Supreme Court
New South Wales

Medium Neutral Citation:

Andrew Building Constructions Pty Limited v Machkevitch [2012] NSWSC 25

Hearing dates:

25 January 2011; 30 January 2011 & 7 - 8 February 2012

Decision date:

22 February 2012

Jurisdiction:

Equity Division

Before:

Davies J

Decision:

1. Upon the Plaintiff by its counsel giving the usual undertaking as to damages to the Court:

a. The Defendant undertakes to the Court not to sell, transfer, mortgage, charge, encumber or otherwise deal with the land comprised in certificate of title folio identifier 4/SP85365 ("the Property"), or permit any of the same to be done, other than to discharge mortgage registered number AE369350 to Bank of Western Australia Limited over the Property ("the BankWest Mortgage") and to mortgage the Property to Permanent Custodians Limited ("the Mortgage") to secure an amount not greater than $2,056,000 ("the Limit"), to be advanced by Banksia Mortgages Limited to Girilang Developments Pty Ltd.

b. The Defendant and Girilang Developments Pty Ltd undertake to the Court that the amount secured by the Mortgage shall be applied in discharge of the Bankwest Mortgage and in payment on deposit for interest in accordance with an offer dated 8 December 2011 forming exhibit AM 10 to the affidavit of Alexander Machkevitch of 23 January 2012, and thereafter by way of further advance to Girilang Developments Pty Ltd, up to a total advance not

exceeding the Limit.

c. The Defendant and Girilang Developments Pty Ltd undertake to the Court not to borrow any amount whereby the amount secured by the Mortgage that shall exceed the Limit.

d. The Defendant undertakes to the Court that he will not lodge or attempt to lodge any lapsing notice or other dealing under the Real Property Act, 1900 at LPI in respect of the Property.

e. The undertakings referred to in this paragraph 1 shall continue until the determination of these proceedings.

2. The Plaintiff to lodge in registrable form a withdrawal of caveat number AG712550 in respect of the Property.

3. Grant leave to the Plaintiff to file any Amended Statement of Claim by 22 February 2012.

4. Order the Defendant to file and serve his Defence by 14 March 2012.

Catchwords:

REAL PROPERTY - Torrens title - caveats against dealings - building contract -whether builder has caveatable interest - whether express right void under Home Building Act -unconscionable dealing - whether equitable lien - form of caveat - serious question to be tried.

Legislation Cited:

Home Building Act 1989
Real Property Act 1900

Cases Cited:

Cadorange Pty Ltd v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26
Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997
Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93
HG & R Nominees Pty Ltd v Caulson Pty Ltd (2000) V Conv R 54-630
Hewett v Court (1983) 149 CLR 639
Hong Kong International Credit Ltd v Registrar of Titles [2012] WASC 17
ICI v Trade Practices Commission (1992) 38 FCR 248
Jackson v Crosby (No 2) (1979) 21 SASR 280
Kang v Kwan [2002] NSWSC 1187
Kell & Rigby Pty Ltd v Flurrie Pty Ltd [2006] NSWSC 906
Mellish v Fetoza [2007] NSWSC 790
Redland Bricks Ltd v Morris [1970] AC 652 Southern Cross Constructions (NSW) Pty Limited v Salfa Pty Limited (In Liquidation) (Receivers and Managers Appointed) [2009] NSWSC 634
Sutherland v Vale [2008] NSWSC 759
Syndication Capital Group Pty Limited v MDR Cornish Investments Pty Limited [2011] NSWSC 1289

Category:

Interlocutory applications

Parties:

Andrew Building Constructions Pty Limited (Plaintiff)
Alexandre Machkevitch (Defendant)

Representation:

D E Grieve QC & F G Kalyk (Plaintiff)
S R Meehan (Defendant)
William Cotsis & Associates (Plaintiff)
Harris Friedman (Defendant)

File Number(s):

2012/16415

Judgment

1The Plaintiff seeks an order that a caveat lodged on 29 December 2011 by the Plaintiff against land belonging to the Defendant be extended. Previously the Plaintiff had sought in the alternative an injunction in the form of a Mareva injunction that the Defendant be restrained from dealing with the land until the determination of these proceedings. During the hearing that alternative remedy was abandoned.

Background

2On 23 December 2008 a company called 873 NSHR Investments Pty Ltd and the Defendant became the registered proprietors of a property at 873 New South Head Road, Rose Bay as tenants in common, as to three quarters by NSHR and as to one quarter by the Defendant. The Defendant is the sole Director of NSHR.

3The total purchase price was $5,960,000. The purchase was funded as to $5,811,000 by a loan from BankWest.

4The intent of the purchase, it seems, was to develop an existing older style 2 unit strata building into a 4 level 4 unit modern strata building.

