Oracle (NSW) Pty Ltd (in liq) v Matar

By Notice of Motion filed on 8 September 2021, the Applicant, Ms Matar, applies, under s 74MA(2) of the Real Property Act 1900 (NSW) for an order that Oracle (NSW) Pty Ltd (“Company”) withdraw a caveat over the title of a property situated at Bowral in New South Wales. Section 74MA of the Real Property Act 1900 (NSW) relevantly provides that a person who claims to be entitled to an estate or interest in land, as Ms Matar does, which is the subject of a caveat, may apply to the Court for an order that the caveat be withdrawn by the caveator. The Court may then order the caveator to withdraw the caveat within a specified time, or make such other or further orders as it thinks fit. Such an order may be made subject to conditions: Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) 5 BPR 11,314 at 11,320. As events have developed, it is apparent that the real dispute between the parties is ultimately whether the caveat should be withdrawn on particular conditions formulated initially by Ms Matar on the one hand or and by the Company and the liquidators on the other. Ms Matar now, sensibly, also indicates her consent to the Company’s and the liquidators’ conditions as an alternative basis for her application.

By way of background, the application is brought in proceedings in which the Company and its liquidators seek relief in respect of the alleged, and admitted, payment of certain funds of the Company towards the construction of buildings on property situated in Bowral. By paragraph 1 of their Statement of Claim, the Company and its liquidators seek a declaration that Ms Matar holds her estate or interest in the Bowral land on constructive trust for the Company and her as tenants in common in proportionate shares, reflecting the contribution made by each of the Company and Ms Matar towards the acquisition of and maintenance and improvements of the property. Mr Golledge, who appears for Ms Matar, submits that the Company’s moneys were applied only to maintenance and improvements of the Bowral property, and not to its acquisition, but, in principle, the application of the Company’s funds to improvements on the property, increasing the value of the property, may be capable of establishing a constructive trust.

The Company and its liquidators also seek and equitable account of contributions made towards the maintenance and improvements of the Bowral property and Mr O’Brien, who appears for them, identified the possibility that further contributions made from the Company’s funds will be identified, on an account, beyond those which are already pleaded. At present, the Statement of Claim pleads that an amount of nearly $30,000 of the Company’s funds was applied as a first tranche to improvements of the Bowral property and a further amount of nearly $478,000 was applied as a second tranche to the cost of such improvements. The Defendants, Mr Matar and Ms Matar, admit in verified Defences that the amounts of approximately $15,000 and $355,000 were applied in that manner, although Mr Golledge foreshadowed the possibility that amendments may be made to the Defences, which may or may not require the leave of the Court, depending on the amendment that is sought.

The Statement of Claim in turn pleads that the application of the Company’s funds in this manner amounted to a misapplication of the funds, pleads a claim for breach of fiduciary duty against Ms Matar who was a director of the Company at the time of the first application of funds, and a claim for accessorial liability, and at least for knowing receipt, in respect of the second application of funds, which occurred at a time that Ms Matar was no longer a director of the Company.

Ms Matar relies on two affidavits, namely her affidavit dated 8 September 2021 and a second affidavit dated 13 September 2021. By her first affidavit, she refers to her involvement with the Company and the circumstances in which a caveat was lodged, a lapsing notice was served, a deed of settlement was executed between the parties (no evidence was admitted as to its content, which is subject to without prejudice privilege) and the Bowral property was sold by Ms Matar, at a time the caveat was in place. In order to complete the sale, Ms Matar now seeks the removal of the caveat, and that sale is due to settle in two days’ time, on Friday this week.

