White Constructions Pty Ltd v Donaldson & Anor [2006] NSWSC 749

New South Wales Supreme Court

CITATION : White Constructions Pty Ltd v Donaldson & Anor [2006] NSWSC 749

HEARING DATE(S) : 13 July 2006 JUDGMENT OF : Gzell J

EX TEMPORE JUDGMENT DATE : 07/13/2006

DECISION : Injunction granted with cost

CATCHWORDS : CONTRACTS - General Contractual Principles - Construction and Interpretation of Contract - Defendant sells land to plaintiff with reservation of a specified lot to be retransferred upon creation by subdivision and to be held in trust in the meantime - No time for completion of subdivision - No suggestion plaintiff in breach of contract - Scheme substituted for lodgement of caveat by defendant - Bank guarantee to be called on earlier of two months after registration of plan of subdivision or 30 June 2006 - Defendant call on guarantee after 30 June 2006 - No mechanism to transfer equitable interest in lot to plaintiff - whether serious issue of construction to be tried - Whether injunction should issue to restrain breach of negative stipulation

White Cosntructions Pty Ltd - Plaintiff PARTIES : Grace Margaret Donaldson - First Defendant St George Bank Ltd - Second Defendant

FILE NUMBER(S) : SC 3567/06

COUNSEL : Mr T H Barrett - Plaintiff Ms N Obrart - First Defendant

SOLICITORS : Russell McLelland Brown Lawyers - Plaintiff Heard McEwan Legal - First Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

GZELL J

THURSDAY 13 JULY 2006

3567/06 WHITE CONSTRUCTIONS PTY LTD v GRACE MARGARET DONALDSON & ANOR EX TEMPORE JUDGMENT 1 White Constructions Pty Ltd seeks a declaration that a notice of 30 June 2006 given by Grace Margaret Donaldson, the first defendant, to St George Bank Limited, the second defendant, calling upon a guarantee, is void and of no effect. White Constructions also claims injunctions restraining any further call on the guarantee. 2 White Constructions purchased from Ms Donaldson an area of land in which a portion was described as Lot 44. In cl 17.1 of the contract for sale, the parties acknowledged that the land the subject of the agreement was described as Lot 1 on an unregistered plan, but that it excluded the lot shown on that plan as Lot 44. 3 Clause 17.2 provided that completion of the contract would take place on the basis that the whole of Lot 1 would be transferred to White Constructions but that White Constructions would then hold the land within Lot 1 that comprised Lot 44 on trust for Ms Donaldson. 4 Clause 17.5 provided that as soon as reasonably possible after registration of the plan of subdivision creating Lot 44 as a separate entity, the purchaser, White Constructions, would retransfer the legal title of Lot 44 to Ms Donaldson. The plan of subdivision has not as yet been registered. I am informed that that is likely to occur in August or September of this year. 5 Completion of the contract for sale took place on 30 November 2004. Leading up to that date correspondence passed between the parties because of the difficulty raised by the mortgagee of a caveat being lodged to protect the interests in Lot 44. 6 Clause 17.6 envisaged the lodging of a caveat by Ms Donaldson on the title of Lot 1, drawing attention to her interest in Lot 44, but indicating in the caveat that it did not prevent the registration of the plan of subdivision. The mortgagee being unhappy about the lodgement of the caveat, correspondence passed between the parties for a substituted form of security to protect Ms Donaldson's interest in Lot 44. 7 On 5 November 2004, the solicitors for White Constructions wrote to the solicitors for Ms Donaldson indicating that the bank desired that no caveat be lodged on title. They proposed to resolve the problem by offering a bank guarantee as security for the retransfer of Lot 44 as soon as it was created. There followed some negotiations, but finally the solicitors for White Constructions wrote a letter in these terms on 24 November 2004, so far as is material for present purposes: "I confirm that in exchange for the undertaking not to caveat in the form previously supplied to you being handed over on completion my client will on completion provide a bank guarantee in favour of your client as security for White Constructions carrying out its post completion obligations for the creation and re-transfer of proposed Lot 44 of 501 square metres. Particulars of the bank guarantee are: 1. The bank guarantee is in the sum of $400,000. 2. The bank guarantee is a performance guarantee. 3. Miss Donaldson will be entitled to call upon the guarantee on the earlier of:- 3.1 The expiration of 2 months after the date of registration of the plan of subdivision creating Lot 44, and 3.2 30 June 2006." 8 On the same day, the solicitors for Ms Donaldson wrote to the solicitors for White Constructions confirming the agreement as set out in that letter. The guarantee was called on the basis that 30 June 2006 had been reached. 9 There was, in addition to the correspondence, a deed executed on behalf of Ms Donaldson, which was delivered at settlement on 30 November 2004. Clause 1 stated that in consideration of White Constructions providing a bank guarantee in the sum of $400,000 as security for the retransfer to Ms Donaldson of Lot 44, pursuant to special condition 17 of the contract, and in consideration of the bank advancing funds to White Constructions to enable that company to complete its purchase of part of Lot 100, Ms Donaldson consented to the registration of a first mortgage in favour of St George, but irrevocably undertaking to White Constructions and the bank not to lodge a caveat and irrevocably undertaking to the bank that at the request of the bank she would deliver to the bank the withdrawal of any caveat lodged and an acknowledgment that White Constructions and the bank would act in reliance upon those undertakings. 10 The guarantee given by the bank was dated 30 November and had an expiry date of 31 December 2006. It is significant that there was no time placed upon White Constructions to complete the subdivision and obtain registration of a plan of subdivision in the contract, and there is no suggestion that White Constructions is in breach of the contract. There is no mechanism in the contract or otherwise by which, if the bank guarantee were called upon, Ms Donaldson was obliged to transfer her equitable interest in Lot 44 to White Constructions. 11 Viewed as an alternative to a caveat, the letters of 24 November 2004 would create a strange result if, in the absence of a breach of the contract, and well before the expiry date of the guarantee, there was power in Ms Donaldson to retain the equitable interest in Lot 44 and call upon the guarantee simply because 30 June 2006 had passed. 12 It seems to me that there is a serious issue to be determined as to the proper construction of the letters of 24 November 2004. It may well be that upon their proper construction, 30 June 2006 was a "not before" date until which Ms Donaldson could not call upon the guarantee. 13 That serious issue requiring resolution, I am of the view that it is appropriate that the status quo be maintained. The balance of convenience, it seems to me, favours the retention of the fund and an injunction should go to restrain any exercise of it, on the basis that there is a serious issue as to whether or not the documents, properly construed, contain a negative stipulation on the part of Ms Donaldson not to call upon the guarantee upon the simple ending of 30 June 2006, and in the absence of any suggestion of a breach of the contract. 14 It was submitted that there is no final relief claimed. No doubt that will be remedied by an application for construction of the documents and a determination of the contractual arrangements between the parties. Pending that situation, I propose to grant relief to maintain the status quo. 15 Upon White Constructions, by its counsel, giving the usual undertaking as to damages, I make orders in terms of paragraphs 4 to 7 of the summons until further order of the Court and I make the further order that the first defendant, by herself, her servants and agents, be restrained from taking any further step to obtain the guarantee moneys pursuant to the notice until further order. 16 In my view, costs should follow the event in this case. There was, notwithstanding the suggestion of the absence of a claim for final relief, an articulated claim for interlocutory relief, which was resisted. 17 In those circumstances, I see no reason to depart from the ordinary rule. I order the defendant to pay the plaintiff's costs of the motion.