New South Wales Supreme Court CITATION : Varinya Pty Ltd v Pedersen [2007] NSWSC 794 HEARING DATE(S) : 09/07/07 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 9 July 2007 DECISION : Order that caveats be removed. CATCHWORDS : CONVEYANCING [134]- Torrens title- Caveats- Plaintiff real estate agent purchases property from defendant- Defendant claims property purchased at under value in breach of fiduciary duty- Defendant lodges caveat- Held no caveatable interest. EQUITY [102]- Trusts and trustees- Constructive trusts- Whether plaintiff holds profits from resale of property on constructive trust for defendant- Original sale at under value not sufficient in itself to establish unconscionability- Trust not imposed- Order for equitable compensation more appropriate. LEGISLATION CITED : Property, Stock and Business Agents Act 2002, s 49 Bathurst City Council v PWC Properties Pty Ltd (1988) 195 CLR 566 CASES CITED : Guimelli v Guimelli (1999) 196 CLR 101 Tracy v Bifield (1988) 23 Fam LR 260 PARTIES : Varinya Pty Ltd (P) Melville Roy Pedersen (D) FILE NUMBER(S) : SC 3473/07 COUNSEL : M A Bradford (P) G P McNally (D) SOLICITORS : Booth Brown Samuels & Olney (P) Matthews Dooley & Gibson (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Monday 9 July 2007 3473/07 – VARINYA PTY LTD v PEDERSEN JUDGMENT 1 HIS HONOUR: This is a summons brought by the registered proprietor of a property at Manly for an order that the defendant withdraw a caveat over that land. The plaintiff purchased the subject land from the defendant in the middle of 2006 for $880,200. The principal of the plaintiff is a real estate agent practising at Manly. The person's name is Mark Larcombe, but he practices under some business or corporate name. 2 Mr Larcombe has, for some years, been managing the property. In 2006 he had some discussions with the defendant regarding the need for general repairs to the property and the defendant, Mr Pedersen, indicated that it may be best to dispose of the property and put his investment moneys elsewhere. Mr Larcombe asked the defendant whether he wanted to sell the property and, according to Mr Larcombe, the defendant said he would give it some serious consideration. Mr Larcombe said that he thought a developer would pay somewhere in the range of $800,000 and pointed out that that would allow the developer to make some profit after extensive renovations. He then said to the defendant, "Would you like me to contact a couple of developers to get a better idea of what price they would pay?" The defendant replied, "Yes." Mr Larcombe says that he later approached two developers and ascertained that the best price he could get was $850,000, with a six month delayed settlement period. 3 Mr Larcombe told Mr Pedersen that and told him also that he, Larcombe, would be prepared to pay $900,000 for the property. As a result of this, in due course the contract was made out for $880,200, being $900,000 less commission of 2.2% that the defendant would otherwise have to pay. 4 After exchange of contracts, Mr Larcombe's solicitor pointed out s 49 of the Property, Stock and Business Agents Act 2002 and that that section might mean that the contract contravened the Act, unless the vendor consented in writing in the approved form. I should put it on record that I am not entirely convinced that the section is applicable, but it is not necessary to decide that at the moment. However, Mr Larcombe's solicitor did send to the vendor's solicitor the appropriate form, and in due course, it was signed and returned and the contract was completed in June 2006. 5 It was thought in 2006 that the council would not permit there to be off-street parking in connection with any renovation or redevelopment. However, the plaintiff submitted a building application to the council and in the course of that it appeared that parking would be allowed. A development application was then submitted and was ultimately approved. 6 I am not aware of exactly what the building application or the development application did, nor am I aware of whether the grant of those applications would add any particular value to the property, but I think I can take judicial notice that it would have increased the value of the property to some extent. 7 No actual renovations were ever carried out. In the ultimate the plaintiff on-sold the property by contract which is due for completion next Friday for $1.935 million. 8 On hearing of this, the defendant's son made it very clear to Mr Larcombe that he considered that Mr Larcombe had taken advantage of his position to make a profit for himself and that he required the profit to be paid to the defendant. Mr Larcombe denies that there is any such entitlement. The defendant lodged a caveat on the property. The caveat claimed: "An equitable interest in the fee simple pursuant to a constructive trust". The facts stated to support this view were: "The registered proprietor acquired the land from the Caveator for under value in breach of a fiduciary relationship of real estate agent and client between the registered proprietor's director ... and the Caveator." 9 Because the purchase is at a good price and the purchaser insists on completion in accordance with the new contract, the matter is urgent and, accordingly, it has to be decided today, notwithstanding that counsel and myself would probably prefer a little time for further reflection. The plaintiff says that the defendant has no interest in the land at all. At the very most, which is not conceded, he has a claim for equitable compensation for breach of fiduciary duty. However, even if there is such a claim, there is no reason why that claim is secured over the property. 10 On the other hand, the caveator says that there is a constructive trust, that is an interest in the land, his caveat may have substance and, accordingly, it should be retained. 