Supreme Court New South Wales Medium Neutral Citation: Rushcutters Bay Developments Pty Limited v Dragon Asset Investment Pty Limited [2016] NSWSC 1324 Hearing dates: 16 September 2016 Date of orders: 19 September 2016 Decision date: 19 September 2016 Jurisdiction: Equity Before: Darke J Decision: Order for extension of operation of purchaser's caveat refused. Order made for vendor's caveat to be withdrawn. Catchwords: REAL PROPERTY – caveats – caveat lodged by purchaser under contract for sale – contract terminated by vendor due to purchaser's failure to make payments of deposit – purchaser claims relief against forfeiture and specific performance – whether serious question or prima facie case shown – order for extension of operation of caveat refused REAL PROPERTY – caveats – caveat lodged by vendor – vendor's lien claimed over two lots in respect of unpaid deposit payable for other lots – lien claimed over lots for which purchase price paid in full – whether serious question or prima facie case shown – order made for withdrawal of caveat Legislation Cited: Real Property Act 1900 (NSW), ss 74K, 74MA, 74O Cases Cited: Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 Bayblu Holdings Pty Ltd v Capital Finance Australia Limited [2011] NSWCA 39 Hewitt v Court (1983) 149 CLR 637 Mackreth v Symmons (1808) 33 ER 778 Romanos v Pentagold Investments Pty Limited (2003) 217 CLR 367; [2003] HCA 58 Sutherland v Vale [2008] NSWSC 759 Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315; [2003] HCA 57 Category: Procedural and other rulings Parties: Rushcutters Bay Developments Pty Limited (Plaintiff) Dragon Asset Investment Pty Limited (First Defendant) Kai Lung Sze (Second Defendant) Representation: Counsel: Mr M Dawson (Plaintiff) Mr H Altan (Defendants/Cross Claimant) Solicitors: Tress Cox Lawyers (Plaintiff) CKSD Lawyers (Defendants/Cross Claimant) File Number(s): 2016/242761 Publication restriction: None Judgment 1. These proceedings concern a contract for the sale of land entered into on 27 August 2015 between the plaintiff as vendor and the first defendant as purchaser. The vendor claims to have terminated the contract following the failure of the purchaser to make certain payments of deposit in July 2016. The purchaser claims to have grounds to obtain relief against forfeiture, and a decree of specific performance. The vendor sues the purchaser (and the second defendant guarantor) for the monies that were not paid. 2. The subject matter of the contract consists of four lots, being lots 31, 134, 135 and 136 in Strata Plan 91567, located in Darlinghurst. The purchase price under the contract was $16 million, including a deposit of $1,600,000. The completion date was stated to be 31 March 2016. 3. The deposit was payable in two instalments, with time being of the essence. The purchaser paid the first instalment on time, but failed to make the second payment of $1,400,000 by its due date of 30 September 2015. Only $500,000 was paid by that date. This failure led to the making of a Deed of Variation to the contract on 19 October 2015. This Deed provided for an extension of time (to 30 October 2015) for payment of the balance of the deposit. The deed further gave the purchaser the right to obtain a further extension (to 6 November 2015) in which case the deposit was increased from $1.6 million to $1.85 million and the purchase price was increased, to $16.25 million. By 6 November 2015, the purchaser had paid a total of $1.725 million towards the deposit. 4. The Deed of Variation was the first of five such deeds entered into by the parties. The Second Deed of Variation, made on 8 December 2015, reduced the price to $16.125 million and reduced the deposit to $1.725 million, the amount that had been paid by that time. The Third Deed of Variation, made on 19 January 2016, dealt with an issue related to Goods and Services Tax. 5. The Fourth Deed of Variation was made on 31 March 2016, the contractual date for completion. In March 2016 the purchaser had sought to have the completion date extended to 15 May 2016. Negotiations for the extension involved the respective solicitors for the purchaser and for the vendor. There was discussion about whether time would be essential for completion by the new date. The purchaser's solicitor resisted the suggestion that time be essential. On 15 March 2016 the plaintiff's solicitor stated: We are of the view that the Vendor can always issue notice to complete after 15 May 2016 giving our client extra 14 days to complete. 1. Ultimately, the vendor agreed that time not be essential in that respect. However, the Fourth Deed of Variation provided not only for a new completion date of 15 May 2016, but also for an increase in the deposit to $3.725 million (an increase of $2 million). This $2 million was required to be paid as to $250,000 on the date of the Deed (which was done), and as to the remaining $1.75 million by 12 April 2016. That was not done. It was a breach of the contract in an essential respect. 