induce repayment of the loan by preventing dealing with the land; it may be that the implication would extend further, to include the appointment of a judicial receiver or the like. However, on this matter I express no opinion." (Underlining added) 18 Priestley JA agreed with Mahoney JA's construction of clause 5 of the loan agreements and with his conclusion. His Honour regarded the case as being indistinguishable from Murphy v Wright (1992) NSW ConvR 55-652; 5 BPR 11,734. 19 Meagher JA initially stated that he agreed both with Mahoney JA's reasons and his proposed orders. However his Honour went on to say that the interest which the debtor intended to grant to each of his lenders could only be an equitable charge and unless the clause were construed as granting a charge it would be meaningless. 20 In my view the ratio decidendi of Troncone v Aliperti is that on the proper construction of the agreement that the creditors could lodge caveats on the debtors' property, the debtor impliedly granted an equitable charge to the creditors. That was the view of Meagher JA. It appears from Priestley JA's reference to Murphy v Wright and the difference in the language of the agreements under consideration in each case that Priestley JA also regarded the case as one in which an equitable charge was granted. 21 In later cases Troncone v Aliperti has mostly been characterised as a case of an implied charge. (Townsend v Coyne (1995) 6 BPR 13,935 at 13,940; Chiodo v Murphy & Doherty [1996] ANZ ConvR 160 at 162; Go-Tell Nominees Pty Ltd v Nichols (7 February 1997, Supreme Court of Victoria, Cummins J, unreported, BC9700713 at 6; Neoform Developments & Interiors Pty Ltd v Town & Country Marketing Pty Ltd (2002) 49 ATR 625 at 627 [21]; Brandling v Weir [2003] NSWSC 723 at [53]). 22 Mahoney JA did not decide that the clause in question created an equitable charge. His Honour's first finding was that by applying the principle of construction that there is an implied grant of all that is necessary to make an express grant effectual, the agreement in question created by implication whatever interest was sufficient to create an equitable estate or interest in land, without deciding what that estate or interest was. (See Jones v Baker (2002) 10 BPR 19,115 at [89]-[90]; Thu Ha Nguyen v Larry Quoc Huy On & Ors (2004) NSW ConvR 56-065 at [19], [22]; Brandling v Weir at [53]; [2004] NSWSC 142 at [9]). That finding has no implication for the present case. Mahoney JA expressly said that it was unnecessary to determine the precise nature of interest that was impliedly granted. 23 Although his Honour went on to say that the right to enforce by injunction an express or implied negative covenant to restrain a dealing with the land was an interest in land for the purposes of this branch of the law, I do not think that this was part of the ratio of his Honour's decision, let alone part of the ratio of the Court's decision. Neither Priestley JA nor Meagher JA endorsed that reasoning. Priestley JA clearly did not do so. Although Meagher JA at one point agreed with the reasons of Mahoney JA, he later gave reasons of his own which were inconsistent with such a view of the law. 24 In Composite Buyers Ltd v Soong, Hodgson J said (at 288-289): "The view that the important requirement is that the interest be one in respect of which the Equity Court will give specific relief against the land is supported by the judgment of Mahoney JA in Troncone v Aliperti , where he goes to the extent of saying in a covenant by deed by the registered proprietor that until a loan be repaid he will not sell or deal with the land would, if the Court would enforce that covenant by injunction, give rise to a legal or equitable estate or interest in land within s 74F." Hodgson J did not suggest that this was the ratio of Troncone v Aliperti . 25 I do not accept the submission for the plaintiff that I am bound to follow the reasoning of Mahoney JA that a person who is entitled to enforce an express or implied negative covenant to restrain a dealing with land has a legal or equitable estate or interest in land within s 74F(1). That is not to say, however, that I should not follow it, even though not bound to do so. 26 However Mahoney JA cited no authority and gave no reason for this part of his judgment. With respect, I do not think it is correct. There have been numerous instances where the Courts have held that no equitable estate or interest in land is created by an express or implied promise not to deal with the land except in conformity with a contract. The fact that equity will enforce the negative promise by injunction does not transmute a purely personal claim into a proprietary interest. Equity does "nothing more than give the sanction of the process of the Court to that which is already in the contract between the parties" (Doherty v Allman (1878) 3 App Cas 709 at 720). 27 An injunction operates in personam. The grant of an injunction does not create an equitable interest which does not otherwise exist. (Craftsman Colour Newcastle Pty Ltd v Scotman McLelland CJ in Eq, 6 September 1993, unreported, p 2). If the right created by contract is merely personal, the fact that a breach may be restrained by injunction and does not sound only in damages cannot convert a personal right into a proprietary interest. 28 A party who is given a right of first refusal to buy land can enforce a contractual claim to restrain a dealing with land, but before the conditions for the exercise of the right have been satisfied, he has no equitable interest in the land. In Mackay v Wilson (1947) 47 SR (NSW) 315 Street J said (at 325): "But an agreement to give 'the first refusal' or 'a right of pre-emption' confers no immediate right upon the prospective purchaser. It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer. It is not an offer and in itself it imposes no obligation on the owner of the land to sell the same. He may do so or not as he wishes. But if he does decide to sell, then the holder of the right of first refusal has the right to receive the first offer, which he also may accept or not as he wishes. The right is merely contractual and no equitable interest in the land is created by the agreement." 29 When the conditions for the exercise of the right of first refusal have been satisfied then the mere contractual right to enforce the right of first refusal by restraining a dealing in land can be transmuted into an equitable interest in the land. (See the cases reviewed by Campbell J in Sahade v BP Australia Pty Ltd [2004] NSWSC 512 at [41]-[43]). But before then, it is clear that the mere contractual right as described by Street J does not create an equitable interest in the land which is the subject of the right of first refusal. 