Ghannoum v Papadeas

This judgment concerns whether a caveat lodged by the first plaintiff (Mr George Ghannoum) over land at Matraville (the “Land”) owned by the defendants (the “Papadeas”) should be withdrawn pursuant to s 74MA of the Real Property Act 1900 (NSW) (the “Act”). The second plaintiff is Mr Ghannoum’s company.

Mr Ghannoum is a builder. The Papadeas are in the process of developing the Land. As part of a larger and factually more complex commercial dispute, Mr Ghannoum alleges that he entered into an oral agreement with the Papadeas to purchase a two-bedroom strata title unit in the completed development on the Land for $250,000 (the “Alleged Agreement”). Mr Ghannoum goes on to allege that, as part of a series of larger financial transactions with the Papadeas, he paid them the $250,000 purchase price.

On 18 September 2018, Mr Ghannoum caused a caveat to be lodged over the Land (the “Caveat”) which described the estate or interest claimed as:

For the reasons which follow, the Court is satisfied that Mr Ghannoum has demonstrated that there is a serious question to be tried in relation to his claim to be entitled to a unit in the completed development and that the balance of convenience is in his favour. Provided that Mr Ghannoum is prepared to give an undertaking as to damages, the Court will dismiss the Papadeas’ motion for the Caveat to be withdrawn.

Mr D Currie of Counsel appeared for the applicant defendants. Mr P Folino-Gallo of Counsel appeared for Mr Ghannoum to resist the Papadeas’ application.

On 24 April 2018, Mr Ghannoum filed a Summons in the Equity Division Duty List. The substantive orders sought included:

On 22 May 2018, by consent, the operation of caveat number AN16XXXX (the “First Caveat”) was extended by order of the Court. The interest claimed by the First Caveat was “Equitable interest in the land arising out of loans totalling $405,707.00” relying on these facts: “Loan advances made by the caveator to the registered proprietor in consideration of an interest in a development to occur on the land”.

On 30 July 2018, the Papadeas filed a notice of motion seeking, inter alia, an order pursuant to s 74MA of the Act in relation to the First Caveat.

On 7 September 2018, the Court made an order pursuant to s 74MA of the Act requiring Mr Ghannoum to take all necessary steps to have the First Caveat removed from the title to the Land.

On 12 September 2018, Mr Ghannoum filed and served his statement of claim.

On or about 18 September 2018, Mr Ghannoum registered the Caveat.

On 10 October 2018, the Papadeas filed their defence.

On 22 October 2018, the Papadeas filed the present notice of motion claiming:

Mr Ghannoum’s claim in relation to the Caveat is part of a wider and factually complex dispute which was summarised in Mr Folino-Gallo’s written submissions as:

Mr Folino-Gallo accepted that the Alleged Agreement was the basis of Mr Ghannoum’s claim in support of the Caveat.

This part of the claim appears in the statement of claim as:

The Papadeas deny Mr Ghannoum’s claim. In particular, in paragraph 11 of their defence they plead to paragraph 13 of the statement of claim:

The interlocutory evidence in support of Mr Ghannoum’s claim is set out in his affidavit sworn on 24 April 2018, which was filed when he commenced the proceedings:

Further to the denial in their defence, Mrs Papadeas says in her affidavit of 27 September 2018:

The Papadeas did not press the claim in paragraph 4 of their notice of motion for damages for an alleged breach of undertaking by Mr Ghannoum and agreed that prayer for relief could be dismissed. The only question before the Court was their application for an order under s 74MA of the Act:

There was no dispute between the parties that where, as in this case, the Papadeas were the registered proprietors of the Land, the onus was on Mr Ghannoum to demonstrate that in all the circumstances he would be entitled to an interlocutory injunction. This necessitates consideration of whether there is a serious question to be tried or prima facie case, and the balance of convenience.