2. In early April 2016 the purchaser obtained a valuation of the four lots which was for an amount of only $7.8 million. This hampered the purchaser's ability to obtain finance in order to complete the contract. On 11 April 2016 the purchaser's solicitor sent an email to the vendor's solicitor which contained the following: We have just received instruction from our client that the valuation of the property conducted by our client's financier is significantly lower than the contract price. … Our client most certainly wishes to proceed with completing the contract. However, it may be possible that additional time may be required for our client to obtain funding to complete the purchase. Our client has instructed us to request that in the event that our client cannot have finance in place by 15 May 2016, the Vendor will extend the completion date to 1 July 2016. In consideration of the Vendor granting a further extension, our client will provide a further 10% deposit (in addition to the deposit our client is required to pay on 12 April 2016). We request that you liaise with the vendor and advise whether an extension can be granted as a matter of urgency. 1. The vendor's solicitor responded on 14 April 2016 stating, amongst other things, that the vendor was prepared to proceed on the basis that the $1.75 million payment be made by the following day (time being of the essence), an additional deposit of 10% be paid by 15 May 2016 (time being of the essence), and the completion date be extended to 16 June 2016. 2. The purchaser's solicitor sought more time for the payment of the $1.75 million, but indicated agreement to an additional 10% deposit being paid by 15 May 2016. 3. Negotiations continued through to June 2016. At the same time, the purchaser continued its efforts to obtain finance. 4. On 27 April 2016 the purchaser paid a further $1 million towards the deposit. 5. On 29 April 2016 the purchaser obtained a further valuation. This valuation was for an amount of $12.5 million. 6. On about 20 May 2016 the vendor issued a Notice to Complete. The notice called for completion to take place by 6 June 2016. 7. On 26 May 2016 the purchaser's solicitor suggested that the purchaser would pay $350,000 on 27 May 2016, $500,000 on 15 June 2016 and $1.5 million on 24 June 2016, with completion to take place by 15 August 2016. This proposal was rejected by the vendor. On 30 May 2016 the purchaser's solicitor sent an email to the vendor's solicitor which expressed disappointment with the vendor's stance, and continued: The Vendor will appreciate the money our client is being asked to pay is well in excess of the 10% of the price. The Vendor should also be mindful of the first valuation report which valued the property at only $7.8 million. While our client is committed to the purchase, our client cannot commit to any further payment unless the extension of time can be secured. Our client's finance may need up to 10 weeks to finalise so it is critically important that the Vendor will accept completion to take place on or before 15 August 2016 and time is of the essence. Could you please as a matter of urgency advise whether settlement on 15 August 2016 is acceptable to the Vendor. 1. On 10 June 2016 the purchaser's solicitor sent an email to the vendor's solicitor that included the following: In essence, our client is offering to paid [sic] a further deposit of $800,000 bringing the total amount of deposit payment to $3.15 million. Taking into consideration of the money already paid, the total amount our client is paying will be $6,137,500 which is about 38% of the total contract price. This hopefully gives the Vendor sufficient confidence about our client's commitment. Our client requires settlement date to be 19 August 2016 (time being the essence) as we have essentially made no progress in our finance application last week due to the present negotiation. As indicated to your client in our earlier correspondence, our financier requires a written confirmation in relation to the anticipated settlement date of the contract. … Could you please obtain your client's instruction and advise whether the offer is acceptable. If the Vendor does terminate the contract, our client will take whatever action that is necessary to protect his right and interest. 1. In the vendor's solicitor's response of 14 June 2016 it was suggested that the monies paid by the purchaser to date ($2.975 million) be applied towards a settlement of lot 136. 2. On 15 June 2016 the purchaser's solicitor responded as follows: Our client is willing to effect partial settlement on the following basis: - This arrangement will not affect our client's finance application. We are now seeking confirmation from the financier concerning the effect of partial completion on our client's finance application; That the price of each Lots are determined on the price per square metres rate calculated on the current contract price plus adjustments as required under the contract. The total area for all of the shops combined is 2629 square metres. At $16,250,000, the rate per square meter is $6,181.06. As such, it will be fair and reasonable to adopt the rate of $6,181.06 when calculating the price for each Lot. Could you please advise whether our proposed method of apportionment is acceptable to the Vendor. 1. On 16 June 2016 the purchaser's solicitor asked whether the vendor would consider selling both lots 136 and 31 for a total of $3.5 million. 2. On 17 June 2016 the vendor's solicitor stated that the vendor would agree to settlement of lots 31 and 136 for $3.5 million on certain conditions, including the making of three further payments of deposits (time of the essence) with settlement of lots 134 and 135 to occur on 19 August 2016 (time of the essence). 