ACN 601 158 507 Pty Ltd v Damodaran

Supreme Court of NSW|2019-05-31|Before: Henry J, Damodaran P

Solicitors: DSS Law (Plaintiff) No appearance by the defendant File Number(s): 2019/149593

Judgment

On 16 October 2018, the plaintiff entered into an agreement to provide a loan of $60,000.00 (Loan Agreement) with Damodaran P Kumar Pty Ltd I.I.O.R & A.T.F for the Damodaran P Kumar Family Trust (borrowers).
The plaintiff advanced the loan for $60,000 and the borrowers made weekly payments until they defaulted on the payment due on 4 December 2018, which default was not remedied and constituted an Event of Default under the Loan Agreement. The borrowers did not make any further payments to the plaintiff after that date.
The defendant entered into the Loan Agreement as guarantor and was obliged to observe and perform the obligations of the borrowers under that agreement, including payment of any outstanding monies.
The defendant was also the registered proprietor of land, comprising folio identifier 4/348298 (Property). On 11 December 2018, after the Event of Default of the borrowers, the plaintiff lodged caveat number AN922854 over the title of the Property (Caveat).
On 1 February 2019, the plaintiff commenced proceedings against the borrowers and the defendant in the Local Court of NSW seeking repayment of the outstanding loan amounts and interest. On 24 May 2019, the plaintiff obtained default judgment against the borrowers and the defendant in the amount of $70,751.90 inclusive of costs.

Consideration

Section 74K of the Real Property Act provides for the extension of caveats where a lapsing notice has been served and an application to extend has been made to the Supreme Court.
An extension of a caveat may be granted for such period specified in the order or until further order if the Court is satisfied that the caveator's claim has or may have substance. If the Court is not satisfied then the application to extend the caveat must be dismissed: s 74K(2) Real Property Act.
Accordingly, I must be satisfied that the plaintiff's claim of a caveatable interest has substance before making an order to extend the Caveat. This means I must be satisfied that the plaintiff has a caveatable interest in the Property and that the Caveat complies with the requirement of the Real Property Act to sufficiently describe the nature of the estate or interest claimed.

Does the plaintiff have a caveatable interest in the Property?

