Parties Dispute Interest Over Commercial Units

18 Woodville Holding Pty Ltd v Hua Cheng International Holdings Group Pty Ltd (in liq) (No 2) [2022] NSWSC 947 (19 July 2022)

The plaintiff seeks possession of units A702, A703, and A801 in a mixed residential and commercial development in Hurstville, New South Wales. The Active Defendants have filed cross-claims in which they seek specific performance of contracts they say they entered into to buy the relevant units. The Court, in resolving this dispute, assessed whether taking an assignment of mortgage with alleged knowledge of a tenant’s unregistered interest but refusing to be bound constitutes statutory fraud.

Facts:

By summons filed on 19 November 2021 the plaintiff, 18 Woodville Holding Pty Ltd (18 Woodville), seeks possession of units A702, A703, and A801 in a mixed residential and commercial development in Hurstville, New South Wales, (the Development) which are currently occupied by the second to fifth defendants (the Active Defendants) or, in the case of unit A703, by a person who pays rent for the unit to the second defendant.

In response, the Active Defendants have filed cross-claims in which they seek specific performance of contracts they say they entered into to buy the relevant units. The plaintiff also seeks an order for possession against the first defendant, Hua Cheng International Holdings Group Pty Ltd (Hua Cheng), which was the developer of the Development and is now in liquidation. It remains the registered proprietor of the units.  On 31 August 2009, the fourth defendant, Zhe Tao, and the fifth defendant, Jianmin Tao, entered into a contract to purchase off the plan unit A801 in the Development for $670,000. 

On registration, unit A801 became lot 48 in the strata plan. It is currently occupied by the fourth defendant and his wife and child. In or around April 2013, the second defendant had recently started working as a real estate agent for WSPG Realty Pty Ltd trading as the World Square Property Group, which was the agent for the sale of the plan of units in the Development. On 26 September 2013, the third defendant entered into a contract to purchase off the plan unit A703 in the Development for $425,000 and on 1 October 2013, the second defendant entered into a contract to purchase unit A702 for $425,000.

At about the time the second defendant signed the contract to purchase unit A702 she was advised by her solicitors of the dangers of agreeing to the release of the purchase price because of the risks that the Development would not proceed or that the developer would go into liquidation, with the result that she would not get her money back. The second defendant signed an acknowledgment dated 25 September 2013 to the effect that she had been given that advice. Hua Cheng arranged to obtain financing for the Development from Super Vision Resources Ltd (Super Vision), a BVI subsidiary of China Orient Asset Management (International) Holding Ltd (COAMI), a company based in the People’s Republic of China. The financing was obtained under a loan agreement dated 4 July 2014 (the Loan Agreement).

Mr. Xu, who gave evidence for the fourth and fifth defendants, says that in or around February 2014, prior to the Loan Agreement being signed, he met with representatives of COAMI during which he said (in Mandarin) words to the effect of: "These contracts before you are pre-sales contracts that have already been entered into by Hua Cheng. Some of the purchasers already paid the full purchase price upon the exchange of the contracts, and others already paid the deposit. We already used those monies to pay for various expenses of the project, so they should be given priority at settlement.  Meanwhile, there are other purchasers who have rescinded the contracts because the sunset date has passed, and we have returned the deposit to them."

On 22 December 2016, Super Vision issued a notice of an event of default in respect of Hua Cheng’s failure to pay interest and advisory fees on 5 July 2016 and 3 October 2016.  On 3 February 2017, Super Vision served a second notice of an event of default on Hua Cheng in respect of its failure to repay principal in the amount of HKD166,863,764.00 on 14 January 2017, its failure to pay interest and advisory fees on 3 January 2017 and 14 January 2017 and its failure to ensure the settlement of the sale of each Lot by 31 December 2016.  

On 20 April 2017, the fourth and fifth defendants lodged a caveat over lot 48 claiming a “LEGAL AND EQUITABLE INTEREST PURSUANT TO CONTRACT OF SALE DATED 31 AUGUST 2009”. On 8 September 2017, the second and third defendants commenced proceedings against Hua Cheng, Super Vision, and a number of other parties seeking an interlocutory injunction restraining any dealings in lots 44 and 45 and seeking an order for specific performance of the contracts of sale for those lots. On 18 September 2017, the third defendant lodged a caveat over lot 45 claiming an interest as “Owner of the entire equitable Interest”. The second defendant lodged a caveat over lot 44 in the same terms on the same day.  The proceedings were ultimately dismissed.

By a Sale and Purchase Deed dated 24 September 2021 Super Vision agreed for the sum of $5,100,000 to assign to 18 Woodville the “Assigned Property”. The Active Defendants claim an interest in their respective lots on two bases. First, they claim that a tenancy at will arose from the fact that they were purchasers in possession before settlement. Second, they claim an equitable interest commensurate with the availability of specific performance.

Issue:

Whether or not 18 Woodville is entitled to the relief it seeks.  

Applicable law:

Conveyancing Act 1919 (NSW) - provides that any absolute assignment by writing under the hand of the assignor (not purporting to be by way of charge only) of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee, or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be, and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee if this Act had not passed) to pass and transfer the legal right to such debt or chose in action from the date of such notice.

Real Property Act 1900 (NSW) - provides that notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded.

Butler v Fairclough (1917) 23 CLR 78; [1917] HCA 9 - provides that one very relevant factor in determining who has the better equity is whether the earlier interest holder has taken steps to protect his or her interests by, for example, lodging a caveat.

Commercial Bank of Australia Ltd v McCaskill [1897] VicLawRp 37; (1897) 23 VLR 10 - provides that the competition between the mortgagee of a registered mortgage and a person who has such an interest is to be decided by reference to general law principles. 

Huang v Hua Cheng International Group Pty Ltd [2019] NSWCA 155 - where the appeal in relation to costs was allowed by the Court of Appeal on 20 June 2019.

Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] 3 VR 16 - provides that fraud for the purposes of s 42 includes wilful blindness — that is, a failure to make enquiries for fear of discovering fraud.

Perpetual Trustee Co Ltd v Smith (2010) 186 FCR 566; [2010] FCAFC 91 - held that the effect of the section is “to strip the registered proprietor of benefits of registration so that the competition between interests [is] to be decided on general law principles."

Schultz v Corwill Properties Pty Ltd [1969] 2 NSWR 576 - provides that fraud must be “brought home to” the registered proprietor or his or her agent.

Sidoti v Hardy (2021) 105 NSWLR 1; [2021] NSWCA 105 - relied upon in holding that s 42 of the RPA plainly applies to a mortgage and to 18 Woodville as the registered mortgagee.

The Presbyterian Church (NSW) Property Trust v Scots Church Development Ltd (2007) 64 ACSR 31; [2007] NSWSC 676 - provides that the additional factor to be superadded to notice to constitute fraud (or alternatively to create a personal equity) was “some form of acknowledgment of the unregistered interest, or an agreement or undertaking to act in accordance with it, from which the registered proprietor later resiles."

Wilkes v Spooner [1911] UKLawRpKQB 100; [1911] 2 KB 473 - provides that at common law, a person who claims an interest through a person who is a bona fide purchaser for value and without notice is entitled to the same protection as the protection afforded to the person through whom the interest is claimed, even if the person making the claim acquired his or her interest with notice.

Analysis:

Whatever delay has occurred could not defeat an order for specific performance if the true position is that the Active Defendants have paid the full purchase price for their respective units and have been in possession of them since that time. The second defendant did pay the full purchase price for units A702 and A703. 

The second defendant’s evidence is that on 23 September 2013 she transferred an amount of $425,000 to an account of WSPG Realty Pty Ltd. That evidence is supported by a deposit receipt.  Absent any evidence to the contrary, it is reasonable to infer that it was Hua Cheng’s actual or ostensible agent for the receipt of money paid towards the purchase price of units that it sold off the plan. 

The Active Defendants contend that, as a consequence, 18 Woodville acquired its rights subject to any rights the Active Defendants had against Super Vision.  Super Vision was not entitled to the benefit of indefeasibility conferred by s 42 of the RPA because it was guilty of fraud in that it undertook to take its rights subject to those of the Active Defendants but despite that undertaking refused to complete the contracts for the sale of units A702, A703, and A801. 

That undertaking was given (1) to Mr Xu at the meeting in February 2014; (2) by the terms of the Loan Agreement which permitted, and indeed required, Hua Cheng to enter into Pre-Sale Contracts; and (3) at the meeting in Hong Kong on 24 April 2017 at which it is said that Super Vision agreed that in exchange of the payment of HKD30 million, Super Vision would complete the sale of the units. Nowhere in their submissions do the Active Defendants explain what conduct 18 Woodville engaged in that amounted to fraud.

Conclusion:

The first, second, and third defendants are to give the plaintiff possession of units A702 and A703, 18 Woodville Street Hurstville NSW 2220 being lots 44 and 45 respectively in SP94237. Leave be granted to have a Writ for Possession issued in favour of the plaintiff should the first, second and third defendants fail to comply with order(1).

Order that the first, fourth, and fifth defendants immediately give the plaintiff possession of unit A801,18 Woodville Street Hurstville NSW 2220 being lot 48 in SP94237. Leave is granted to have a Writ for Possession issued in favour of the plaintiff should the first, fourth, and fifth defendants fail to comply with order (3).

Orders (1) to (4) should be stayed for a period of 28 days from the date of this judgment. The cross-claims filed by the second and third and fourth and fifth defendants are dismissed. The second to fifth defendants should pay the plaintiff’s costs of the proceedings.