3. On 23 June 2016 the purchaser's solicitor responded with a counter-proposal that involved: 1. the payment of $850,000 on execution of the deed of variation; 2. completion of the purchase of lots 136 and 31 on 24 June 2016 for $3.5 million utilising the money the purchaser has already paid to the vendor and the additional $850,000, with surplus funds to be released to the vendor as a deposit for lots 134 and 135; 3. a further payment of $1 million on 7 July 2016; 4. a further payment of $1,312,500 on 15 July 2016; and 5. settlement to take place [for lots 134 and 135] on 26 August 2016 (time of the essence). 1. On the same day the vendor's solicitor indicated that the purchaser's proposal was accepted, subject to certain matters (including that the three further payments "are all time of the essence"). The purchaser's solicitor responded, stating that the purchaser agreed that those payments would be time of the essence. 2. The Fifth Deed of Variation, which reflected the above agreements, was entered into on 24 June 2016. 3. On that day, the purchaser paid a further $850,000 as required by the Deed, and completion of the purchase of lots 31 and 136 took place for $3.5 million (referred to in the Deed as Stage 1 Completion) utilising the money paid by the purchaser to date. The remaining $325,000 of such money was (subject to adjustments) treated as a deposit in respect of lots 134 and 135. 4. From 24 June 2016 the purchaser has been in a position to become the registered proprietor of lots 31 and 136, subject to it attending to the payment of the stamp duty. It appears that the purchaser has not yet paid the stamp duty, although, as required by an undertaking given to the Court on 5 September 2016, the purchaser has submitted the contract for sale for assessment of duty. 5. The purchaser failed to make the payment of $1 million due on 7 July 2016 which was to form part of the deposit for lots 134 and 135. 6. On 8 July 2016 the purchaser's solicitor informed the vendor's solicitor that he understood that he would have a cheque by 11 July 2016. On 15 July 2016 the purchaser's solicitor sent an email to the vendor's solicitor which included the following: We confirm that our client's finance has been approved subject to the conditions as set out in the term sheet. Our client is in the course of finalising the finance. Our client has experienced some difficulties in raising the deposit required, due to the failure of our client's debtor to repay money owing to our client. However, our client is still committed to complete the purchase by 26 August 2016 and ask the Vendor to extend the time for payment of the deposit to 5 August 2016. Our client is also making his own arrangement to obtain the funds from different source. If funding can be in place before 5 August 2016, our client will immediately arrange payment of the deposit. Our client apologise for the delay but emphasises that the delay is due to unexpected evening [sic] caused by third parties beyond our client's control. Our client is returning to Sydney next week to sign the loan document and is willing to meet the Vendor to discuss any possible solution. 1. The purchaser failed to make the payment of $1,312,500 due on 15 July 2016 which was to form part of the deposit for lots 134 and 135. 2. The purchaser was thus in breach of essential obligations under the contract, in circumstances where it had paid a deposit of $325,000 towards a purchase price of $12,625,000 in respect of lots 134 and 135. 3. On 22 July 2016 the vendor served a Notice of Termination of the contract, based on the failures of the purchaser to make the payments of deposit on 7 July 2016 and 15 July 2016 as required. 4. The vendor commenced these proceedings by Statement of Claim filed on 12 August 2016. It sues the purchaser (and the second defendant guarantor Mr Sze) for the amount of the unpaid deposits of $2,312,500. 5. The vendor also served a lapsing notice in respect of a caveat (AJ903517) that had been lodged in September 2015 by the purchaser in respect of the four lots claiming a purchaser's equitable interest under an exchanged contract for sale of land. 6. Following the termination of the contract, the vendor lodged a caveat in respect of lots 31 and 136 (AK614859), claiming an equitable lien for unpaid purchase price as vendor under a contract for sale. 7. The proceedings came before the Court on 2 September 2016, on the return of a Notice of Motion filed by the purchaser seeking an order for the extension of the operation of its caveat pursuant to s 74K of the Real Property Act 1900 (NSW). The proceedings were adjourned to 5 September 2016. 8. On 5 September 2016 an order was made extending the operation of the purchaser's caveat until 5pm today. 9. The purchaser's motion was argued in the Real Property List on 16 September 2016 together with another motion, filed in Court that day by the purchaser, seeking an order under s 74MA of the Real Property Act for the withdrawal of the vendor's caveat over lots 31 and 136. 10. On 13 September 2016 the purchaser filed a Defence and a Cross-Claim by which, amongst other relief, the purchaser claims relief against forfeiture of its interest in lots 134 and 135, and specific performance. By its Defence, the purchaser largely (but not entirely) admits the allegations made by the vendor. Insofar as it does not admit that time was of the essence in respect of the payments due on 7 July 2016 and 15 July 2016, it lacks any apparent basis. In substance, the Defence is based on the matters pleaded in the Cross-Claim. 11. It is alleged in the Cross-Claim that the vendor itself or through its selling agent made various representations to the purchaser both prior to and after entry into the contract for sale. The alleged representations include representations to the effect: 1. that the four lots had a value of more than $16 million; 2. that the vendor would be flexible as to the times for making payments and as to completion of the contract; and 3. that time extensions would be granted if needed, and in the worst case the vendor might require the payment of additional instalments in exchange for agreeing to requested extensions of time. 1. The purchaser adduced some evidence of such representations, principally through the affidavit of the second defendant Mr Sze, a manager and director of the purchaser (see, in particular, paragraphs 13, 14, 31, 33, 39 and 48). 2. The purchaser claims it is entitled to relief against forfeiture of its interest in lots 134 and 135 because the conduct of the vendor in terminating the contract was unconscientious in that: 1. the vendor induced the purchaser to enter into the contract and subsequent variations to it involving the payment of further sums, in the belief that time stipulations would not be strictly enforced and that the vendor would accommodate the purchaser to complete the contract; and 2. the vendor caused the purchaser to default in making payments when due under the contract and subsequent variations to it, because the purchaser relied on representations as to the value of the property. 1. In brief, the purchaser submits that its caveat should be extended because the evidence discloses a sufficiently arguable case for relief against forfeiture, and that the balance of convenience favours the maintenance of the caveat until the final determination of the dispute. The vendor submits that the purchaser has failed to show a serious question to be tried for relief against forfeiture and an order for specific performance, and further that the purchaser is unable to offer a valuable undertaking as to damages. 2. The alleged representations fall into two broad categories: representations as to the giving of time to perform contractual obligations, and representations as to the value of the four lots. 3. As to the first category, it is noteworthy that Mr Sze states that he was told that in the worst case scenario the purchaser may have to pay extra instalments in exchange for more time. In other words, he was told that the purchaser may have to negotiate for more time and in that respect the vendor may insist upon the making of further payments. That, of course, was what actually occurred on at least three occasions from the First Deed of Variation in October 2015 to the Fifth Deed of Variation in June 2016. 4. It is also relevant to note that, as would be expected in a large property transaction between two corporations, the terms of the variations were ultimately negotiated between the parties' solicitors and embodied in formal legal instruments. 5. As to the second category of representations, Mr Sze's evidence concerning value includes the statement that he expected that there may be a maximum 20% variance from the purchase price – that is, that a valuation may be as low as $12.8 million. By the end of April 2016 the purchaser had obtained a valuation only slightly below that figure. The purchaser conducted its negotiations thereafter for the Fifth Deed of Variation with that knowledge. In late May 2016 the purchaser's solicitor was seeking a completion date of 15 August 2016 (time of the essence) in light of the purchaser's confidence that finance would be available before then. The purchaser's solicitor also made statements that the purchaser remained committed to the purchase. 6. In the negotiations which followed in June 2016, it was the purchaser who suggested that completion of the sale of lots 31 and 136 take place first for a price of $3.5 million. The purchaser specifically agreed that the further payments to be made in July 2016 would be time of the essence. In a manner consistent with the representations alleged by the purchaser, the making of those further payments was negotiated as part of the price of the extension of time sought by the purchaser. 7. Notwithstanding its numerous failures to comply with the contract, by 24 June 2016 the purchaser had negotiated a position whereby it had completed the purchase of lots 31 and 136 (for its nominated price), and had paid a deposit of only $325,000 against the agreed purchase price for lots 134 and 135 of $12.625 million. That is a deposit of slightly more than 2.5% of the price. As noted, the purchaser had expressly agreed during the negotiations that time was of the essence in relation to the further payments due on 7 July 2016 and 15 July 2016. 8. In all the circumstances, and taking the purchaser's evidence at its highest, I do not think there is a serious question to be tried as to whether relief against forfeiture should be given in respect of the vendor's termination of the contract. The termination was based on the purchaser's failure to make either of the further payments of the deposit for lots 134 and 135. Each of those failures was a breach of the contract in an essential respect. I do not think that those breaches can seriously be considered to have been caused or contributed to by any conduct of the vendor. The email sent by the purchaser's solicitor on 15 July 2016 clearly indicates that the breaches were brought about by the failure of a third party to repay money owed to the purchaser. 