5On 23 March 2010 the Plaintiff entered into a contract (the "Building Contract") with NSHR for building work to be carried out at the site. The contract sum was for $4,500,000.

6In addition, there was a further agreement called a Bonus Deed providing for extra work at a cost of 354,000. That appears to have come about because BankWest was funding the development to the extent of $4.5 million. According to Spiro Kladis, the General Manager of the Plaintiff, the Defendant said the Bank needed to see a breakdown in the contract for $4.5 million. He said the extra $354,000 would be provided in the Bonus Deed. The Defendant said that that money would be paid to the Plaintiff from other projects and other funds that the Defendant had.

7At the time of the entry into these contracts the Plaintiff was of the belief that NSHR was the sole owner of the property. That belief was said to have arisen from statements made by the Defendant that the Company was the owner. These statements were made at the time prior to the contracts when the Plaintiff was the developer of the adjoining site at 875 New South Head Road, and there were dealings between the Plaintiff and both the Defendant and NSHR who were developing No. 873. Mr Kladis says that if he had known NSHR was not the sole owner of the property and that the Defendant had held an interest he would have recommended to his father Andrew (the Director of the Plaintiff) that the contract should be with both owners. Mr Andrew Kladis says that he would not have entered into the contract with NSHR if he had understood that it did not own the property.

8After the execution of the contracts the Plaintiff carried out work pursuant to the contracts. On 14 June 2011 the Strata Plan for the development was registered.

9On 15 June 2011 NSHR and the Defendant entered into what was called a Deed of Partition. The Deed recited that the 2 parties were owners in unequal shares of the property and that they had mutually agreed to divide the property between them in accordance with their relevant holdings. The Deed declared that the value of the whole property was $16 million with the result that NSHR's holding was worth $12 million and the Defendant's $4 million.

10Apparently pursuant to that Deed on 13 July 2011 NSHR and the Defendant transferred Unit 4 to the Defendant for $1.00 and transferred Units 1-3 to NSHR also for $1.00. Unit 4 was the unit that occupied the whole of the top floor of the building. The Plaintiff says that it was the most valuable of the 4 units. The Plaintiff alleges that the transfer of Unit 4 was done without notification to it. It appears from the evidence of the Defendant that the first time he admits that he informed any representative of the Plaintiff that Unit 4 belonged to him was on 8 August 2011 during discussions about payments that the Plaintiff was alleging should have been made to it. The Plaintiff alleges it was not aware of that matter until perhaps a week later.

11At the time of the transfer of Unit 4 the Plaintiff says that $349,800 was outstanding to it under the contracts.

12It appears that Unit 2 was sold in October 2008 or 2009 for $4.85 million but this sale must only have completed after 13 July 2011. Unit 1 was sold in December 2010 for $3.4 million but that sale did not complete.

13In discussions between the Defendant and the Messrs Kladis in July and early August 2011 the Defendant offered to give a caveat to secure what was owing to the Plaintiff, but said that the caveat could not be given over Unit 2 because it had been sold and was due to settle. The Defendant alleged that he told the Plaintiff that a caveat could also not be given over Unit 4 because it belonged to the Defendant and he was not a party to the Building Contract.

14The Defendant's solicitor prepared a draft deed to provide for the payments that were due to the Plaintiff. There were a number of different versions of the draft deed that were prepared between late July and 12 August 2011. An early form of the draft deed contained this clause 2.6:

The Developer hereby acknowledges and agrees that this Deed of Variation, with the specific exception of Unit 2 over which the Builder will not be entitled to lodge a caveat, will create a caveatable interest in the land comprising the Site and consents to the Builder lodging the caveat or caveats in respect of the land, on the condition that any caveat or caveats are not lodged before:

The successful refinance of the Developer's finance from Bank West and

The settlement of the sale of Unit 2.

The Developer will notify the Builder in writing within 3 business days of each of the sale of Unit 2 and refinance of the Developer's finance facility.

This was an unusual provision given that the Developer (NSHR) did not own Unit 4 at that time.

15In the course of the negotiations the Defendant appeared to accept by 11 August 2011 that there was owing to the Plaintiff some $480,646.

16The Defendant said also that by 12 August he was prepared to give a caveat over Unit 4 on condition that this occurred after the bank facility was refinanced. To that end on 12 August 2011 a form of the Deed of Variation was signed by the Defendant and forwarded to the Plaintiff. Clause 2.6 in that Deed provided:

The Developer, as beneficial owner the land (sic) comprising of (sic) 1/SP85365, 3/SP85365 and 4/SP85365, allows the Builder to secure payment of monies and the performance and observance of the Developer's covenance (sic) under this Deed, the Bonus Deed and the building contract. The Developer hereby acknowledges, the Bonus Deed and the building contract will create a caveatable interest in the land comprising the Site set out herein and consents to the Builder lodging the caveat or caveats in respect of the land.