30 Another example is the case of a shareholder in a company which owns a block of units and whose shares confer a contractual licence on him to occupy a unit in the building. Such a shareholder would have the right to restrain the company from dealing with the unit in breach of its contract with the shareholder embodied in the Articles of Association. However, such a shareholder does not hold any estate or equitable interest in the unit owned by the company. (Tittman v Traill (1957) 74 WN (NSW) 284 at 287; H H Halls Ltd v Lepouris (1964) 65 SR (NSW) 181 at 191-192, 194). 31 The authorities on the restraining of a wrongful revocation of a contractual licence are inconsistent with the plaintiff's submission. They establish that a contractual licensee does not hold an estate or interest in the land to which the licence relates (Cowell v Rosehill Racecourse Co. Ltd (1937) 56 CLR 605 at 628-9, 636-7, 654). Nonetheless such a licence contains an implied negative stipulation that it not be wrongfully revoked which, in an appropriate case, may be enforced by injunction (Cowell v Rosehill Racecourse Co. Ltd at 629, 651-2; Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173 at 202; Hounslow London Borough Council v Twickenham Garden Developments Ltd [1971] Ch 233; Graham H Roberts v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93 at 104-107). In dealing with this line of authority, the learned authors of Meagher, Gummow and Lehane, Equity Doctrines & Remedies 4 ed, say (at para 21-275): "The second contentious question is whether there is any inconsistency involved in both denying that a mere contractual licensee has no proprietary interest in the land to which the licence extends and asserting that his occupation of the land can be protected by injunction. There is no inconsistency. What is meant by denying that he has an interest in the land is to deny that he has any estate or interest recognised as such by law or equity, anything the assignment of which would attract the Statute of Frauds. It does not follow that he should necessarily be without curial remedies to remain on the land." 32 Moving away from contract, the position of an object of a discretionary trust reveals that merely because a person is entitled to equitable relief to restrain an improper dealing with property does not by itself confer an equitable interest in the property. A beneficiary of a discretionary trust may have no proprietary interest in the trust property, although he has standing to compel the proper administration of the trust. (Gartside v Inland Revenue Commissioners [1968] AC 553; Spellson v George (1987) 11 NSWLR 300 at 316; Hartigan Nominees Pty Ltd v Rydge (1992) 29 NSWLR 405 at 425). 33 In The Queen v Toohey; Ex P Meneling Station Pty Ltd (1982) 158 CLR 327 the High Court held that a grazing licence granted by the Crown pursuant to the Crown Lands Act 1931 (NT) did not confer an estate or interest in land. It does not appear even to have been considered arguable that an estate or interest would be granted if an injunction would lie to restrain wrongful revocation of the licence. Mason J (at 342): "No one who has a merely personal right in relation to land can be said to have an estate or interest in that land." 34 The plaintiff also referred to the line of cases which consider the interest of a purchaser of land prior to completion where specific performance of the obligation to transfer the land is presently unavailable, but the purchaser is nonetheless entitled to other equitable relief to protect its interest. (Legione v Hately (1983) 152 CLR 406 at 446; KLDE Pty Ltd v Commisioner of Stamp Duties (Qld) (1984) 155 CLR 288 at 300; Kern Corporation Ltd v Walter Reid Trading Pty Ltd (1987) 163 CLR 164 at 191;Stern v McArthur (1988) 165 CLR 489 at 522-3; Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 252-3; and see also Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998) 45 NSWLR 639 at 654-5; Tanwar Enterprises Pty Ltd v Cauchi (2003) 77 ALJR 1853 at 1863). However those cases are not relevant to the present issue. They concern contracts where a purchaser or lessee has contracted to acquire or lease the property. A purchaser or lessee under a conditional contract, who is not entitled to specific performance of the obligation to purchase or lease the land, may nonetheless have an equitable interest in the land falling short of beneficial ownership if his interest can be protected by injunction. The question was adverted to, but not resolved, by the High Court in Tanwar Enterprises Pty Ltd v Cauchi at [56]-[57]. It does not follow that a person who has not contracted to acquire the property or an interest in it, is in an analogous position. It follows that the cases which uphold the right of purchasers under conditional contracts to lodge a caveat are not of present relevance. 35 Accordingly I respectfully dissent from the views of Mahoney JA in Troncone v Aliperti in the passages underlined in para 17. A person may make a contract as to how he will exercise or not exercise his rights to deal with property, without conferring a proprietary interest on another. 36 I consider the learned Master's conclusion to which I have referred at para 8 was correct. Mr Aitken submitted that it was enough to sustain the caveat that the question was arguable. However where the argument is one of law which does not depend on any finding of disputed fact, and where time and circumstances permit of its decision, it is appropriate that the issue be decided. 37 Master McLaughlin also dismissed the plaintiff's application on the ground that the development of the subject land was conditional upon the approval of the New South Wales Aboriginal Land Council. (See Aboriginal Land Rights Act 1983, s 40D). That approval was refused on 15 December 2003. The plaintiff has challenged the decision to refuse approval in the Land and Environment Court. The first defendant sought to resist the plaintiff's claim on the ground that the contract in question had in any event come to an end by frustration. Having regard to my conclusions on the first issue which was argued, it is unnecessary to pursue these matters further. It is also unnecessary to consider the defects in form of the caveat that was lodged. 38 For these reasons I dismiss the appeal from the Master's decision. I order the plaintiff to pay the first defendant's costs of and incidental to the appeal. ****** Last Modified: 09/28/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.