9. Viewing the matter overall, and particularly given the circumstances in which the Fifth Deed of Variation was negotiated, I am unable to accept that a serious question arises as to whether the vendor's termination of the contract was an unconscientious exercise of its legal rights, or as to whether it would be unconscientious for the vendor to rely upon the termination in answer to the purchaser's claim for specific performance (see Romanos v Pentagold Investments Pty Limited (2003) 217 CLR 367; [2003] HCA 58 at [21]; see also Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315; [2003] HCA 57 at [57]-[60]). Put another way, I am unable to accept that the purchaser has made out a prima facie case in the sense explained by Gummow and Hayne JJ in Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57; [2006] HCA 46 at [65]. Having regard to the right asserted by the purchaser, which depends upon showing an unconscientious insistence upon legal rights, and that extending the operation of the purchaser's caveat as sought will likely prevent the vendor from dealing with its property for many months, I do not think that the purchaser has shown a sufficient likelihood of success to justify the preservation of the status quo pending the trial. 10. It is well established that principles akin to those that operate in respect of applications for interlocutory injunctions apply to applications under s 74K of the Real Property Act (see, for example, Sutherland v Vale [2008] NSWSC 759 at [10]-[11]). Given the conclusions I have reached concerning serious question or prima facie case, I am not satisfied that the purchaser's claimed interest has or may have substance within the meaning of s 74K(2) of the Real Property Act. I therefore decline to make any further order extending the operation of the purchaser's caveat. 11. I turn now to the caveat lodged by the vendor over lots 31 and 136. The interest claimed is that of equitable lien for unpaid purchase price as vendor under a contract for sale. That is an established category of equitable lien, known generally as a vendor's lien (see Hewitt v Court (1983) 149 CLR 637 at 645 and 663-664). Such a lien arises in respect of land the subject of a contract for sale to secure to the vendor the payment of the purchase price. It is said to be founded upon the principle that "a person, having got the estate of another, shall not, as between them, keep it, and not pay the consideration" (Mackreth v Symmons (1808) 33 ER 778 at 782, cited in Hewitt v Court (supra) at 645). 12. That principle does not apply in the present case. Under the terms of the Fifth Deed of Variation, lots 31 and 136 were conveyed by the vendor to the purchaser for a price of $3.5 million. It was agreed that such price was made up of the $2.975 million the purchaser had already paid to the vendor, and $525,000 of the $850,000 payment made by the purchaser on 24 June 2016. It seems clear that the purchase price for lots 31 and 136 has been paid in full. 13. Indeed, the submissions made by the vendor reveal that the vendor claims that it has an unpaid vendor's lien only to the extent of the unpaid deposit in respect of lots 134 and 135. 14. Whilst accepting that the categories of equitable lien are not closed, I do not think that such a lien can arise in view of the terms of the contract as varied, particularly by the Fifth Deed of Variation. Those terms provide for the conveyance of lots 31 and 136 upon the payment of $3.5 million. The conveyance of those lots is not made conditional upon the making of the further payments. The vendor has certain rights if those payments are not made, but having a security interest over lots 31 and 136 is not provided for. I do not see how it can be said to be unconscientious or inequitable on the part of the purchaser to take the conveyance of lots 31 and 136 without having those lots subject to a lien in respect of payments to be made for other lots. The circumstance that all lots are the subject of a single contract does not in my view lead to a different conclusion. 15. The vendor submitted that it should not be placed in a worse position by reason of allowing the staged completion of lots 31 and 136. However, if that is the case, it is the product of the terms the vendor freely negotiated with the purchaser. 16. In my opinion no serious question or prima facie case arises as to whether the vendor has an equitable lien over lots 31 and 136 in respect of the unpaid deposit for lots 134 and 135. I do not think that the vendor would be granted an interlocutory injunction to protect its claimed interest (Bayblu Holdings Pty Limited v Capital Finance Australia Limited [2011] NSWCA 39 at [20]). Accordingly, an order should be made under s 74MA of the Real Property Act requiring the vendor to withdraw its caveat over lots 31 and 136. Further, I decline to give leave under s 74O of the Real Property Act for the lodgement of a fresh caveat that claims an equitable lien over those lots only to the extent of the unpaid deposit in respect of lots 134 and 135. 17. The Court orders: 1. That the defendant's Notice of Motion filed on 29 August 2016 be dismissed with costs. 2. That the plaintiff withdraw caveat number AK614859 by 4pm on 20 September 2016. 3. That the plaintiff pay the defendant's costs of the defendant's Notice of Motion filed on 16 September 2016. ********** 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. Decision last updated: 19 September 2016