Matken Constructions Pty Ltd v Trevor James and Dianne James [2009] ACTSC 100 (27 August 2009)

MATKEN CONSTRUCTIONS PTY LTD v TREVOR JAMES & ANOR
[2009] ACTSC 100 (27August 2009)

CAVEATS – Land Titles Act 1925 – circumstances in which Court will order removal of caveat conditionally upon payment into Court – building dispute – action by builder – standard building contract – charge under contract giving rise to caveatable interest – extent of charge – whether payment into Court should include interest – whether should include estimated costs of action

Gibson v Co-ordinated Building Services Pty Ltd (unreported, Supreme Court of New South Wales, Young J, 20 July 1989)
Griffith v Hodge (1979) 2 BPR 9474
Commercial Bank of Australia Ltd v Schierholter [1981] VR 292
Renascent Interiors & Refurbishers Pty Limited v ASEL Property Group Pty Limited [2002] NSWSC 345

IN THE SUPREME COURT OF THE )
) No. SC 5 of 2009
AUSTRALIAN CAPITAL TERRITORY )

The application be stood over to 3 September 2009 for submissions as to the orders which should be made in the light of these reasons.

1. This is an application by the defendants in a building case for an order that, upon their paying into Court an appropriate amount, a caveat lodged by the plaintiff over their residential property be removed.
2. The defendants engaged the plaintiff company to build a house on their land at Gungahlin. The parties signed a standard Master Builders Association home building contract on 27 June 2005.
3. The property is a standard residential suburban block. A ninety-nine-year Crown lease was granted to the defendants in June 2002. In May 2003 a mortgage was registered. The mortgagee is Perpetual Limited. The plaintiff lodged a caveat in August 2007. It is common ground that the plaintiff was entitled to lodge a caveat pursuant to clause 31 of the contract, which provides:
31 CHARGE ON LAND
The owner charges the Site with the payment to the Builder of all monies payable to the Builder under this Contract or otherwise from the carrying out of the Works.
4. The house has been built. The plaintiff’s case is that it has carried out the work it contracted to perform. The defendants have made some progress payments but there remains an amount due under the contract of $47,722.58. The plaintiff also claims interest and costs. Item A15 in appendix A to the contract reads as follows:

A15 INTEREST RATE APPLICABLE TO LATE PAYMENTS
Annual Interest Rate applicable to Late Payments (Adjusted Weekly Compounding) 20 percent (if nothing stated, 20 percent).
In other words, the Master Builders form provides for twenty percent to be the default rate, but in this case the parties agreed on twenty percent anyway.
5. On 19 December 2008, the Registrar General gave notice to the plaintiff that the defendants had applied for a lapsing notice in relating to the caveat. The notice informed the plaintiff that the caveat would lapse at the end of fourteen days from service of the notice, in the absence of a court order to the contrary.
6. It seems that the service of the notice was the trigger for the commencement of these proceedings. On 6 January 2009, the plaintiff’s solicitors lodged the originating claim, statement of claim and application for extension of the caveat, accompanied by a supporting affidavit by Mr Kennedy, a director of the plaintiff company.
7. The application came before Penfold J on 7 January 2009. None of the documents had been served on the defendants. Her Honour made an order temporarily extending the caveat, with the application to come back before the Court on 4 February. On that date the defendants were represented. Her Honour left the extension order in place and referred the matter to the Registrar for further directions. The matter has since been before the Registrar on ten occasions.
8. On 3 April 2009 the defendants filed a defence and counterclaim. In the defence they say that part of the amount claimed is not owing under the contract. They also say that they have not been given a proper accounting in respect of work done. They assert that the interest rate of twenty percent constitutes a penalty. They make a counterclaim for the cost of remedial work, which they say was made necessary because the plaintiff did not carry out the building work properly or in accordance with the approved plans. They further claim that the plaintiff contracted to complete the works by March 2006 but failed to do so, putting the defendants to additional expense arising from the fact that they continued to reside in their existing home from March 2006, and to pay interest on borrowed money secured by mortgage over that home. The amount of the counterclaim is not precisely quantified.
9. On 16 April 2009 the defendants made the present application. They sought orders that the caveat be removed, that the plaintiff “issue a certificate of completion with respect to the property” and that they, the defendants, pay into Court an amount by way of security for the plaintiff’s claim. Perhaps surprisingly, they did not ask for security for costs from the plaintiff.
10. The first defendant has affirmed an affidavit in support of the application. He says that he and his wife believe that works under the contract have been finalised, and that the issue of a certificate of completion has been held up by the plaintiff. He says that he believes that the plaintiff holds various certificates in relation to particular trades, and that so far as he is aware there is no impediment to the issue of a certificate of completion. He says that he is “prepared to pay into Court any amount which might be ordered by the Court to provide security for the plaintiff’s claim.”
11. The evidence from the plaintiff in relation to the application is contained in an affidavit by Mr J. C. McN. Ronald, the plaintiff’s solicitor. Mr Ronald’s affidavit is directed to the likely cost to the plaintiff of the action proceeding to hearing. He anticipates that the plaintiff will call seven witnesses, one being a building expert who has not yet been qualified but whose expenses are likely to be between $4,000.00 and $6,000.00. He estimates that the hearing will take four or five days. He has instructions to brief junior counsel at $2,750.00 per day. He estimates the solicitors’ costs of preparing for hearing, based on his own experience and information he has obtained from an experienced costs assessor, at $20,000.00, with the solicitors’ costs and counsel’s fees for a hearing of four to five days ranging from $18,665.20 to $22,644.00.
12. Counsel for the plaintiff submits that, if the caveat is to be removed, the defendants should be ordered to pay into Court an amount calculated as follows:

Claim	$47,722.58
Interest	$37,844.81
Costs	$47,000.00
	$132,567.39

13. Counsel for the defendants submits that the amount his clients should be required to pay into Court as a condition of removal of the caveat is:

Claim	$47,722.58
Interest	$9,780.00
Costs	$13,750.00
	$71,252.58

14. Notwithstanding the reference in the contract to compound interest, my understanding is that the solicitors for the plaintiff have calculated simple interest at 20% per annum on the outstanding amount, from the dates when its various components became due for payment according to their instructions. They have calculated interest up to 1 February 2011, being the likely date of payment of the amount due to their client, assuming that the action goes to trial and their client is successful.
15. Counsel for the defendants has calculated interest at the rate prescribed by the Court Procedures Rules 2006 for interest before judgment, 9% per annum, to date and for something less than a year into the future. He submits that the defendant should not be penalised as to interest, in circumstances where the plaintiff left it until the beginning of this year to commence proceedings, the defendant having pleaded in the statement of claim that practical completion was achieved in December 2006, two years earlier.
16. The defendants have not put on any evidence about legal costs. Counsel for the defendants in written submissions has calculated figures on the basis of a two-day hearing, with much lower allowances for preparation. Counsel also submits that the counterclaim by the defendants is a separate claim and should not be taken into account when arriving at a figure for costs for the purposes of the present application.
17. The power to order the removal of a caveat is conferred on the Court by section 105 of the Land Titles Act 1925. That section provides that the registered proprietor against whose title a caveat has been lodged may apply to the Court on notice to the caveator for an order that the caveat be removed. The Court may make such order “as to the Court or judge seems fit”.
18. I was referred during submissions to two decisions of the Supreme Court of New South Wales which are of assistance. In Gibson v Co-ordinated Building Services Pty Ltd (unreported, Supreme Court of New South Wales, Young J, 20 July 1989) Young J permitted the removal of a caveat provided that a substitute security by way of bank guarantee was provided by the registered proprietors, with liberty to apply in the event of delay in the action proceeding to a hearing. The application arose out of a building dispute which had resulted in litigation in the NSW District Court. The builder had sued for work done and materials provided, and the owners had counterclaimed for expenses in a substantially greater amount. The applicable clause of the building contract was in similar terms to that in the present case. The owners wanted to remove the caveat: the value of their house was much greater than the claim by the builder, and they wanted to use the house as security for borrowings for an unrelated purpose. Young J cited Griffith v Hodge (1979) 2 BPR 9474 as authority for the builder’s caveatable interest in the property based upon the standard clause. The Court would permit such a caveat to be maintained only so long as it was just and convenient to do so. The question whether the caveat should be maintained depended on the balance of convenience between the parties.
19. Young J noted a 1984 Western Australian Full Court decision to the effect that the Court should not remove a caveat in such circumstances, but preferred a decision of the Full Court of the Supreme Court of Victoria, Commercial Bank of Australia Ltd v Schierholter [1981] VR 292, and earlier single-judge decisions of the Supreme Court of New South Wales, to the contrary. Counsel for the plaintiff does not seek to persuade me that I should do otherwise.
20. In Gibson, there was a disagreement between the parties as to whether the amount to be secured was simply the amount claimed by the builder, or whether it should extend to the costs of the action in the District Court. Young J referred to earlier authority and concluded that the builder’s charge over the land was limited to the amount of the claim, but held that the caveat should not be removed by order simply on payment by the owners of that amount. The builder had been given a contractual right to maintain a caveat. If it were maintained until the hearing, it would give the builder a considerable advantage even though his security was limited to the amount claimed. In those circumstances it was only conscionable that the owner ensure that the builder was not disadvantaged by the Court giving the owner the indulgence of providing a substitute security. Therefore the builder was entitled, if there was to be a substitute security, to such security as would secure him not only for the claim but for the reasonable costs of litigation.
21. This decision was followed by Barrett J in Renascent Interiors & Refurbishers Pty Limited v ASEL Property Group Pty Limited Limited [2002] NSWSC 345. This also related to a building case in the District Court. Barrett J was satisfied that the contract created an equitable charge affecting the defendant’s property, or at least that there was a sufficiently arguable case to that effect. His Honour was also satisfied that the plaintiff had a sufficiently arguable case that moneys of some amount were secured by the charge. This being so, the builder was entitled to maintain its caveat subject to factors relevant to the balance of convenience. The chief factor was the defendant’s willingness to give appropriate substitute security by payment of moneys into Court. The real issue was as to the appropriate amount. The defendant did not wish to nominate a sum, and his Honour thought that that was an appropriate response. The plaintiff had provided some calculations. The amount put forward by the plaintiff was the amount claimed in the District Court, plus the estimated plaintiff’s costs in the District Court, plus interest, plus “a contingency for risk from the unsecured position” (the last component is not sought by the plaintiff in the present action).
22. His Honour expressed the view that there was no need for the Court to go into fine details of calculation. The defendant had asked for an order that the money paid into Court be invested. Barrett J thought it appropriate to order investment in an interest-bearing deposit with a bank. His Honour generally accepted the figures put forward by the plaintiff. I note that this was in circumstances where the total security ordered by his Honour was $137,800.00, and that the value of the building against which the caveat had been lodged was over $25,000,000.00. It may also be seen as relevant that the defendant had declined to put figures before the Court, or to challenge the figures put forward by the plaintiff in any detail.
23. In the present case, both parties agree that the amount to be paid by the defendants should include the plaintiff’s claim of $47,722.58.
24. As to interest, I am of the view that the amount to be paid should be calculated at 20% simple interest as claimed in the plaintiff’s figures, certainly to date, though perhaps not for quite so far into the future as claimed. In this regard I note Barrett J’s remark in Renascent Interiors that there is no need for the Court to go into fine details of calculation. My reason for allowing interest at 20% rather than 9% is that the plaintiff has an arguable case that if successful in the action it should recover interest at 20%, a figure after all to which the defendants agreed in the contract, and the plaintiff should not be placed, by my orders, in a position of disadvantage by comparison with its present position as caveator.
25. As to costs, I am satisfied that the defendants should be required to pay an amount which ought to be enough to cover party and party costs recoverable by the plaintiff in the event that the plaintiff succeeds in the action. I take the view that the plaintiff’s figures are pessimistically high as to the length of time the hearing is likely to take and the amount it is likely to cost. I also take account of the fact that solicitors’ costs are likely to be limited to those laid down by the Supreme Court scale, and counsel’s fees to those allowed as between party and party as published by the Registrar. At the same time, I take the view that the defendant’s figures are much too optimistic, both as to length of hearing and as to quantum.
26. I am minded to reduce the allowance for interest to something of the order of $32,000.00 to $35,000.00, and costs to something of the same order. Rounding the total, I fix $115,000.00 as the amount the defendants would be required to pay into Court, or otherwise secure to my satisfaction, as a condition of the removal of the caveat. Subject to payment or other acceptable security, I would be disposed to order the removal of the caveat.
27. Counsel for the defendants seeks a consequential order that on payment of the sum, the plaintiff deliver up to the defendants all certificates issued relating to the construction work done on the land, and do all things necessary to procure and hand over a certificate for the plumbing works. Counsel for the plaintiff submits that the contract gives his client the right to retain any such documents until payment. It must be recognised that the orders I am making will not result in any payment being made to the plaintiff immediately.
28. The defendants have not put on any evidence as to any prejudice to them if the caveat is not removed, or if the orders about the certificates are not made. It is apparent that the defendants would not be able to sell their house, or to offer it as security for a further mortgage, without removal of the caveat and the issue by the relevant authorities of a certificate of completion of the building works, but they have not given evidence that they have any intention of doing so.
29. In the circumstances I am disposed to provide the defendants with an opportunity to put evidence on of any such intention, if they wish to do so. I would at the same time need to be persuaded that there is a power to make the orders about the certificates as interlocutory orders in a building case of this kind.
30. I shall also provide the parties with an opportunity to be heard about the costs of the application.

I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master.

Counsel for the plaintiff: Mr RS Dearn
Solicitors for the plaintiff: Colquhoun Murphy
Counsel for the defendant: Mr GJ Blank
Solicitors for the defendant: Rod J Barnett & Associates
Date of hearing: 29 May 2009
Date of judgment: 27 August 2009

Supreme Court of the ACT

Matken Constructions Pty Ltd v Trevor James and Dianne James [2009] ACTSC 100 (27 August 2009)