Albarran v Joe & Joe Developments

CATCHWORDS : REAL PROPERTY - torrens title - caveats against dealings - application by second defendants for second-named third defendant to withdraw caveat lodged by her against title of land owned by second defendants - where caveat specified equitable interest arising under deed of company arrangement - where third defendants claimed to have overpaid under deed of company arrangement - where second defendants gave mortgage to administrators of company - where administrators lodged caveat - where third defendants asserted right to subrogation - where third defendants consented to discharge of mortgage - whether caveat should stand - where form of caveat defective - where equitable interest not identified - whether third defendants be restrained from lodging any further caveat.

LEGISLATION CITED : Corporations Act 2001 (Cth) Real Property Act 1900 (NSW)

CASES CITED : Circuit Finance P/L v Crown & Gleeson Securities P/L [2005] NSWSC 997 Construction Materials v Vimwise Civil Engineering [2005] NSWSC 880

Richard Albarran (First Plaintiff) Blair Pleash (Second Plaintiff) PARTIES : Joe & Joe Developments Pty Limited (Subject to Deed of Company Agreement) (First Defendant) Joseph Kossaifi and Dolly Kossaifi (Second Defendants) Tonay Elias, Kelly Elias, George Elias and Emily Elias (Third Defendants)

COUNSEL : J Baird (Second Defendant) G D McDonald (Third Defendant)

SOLICITORS : Yates Beaggi Lawyers (Second Defendant) Marsdens Law Group (Third Defendant)

• 7 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

24 November 2010 (ex tempore - revised 24 November 2010)

2009/291539 ALBARRAN PTY LIMITED v JOE & JOE DEVELOPMENTS PTY LIMITED JUDGMENT

1 HIS HONOUR: There are two applications before the Court today. One is an application by the second defendants (whom I will call "the Kossaifis") for an order that the second-named third defendant (to whom I will refer, without intending to be disrespectful or patronising, as "Kelly") withdraw a caveat lodged by her against the title of land owned by the Kossaifis. 2 The caveat in question specifies the estate or interest claimed as follows:

An equitable interest arising under a DOCA because the provisions that establish the right of equalisation are contained in the DOCA (deed of company arrangement). 3 The caveat further specifies that the estate or interest arises by virtue of a "instrument", namely, the deed of company arrangement referred to already. 4 Finally, the caveat specifies that the estate or interest arises by virtue of the following facts:

A DOCA between the parties was entered into whereby all parties were to equally contribute payment as designated by the DOCA. The Kossaifi party has not.

5 The deed of company arrangement, or DOCA, referred to was made on 31 March 2009. It related to a company known as Joe and Joe Development Pty Ltd (the Company). Under the DOCA, the company and the "Guarantor" were to pay into the Deed Fund such amount as were required to discharge in full, in effect, all creditors and other liabilities of the company, including the costs of administration. 6 The "Guarantor" included the Kossaifis, and four members of the Elias family, including Kelly, to whom I will refer collectively as the "Eliases", who are the third defendants. 7 In substance, once the company's debts were cleared or the way to clearing them could be seen, the Kossaifis and the Eliases were to participate in a share buy-back under which they would transfer back to the company specified parcels of shares issued to them in exchange for the transfer to them of specified parcels of real estate owned by the company. One of those specified parcels of real estate, which I will call Lot 4, has been transferred to the Kossaifis. 8 It seems that the Eliases considered that they have over-paid substantially, compared to the Kossaifis, amounts to the deed fund. I do not know if that is in dispute, and it is not appropriate to make final findings of fact, but I am certainly satisfied that there is at the very least a serious question to be tried as to whether such over-payments as are alleged have been made. 9 If that is the case, then, when the final distribution takes place of the company's property, the Eliases will be entitled to be paid in priority to recoup such amounts as they may have overpaid toward satisfaction of the company's liabilities (it seems that the contributions may have been required because although the company possessed assets, it may have been short of cash). 10 Clause 26.6 of the DOCA provided that when properties were transferred out to the Kossaifis or the Eliases as the case may be, they would be transferred subject to a mortgage created by the company to the administrators which would, amongst other things, secure the obligations of the transferees, as Guarantors, to contribute towards the deed fund. In fact what appears to have happened is that a mortgage, or agreement for mortgage, was given by the Kossaifis over Lot 4 to the administrators after the transfer, and the administrators lodged a caveat purportedly to protect their interest pursuant to that agreement for mortgage. 11 On examination, it appears, from the submissions of Mr McDonald of counsel for the Eliases, that his clients' real claim is to be subrogated to the benefit of the mortgage agreed to be given by the Kossaifis to the administrators. I am prepared to accept, for present purposes, that such a right, of subrogation to a mortgage over real estate, would be capable of supporting a caveat. 12 However, the agreements recorded in the DOCA were varied by orders of the Court made on 7 May 2010. Those orders were expressed to be made pursuant to s 447A of the Corporations Act 2001 (Cth), so that in effect and substance they operate as amendments to the DOCA. 13 As I have said, the orders were made by consent. That means that all parties, including the Kossaifis and the Eliases, consented to the making of the orders. 14 One of the matters referred to in the orders (para 5) was:

Noted that the plaintiffs will discharge the mortgage provided by the second defendants in respect of Lot 4.

15 In circumstances where the Eliases consented to the discharge of the mortgage, in respect of which they now assert a right to subrogation, it does not seem to me that the caveat should be allowed to stand. That is because, as a result of an agreement which had the effect of amending the DOCA, and which was made with the consent of the Eliases, the very mortgage for which they claim the right of subrogation was agreed to be discharged. 16 Thus, as a matter of substance, I am satisfied that the caveat should not be allowed to stand. 17 There is, further, an additional problem with the caveat. That problem is that its form is hopelessly defective. 18 In a series of cases starting with the decision of Campbell J in Hanson Construction Materials v Vimwise Civil Engineering [2005] NSWSC 880, it has been established that a description of the interest claimed to be protected by a caveat as "an equitable interest" or "an equitable interest in the land" is not sufficient for the purposes of s 74F of the Real Property Act 1900 (NSW). 19 The reasons why this is so were explained clearly by Brereton J in Circuit Finance P/L v Crown & Gleeson Securities P/L [2005] NSWSC 997 at [15] and following, where his Honour referred to relevant provisions of the Real Property Act, and of the Regulation. I need do no more than say that I agree with, and adopt, his Honour's analysis. 20 In this case, although the description of the interest gives some surplus verbiage purporting to say how the equitable interest arises, it gives no indication of what that equitable interest might be. Certainly what is said could not possibly give to anyone looking at the caveat (be that person the Kossaifis, the Registrar General, or a person intending to take an interest in the land) that the interest claimed was one by way of subrogation to the rights of the mortgagee under an equitable mortgage. 21 For that reason, too, the caveat must be withdrawn. 22 The Kossaifis claim, further, an order restraining the Eliases from lodging further caveats which claim the same or similar interest as that under consideration. The background to that aspect of the relief claimed is that the caveat lodged by Kelly is, so far, the third lodged by one or other of the Eliases. Each of the caveats that has been lodged previously was bad in form, because it claimed "an equitable interest arising under the DOCA"; and it was bad in substance too, for the reasons already given. The second caveat, and the Kelly caveat, gave a bit more detail by specifying the instrument and specifying the facts to which I have referred above. 23 There is a fourth third defendant who has not, so far, lodged a caveat. Taking into account the history to date, I am satisfied that unless some order restraining him is made, it is at least likely that he will seek to lodge a caveat in the same terms, or substantially similar terms, as those lodged by the other third defendants. 24 However, in my view the extent of injunctive relief granted should go no further than the protection given by s 74 O of the Real Property Act. 25 For those reasons, I make the following orders:

1. Order in terms of prayer 1 of the amended notice of motion filed in court for the second defendants today.

2. Order that the third defendants and each of them be restrained from, by themselves, their servants and agents and otherwise, lodging any further caveat against the title to the land comprised in Folio Identifier Lot 4 Strata Plan 78565 in respect of the same estate, interest or right and purporting to be based on the same facts as caveat AF858312. 26 I will defer consideration of the question of costs until the third defendants' interlocutory process is dealt with. I direct the orders be entered forthwith. 27 (Mr Baird sought indemnity costs. Counsel addressed on the question of costs.) 28 The application for relief in terms of prayers 6 and 7 of the interlocutory process is not pressed today. In those circumstances, there is no reason why I should not deal with the costs of the second defendants' notice of motion now. In my view, there is no reason why costs should not follow the event. Nothing was put to me to suggest this consequence was improper. 29 Mr Baird, of counsel, for the second defendants, asks for an order that the costs be assessed on the indemnity basis. He refers to two items of correspondence, one an e-mail of 8 October 2010 and the other a letter of 28 October 2010, requesting the withdrawal of one of the antecedent caveats and pointing out the reasons why this should be done. In substance those reasons have been vindicated. 30 In my view, the combination of the pattern of behaviour to which I have referred already, the hopelessly defective form of the caveats, and the failure to withdraw them when asked to do so, amounts to a sufficient basis for ordering that costs be assessed on the indemnity basis. Accordingly, I make the following further orders:

1. Order the third defendants to pay the second defendants' costs of the second defendants' amended notice of motion.

2. Order that those costs be assessed on the indemnity basis and be assessed forthwith.

3. Stand the proceedings over to the Registrar's list on 9 December 2010.

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