A caveat can be entered against land if the caveator has a relevant proprietary interest, including an equitable interest, in land: s 74K Real Property Act.
Whether a caveatable interest in land is created by an agreement will depend on whether, construing the agreement as a whole, the parties have demonstrated a clear intention to create a caveatable interest: Perpetual Nominees Ltd v Springfield Retail Pty Ltd [2009] NSWSC 188.
The agreement in this case is the Loan Agreement. Relevantly, the Loan Agreement includes the following provisions: Collateral means all the Grantor's present and after-acquired property. …. Grantor means: (a) the Borrower; and (b) …the Guarantor ... Secured Money means: (a) All moneys now or hereafter owing or payable to the Lender by the Borrower and/or the Security Provider. … Security means each and every document, agreement or other security provided from time to time which secures the payment of the Secured Money or the performance of the obligations of the Security Provider in favour of the Lender which may be executed or provided by the Security Provider or any other person (including this Agreement, those documents described in Item 6, Item 8 and Item 9 of the Schedule and any additional security provided in accordance with Clause 5.5 hereof) Security Provider means each and every party to or provider of the security including the Borrower and the Guarantors … 5. Security 5.1 The obligations of the Lender under this Agreement are subject to and conditional upon the Borrower and/or the Security Provider: (a) providing the Security specified in Item 6 and Item 9 of the Schedule in such form and containing such provisions as are satisfactory to the Lender and (b) subject to clause 26.10, maintaining the Security for as long as any Secured Money is outstanding. 24. The Guarantee … 24.5 If an Event of Default has occurred, the Guarantor as beneficial owner… hereby charges in favour of the Lender with the payment of all moneys payable under this Agreement, the Security and the whole of its undertaking and assets whatsoever and wheresoever both present and future including…all freehold and leasehold interests in land which the Guarantor has or may acquire. … 24.9 The Guarantor consents to, on notice, the Lender taking such Security as its deems reasonably appropriate, over the undertaking, property and assets of the Guarantor at any at any time from the date of this Agreement until the Secured Money and any other amount payable under this Agreement is repaid in full, to guarantee payment of the Secured Money and any other amount payable under this Agreement. … 24.11 Without limiting the generality of the foregoing, the Guarantor hereby agrees to consent to the Lender registering a caveat over any real property owned by the Guarantor to recognise its interest in such property following the occurrence of an Event of Default. ... 26. Borrower PPSA Personal Property and charge over assets 26.1 Charge The Grantor grants a security interest in the Collateral to the Lender to secure payment of the Secured Money. This security interest is a transfer by way of security over Collateral consisting of "accounts" and "chattel paper" (each defined in the PPSA) and a charge over all other Collateral. If for any reason it is necessary to determine the nature of this charge, it is a floating charge over Revolving Assets and a fixed charge over all other Collateral. … 26.8 Consent to Security The Grantor consents to the Lender taking such Security as it deems reasonably appropriate over the undertaking, property and assets of the Grantor at any time from the date of this Agreement until the Secured Money and any other amount payable under this Agreement is repaid in full, to guarantee payment of the Loan Amount and any other amount payable under this Agreement. Without limiting the generality of the foregoing, the Grantor hereby agrees to and consents to the Lender registering a caveat over any real property owned by the Grantor to recognise its interest in such property."
The plaintiff submits that its proprietary interest in the Property arises by reason of the terms of the Loan Agreement, relying on clauses 24.9 and 24.11.
Clause 24.9 provides consent by the defendant to the plaintiff taking Security over the defendant's property and assets to guarantee payment of the monies due and payable under the Loan Agreement. That clause does not create any security interest in property of the defendant in favour of the plaintiff. Rather, it entitles the plaintiff to take Security at some point in time on notice to the defendant.
There is no evidence that the plaintiff took Security (for example, in the form of a mortgage over the Property) on notice to the defendant pursuant to clause 24.9, and I do not accept that lodging the Caveat, by itself, created such an interest. Clause 24.11 is an authorisation to lodge a caveat to recognise the plaintiff's interest in the defendant's real property, which interest must have arisen by some other clause of the Loan Agreement or by taking Security on notice to the defendant.
The plaintiff also referred to clause 26.8 of the Loan Agreement, which provides consent by the defendant to the Lender taking such Security as it deems appropriate. This clause also provides an entitlement to the plaintiff to take Security at some time and requires some act by the plaintiff to take that Security, similar to clause 24.9. Lodging the Caveat was not that act.
The other references to Security being given by the defendant in the Loan Agreement (for example, clause 5.1 and the definition of Security) do not, in my view, assist the plaintiff given they are also drafted in a way that requires some act to be done to provide such Security and, the definition of Security refers to Item 9 of the Schedule to the Loan Agreement which, in this case, was not completed in respect of the defendant.
Notwithstanding this, I accept the plaintiff's submission that it had a caveatable interest by way of a charge over the Property to secure outstanding monies under the Loan Agreement at the time the Caveat was lodged. That interest arose upon the Event of Default by the borrowers, pursuant to the operation of clauses 24.5 and 24.11, and was capable of registration as a caveat under s 74F of the Real Property Act at the time the Caveat was lodged on 11 December 2018. This is for the following reasons.
Pursuant to clause 24.5, the defendant, as guarantor, expressly charged his assets with the payment of all monies payable under the Loan Agreement in favour of the plaintiff, which charge arose upon an Event of Default occurring. I accept that there was an Event of Default on 4 December 2018 and that, from that date, the defendant was liable as guarantor for all monies under the Loan Agreement: clauses 24.1 and 24.2 of the Loan Agreement.
While clause 24.5 is in more general terms (referring to charges the whole of his undertaking and assets both present and future), it makes clear that the charge extends to land, referring to "all freehold and leasehold interests in land". Further, clause 24.11 of the Loan Agreement identifies particular property which the defendant charged with payment of the monies due following an Event of Default and in which the plaintiff should have an interest, being "any real property owned by the Guarantor".
The references to "any real property owned by the Guarantor" in clause 24.11 together with clause 24.5 expressly contemplating a charge over "freehold…interests in land" evince the intention that the property to be charged following an Event of Default was the real property owned by the defendant as at the date of the Loan Agreement. This supports the interest being in the nature of a charge: Patrick John Moloney v Maria Coppola & Anor [2012] NSWSC 728 at [28]; Jackson v Richards [2005] NSWSC 630. The real property of the defendant as at the date of the Loan Agreement included the Property, as it was owned by the defendant from at least 1 September 2018, over six weeks before entry into the Loan Agreement.
The plaintiff's entitlement in clause 24.11 to lodge a caveat is expressly stated to arise following the occurrence of an Event of Default and in recognition of its interest in the defendant's property. The Event of Default is the time at which the defendant charged his assets, including his freehold interests in property (under clause 24.5) with the payment of all monies payable under the Loan Agreement. Together, clauses 24.5 and 24.11 should be read as an agreement by the defendant (as guarantor) to attach the debt arising following an Event of Default by way of a charge to the defendant's real property (in this case, the Property), which is "apt to create an equitable charge": Murphy v Wright (1992) 5 BPR 97,402, and the Property over which the defendant had an entitlement to lodge the Caveat.
Clause 24.11 specifies the interest which the caveat is to protect, being the plaintiff's interest in the defendant's real property. As noted above, clause 24.5 provides that the interest which arises on the occurrence of an Event of Default is in the nature of a charge to secure payment of all monies payable over that property. The authorisation to lodge a caveat contained in clause 24.11 is, therefore, more than a contractual provision which solely provides consent to lodge a caveat: Taleb v National Bank Ltd (2011) 82 NSWLR 489; citing Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260.
A question arose at the hearing as to whether the plaintiff's interest in the Property arose at an earlier time given the terms of clause 26.1. That clause is in terms which purport to provide an immediate grant of a security interest in the defendant's present and after-acquired property to secure payment of all monies owing or payable under the Loan Agreement by way of a fixed charge over certain of the defendant's property, rather than a security interest and charge arising at some future time, such as on default or when monies are due and payable. It is not necessary for me to determine that question given the plaintiff did not rely on this clause in support of its case and its position that its interest in the Property arose on the Event of Default, which I have accepted for the reasons set out above.