11 However, both parties recognise that, commercially, the caveat must go and that if there is to be any relief to the defendant it must be by quarantining some part of the purchase price. The plaintiff says that there should be no such quarantine because there is no basis for saying that there is reason for fear that the plaintiff would dispose of the proceeds of sale. On the other hand, the defendant says it presently has a security and there should be some substitute security, though it is not claiming that there should be a security over and above the difference between the $880,200 and the sale price. Indeed, he agrees that it may well be that some lesser sum is more appropriate. 12 The defendant says that where one has an estate agent who purchases the property himself, there is a fiduciary duty on the estate agent to ensure that the very best price is obtained before he sells to himself. He says that he has obtained a valuation for the property of $1.5 million at the time in question, and this is very much more than the $880,200 for which it was sold to the plaintiff. 13 One must, of course, always remember that sales of an under value are usually not sufficient of themselves to make the transaction unconscionable and one which will be set aside in equity. Almost always, in addition to a gross under value, there must be some other factor which significantly affects the ability of the vendor to make a judgment as to his or her best interests; see, for instance, Snell On Equity, 31st ed, paras 8-46. 14 It may be in some circumstances that the relationship of estate agent and vendor may indicate factors which suggest that there has been a gross under value such as to make out a prima facie case of unconscionable conduct, but that will not be so in every case. I realise that there has been very little time for the defendant to obtain evidence. 15 There is no evidence before the Court at the moment by the defendant at all, let alone evidence to show that, despite his age of 84, he was a man who realised what his property was and what his investments were and their value. Without such evidence the claim of a constructive trust is fairly weak. 16 However, assuming that the evidence were there for the moment, why - I might ask rhetorically - should a constructive trust be imposed? In Tracy v Bifield (1988) 23 Fam LR 260 at 263 Templeman J in the Supreme Court of Western Australia truly said: "The remedy of a constructive trust is not, however, a panacea to be applied in any case in which there have been unequal contributions in the acquisition of the relevant assets. Constructive trusts are tailored so as to prevent unjust or unconscionable results irrespective of intention. They therefore involve a degree of judicial discretion." 17 The High Court of Australia in Bathurst City Council v PWC Properties Pty Ltd (1988) 195 CLR 566, 584-5 and again in Giumelli v Giumelli (1999) 196 CLR 101 at 113 said, and I quote from the latter page: "Before a constructive trust is imposed, the court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust." The headnote at page 102 puts it a little more strongly: "A constructive trust should not be imposed if, in all the circumstances of the case, there is an appropriate equitable remedy which falls short of the imposition of a trust." 18 If the defendant were to move for an order that the contract be rescinded he would have difficulties because the plaintiff has become registered and interests have been obtained by the subsequent purchaser, but even putting aside those rather considerable difficulties, he would have to do equity by offering to pay back the $880,200 plus the costs of obtaining the building and development application, which he has not offered to do. He cannot be in a better position asserting a breach of fiduciary duty than if he were entitled to set aside the whole transaction. 19 To my mind the remedy that equity would grant if there were a case made out by the defendant would be to award equitable compensation. Here one would need to work out what was the profit. There certainly seems to be a profit, but exactly how that came about is a little hard to see at the moment. If one added 20 per cent on to the $880,200 for the natural increase in price and the value added by the development costs one would get $1,056,240 and it would only be something over and above that sum that to my mind should be quarantined and then only if there was some evidentiary material to show that there was a likelihood of the profit being dissipated if it were not quarantined. 20 It follows that the appropriate order - if the defendant is correct - is an order for equitable compensation. There is no interest in the land, accordingly, the caveat must go. The question then arises as to whether terms should be imposed. As there is no interest in the land, there was no right to put a caveat on, and there is no reason why terms should be imposed. 21 It may be, and I stress the word "may", that the defendant has a claim for breach of fiduciary duty and a claim for an injunction. It is tempting to deal with that now, but it seems to me that as a lot will depend on the evidence that the defendant personally gives, and also on whether there is any evidence as to the possible dissipation of the proceeds (which it would seem are not going to become available till Friday next anyhow) that it would be wiser not to get into this area at the moment. Accordingly, the Court orders that the two caveats AD183229 and AD253589 affecting folio identifier A/346467 be removed before noon on 10 July 2007. 22 I must note that the parties agreed that the matter would be dealt with by me on the basis that no issue estoppels would arise from this judgment. 23 This would seem to be the formal end of the proceedings, accordingly, the defendant pays the plaintiff's costs of the proceedings. ********************** 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.