Construction of the proposed development on the Land has not yet commenced. As I will discuss further below, it is part of the Papadeas’ argument on the balance of convenience that the presence of the Caveat on the title to the Land is preventing them from obtaining the necessary finance to enable the construction work to begin.

Looking at the interest asserted by Mr Ghannoum in the Land, it might be thought that a claim under an oral contract to purchase an interest in a strata title unit where the strata plan had not yet been brought into existence, let alone registered, was somewhat tenuous. It might also be questioned whether such an interest would support a caveat over the entirety of the Land. These issues invite attention to two matters: the nature of a purchaser’s interest in an unregistered strata plan and the enforceability of an oral contract for sale of an interest in land.

The issue of whether a caveat is available to protect the interest of a purchaser in an unregistered strata plan over the whole of the property to be developed was determined in the affirmative in a carefully reasoned decision of Barrett J (as his Honour then was) in Forder v Cemcorp Pty Ltd (2001) 51 NSWLR 486; [2001] NSWSC 281 (“Forder”). In that case, the Purchaser’s interest which was sufficient to support a caveat arose from a deed which his Honour described:

As in the present case, the caveat considered by Barrett J was over the entirety of the development site:

His Honour’s dispositive reasoning was:

In considering the present case, I have not overlooked that it could be argued that there is a considerable difference between the precision of the contractual arrangements in Forder (especially the specification of the lot in the unregistered strata plan) as opposed to the generality of the Alleged Agreement relied upon by Mr Ghannoum. Although not an argument expressly raised by Mr Currie or the Papadeas’ defence, the submission could be made that the Alleged Agreement is too uncertain to be specifically performed (and therefore incapable of creating an equitable interest to sustain the Caveat) because the lot in the yet to be drawn up strata plan to be sold under the Alleged Agreement has not been identified.

However, I do not think the answer to that submission is so obviously adverse to Mr Ghannoum that it can be definitively resolved against him at an interlocutory stage. The question may become, in the context of the entirety of the evidence on a final hearing, the proper construction of the Alleged Agreement, in particular whether a term was to be construed or implied as to which party could nominate the particular unit to be conveyed.

For present purposes, Mr Ghannoum has demonstrated a serious question to be tried that he is the beneficiary of an agreement that entitles him to a unit in the development when it is completed. By analogy with the circumstances identified by Barrett J in Forder (see paragraph [26] above) Mr Ghannoum is entitled to the assistance of equity at least to restrain the Papadeas by injunction from dealing with the entirety of the Land inconsistently with his alleged right to a unit in the completed development on the Land. Applying Forder, the Court is satisfied that the Alleged Agreement therefore creates an equitable interest in the Land sufficient to support the Caveat, notwithstanding that a strata plan has not yet been brought into existence and the Caveat operates in respect of the whole of the Land.

Insofar as the oral nature of the Alleged Agreement is concerned, Mr Folino-Gallo accepted that it would be necessary for Mr Ghannoum to demonstrate an act or acts of part performance in order to give him a right to enforce the Alleged Agreement. The act relied upon in the present case is that Mr Ghannoum alleges he paid the purchase price of $250,000 to the Papadeas.

It is trite law that specific performance of an oral agreement in relation to the sale of an interest in land can be the subject of an order for specific performance, notwithstanding the modern manifestations of the Statute of Fraud 1677 (UK) (in this State s 54A of the Conveyancing Act 1919 (NSW)), where the party seeking specific performance can demonstrate acts of part performance unequivocally, and in their own nature, referable to a contract of the kind asserted by that party: Pipikos v Trayans [2018] HCA 39; (2018) 92 ALJR 880. The availability of specific performance of such a contract will give rise to an interest in land capable of supporting a caveat. Mr Ghannoum’s evidence is sufficient to raise a serious question to be tried whether his alleged payment is unequivocally referable to the terms of the Alleged Agreement. Ultimately that will be an issue of fact which can only be determined at a final hearing.

It follows from the matters which I have set out in paragraphs [27] to [31] above that I am satisfied that Mr Ghannoum has demonstrated there is a serious question to be tried (or a prima facie case) that he has an enforceable agreement for the purchase of a strata unit in the completed development on the Land and thereby has an equitable interest in the Land sufficient to support the Caveat. I will next set out why I do not accept the arguments advanced on behalf of the Papadeas against that conclusion.

In relation to the issue of serious question to be tried, Mr Currie made three submissions.

First, attention was drawn to the Papadeas’ denial of the Alleged Agreement in their defence and Mrs Papadeas’ evidence. It was submitted that, in the face of that denial, Mr Ghannoum could not have a proper basis to lodge the Caveat.

I do not accept that submission. While I have taken the denial into account in my consideration, in and of itself (and without more), it cannot be a conclusive answer at the interlocutory stage to Mr Ghannoum’s claim. Taking into account Mr Ghannoum’s evidence, and including the fact of the Papadeas’ denial, the Court is nevertheless satisfied by that evidence that it demonstrates Mr Ghannoum’s case on this point has “a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial”: Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57; [2006] HCA 46 at [65] per Gummow and Hayne JJ (Gleeson CJ and Crennan J agreeing).

Second, Mr Currie submitted that leave was required pursuant to s 74O of the Act to have filed the Caveat:

Although there are no reasons available for Darke J’s earlier decision dismissing the First Caveat, there was no dispute between the parties that his Honour did so by applying his decision in The Woodsman Pty Ltd v Jozic [2018] NSWSC 1311 (“The Woodsman”). The effect of that decision is that where a caveat is “incurably deficient” it is not appropriate to make an order under s 74O:

The effect of that part of his Honour’s decision in The Woodsman is that s 74O of the Act has no application in circumstances where the deficiency in a caveat was that it completely failed to disclose the estate, interest or right that was being claimed because it is not a caveat for the purposes of the Act. Applying his Honour’s decision in The Woodsman to the circumstances of this case, the First Caveat did not disclose the estate, interest or right so that s 74O can have no application to the Caveat, notwithstanding that it may purport to be based on the same facts as the First Caveat.

The third submission relied upon the Papadeas’ allegation that Mr Ghannoum was an undischarged bankrupt at the time of the Alleged Agreement. The Papadeas’ defence (see paragraph [17] above) pleads that “throughout his bankruptcy [Mr Ghannoum was] precluded from entering binding contracts pursuant to s 269 of the Bankruptcy Act 1966 (Cth)” (the “BA”).

The reliance on s 269 of the BA is misconceived. An undischarged bankrupt does not lose her or his legal capacity to enter into contracts. It is clear from the terms of s 269 that it does not have the effect contended for in the Papadeas’ defence and, assuming Mr Ghannoum was an undischarged bankrupt at the relevant time, would not have operated to prevent him entering into the alleged agreement:

While the Papadeas’ defence refers to s 269 of the BA, Mr Currie’s submissions referred to Mr Ghannoum, if he were an undischarged bankrupt at the relevant time, being unable to enter into any contracts for the purchase of land because to do so would be a breach of s 148 of the BA. Again, it is apparent from the terms of s 148 that it cannot have the effect for which the Papadeas’ contend or will be in any other way relevant to these proceedings:

A number of the Papadeas’ arguments turned on the value of the Land (both before and after the completion of the proposed development) when compared to the value of the interest asserted by the Caveat. This included assertions by the Papadeas of the amount of equity that would be left in the development if the Caveat were lifted and if the secured finance required to undertake the project were to be provided. These arguments fell away at the hearing because the Papadeas’ evidence concerning the value of the development and related financial matters was ruled inadmissible.

The Papadeas submitted that, even if Mr Ghannoum had demonstrated that there was a serious question to be tried, the balance of convenience did not favour the continuation of the Caveat because the presence of the Caveat on the title to the Land meant that the Papadeas were unable to obtain the finance which they required to develop the Land and to satisfy a judgment which had been obtained against Mrs Papadeas in connection with the development by Mr Robert Kociper for $964,000 plus interest and costs. It was further submitted that Mr Kociper had served a bankruptcy notice on Mrs Papadeas’ solicitor and that, in the absence of being able to refinance, Mrs Papadeas was at risk of being made a bankrupt by Mr Kociper.

The Papadeas also submitted that even if Mr Ghannoum had demonstrated that there was a serious question to be tried in relation to his alleged interest, the Court could still order withdrawal of the Caveat. This was, they submitted, an example of a case where they, as registered proprietors of the Land, had a superior interest to that of Mr Ghannoum and the Caveat was preventing them from legitimately exercising their rights to develop the Land. This submission relied on the decisions of Tadrous v Tadrous [2009] NSWSC 407 (“Tadrous”) and Kerabee Park Pty Ltd v Daley; Kerabee Park Pty Ltd v Karinya Investments Pty Ltd [1978] 2 NSWLR 222 (“Kerabee Park”).

In response to these arguments Mr Ghannoum cited the decision of Young J (as his Honour then was) in Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 97,424 (“Kingstone Constructions”) where his Honour said (at 11,990) that, “Normally, when a caveat is proper in form and substance it will be retained even though this will cause harm to the registered proprietor”. Reliance was based on this passage in his Honour’s judgment (at 11,991):

Insofar as the Papadeas rely on Kerabee Park, I accept the submission made on behalf of Mr Ghannoum that it does not assist the Papadeas because that was a case where a first ranked mortgagee was seeking to exercise its power of sale, thus realising the asset as distinct from further encumbering it.

In relation to the Papadeas relying on Tadrous, Mr Ghannoum drew attention to this passage in the judgment of Brereton J (as his Honour then was) (emphases added):

In that case, Brereton J ultimately determined that the balance of convenience favoured granting leave to file a subsequent caveat pursuant to s 74O of the Act.

I accept Mr Ghannoum’s submission that, applying Brereton J’s observations in Tadrous, the balance of convenience in this case supports the Caveat remaining in place, because if it is allowed to be withdrawn the Papadeas’ lender would gain priority for the drawdown which the Papadeas say is required both to develop the Land and pay Mr Kociper.

I have also reached the preceding conclusion because of, to my mind, the highly significant absence of any attempt by the Papadeas to provide some form of alternative security to Mr Ghannoum in respect of his interest that arises under the Alleged Agreement, even if limited to apply only until the determination of these proceedings. Even though the specific evidence of values was rejected by the Court, if the Papadeas are to be believed this is a financially significant development the value of which considerably exceeds the value of the interest asserted by Mr Ghannoum in a single unit in the development.

The Court may well have taken a different view in the ultimate result in the exercise of the Court’s discretion if a reasonable offer by the Papadeas to Mr Ghannoum to secure the latter’s alleged interest pending determination of these proceedings had been made and rejected. However, as they are entitled to do, the Papadeas have chosen simply to reject Mr Ghannoum’s claim. Conformably with the dicta of Young J in Kingstone Constructions and Brereton J in Tadrous which I have set out above, I am satisfied that the balance of convenience in upholding Mr Ghannoum’s interest as secured by the Caveat outweighs the detriment allegedly being suffered by the Papadeas by reason of the presence of the Caveat.

The Papadeas’ notice of motion will be dismissed. However, as Mr Ghannoum has succeeded in maintaining the Caveat by demonstrating his entitlement to an interlocutory injunction, it nevertheless seems to me appropriate in the circumstances that the dismissal of the Papadeas’ motion should be conditional upon Mr Ghannoum giving to the Court the usual undertaking as to damages. In reaching this conclusion I have not overlooked that the Papadeas already have the protection of s 74P of the Act. The Court will also give the parties an opportunity to address on the question of costs and what directions are required to progress the proceedings.