70 Pitt Street Sydney v McGurk [2004] NSWSC 413

The summons in the case sought an order pursuant to section 74MA of the Real Property Act 1900 that a caveat be removed.

The plaintiff was the registered proprietor of some strata properties. The plaintiff and the defendant had agreed to be involved in a venture for the development of the land including its subdivision into various strata lots and the sale of those strata lots.

The role of the defendant in the development was defined by a Management Agreement. Under the Management Agreement, the defendant was appointed to manage the project, and given the title of Development Manager. There was a dispute over the management of the development and the defendant lodged a caveat against the title to the land comprising the strata plan.

There were six lots in the strata plan the sales of which have not yet settled, and which were the subject of a claim in the summons that the caveat be removed. Concerning four of them, namely Lots 11, 12, 16 and 21, the defendant does not oppose an order that the caveat be removed.

The situation concerning Lots 7 and 9 was that if the settlement goes ahead, all the proceeds of sale will be required by the Commonwealth Bank to reduce the indebtedness to it. The plaintiff says that in those circumstances the discretion conferred by section 74MA should be exercised.

Where land which is subject to a mortgage has been sold for a price which will be completely payable to a first lender a subsequent lender is not entitled to maintain a caveat which will prevent completion of that sale. Wildschut v Borg Warner Acceptance Corporation (Aust) Limited (1984) 4 BPR 9453; Dunecar Pty Ltd (In Liq) v Colbron [2001] NSWSC 1181 at [18]-[19]. A caveat can be removed in that situation under section 74MA even if (as in the present case) the caveat is a valid one and the initial lodgement of the caveat was something the caveator was entitled to do: Kerrabee Park Pty Ltd v Daley [1978] 2 NSWLR 222. This is because the test for whether a caveat should be ordered to be removed is whether, at the time the court comes to consider whether the caveat should be removed, an interlocutory injunction would be granted to protect the interest claimed in the caveat: Kerrabee Park Pty Ltd v Daley [1978] 2 NSWLR 222; Martyn v Glennan [1979] 2 NSWLR 234; Gay v Gooden (1989) NSW ConvR ¶55-445.

That situation is one which is recognised and accepted by the defendant. The defendant said that he had no desire whatever to stop completion of the sale of Lots 7 and 9 occurring. What he was concerned about, however, is that if the settlement did not occur, then the fact that he had provided a withdrawal of his caveat concerning those lots will have demonstrated that the plaintiff was ready willing and able to complete, and may then entitle the plaintiff to terminate the contract for sale, forfeit the deposit, and re-sell the property. If that were to happen, the defendant would want his caveat to still attach to Lots 7 and 9.

The Court then granted leave to the defendant to file in Court a cross-claim, under which the defendant claimed a declaration that the Management Agreement was valid and subsisting, a declaration that the plaintiff had evinced an intention no longer to be bound by the present agreement and had thereby repudiated the Management Agreement. The cross-claim also sought an order that the Management Agreement be specifically performed by order the plaintiff to take all steps reasonable to allow the defendant to manage the development of the Project or, alternatively, damages for breach of contract. The defendant also applied for interlocutory injunction to protect the subject matter of the suit of that cross-claim.

The Court held that in circumstances where the defendant gave an undertaking to attend and hand over withdrawal of caveat if the purchaser was then willing to complete, there was no present case for the Court to make an order that those caveats be withdrawn. The Court stressed the serious nature of the undertaking the defendant offered and of the consequences which would follow from failing to adhere to it.

If the defendant attended the settlement and offered the withdrawal of caveat, then even if the purchaser was not in a position where it could complete, that action, assuming that everything else concerning the settlement was in order, that will have demonstrated that the plaintiff was then ready willing and able to complete. It will provide the plaintiff with a trigger for rescission. The question which arose concerning the grant of the interlocutory injunction was whether the plaintiff should be disabled from exercising that trigger for rescission.

The Court held that the Management Agreement was one which involved a close personal relationship between two people. It was also one which involved one person, managing the affairs of another, and thereby having a significant power to affect the interests of that person. The Courts have traditionally been reluctant to enforce specific performance of such agreement, and, though there has been some erosion of that principle of recent years, the Court could not find any case which had shown that the erosion has extended so far as to reach a situation where one person was the agent of another concerning matters involving significant commercial decision making. Therefore, for that reason, specific performance was not granted.

The fee arrangements under the Management Agreement were in essence a profit-sharing arrangement, and if the injunction were not to be granted, the effect would be that the plaintiff would have a significant power to affect the commercial interests of the defendant concerning the amount which he received, ultimately, as his fee. The defendant’s real concern was to protect his fee, and maximise the size of it. If the plaintiff was in breach of contract in not letting the defendant decide whether to terminate the contracts concerning Lots 7 and 9, and the defendant suffered loss, the defendant would have a remedy in damages. I am not persuaded that that remedy would be an inadequate one.

If the settlement did not go through, then the defendant would still have a caveat over Lots 7 and 9, to assist in securing whatever ultimately might be payable to him.

The Court was of the view that the balance of convenience did not favour the granting of the injunction which had been sought and in light of the undertakings made by the plaintiff the Court did not see a need to make any order pursuant to section 74MA relating to Lots 7 and 9.

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