2.6.1. The Developer will notify the Builder in writing within 3 business days of the refinance of the development finance facility.

2.6.2 The Builder is not allowed to lodge any caveats prior to refinance of the development finance facility.

17The Plaintiff claims that the Defendant altered an agreed form of the Deed by inserting clause 2.6.2. That clause was not in any earlier form of the Deed whether drafted by the Plaintiff's or the Defendant's solicitors. It resulted in an email from William Kotsis, the Plaintiff's solicitor, of 16 August 2011 relevantly saying this:

We confirm that there currently is no Agreement between the parties.

Our client does not agree to the inclusion of clause 2.6.2 which you refer to below.

We confirm that the final version of the Deed of Variation was provided by our client to you on Friday 12 August 2011.

You have engaged in misleading and deceptive conduct and have made changes to this version without our client's knowledge then signed your counterpart and provided the same to our client without advising of any changes.

Our client does not agree to the terms of the Deed as provided by you and in particular the inclusion of clause 2.6.2 which was added by you after our client provided you with the Deed.

We are instructed as follows either:

1. The Deed of Variation in the form provided to you on 12 August 2011, a copy of which is attached be signed by you (without any changes) by which agreement our client's entitlements will be compromised and our client will obtain a caveatable interest;

or

2. there will be no agreement whereby our client's claimed entitlements are compromised and no caveatable interest and our client will pursue all its rights in respect of all monies due in respect of all works in the project.

18The Defendant says that he replied to the email from Mr Kotsis by sending an email on 19 August 2011 at 2:10pm which attached a letter on the letterhead of NSHR. The Plaintiff says that no such email was received. The Plaintiff says that the letter was not received although Michael Haldey, a consultant to NSHR, said that he posted that letter to the Plaintiff's solicitor. Nevertheless, although the email and the letter were said to be sent the Defendant accepts on the present application that the email and letter were not received by the Plaintiff.

19The letter said, amongst other things, that the Defendant had withdrawn the offer that was contained in the Deed of Variation signed by him. Subsequently the Plaintiff executed the Deed of Variation that had been signed by the Defendant and handed a signed copy of it to the Defendant on 31 August 2011.

20On 9 December 2011 the Plaintiff obtained judgment against NSHR for $477,646.12 plus interest in respect of amounts due to it under the Building Contract.

21On the same day the Defendant arranged for the winding up of NSHR under a creditor's voluntary liquidation.

22As noted earlier, the Plaintiff lodged a caveat on 29 December 2011 over Unit 4 owned by the Defendant. The nature of the estate or interest in the land claimed in the caveat was "equitable interest in the property". The instruments referred to are the Building Contract and the Bonus Deed. In the box under the heading "By virtue of the facts stated below" the following appeared:

Pursuant to agreement made between the registered proprietor and the caveator on or about 12 August 2011 in the terms set out in clause 2.6 of a deed of that date. As beneficiary under a constructive trust arising from the completion by the caveator of building works at the request of and for the benefit of the registered proprietor for the purpose of the creation and fitting out the relevant strata lot.

The Plaintiff's claim

23The Plaintiff says that its claim for an interest in Unit 4 rests on four bases:

(a) a constructive trust or equitable lien;

(b) by express agreement from the Deed of Variation;

(d) by an entitlement to an interest in restitution where it is unjust for the Defendant to attain a benefit without claim.

24In relation to (a), (c) and (d), although there may be a difference in terminology in the cases, these three bases appear to me all to derive from the same matter, namely, a right or remedy arising from the unconscionable conduct the Defendant is said to have engaged in.

25It is necessary to decide if there is a serious question to be tried on the matter of whether the Plaintiff has a caveatable interest and, if so, whether the balance of convenience favours an order extending the caveat.

Serious question to be tried

26Section 74K(2) Real Property Act 1900 provides that where a caveator applies to the Supreme Court to extend the operation of a caveat, the Court may, if satisfied that the caveator's claim "has or may have substance", make an order extending the operation of the caveat. That test has been judicially equated with a finding that there is a serious question to be tried: Hong Kong International Credit Ltd v Registrar of Titles [2012] WASC 17 at [20] and Syndication Capital Group Pty Limited v MDR Cornish Investments Pty Limited [2011] NSWSC 1289 at [3].

27Whether there is a serious question to be tried must be determined in the light of the two substantive bases on which the Plaintiff claims to have a caveatable interest.

(1) Express agreement

28As noted earlier there is a dispute about whether an email and letter from the Defendant to Mr Kotsis was sent and/or received. Arising from that is the legal issue about whether an agreement was ever reached as a result of the signing by the Plaintiff of the Deed of Variation and its delivery to the Defendant subsequent to that email. The issue involves factual matters which cannot be determined on an interlocutory application. Those factual matters include (a) a determination whether the Defendant and Mr Haldey are to be accepted when they say the email and letter of 19 August were sent, and whether the Messrs Kladis are to be accepted when they say they did not receive an email or letter. This determination may be assisted by evidence concerning an examination of the computers of those involved; (b) an examination of the circumstances surrounding the handing over by Spiro Kladis and the apparent acceptance by the Defendant of the Deed of Variation on 31 August signed by the Plaintiff. Once those factual matters are determined legal principles will be applied to determine whether or not an agreement was made at that time.

29What is clear is that the Deed of Variation was executed by both parties and was returned by the Plaintiff to the Defendant (the operative of NSHR) after execution. That Deed gives to the Plaintiff a right to lodge the caveat.

Whether the Deed is binding is, prima facie, a serious question to be tried.

30The Defendant submits that even if the Plaintiff establishes an agreement was made s 7D Home Building Act 1989 will render clause 2.6 void. Consideration must, therefore, be given to the operation of s 7D Home Building Act 1989. That section provides:

7D Interests in land under contract

(1) A contract does not give the holder of a contractor licence or any other person a legal or equitable estate or interest in any land, and a provision in a contract or other agreement is void to the extent that it purports to create such an estate or interest.

(2) Accordingly, the holder of a contractor licence or any other person may not lodge a caveat under the Real Property Act 1900 in respect of an estate or interest prohibited by subsection (1).

(3) However, subsection (1) does not apply to a provision in a contract that creates a charge over land if:

(a) the land the subject of the charge is land on which the contract work is, or is to be, carried out, and

(b) the charge is in favour of the holder of a contractor licence who is a party to the contract, and

(c) the charge is created to secure the payment to the holder of the contractor licence by another party to the contract of money due under the contract, but only if a court or tribunal has made an order or judgment that such payment be made, and

(d) in the case of a charge over land under the Real Property Act 1900 - the party to the contract against whom the judgment or order is made is the registered proprietor of the land.

(4) A charge referred to in subsection (3) over land under the Real Property Act 1900 ceases to operate if the party to the contract against whom the judgment or order is made ceases to be the registered proprietor of the land so charged.

31The Plaintiff argues that the contract (the Deed of Variation) is not one to which s 7D applies. The Plaintiff points to s 6(1) of the Act which relevantly provides:

6 Application of requirements for contracts

(1) Sections 7-7E apply to a contract under which the holder of a contractor licence undertakes:

(a) to do, in person, or by others, any residential building work or any specialist work, or

(b) to vary any such undertaking to do residential building work or any specialist work or the way in which any such work is to be done.

32The Plaintiff submits that s 7D does not apply because the Deed of Variation does not provide for the doing of any work. The debt owed to the Plaintiff was said to be already owing.

33In Southern Cross Constructions (NSW) Pty Limited v Salfa Pty Limited (In Liquidation) (Receivers and Managers Appointed) [2009] NSWSC 634 the Plaintiff was the builder that built strata units for a developer. The developer owed the Plaintiff money in respect of the building work. The Defendants who were the owners of the land on which the strata units were built entered into a deed with the builder to give a mortgage to the builder over the land to secure the performance of the developer in paying moneys that were owed to the builder. The builder sought declarations that held it a valid and enforceable equitable mortgage in relation to the land. The Defendants filed submitting appearances to the claim.

34Hammerschlag J noted that there was an initial controversy as to the entitlement of the Plaintiff to the relief by reason of s 7D Home Building Act . He went on to say at [16]:

The point has, it seems, by reason of the submitting appearances, now been abandoned, and in my view, properly so. The Deed is not a contract under which the plaintiff agreed to do any work. By the time it was entered into the debt which it purports to secure had already arisen. The work in respect of which the debt arose had by then well and truly been finished. In those circumstances s 7D did not apply to the deed.

35In the present case, although Recital G to the Deed of Variation recites that the Builder has completed the works set out in the Bonus Deed a few other matters lead to the conclusion that this Deed is a contract which varies the builder's undertaking to do residential building work, and is, therefore, a contract referred to in s 6(1)(b). First, it recites that the parties have agreed to vary the Building Contract and the Bonus Deed. Secondly, it extends the date for practical completion of the work to date (24 August) beyond what is said to be the date of the Deed (12 August). Thirdly, clause 2.11 provides that "in all other respects" the parties restate the terms and conditions of the Building Contract and the Bonus Deed. That clause must, in particular, be seen in the light of the absence of any recital that the work under the Building Contract (cf the work under the Bonus Deed) was complete. Nor can I ignore the evidence that further work was still to be carried out to complete the work at the time of the Deed.

36Accordingly, s 7D applies to the Deed of Variation. It must next be seen if the agreement for the lodgement of the caveats complies with that section.

37In Kell & Rigby Pty Ltd v Flurrie Pty Ltd [2006] NSWSC 906 Brereton J determined that the only contractual provisions exempted by s 7D(3) from the operation of s 7D(1) are those which create a charge only if a court or tribunal orders or adjudges that the proprietor of the land pay moneys due under the contract. Because, in that case, the contractual provision purported to secure all of the owner's obligations under the agreement such a clause created an immediate interest in land and purported to create a charge that was not limited to the circumstances in which a court or tribunal had made an order or judgment that money be paid. Accordingly, the clause was void.

38In the present case the clause relied upon similarly does not limit the creation of the interest in land to the situation where a court or tribunal gives a judgment that money be paid. The point is not, as the Plaintiff submits, that the clause will almost always be in an agreement made before the judgment is given. Rather, the clause must only give the interest in circumstances where the court gives such a judgment, and it cannot extend to circumstances where no such judgment is given. In those circumstances cl 2.6 is void.

39Accordingly, even if the Plaintiff demonstrated the binding nature of the Deed of Variation it will not avail the Plaintiff anything where cl 2.6 is void. Therefore, the Plaintiff cannot establish that there is serious question to be tried in relation to its right to lodge the caveat based upon the Deed of Variation.

(2) Constructive trust

40The Plaintiff, alternatively, claims an equitable lien (which it says gives it a caveatable interest) over Unit 4 by reason of the unconscionable dealing of the Defendant. The matters relied upon are (a) the false assertions that NSHR was the sole owner of the land, resulting in the Plaintiff entering the building contracts only with NSHR; (b) the transfer of Unit 4 to the Defendant for $1 leaving NSHR unable to pay the Plaintiff for the work, including work which caused Unit 4 to come into existence; (c) the winding-up of NSHR by the Defendant on the day the Plaintiff obtained judgment against NSHR.

41In Hewett v Court (1983) 149 CLR 639 at 667-668 Deane J said:

It has been said that the doctrine of equitable lien "was introduced for the sole purpose of furnishing a ground for the specific remedies which equity confers, operating upon particular identified property, instead of the general pecuniary recoveries granted by courts of law" ( Pomeroy's Equity Jurisprudence , 5th ed (Symons) (1941), paras 166 and 1234). In Whitbread & Co Ltd v Watt [1902] 1 Ch 835 at 838, Vaughan Williams LJ referred to the purchaser's lien for his deposit as "a right which may be said to have been invented for the purpose of doing justice. It is a fiction of a kind which is sometimes resorted to at law as well as in equity". General statements of this type lend some support for the approach that one should seek to identify a comprehensive principle covering the implication of any type of equitable lien. Apart from broad generalizations such as "the phrase equitable lien may not ... do much more than express the opinion of the court that the facts give a priority to the party said to have it" ( Sexton v Kessler (1912) 225 US 90 at 98-99 however, it is difficult, if not impossible, to formulate any satisfactory statement of the necessary or sufficient circumstances for the implication of an equitable lien which is applicable to any relationship at all (eg the trustee's lien over trust assets; the solicitor's lien over the proceeds of an action). I do not propose to essay that task here. It is adequate for present purposes that I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship. Those circumstances have, to some extent, been indicated in what has been said above. They are: (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it (see Middleton v Magnay, [(1864) 2 H & M] at 237 ; (71 ER at 453); Whitbread & Co Ltd v Watt [1901] 1 Ch 911; Combe v Swaythling (Lord) [1947] Ch 625); (ii) that that property (or arguably property including that property: see Pollock, loc. cit ) be specifically identified and appropriated to the performance of the contract (see per Lord Hanworth MR In r e Wait [1927] 1 Ch 606 at 622-625); and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion hereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged. It may be that the above circumstances or tests, particularly (i), would be unduly restrictive if propounded as a statement of exclusion. As has been said, however, they are formulated as a statement of what is sufficient rather than of what is essential. Whether or not they exist or are satisfied in a particular case should, like most questions involved in the application of equitable doctrines, be determined by reference to the substance of the transaction rather than its form: "the general principle of disregarding the letter for the substance" ( Jamshed Khodaram Irani v Burjorji Dhunjibhai (1915) LR 43 IndApp 26 at 33; and see Hurley v Atchison, Topeka & Santa Fe Ry (1909) 213 US 126 at 134; Gage Lumber Co v McEldowney (1913) 207 Fed Rep 255 at 259). ( emphasis added )

42In Cadorange Pty Ltd v Tanga Holdings Pty Ltd (1990) 20 NSWLR 26 Tanga entered into a contract to purchase vacant land from Cadorange in 1987. Both companies were controlled by the same person. The contract was not proceeded with largely, it would seem, because no stamp duty had been paid on the contract. In 1988 a new contract was entered into. However, the contract was entered into between the date of the summons to wind up Cadorange and the date the order was made. In the meantime Tanga had constructed a building on the land.

43The liquidator of Cadorange moved to set aside the second contract. Consent orders were ultimately made declaring the contract void. The liquidator then sold the land for some $60,000 more than the contract price. Tanga claimed an equitable charge over the land in respect of moneys expended on the land.

44Young J (as he then was) considered the claim on a number of bases, not all of which are relevant here. His Honour made reference to Hewett v Court and set out the passage from Deane J's judgment quoted above. His Honour then said this (at 38):

However, equity is usually not thwarted in doing justice by the sort of accident that has occurred here in specific performance not being available. As the lien cases say, if there is unconscionability, then equity will, in the appropriate case, enforce a lien. Indeed, the twentieth century cases show a greater willingness to do this than heretofore.

45In dealing with restitutionary principles he also made reference to the judgment of Cox J in Jackson v Crosby (No 2) (1979) 21 SASR 280 at 306-7, and went on to say (at 39):

The importance of the passage from Cox J's judgment is that there can be relief given in equity where it is conscionable to do so where the claimant knows the true facts as to the title, and the owner is not responsible for the claimant's misapprehension, but the claimant in fact makes a misapprehension and the owner does not make its position plain... Accordingly, we have what on all accounts must be a borderline case. The judgment of Cox J in Jackson v Crosby gives support to the claimant's proposition that there should be an equitable lien, there is some support in Deane J's judgment in Hewett v Court , yet most of the other theoretical analyses of restitutionary principles would say the claimant is not within the ordinary principles of restitution. It seems to me that as the matter really is one of conscionability and as there are some precedents on which the claimant can rely, I am justified in holding that it is in this case unconscionable for the liquidator to hold onto the proceeds of sale, including the increment caused by the claimant's efforts, without compensating the claimant. Perhaps this case advances the law of restitution a little further in the direction it has been progressing in the last decade, but, if that is so, so be it. In my view, in at least some cases, if there is an inter-company transaction which engenders an expectation that a contract will in due course be completed, and pursuant to that expectation a company in the group expends money on land belonging to another company in the group and then that other company goes into liquidation and the liquidator sells the land with the benefit of those improvements, it would be against the conscience of the company in liquidation to take advantage of the windfall without compensating the company which expended the money.

Accordingly, in my view, an equitable lien exists.

46The Defendant points to the way the Plaintiff pleads its case for a constructive trust to suggest that such a case must inevitably fail. Paragraph 38 of the Statement of Claim pleads that the Defendant knew that the Plaintiff had not been paid for the building work and that the transfer would mean NSHR could not pay the Plaintiff. It then pleads that the transfer of Unit 4 was unconscionable and:

d. To the knowledge of the Defendant, at all material times both he and 873 NSHR held their respective interests in the Property and the strata lots constructed by the Development on constructive trust and in the alternative, subject to an equitable lien or charge, in favour of the Plaintiff in respect of the moneys due to it in respect of the Works.

47That pleading appears to assert that prior to the transfer of Unit 4 NSHR held that Unit on a constructive trust for the Plaintiff. It is difficult to see how a constructive trust could have arisen whilst Unit 4 was in the pre-transfer ownership, particularly because of the principle that a builder does not acquire any interest in the land absent an express provision in the contract or a belief that he would do so, encouraged by the owner: Graham H Roberts Pty Ltd v Maurbeth Investments Pty Ltd [1974] 1 NSWLR 93 at 104-105; HG & R Nominees Pty Ltd v Caulson Pty Ltd (2000) V Conv R 54-630 at [30]; Kang v Kwan [2002] NSWSC 1187 at [202]. Further, the only potentially unconscientious behaviour prior to the transfer consisted of the statements made concerning the ownership of the land prior to the entry into the Building Contract. It is difficult to see how those statements alone could give rise to a constructive trust against NSHR.

48What the Plaintiff asserted in submissions, however, was that it was the transfer of Unit 4 which, following what Deane J said in Hewett , resulted in the equitable lien being imposed, or otherwise caused a constructive trust in respect of Unit 4 to arise. The pleading in paragraph 38 embraces this but appears to go further. The Plaintiff ought not to be precluded from putting its case as it has simply because part of its pleading may extend beyond what is able to be demonstrated.

49In my opinion the present case is also a borderline one in relation to this aspect of the claim. If the Defendant (or NSHR for that matter) has acted unconscionably, Hewett and Cadorange may support the claim for an equitable lien, albeit, neither was considering the position of a builder who carried out the work on the land pursuant only to a building contract. That may be significant because of the general principle that I have mentioned that the builder does not acquire any interest in the land absent an express provision in the contract or a belief that he would do so, encouraged by the owner.