Do the terms of the caveat satisfy the requirements of the Real Property Act?

Section 74F of the Real Property Act provides that caveats must be in the approved form and must specify, amongst other things, the prescribed particulars of the legal or equitable estate or interest to which the caveator claims to be entitled: ss 74F(5)(a) and 74F(5)(b)(v).
The prescribed particulars are set out in schedule 3 of the Real Property Regulation 2014 (NSW) and relevantly require: 1. particulars of the nature of the estate or interest in land claimed by the caveator: sch 3 (1); and 2. if the caveator claims as a mortgagee or chargee, a statement of the amount (if readily ascertainable) of the debt or other sum of money charged on the land (or, if the money is not readily ascertainable, "the nature of the debt...secured on the land"): sch 3(4).
It is not necessary to specify whether the estate or interest claimed is legal or equitable, or the quantum of the estate or interest claimed (except as provided above): sch 3(10).
The Court may disregard any failure by a caveator to comply strictly with the requirements with respect to the form of a caveat: s 74L Real Property Act.
The power to disregard under s 74L does not extend to a defective description of the nature of the estate or interest claimed in the caveat, as that goes to the fundamental requirement to fully and properly describe the interest claimed: Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880; Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260.
In Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880, Campbell J (as his Honour then was), noted at [28] that whether a caveat adequately describes the estate or interest is to be decided from the point of view of a person examining the caveat, who need not necessarily be the registered proprietor. In that case, the caveat identified the nature of the estate or interest in the land as "an equitable interest". The Court considered that description to be too vague and imprecise to properly describe the interest claimed, as an equitable interest could mean any one of a multitude of interests and the failure to fully and properly describe the interest could not be ignored in reliance on s 74L.
Likewise, a caveat that claimed an equitable interest by virtue of a lease agreement was held to be defective in Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd (2005) 12 BPR 23,403. In that case, s 74L was of no assistance.
The Caveat in this case sets out the details in support of the claimed proprietary interest as "Interest pursuant to a loan agreement and guarantee dated 16 October 2018".
This description of the Caveat does not adequately describe the nature of the interest claimed by the plaintiff in the Property. The nature of the proprietary "interest" is not identified and the reference to the loan agreement does not assist as it does not identify any entitlement to a particular interest, such as a charge, mortgage or some other interest. It also does not refer to the entitlement to lodge a caveat: Business Acquisitions Australia Pty Ltd v Renshall and Others [2006] NSWSC 1238.
At the resumed hearing on 31 May, plaintiff's counsel conceded that the Caveat in its current form was inadequately described. Counsel submitted that the Court may amend the terms of the caveat. I do not accept that such a defect can be cured by amendment given its failure to describe the nature of the interest. It is not a situation where the defect involved a clear mistake: Ron Medich Properties Pty Limited v McGurk [2010] NSWSC 552 at [8]; The Woodsman Pty Ltd v Jozic [2018] NSWSC 1311 at [17]; Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) 5 BPR 11,314.

Dismissal of lapsing notice

The plaintiff's summons, at paragraph 1, seeks an order that the defendant's lapsing notice be dismissed. I was not taken to any provision in the Real Property Act or otherwise, or any authorities, in relation to this relief. At the resumed hearing on 31 May 2019 plaintiff's counsel advised that the plaintiff no longer sought that order.

Extension of the Caveat

Paragraph 2 of the summons seeks an order that the caveat be extended pursuant to s 74K(1) of the Real Property Act. While I have found that the plaintiff had a caveatable interest in the Property upon the Event of Default (which was in existence at the time the Caveat was lodged), I have also found that the Caveat failed to adequately describe the nature of the interest claimed by the plaintiff in the Property. I have also found that this defect cannot be cured by amending the Caveat. Accordingly, I cannot be satisfied that the plaintiff's claim, as set out in the Caveat, has substance and am bound to dismiss the plaintiff's application to extend the operation of the Caveat: s 74(2) Real Property Act; Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd (2005) 12 BPR 23,403 at [31].
The plaintiff's notice of motion, at paragraph 2, includes a claim for such further or other orders as the Court deems fit. At the resumption of the hearing on 31 May 2019, plaintiff's counsel indicated that, if the Court determined that the Caveat could not be extended notwithstanding the plaintiff's caveatable interest in the Property, he sought an order allowing the plaintiff to withdraw the Caveat (pursuant to s 74MA of the Real Property Act) and an order granting the plaintiff leave to lodge a further caveat (pursuant to s 74O(2) of the Real Property Act).
The plaintiff as the caveator does not need leave to withdraw the Caveat as it can do so as of right under s 74M(1)(a) of the Real Property Act. Accordingly, I do not consider it necessary to make an order that the plaintiff be given leave to withdraw the caveat under s 74MA. As the order made on 15 May 2019 extended the Caveat until further order, it is appropriate to order the plaintiff to withdraw the Caveat forthwith.
Section 74O of the Real Property Act applies to successive caveats that claim the same estate, interest or right and purport to be based on the same facts: The Woodsman Pty Ltd v Jozic [2018] NSWSC 1311at [18].
It has been said that the wording in the two caveats as to the interest claimed or as to the supporting facts do not have to be identical to engage s 74O, and that what is necessary is for it to be apparent to the Registrar General that the interests claimed in the two caveats, and the facts relied upon, are the same in each case: FTFS Holdings Pty Ltd v Business Acquisitions Australia Pty Ltd [2006] NSWSC 846 at [13] - [14].
In my view, it would likely be apparent to the Registrar General that a fresh caveat claiming an interest in the Property by way of a charge and entitlement to lodge a caveat based on clauses 24.5 and 24.11 of the Loan Agreement would be seeking to claim an interest based on the same supporting facts as the interest purported to be claimed in the original Caveat. This is because the original Caveat and any fresh caveat would both refer to the Loan Agreement and guarantee between the plaintiff and the defendant dated 18 October 2018.
It may not be as clear from a fresh caveat that the same interest is being claimed as that in the original Caveat, given the vague description of the interest in the original Caveat and the need to articulate the nature of that interest in any fresh caveat. However, it seems to me that the Registrar General could be likely to proceed on the basis that they were the same interest since the fresh caveat would presumably identify and detail the nature of the interest said to arise under the Loan Agreement, rather than claiming a distinctly different or inconsistent interest to that in the original Caveat. Further, fresh caveat would be lodged in the name of the same party as the original Caveat.
In this case, the interests being claimed are the same and rely on the same facts - the original Caveat simply does not adequately describe the nature of that interest. Accordingly, I accept that an order under s 74O can be made in this case.
Although notice of the plaintiff's application for an order to lodge a further caveat under s 74O has not been given to the defendant, I am satisfied that it is an appropriate order to make and that the defendant could not reasonably claim to be prejudiced by not having prior notice of it.
The defendant has not taken any active steps in the proceedings or appeared at any of the hearings and, while he advised the Court that he could not attend the resumed hearing on 31 May 2019 due to scheduled medico-legal appointments, he did not seek an adjournment or an opportunity to be heard. Further, and despite the defects with the Caveat which prevents it being extended, the defendant should at least be aware that the plaintiff's claimed interest in the Property arises from the terms of the Loan Agreement under which he was guarantor, and not some other interest at large. The plaintiff's application for an order giving leave to lodge a fresh caveat is also not one for which prior notice to, and service on, the defendant is required under the Real Property Act. If it was, I would, in the circumstances of this matter, dispense with such service.

Declaratory relief

Paragraph 3 of the plaintiff's summons seeks a declaration that the plaintiff has an estate or interest in the whole of the Property. Presumably, this was included as a summons claiming an order extending the operation of a caveat must include a substantive claim for final relief and the plaintiff has already obtained judgment from the Local Court in respect of the unpaid monies under the Loan Agreement: Wu v Dardaneliotou [2008] NSWSC 1319 at [2].
The Court has inherent power to grant declaratory relief: s 75 Supreme Court Act 1970 (NSW).
Before exercising the discretionary power to make a declaration, the Court must be satisfied that the question to be resolved is real and not theoretical, and that there is a proper contradictor, being someone who has a presently existing interest to oppose the declaration sought: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437- 438; Russian Commercial and Industrial Bank v British Bank for Foreign Trade [1921] 2 AC 438 at 448.
Here, the defendant was a proper contradictor but has not taken any steps in the proceedings. This is to be contrasted with the position in some other cases in which the Court has made a declaration where a contradictor has not ultimately contested the proceedings but, for example, had taken some initial steps or there was some material before the Court which joined issue with the claim being made in support of the declaration: Zetting v Müller [2017] NSWSC 659; Church of the Foursquare Gospel (Australia) Ltd v New Hope Church Swansea Inc [2019] NSWSC 519; Hill v Dunn [2019] NSWSC 419.
The plaintiff did not make any submissions on this issue. Even if the Court had power to make a declaration in the circumstances of this case, I am not satisfied that it is appropriate to do so as the terms sought by the declaration do not adequately describe the nature of the interest claimed.

Costs

The plaintiff seeks an order that its costs of the proceedings be paid by the defendant on an indemnity basis or alternatively pursuant to s 74P of the Real Property Act.
In support of the order for indemnity costs, the plaintiff relies on clause 8.1(a) of the Loan Agreement which provides that the Borrower will, upon the Lender's demand or as directed by the Lender, pay all costs which are reasonably incurred by the Lender in respect of the Loan Agreement and/or the Security, which includes legal costs on a full indemnity basis.
The award of costs is a matter within the Court's discretion: s 98 Civil Procedure Act 2005 (NSW). While the general rule is that costs follow the event, the Court may make some other award if it is appropriate to do so: r 42.1 Uniform Civil Procedure Rules 2005 (NSW).
The plaintiff has had some success in these proceedings as the Court has accepted it has a caveatable interest in the Property. The plaintiff has also failed to obtain an order extending the operation of the Caveat and has not obtained a declaration in the terms sought. It also gave up the claim for an order dismissing the lapsing notice on the second day of the hearing, and conceded that the Caveat was defective for lack of description.
The defendant did not appear at the hearing and, given I have found that the Caveat should be withdrawn, it cannot be said that the defendant lodged a lapsing notice without reasonable cause.
In those circumstances, I do not consider that the legal costs in relation to these proceedings could be characterised as costs which were all reasonably incurred by the plaintiff in respect of the Loan Agreement and/or the security (assuming that enforcement costs would fall within the terms of clause 8.1(a)).
To my mind, the proper course would have been for the plaintiff to allow the Caveat to lapse or seek to withdraw it and then make an application under s 74O to lodge a further caveat, rather than commencing these proceedings on an urgent basis seeking to extend the Caveat in its current terms.
For those reasons, I do not consider that a costs order should be made in favour of the plaintiff on an indemnity or ordinary basis and consider the appropriate order is for the plaintiff to bear its own costs of the proceedings.

Orders

For these reasons, I make the following orders: 1. Order that the plaintiff withdraw Caveat number AN922854 over the defendant's land contained in certificate of title folio identifier 4/358298 (defendant's property) forthwith. 2. Grant leave to the plaintiff, pursuant to section 74O of the Real Property Act 1900 (NSW), to lodge a further caveat in respect of the defendant's property claiming an interest by way of a charge for payment of moneys outstanding and an entitlement to lodge a caveat pursuant to clauses 24.5 and 24.11 of a Loan Agreement and Guarantee dated 16 October 2018 between the plaintiff and the defendant. 3. No order as to costs with the intent that the plaintiff will bear its own costs of the proceedings. 4. Otherwise dismiss the plaintiff's summons and notice of motion dated 13 May 2019.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 04 June 2019

Real Property Regulation 2014(NSW)sch 3

Real Property Act 1900(NSW)ss 74F, 74K, 74L, 74MA, 74O, 74P

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Judgment (11 paragraphs)

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