Ms Matar also refers to her search for appropriate residential properties in Bowral for her family, and indicates a concern that the amount available to her on the sale, following repayment to the lender on the property and the amount claimed by the Company, would not be enough to buy another “suitable” property in Bowral. (That evidence was amended by Ms Matar’s second affidavit, as noted below.) There are difficulties with that evidence, including its assumption that Mr and Mrs Matar and their family could not live other than in Bowral, including in adjacent areas; the lack of definition of what Ms Matar considers to be a “suitable” property; the lack of evidence of the inquiries made to form her view; and the lack of any fuller exploration of the alternative of renting a property in the middle term. However, it is not necessary to address those difficulties as the matter has developed. The exhibit to Ms Matar’s first affidavit in turn annexes the contract for the sale of the property which, so far as the evidence goes, appears to be on arm’s length terms and to a third party purchaser and a notice to complete that has been given by that purchaser, requiring completion of the sale.

As I noted above, by her further affidavit dated 13 September 2021, Ms Matar corrected the calculation of the amount which would be available to her on the sale of the property, to indicate that, after paying out the mortgagee, and if an amount of $1.55 million was required to be paid into a Court or a controlled moneys account, she would have nearly $2 million available to purchase an alternative property. As I noted above, she then expresses concern as to her ability to purchase a “suitable” home in Bowral on that basis, given the need to retain funds for living and other costs where she and her husband are not presently working.

The company and its liquidators in turn rely on the affidavit of their solicitor, Ms Malnersic dated 10 September 2021 which refers to correspondence between the parties in respect of the terms on which the caveat could be removed.

I have been provided with helpful submissions by each of Mr Golledge and Mr O’Brien, which canvass the background to the application and the nature of the case brought against Ms Matar, and also address the applicable principles in respect of an application of this character. Mr Golledge points out that, although the application seeks an order for withdrawal of the caveat, the onus is on the caveator, the Company, to establish that the caveat should not be withdrawn, and that will ordinarily be determined by the same principles as whether an interlocutory injunction would have been granted to protect the interest plain in the caveat: Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd (2011) 279 ALR 166; [2011] NSWCA 39 at [20]; Boensch (as trustee of the Boensch Trust) v Pascoe [2015] NSWSC 1882, and, on appeal to the High Court, Boensch v Pascoe (2019) 375 ALR 15; [2019] HCA 49.

It was common ground between the parties that the Company could establish a serious question to be tried, although there was a debate as to the strength of that serious question, which is a matter relevant to whether injunctive relief would be granted, and, by extension, to whether an order for withdrawal of the caveat should be made. Where this is an interlocutory application, I may be required to sit on future aspects of the matter, it is desirable that the Court go no further into that question than is necessary to determine this application. It seems to me that a serious question to be tried arises from the proposition that funds of the Company were applied to improvements on a property owned by its director and former director, while the Company was under the control of her partner, so as to increase the value of that property. There is also a seriously arguable case that the relief available may extend to a constructive trust, although I recognise that Mr Golledge rightly points to the possibility that the Court could, in an appropriate case, award lesser relief including, for example, a remedy by way of equitable lien or equitable charge, and I also recognise the possibility that any claim may ultimately fail.

The real dispute here turned on the balance of convenience. Although the Company and the liquidators contended that the relief sought, by way of withdrawal of the caveat should not be granted, they properly advanced an alternative position, by which that relief could alternatively be granted on terms which provided for payment of funds into Court or a solicitor's controlled moneys account, reserving liberty to Ms Matar to apply for release of the moneys held in the account, implicitly for the purposes of applying them for the purchase of another property, if she could not otherwise secure the liquidators’ consent to that release. Ms Matar in turn advanced an alternative condition, which, in substance, would have preauthorised the relief of the funds paid into Court or into the controlled moneys account to be used towards the purchase of another property by Ms Matar once that property was located and a purchase contract had been agreed, and permit the lodgement of a caveat over that new property. Ms Matar alternatively, and sensibly, indicated that she would consent to an order imposing the conditions proposed by the Company and the liquidators, if she was not successful in obtaining the conditions which she sought. That was an important, and sensible step, because it would likely not have been open to the Court to impose different conditions from those which Ms Matar had sought, had she not indicated her consent to that approach, and it would likely have been unfortunate for all parties if the application was simply dismissed on that basis.

The conditions which Ms Matar proposes were the subject of several criticisms by Mr O'Brien, and it seems to me that the Court could find they appropriately protected the Company’s and the liquidators’ interests, or satisfied the requirements of the balance of convenience in the relevant circumstances. Mr O'Brien pointed to a concern expressed by the liquidators that the amount of $1.5 million could be applied by Ms Matar to the purchase of a property for that value, not exposing Ms Matar's funds to risk, if the proposed conditions were permitted. That criticism seems to me to reflect a wider difficulty, where it cannot be assumed that Ms Matar's risk assessment, in determining which property to purchase and for how much, would be the same as that of a Company or a liquidator which was concerned to preserve funds to meet a successful judgment in its favour. Second, Mr O'Brien noted that the terms of the conditions, as broadly formulated in Ms Matar's submissions, would at least arguably allow the funds to be applied to expenses incidental to the purchase of a property, such as legal expenses and stamp duty, in a manner that would not produce a continuing asset against which the Company or the liquidator could claim.

Third, in a criticism which might seem pessimistic, if one was not exposed to the matters which regularly appear in this List, Mr O'Brien pointed to the risk that the property might be purchased at over-value or from a related party in a manner that dissipated the funds withdrawn from the Court or the controlled moneys account. I of course form no view that Ms Matar is likely to take that course, and there is no evidence to suggest that would occur, but the fact remains that conduct that is not prevented, from time to time, occurs.

It seems to me that there is, however, a more fundamental difficulty with the conditions proposed by Ms Matar, which is not merely a matter of how they are formulated, but has a conceptual character. Those conditions permit the withdrawal of funds from the controlled moneys account, for an identified purpose, namely the purchase of property by Ms Matar once a property is located and a purchase contract has been agreed, and contemplates the lodgement of a further caveat on that property. Once a property was located and a purchase contract was agreed, a withdrawal of funds in Court or in the controlled moneys account would be permissible on that basis. At that point, however, the Company and the liquidators are exposed to the risk that the moneys are not applied in that manner, because they are misapplied after the condition for their withdrawal is satisfied by the statement that they will be applied towards the purchase of property where a purchase contract has been agreed. At that point, a liquidator does not have a continuing proprietary interest in the funds, but only any benefit of a condition on how they are to be used. It is by no means apparent that a breach of that condition could be sanctioned as a contempt of court, where it is neither an undertaking to the Court nor a court order. Even if it were formulated as a court order or an undertaking to the Court, a remedy in contempt does not sufficiently protect the Company's or the liquidators’ interests, where what they are seeking to preserve is a proprietary interest in the property or the funds that are generated by its sale, not to obtain relief in contempt after that proprietary interest is lost. For all of these reasons, it seems to me that I could not make an order withdrawing the caveat, on the conditions that reflect Ms Matar's primary position, because those conditions would not sufficiently protect the Company's interests, and the balance of convenience is not satisfied in respect of an order of that character.

The Company’s and the liquidators’ alternative position was a more straightforward one, namely that the caveat be withdrawn on terms that the amount of $1,500,000 from the sale proceeds be paid into Court or a solicitor's controlled moneys account, subject to liberty to Ms Matar to apply for a release of the funds, as noted above, if she could not obtain the liquidators’ consent to that release. There seems to me to be no corresponding difficulty with certainty in respect of those conditions, although questions may arise in respect of how any application for release would be dealt with at some future point.

I am satisfied that, where Ms Matar now adopts those conditions, to which the Company and the liquidators had indicated their consent, as an alternative application, her application for an order withdrawing the caveat can be granted on that basis.

A question also arose as to whether the Company and the liquidators should be required to give an undertaking as to damages in those circumstances. I am not satisfied that there is a basis to require such an undertaking, as a condition of maintaining, the limits on use of the proceeds of the sale of the property to which I have referred. No such undertaking was required at the point the caveat was lodged. As Mr O’Brien points out, the position in that respect was governed by s 74P of the Real Property Act which relevantly provides that a person who, without reasonable cause, lodges a caveat or refuses to or fails to withdraw such a caveat after being requested to do so, is liable to pay compensation to a person who sustains pecuniary loss, which would at least include Ms Matar in an appropriate case. It appears that the caveat was extended, in an earlier application, without an undertaking as to damages being provided, but I accept Mr Golledge’s submission that that matter should be treated as neutral for present purposes, and I do not treat the fact that such an undertaking was not required then as a reason why it should not be required now.

The reason why it should not be required now, it seems to me, is that Ms Matar now seeks a withdrawal of the caveat, in order to implement a sale which she entered at a time the caveat was in place, and it is not apparent to me that either the merits of her position, or the balance of convenience, require that an undertaking as to damages be extracted from the Company or the liquidators as a term of acceding to the relief which she seeks, in order to accommodate her wish to proceed with the sale of the property where the caveat was in place. To put that proposition another way, if matters remained as they were, with the property held by Ms Matar and the caveat in place, s 74P of the Real Property Act would govern the position; where Ms Matar seeks to change that position, it seems to me that the Court should not require the Company or the liquidators to offer an undertaking as to damages to facilitate the change that she seeks. All that will now occur is that funds will be held in Court or in a controlled moneys account, on the terms to which I have referred, to preserve the Company’s position in respect of its claim in the relevant proceedings.

I note the formal order to give effect to this judgment is likely to reflect the order for withdrawal of the caveat which is sought in the Interlocutory Process, combined with the conditions set out in paragraphs 1 and 2 in the penultimate paragraph of an email dated 10 September 2021 from Ms Malnersic, the Company’s and liquidators’ solicitor, to Mr Ronayne, Ms Matar’s solicitor. However, I have reserved the opportunity to formulate the orders to be made to the parties.

A question of costs remains. Mr Golledge fairly accepts that, where the Company and the liquidators have been successful as a matter of substance, in respect of the position for which they contend, Ms Matar should pay the costs of the application.

The Company and the liquidators seek costs on an indemnity basis from 10 September 2021, on the basis of an email which outlined the difficulties which the liquidators perceived with the position for which Ms Matar contended, and proposed the terms of payment into a controlled moneys account on condition that Ms Matar have liberty to apply, which I have ultimately adopted. That offer was, however, made at 6:22 pm on Friday 10 September 2021, admittedly only two days after the notice of motion was filed, and since that time two days of a weekend and two working days have passed before the hearing today. It is to be anticipated that the costs that are the subject of that application are not particularly large, although I recognise that they would include the costs of the hearing today, and the amount in issue is likely further reduced by the reduction in the difference between ordinary costs and indemnity costs in an assessment rather than a taxation regime.

Mr Golledge opposes an order for indemnity costs, on the basis that, under the Calderbank principles, it could not be said that it was unreasonable for Ms Matar not to accept the position put in the 10 September email. With a degree of hesitation, I accept that submission, given the abbreviated timeframe within which matters have proceeded. Ms Matar was not successful; the Company and the liquidators were successful; but it does not follow that the position taken by Ms Matar was unreasonable, as distinct from ultimately unsuccessful, particularly when decisions have to be made within abbreviated timeframes. For that reason, I will not order indemnity costs.

The Company and the liquidators seek an order that costs be paid forthwith. Mr Golledge opposed that order, advancing similar submissions to those he put in respect of the opposition to indemnity costs, but also pointing to the fact that there was an underlying question, which will be determined in the substantive proceedings and not this application, whether the Company and the liquidators would establish a proprietary interest in the relevant property. While I accept that proposition, it seems to me that Mr O’Brien’s strongest point, and the point which is determinative, is that an application under s 74MA of the Real Property Act would ordinarily be brought as separate proceedings in the Real Property List. It has been plainly convenient and sensible here to bring them by way of an interlocutory application, in the substantive proceedings. However, the Company and the liquidators should not be in a worse position, in respect of the timing of recovery of costs, because the application is brought by way of interlocutory process rather than by way of separate proceedings, as it ordinarily would be brought. This is also a discrete application, since nothing in the determination of the substantive proceedings will alter the result of this application.

For these reasons, I make a further order as to costs as follows: