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Supreme Court of New South Wales |
Last Updated: 23 February 2011
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1. I order the first defendant to provide forthwith to the plaintiff a duly executed Withdrawal of Caveat in registrable form with respect to Caveat AG455. 2. I order the second defendant forthwith to take whatever steps are required by the Land & Property Management Authority to withdraw the unrecorded Caveat AG454 which purports to affect the land in folio identifiers I/SP80174, 2/SP80174, 4/SP80174, 6/SP80174, 7/SP80174 and 8/SP80174 and known as 146-148 Ocean Parade, Blue Bay in New South Wales by no later than 2pm today,2 February 2011. 3. I grant a stay of the operation of these orders up to and including 14 February, 2011 to enable the defendants to seek from the Court of Appeal, if so advised, a stay pending appeal. 4. I order the defendants to pay the plaintiff's costs. |
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Legislation Cited:
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Cases Cited:
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Bendigo and Adelaide Bank v Tombs [2010] NSWSC
1427
Cal No 14 Pty Ltd v Motor Accidents Board (2009) 239 CLR 390 Commonwealth Bank of Australia v Hadfield [2004] NSWCA 350 Cross v national Australia Bank Ltd [1992] ANZ ConvR 28, (1993) Q ConvR GE Personal Finance Pty Ltd v Smith [2006] NSWSC 889 Gippsreal Ltd v Hanna [2009] NSWSC 169 Forsyth v Blundell (1973) 126 CLR 477 Inglis v Commonwealth Trading Bank of Australia (1971) 126 CLR 161 Lew v Bluescope Distribution Limited [2010] NSWSC 794 Martyn v Glennan [1979] 2 NSWLR 234 Secure Funding v Webster [2008] NSWSC 443 Re McKean's Caveat [1988] 1 QD R 524 R & I Bank of Western Australia Ltd v Lavery (unreported, Supreme Court of Western Australia, 25 October 1993 BC9301503 Patmore v Upton [2004] TASSC 77, (2004) 13 Tas R 95 Perpetual Limited v Kelso [2008] NSWSC 906 Sinclair v Hope [1982] 2 NSWLR 870 Star v Silvia (No 1) [1994] 12 ACLC 600 St George Bank v Udowenko [2010] NSWSC 1289 Swanston Mortgage Pty Limited v Trepan Investments Pty Limited [1994] VicRp 47; [1994] 1 VR 672 |
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Texts Cited:
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Meagher, Heydon and Leeming "Equity - Doctrines &
Remedies" 4th Ed
Wright D, Does the Registered Proprietor have a caveatable interest? (1995) 69 ALJR 935 |
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EX TEMPORE
Introduction
1 This is an application by the plaintiff for the removal of caveats that have been lodged by the defendants on the title to land at Blue Bay in New South Wales. The first defendant is the registered proprietor of the land. The plaintiff is the first registered mortgagee, and the second defendant is a guarantor under the mortgages.
2 The plaintiff is owed in excess of $8 million by the defendants. That sum is secured over the land. In the exercise of its power of sale the plaintiff has obtained vacant possession and caused the land to be sold. Contracts for sale were exchanged on 11 November 2010.
3 The land consists of a number of properties. They were sold for prices between $340,000 and $468,000. The defendants contend that prices in excess of $600,000 should and could have been obtained. The gross proceeds of sale, if the contracts are permitted to be completed, will be $2.5 million plus GST. Completion was due on 21 December 2010 but on that day a caveat was lodged. The caveat was bad in form, but it succeeded in preventing the contracts being completed. It described the caveator's interest as an equitable interest as follows:
Bayblu Holdings Pty Limited and Nathaniel John Whitehall as registered proprietor and guarantor, respectively, to prevent the property being disposed of by the mortgagee at a price below its true market value.
4 That caveat lapsed on 17 January 2011 following service of a lapsing notice by the plaintiff. On 14 January the first defendant commenced proceedings in this Court (No 13300/2011) seeking leave to lodge a further caveat and otherwise to restrain the plaintiff from dealing with the land. The plaintiffs have now lodged new caveats. They rely on the following alleged equitable interest to set aside what they describe as voidable contracts for sale. This interest is said to arise by reason of the following facts and circumstances:
(1) By contracts dated on or about 19 November 2010, the Mortgagee purported to sell the entirety of the property for approximately $2,510,000.00 ("the sale price").
(2) The market value of the property at the date of the purported sale was substantially in excess of the sale price.
(3) The Mortgagee failed;
(a) to submit the property to auction;
(b) to complete the proposed auction campaign;
(c) to properly advertise and market the sale of the property;
(d) to accord due and proper consideration to offers to purchase the property;
(e) to accord due and proper consideration to refinancing proposals which would have achieved prices substantial in excess of the sale price.
Removal of Caveat - Legal Principle
5 It is necessary to reiterate the principles that govern an application for an order removing a caveat pursuant to Section 74MA of the Real Property Act, 1900. Those principles have been repeated on numerous occasions in this Court. On such an application, it is not necessary to make a final determination as to the interest claimed by the caveator; or a final determination as to the priority that the caveator may or may not have over competing interests. What is required is an assessment of whether, according to the usual discretionary considerations, an interlocutory injunction would be granted to protect the caveator's interest, assuming that an arguable basis for its existence is disclosed. If an interlocutory injunction would be granted, the application for the withdrawal of the caveat should be refused. If not, the caveat should be removed.
6 As long ago as 1979, Waddell J said as follows in Martyn v Glennan [1979] 2 NSWLR 234:
In the light of these expressions of opinion, it seems to me that the appropriate principle to apply in the present case is to inquire whether the defendant would, in all the circumstances, be entitled to an interim injunction, and, if not, to order that the caveat be withdrawn (239 G).
He also said at 242 F:
For the foregoing reasons, it is my view that the defendants are not entitled to maintain the caveats in question. If they had made out the necessary prima facie case, then the further question of the balance of convenience would have arisen (see generally Shercliff v Engadine Acceptance Corporation Pty Limited [1978] 1 NSWLR 729. Further, it would not, in my view, have been proper to have continued the caveat unless the defendants had given the usual undertaking as to damages. There should be an order that the two caveats be withdrawn.
7 More recently in Lew v Bluescope Distribution Pty Ltd [2010] NSWSC 794 I said as follows at [5]:
The shorthand expressions "serious question" or "serious issue" to be tried have a recognised meaning. Whether a caveat should be ordered to be removed depends upon whether an interlocutory injunction would be granted to protect the interest claimed in the caveat.
8 To similar effect is Young, Cahill and Newton's Annotated Conveyancing and Real Property Legislation New South Wales - 2010-2011 where the authors state at [41970.5]:
Injunction principles applicable. It is now established that courts will treat an application to extend a caveat as analogous to an application for an interlocutory injunction. See, for example, Ralph Symond's Australia Pty Limited v Pacific Property Investments Pty Limited (1988) 10 BPR 18,729 and also CJ Redman Constructions Pty Limited v Tarnap Ltd (2005) NSWSC 1,011. This means that the caveator must satisfy the Court:
(1) That the claim to an interest in the property raises a seriously arguable case for final relief to justify maintenance of the caveat;
(2) That the balance of convenience favours extending the caveat pending trial to substantiate the estate or interest claimed (See also Sutherland v Vale [2008] NSWSC 759 per Brereton J at para 11.
9 In this case the discretionary considerations were so stark, and the evidence so clear, that I decided to proceed on the basis that the defendants could establish an arguable factual basis for the alleged equitable interest claimed in the caveats. For that reason there was no advantage to be gained by allowing cross-examination or by permitting the late issue of subpoenas designed to bolster the defendants' factual case. I refused the defendants' applications to do so.
10 At the threshold, the plaintiff raised a legal issue as to whether the interest claimed by the first defendant as registered proprietor could give rise to a valid equitable interest. This is a vexed question because of the much criticised decision of the Court of Appeal in Victoria in Swanston Mortgages Pty Limited v Trepan Investments Pty Limited [1994] VicRp 47; [1994] 1 VR 672. I will return to it. As I have foreshadowed, however, I have concluded that, in all the circumstances an interlocutory injunction would not be granted to protect the defendants' claimed interest and that the caveats should therefore be removed.
Discretionary Factors
11 Foremost among the factors of which I have taken into account is the enormous disparity between the amount owing to the plaintiff (exceeding $8 million) and the amount which, on any view, could be obtained from the sale of the properties. As I have said, the gross proceeds of sale will be $2.52 million. Even on the defendants' case, if the higher prices for which it contends could be obtained, the plaintiff's loss will be well in excess of $5 million. This is recognised in the position taken by the defendants in the principal proceedings (No 367773/2010) in which the plaintiff seeks judgment for $8,716,971. The defendants raise no substantive defence to that claim, other than a set-off for damages "by reason of the entry by the plaintiff into contracts for sale of the secured properties for significant under-value". Notwithstanding the order for the removal of the caveats that I propose to make, the defendants will remain entitled to litigate the set-off defence and the legal and factual basis that underpins it.
12 Second, the defendants are in a perilous financial position. This is evident from, among other things, their default under the mortgages and the amount outstanding to the plaintiff. Mr Whitehall states that if the sale is to proceed, neither he nor his company will be in a position to meet the shortfall owing to the plaintiff "with the consequence I will be forced into bankruptcy".
13 Third, the defendants are in no position to, and have not brought into court, the amount outstanding ( Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1971) 126 CLR 161). Nor are they in a position to offer, and they have not offered, the usual undertaking as to damages ( Martyn v Glennan (supra) at 242G). The first defendant is a $1 company to which a Controller has been appointed. The second defendant is the subject of winding up proceedings by the Deputy Commissioner of taxation. The statement in the defendants' written submissions that "the defendants are in a position to offer security for the undertaking in the sum of approximately $1 million" is unsupported by any evidence, let alone evidence that is satisfactory and convincing. The opacity and lack of detail of that offer do not provide me with any confidence. Even if such security is made available, it will count for little against the substantial shortfall that will inevitably result.
14 Fourth, this is not a case where there is any possibility that there will be surplus moneys from the sales that should be paid to the defendants (see Star v Silvia (No 1) [1994] 12 ACLC 600 at 606 (Young J). The only practical monetary consequence of the defendants' breach of duty claimed against the plaintiff, if it is proved, is that the shortfall owing by the defendants to the plaintiff may be reduced. This is hardly a reason to restrain the sale of properties.
15 Fifth, if the caveats are maintained and the contracts terminated, the losses suffered by the plaintiffs will be exacerbated and the purchasers will be put to inconvenience and expense. I have not overlooked the vendor's entitlement to rescind pursuant to condition 38.1 of the contract in the event of proceedings to set aside a contract or restraint to completion. But in the particular circumstances of this case, it seems to me to be commercially desirable to avoid that consequence. As I have said, the defendants' complaint that the maximum amount of the proceeds of sale has not been achieved will be protected in an action for equitable compensation against the plaintiff.
16 Sixth, it matters not that the incidental effect of the removal of the caveats will be to render nugatory the separate proceedings (No 13300/2011) commenced by the first defendant. Those proceedings only have a life to the extent that the first defendant is entitled to an interlocutory injunction to restrain the sale of the properties. I have concluded that the sales should be permitted to proceed.
Nature of Proceedings
17 Overall, the defendants' case appears to be predicated on the assumption that if they demonstrated a proper arguable basis for their claimed interest, they had an inviolable right to an interim injunction and, at a final hearing, an order setting aside the contracts for sale. But this represents confusion as to the nature of the proceedings to remove a caveat. I have already explained those principles.
18 This case is solely about money. There is nothing unique or intrinsically valuable in the properties themselves. In fact, in a practical commercial sense, this case is only about whether the shortfall owing to the plaintiff will be approximately $6 million or approximately $5 million. Even outside the jurisprudence relating to caveats, it is well established that a mortgagor's right to restrain or set aside a sale by a mortgagee will depend initially on the principles that govern interlocutory injunctions. Thus, in Forsyth v Blundell (1963) 126 CLR 977, the mortgagor only reached the position where it was able to contend at a final hearing that the sale should be permanently restrained because it obtained an interlocutory injunction. It only obtained an interlocutory injunction because it was able to bring into Court an amount, "sufficient to cover all moneys secured by the mortgages": at 405-5 (Walsh J). This condition was imposed on the mortgagor in accordance with the principles explained in Inglis v Commonwealth Trading Bank of Australia (supra). There was no dispute in the High Court about the appropriateness of the requirement that the monies owed be brought into Court. It was described as "the ordinary rule": at 405.
19 In Gippsreal Ltd v Hanna [2009] NSWSC 169, Brereton J reached a similar conclusion, on the facts before him, that I have reached in this case. He said, at [4]:
It is well established that a mortgagor is entitled to an injunction restraining the exercise of a power of sale by a mortgagee only on payment into Court of the amount of the mortgage debt. It is clear from Mr Hanna's evidence that he is not in a position to pay $2.5 million into Court. In the absence of any ability to pay the mortgage debt into Court, a mortgagor's remedy is by way of proceedings for an account, or an action for breach of duty against the mortgagee.
See also Banksia Mortgages Ltd v Croker [2010] NSWSC 1177 at [12] to [14]. GE
Personal Finance Pty Ltd v Smith [2006] NSWSC 889; Secure Funding Pty Ltd v
Webster [2008] NSWSC 443; Bendigo and Adelaide Bank v Tombs [2010] NSWSC 1427;
Perpetual Limited v Kelso [2008] NSWSC 906; St George Bank v Udowenko [2010]
NSWSC 1289.
20 The courts are part of the institutional framework of commerce. Prosperity depends, among other things, on the velocity of the circulation of money. It does not serve the interests of commerce to hold up the sale of these properties. I propose to order the removal of the caveats because, in my view, the defendants' legitimate financial interests will be adequately safe-guarded if they are confined to the remedy of equitable compensation and because the balance of convenience favours their removal.
The Breach of Duty
21 I should observe that the facts and circumstances on the basis of which the defendants' interest is said to arise are limited to those set out in the caveats. I have set them out at paragraph [4] above. I have made no factual finding as to those particular matters. I have assumed for the purposes of the argument that they can be sufficiently proved and that they give rise to a serious issue.
22 Of course, even if those facts and circumstances are proved at a final hearing, it does not necessarily follow that they will be sufficient to give rise to a breach of duty by the plaintiff - having regard to with the principles explained in Commonwealth Bank of Australia v Hadfield [2004] NSWCA 350 at [14]. The observations of Young J in Star v Silvia (No 1) (supra) at 606 may also be relevant. I need not decide these issues.
No Caveatable Interest
23 I said that I would return to the threshold question of whether the interest claimed by the first defendant as registered proprietor gives rise to a caveatable interest. I am bound, for reasons of comity, to follow the decision of an intermediate appellate court of another state where the relevant issue is virtually identical, unless convinced that the decision is clearly wrong. That principle is not limited to questions of statutory interpretation: Cal No 14 Pty Ltd v Motor Accidents Board [2009] 239 CLR 390 at [50] (Gummow, Heydon, Crennan JJ).
24 On this question I have the misfortune of being compelled to say that, in my respectful opinion, the decision and reasoning of Brooking J in Swanston Mortgages (supra) are clearly wrong and that I am not bound to follow them. In my view, the contrary reasoning of Needham J in Sinclair v Hope Investments [1982] 2 NSWLR 870 reflects the correct position. I regard the logic of the approach taken by Needham J as compelling. It has been followed in numerous decisions. See Re McKean's Caveat [1988] 1 Qd R 524, Cross v National Australia Bank Ltd [1992] ANZ ConvR 28, (1993) Q ConvR 54-33; R & I Bank of Western Australia Ltd v Lavery (unreported, Supreme Court of Western Australia, 25 October 1993; BC9301503) and Patmore v Upton [2004] TASSC 77, (2004) 13 Tas R 95. The criticisms of the decision in Swanston Mortgages in Meagher, Heydon and Leeming " Equity - Doctrines and Remedies " 4 th Edition, paragraph 4-170 and in Wright, Does the registered proprietor have a caveatable interest? [1995] 69 ALJ 935-939, are, in my respectful view, quite justified.
Indemnity Costs
25 The plaintiff seeks indemnity costs against the defendants pursuant to contractual rights which are contained in the Deed of Guarantee dated 31 August 2005 and the Fixed and Floating Charge dated 31 August 2005. The former document provides that the guarantor (Second Defendant):
Irrevocably and unconditionally guarantees to the lender the due and punctual payment of the debt, capital deed, to the lender and the due and punctual performance of all the obligations undertaken...provisions contained and required by the documents other than those imposed on the lender. The guarantor also indemnifies the lender against all loss, damage, costs and expenses suffered or incurred by the lender as a result of any failure by any person to pay, in a due and punctual manner, the debt on the due date, or as a result of any breach of any of the covenant and conditions contained in or required by the documents.
26 The fixed and floating charge provides that the chargor (First Defendant) indemnifies the chargee (the Plaintiff) from and against any action, claim, demand, loss interest, fee, damage, cost and expense of any nature...for which the chargee becomes liable at any time in respect of or arising from any one or more of the following: "(b) any loss or damage occasioned by or liability incurred by the chargee in the exercise, non-exercise or purported exercise of any of its powers, rights and privileges contained or required by this document whether or not the chargee acted negligently or was guilty of laches or waiver."
27 I am not prepared to order indemnity costs of the proceedings on the basis of those contractual provisions. They give rise to questions of construction as to which the defendant may wish to put submissions. But more fundamentally, the mere fact, without more, of the existence of a contractual right does not automatically entitle the plaintiff to indemnity costs of the proceedings particularly where the reliance on the contractual right is made without notice. I refuse the application for indemnity costs. The plaintiff's contractual right is however preserved.
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