50In Hewett Deane J allowed for unconscionability arising from the disposal of the relevant property. Whilst it is true that no constructive trust arose before the transfer of Unit 4 the transfer itself, considered in the light of the pre-contractual statements about ownership of the land which led to the Building Contract being entered only with NSHR, the transfer of Unit 4 arguably raises an issue of unconscionability which may give rise to a constructive trust in respect of that Unit. Had the true position about ownership of the land been made clear before the Building Contract was made the Plaintiff is likely to have had a much more difficult task in asserting unconscionability at the time of the transfer of Unit 4. This is because the Deed of Partition and the subsequent transfers for $1 each could be seen as merely re-ordering the ownership shares. But it is where the Defendant has no contractual liability to the builder because of the pre-contractual ownership statements that the transfer of Unit 4 acquires a different, and an arguably unconscionable, significance.

51The whole issue of whether the Defendant has acted unconscionably will need to be examined. Whilst some things seem clearer than others there are factual enquiries which cannot be resolved on this interlocutory application. These include the statements by the Defendant concerning ownership of the land prior to the building contracts, and when the Plaintiff was first informed about the transfer of Unit 4. On one view (as noted above), if NSHR and the Defendant owned the property as to 75% and 25% respectively, there was nothing untoward in the Deed of Partition and the transfers for $1. In that regard, however, there may need to be some enquiry into the respective values of each of the four lots.

52On the evidence before me the matter is able to be brought within what Deane J said in Hewett v Court. There is a serious matter to be tried in relation to this aspect of the claim.

53The Defendant submits that the Plaintiff does not, at the outset, show a serious question to be tried because of the interest claimed in the caveat. Reliance is placed on what Brereton J said in Sutherland v Vale [2008] NSWSC 759 at [12], In that case the interest claimed was merely described as "equitable interest". In the "facts" section it was said that the caveator was the trustee of the bankrupt estate of one of the registered proprietors. The particular problem with the description of "equitable interest" was highlighted by what Brereton J said at [13]-[14]:

[13] The present case is an acute example of the difficulty that arises where a claim is not sufficiently described. Theoretically, the caveator might have either of two types of interest in the subject land, or at least part of it: the caveator might claim to be the beneficial owner of the land (or at least a half interest in it), the transfer to Mr Vale being void against the Trustee pursuant to Bankruptcy Act , s 120 or s 121; or the caveator might claim an interest, not as beneficial owner but as chargee pursuant to Bankruptcy Act , s 139ZR. The fact that only an "equitable interest" is claimed, without characterising that interest either as beneficial owner or as chargee is, as I have said, an acute illustration of the problem which arises from failing to define the nature of the interest claimed.

[14] Accordingly, given the ambiguity surrounding the nature of the "equitable interest" claimed in this case, this is yet another case in which a caveat claiming merely an "equitable interest" can be said to be invalid without having to take the matter any further.

54In Mellish v Fetoza [2007] NSWSC 790 Brereton J said, after referring to his decision in Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997 at [21]:

[7] I acknowledged that in some circumstances the additional facts set out in the caveat may be capable of saving it, if it is possible to ascertain from them the nature of the estate claimed. Here, it is arguable that the reference to the instrument and the additional facts may be sufficient to make clear that the claim is as lessee, but that, on any view, cannot save the caveat in this case because of the manifestly excessive claim to an interest in the whole, as distinct from in a part, of the subject property.

[8] In those circumstances, the ordinary solution is to grant leave to the caveator to lodge a further caveat claiming the interest to which the caveator is arguably entitled, omitting the excessive claim and properly particularising the claim. No question of prejudice which would indicate that that course was inappropriate appears in the present case.

55The caveat in that case did not describe the nature of the estate or interest but referred simply to an "unregistered, stamped lease" and the exercise of an option under the lease. The caveat did not limit its claim only to the part of the land over which the lease had been given.

56Having regard to the facts set out in the present caveat, I do not consider that there is any ambiguity or uncertainty about what interest is being claimed. To the extent the Deed is relied upon, it sufficiently identifies the nature of the interest agreed between the parties. To the extent that the caveat refers to a constructive trust the interest claimed must be an equitable lien (referred to otherwise as an equitable charge): Hewett at 663 and 668.

57In my opinion, although the Plaintiff should have identified that what was claimed was an equitable lien (at least in relation to the interest by virtue of the constructive trust) as well as the nature of the equitable interest it claimed by virtue of the Deed, a reading of the "facts" section alongwith the equitable interest claimed is here sufficient to satisfy the requirements of s 74K.

Balance of convenience

58The Defendant submits that even if there is a serious question to be tried in relation to the existence of a caveatable interest the balance of convenience favours no order being made to extend the caveat. This is because of the need of the Defendant to refinance the outstanding loan to BankWest. The presence of the caveat will prevent such refinancing proceeding.

59In support of this the Defendant points to the details of the proposed refinancing together with a valuation of Unit 4 to suggest that after the refinancing there will still be adequate equity remaining in Unit 4 to satisfy the worth of any equitable lien that may be found to attach to that Unit. Further, the Defendant and the borrower (a company called Girilang Developments Pty Ltd which the Defendant controls) offer to provide undertakings to the Court concerning the use of the borrowings which would have the effect of ensuring that the equity was not eroded by further borrowings or other events.

60The refinancing is to be from a company called Banksia Mortgages Limited. The details of the loan are to be found in a Loan Offer of 8 December 2011. The borrower is Girilang Developments Pty Ltd with the guarantors being the Defendant and another of the Defendant's companies Guilfoyle Developments Pty Ltd. The security is Unit 4 as well as a fixed and floating charge over the assets of Girilang. The loan is an amount of $2,556,000 of which $1,750,000 is to refinance BankWest, $551,000 appears intended to be released to the Defendant or his companies and interest of $255,000 is to be paid in advance. This last amount, based on the interest rate, appears to be one year's interest. Subsequently, Mr Meehan of Counsel for the Defendant informed me that the loan amount would be reduced by $500,000. The basis for the change was not elucidated but I infer little or nothing will now be released to the Defendant.

61A valuation of Unit 4 by CBRE Valuation and Advisory Services of 27 October 2011 values the unit at $4,650,000. Based on sale prices achieved for 2 of the other units that valuation does not seem an unlikely one, and it is not inconsistent with the overall assessment contained in the Deed of Partition.

62The Plaintiff ultimately appeared to accept that there was adequate equity remaining in Unit 4 to satisfy any judgment it might obtain provided there were adequate safeguards in place to prevent any further dealings with the Unit and to prevent erosion of the equity. On the final day of hearing the parties put forward competing short minutes in the event the Court was minded to allow the Plaintiff's claim to go forward. The differences between them were small and, in substance, concerned two matters - first, the extent of the Defendant's undertaking concerning erosion of the equity and, secondly, whether (if the caveat was lifted) the Plaintiff should be permitted to lodge another after the refinance was complete.

63The Defendant resisted the notion of the Plaintiff lodging a further caveat after the refinance. He did so because he said that the presence of a caveat on the title to land could cause problems in respect of obtaining finance, as lenders were said to be wary in such circumstances. Even if this is true it seems to be beside the point. The caveat has not precluded Banksia making the offer of finance contained its letter of 8 December 2011. The caveat will be lifted to enable the present refinance with Banksia to take place. The undertakings offered by the Defendant mean that there cannot be any further finance obtained on security of the property.

64When no other prejudice or detriment is suggested by a further caveat being lodged after the refinance the balance of convenience favours the Plaintiff's approach in that regard.

65The other matter concerns the undertaking to avoid eroding the equity in the land. The Defendant offers the following undertaking:

The defendant and Girilang Developments Pty Ltd undertake to the Court not to borrow any amount secured by the Mortgage that shall exceed the Limit [defined earlier to mean $2,056,000].

66The Plaintiff submits that the undertaking should be in these terms (additional words underlined):

The defendant and Girilang Developments Pty Ltd undertake to the Court not to borrow or to otherwise do or suffer anything to be done whereby the amount secured by the Mortgage shall exceed the Limit.

The justification is said to be that the Defendant could permit the loan to go into default whereby default interest or unpaid rates could be added to the Limit and thereby erode the equity remaining in the property..

67A few reasons suggest that the Defendant's undertaking should be accepted. First, an undertaking to the Court carries similar serious consequences to an injunction if it is breached. Hence, there is the need for certainty when framing the injunction or undertaking so that the Defendant knows exactly what he must do and not do: Redland Bricks Ltd v Morris [1970] AC 652 at 666; ICI v Trade Practices Commission (1992) 38 FCR 248. An undertaking not to borrow any amount beyond a defined limit is perfectly clear. Not to do or suffer anything to be done which may bring about a particular result is not clear. It can be envisaged that there may be an inability, without intention or fault, to pay interest or some other liability which would result in the Limit being exceeded.

68Secondly, as a practical matter a default of any seriousness is a remote possibility until the loan has been on foot for a year because of the pre-payment of one year's interest. There is a distinct possibility that any final hearing will be completed within that time. Thirdly, there is a sufficient margin between the valuation and the Limit to protect the Plaintiff's position even after a 12 month period. What is being determined is the balance of convenience, not how to achieve watertight protection for the Plaintiff's position. In my opinion the undertaking offered by the Defendant in this regard should be accepted.

Conclusion

69There is a serious question to be tried based on an equitable lien or a constructive trust arising from unconscionable behaviour of the Defendant.

The balance of convenience favours permitting the Defendant to refinance but thereafter to lodge a further caveat over Unit 4 properly identifying the interest claimed in accordance with this judgment.

70I make the following orders: