The Plaintiff seeks to extend a caveat lodged on 17 December 2021 over a property at Addison Road Marrickville NSW (Marrickville Property). The Defendant is the sole registered proprietor of the Marrickville Property.
On 13 March 2023, the Plaintiff received a lapsing notice and, therefore, if not extended, the caveat will lapse early the following week.
On 29 March 2023, the Plaintiff obtained orders for short service of the Summons and supporting affidavit of Mr Harry Haralambides, the public officer of the Plaintiff, and a sealed copy of the orders. Those orders allowed service to be effected by way of delivery of the documents to the Marrickville Property.
When the matter was called this morning shortly after 9:30AM, there was no appearance by the Defendant.
Before moving for an order extending the caveat, the Plaintiff sought leave to file in Court a Notice of Motion seeking an order pursuant to Uniform Civil Procedure Rules 2005 (NSW) r 10.14(3) that the relevant documents were taken to have been served by delivery of the documents to the Marrickville Property and by emailing the documents to an email known in 2022 to be that of the daughter of the Defendant, Ms Carmen Melek.
On some occasions in 2022 Carmen Melek had corresponded by email and text message with Mr Haralambides concerning the debt underlying the claimed proprietary interest in the Marrickville Property.
The Plaintiff sought time to amend the Notice of Motion and attempt service on Carmen Melek by text message to her telephone. The proceedings were adjourned to 11:15AM and when the matter recommenced there was no appearance from the Defendant.
I was nevertheless prepared to hear the Plaintiff's application for an extension of the caveat for the following reasons.
First, I am satisfied that Carmen Melek has been provided by WhatsApp and by email with the relevant documents and from the evidence of her communication with the Plaintiff, it appears she is aware of the material facts involved in the Plaintiff's claim against the Defendant.
Further, in circumstances where the whereabouts of the Defendant is not presently known, it is appropriate for the Plaintiff to have served the documents by leaving them at the Marrickville Property.
Secondly, there is some urgency in the Plaintiff's application for an extension of a caveat being heard today because of the imminent lapsing of the caveat. Should personal service be required and not be possible, then the Plaintiff's ability to extend the caveat would likely be lost.
Turning to the substance of the application for an extension of a caveat, the known test is that the applicant must demonstrate that the caveat has or may have substance, or that there is a seriously arguable case. Further, the applicant must demonstrate that the balance of convenience favours the extension of the caveat until further order and the real dispute can be determined: Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1 at 16-17 (Sackville AJA, with whom Beazley P and Payne JA agreed).
The caveat seeks to protect a claim or interest described as "Estate in Fee Simple" by virtue of "Agreement dated 01/12/2020". The details supporting the claim are "Mortgage granted pursuant to commercial sublease".
The caveat was lodged pursuant to an agreement in the form of a sub-lease between the Plaintiff and the Defendant and her late husband. In that sub-lease, the Defendant and her late husband agreed to sub-lease a commercial property in Marrickville, of which the Plaintiff was the lessee.
The obligations under the sublease required the sub-tenants to pay rent, but also pay what was described as a "prior lease debt" of Carmen Melek and the Defendant and her late husband in the sum of $135,190.80 by no later than 30 November 2023.
The Defendant and her late husband also provided security for the performance of the obligations agreed to as tenants in Special Condition 3, which relevantly provided:
SECURITY
a. As security for the performance of the Tenant's obligations under this lease the Tenant and or the guarantor/s (hereinafter for this clause collectively referred to as the Tenant):
i. Grants to the Landlord a mortgage of all of the Tenant's right, title and interest in any land or real property that the Tenant owns or in which the Tenant holds an interest as at the date of this lease, and any land or real property that the Tenant acquires or in which the Tenant obtains an interest at any time after the date of this lease;
[…]
b. The Tenant agrees that the mortgages referred to in subclause (a) contain and incorporate the covenants contained in Memorandum Q860000 lodged with Land Registry Services (NSW) and in the case of land in other States, with that memorandum modified so that references to New South Wales are replaced with reference to the applicable State, and references to the Real Property Act 1900 and the Conveyancing Act 1919 replaced by the equivalent legislation in that State.
c. The Tenant:
i. Undertakes at the Landlord's request to promptly execute a separate mortgage document in relation to any land referred to in subclause (a) which mortgage must conform to subclause (b) and be in registrable form;
ii. Acknowledges that the Landlord may register a caveat against any land the subject of the mortgages referred to subclause (a); and
iii. Authorises the Landlord to take all actions necessary to give full effect to any mortgage referred to in subclause (a).
The language of Special Condition 3 clearly encompasses language of security over real property in the form of a mortgage, and further entitles the Plaintiff to require the Defendant and her late husband to execute a mortgage document and entitles the Plaintiff to lodge a caveat.
Section 74F(5) of the Real Property Act 1900 (NSW) requires the caveat to be in the approved form and to specify, inter alia, the prescribed particulars of the estate or interest to which the caveator claims to be entitled.
Schedule 2 and r 7 of the Real Property Regulation 2019 (NSW) require a caveat lodged under s 74F to specify particulars of:
(1) the nature of the estate or interest in land claimed by the caveator; and
(2) the facts on which the claim is founded, including (if appropriate) a statement as to the manner in which the estate or interest claimed is derived from the registered proprietor of the estate or interest against which the caveat is to operate.
Schedule 2 provides that it is not necessary to specify whether the estate or interest claimed is legal or equitable, the quantum of the estate or interest claimed for certain interests, or how the estate or interest claimed ranks in priority with other estates and interests in the land.
Whether a caveat adequately describes the estate or interest claimed is to be decided from the point of view of a person examining the caveat, noting that this person will not necessarily be the registered proprietor: Hanson Construction Materials v Vimwise Civil Engineering [2005] NSWSC 880 at [28] (Campbell J) citing Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407, 422-423 (Mason CJ, Dawson and McHugh J).
As McDougall J stated in Schibaia v Elias [2013] NSWSC 1485 at [25]:
The whole purpose of the Real Property Act is to try and prevent the need for people to go behind the Register, in particular to go behind the documents that have been recorded or lodged, to see what estates or interest there are in land that is subject to the provision of the Real Property Act.
Section 74K(1) of the Real Property Act 1900 (NSW) relevantly provides:
(1) Where a caveator is served with a notice prepared under section 74I (1) or (2), 74J (1) or 74JA (3), the caveator may prepare, in the manner prescribed by rules of Court, an application to the Supreme Court for an order extending the operation of the caveat. (2) Subject to subsection (3), on the hearing of an application made under subsection (1), the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application.
In Sutherland v Vale [2008] NSWSC 759 at [10]-[12], Brereton J (as his Honour then was) stated:
10. … it is an essential ground of even an interlocutory order extending the operation of a caveat that the Court be satisfied that the caveator's claim in the caveat 'has or may have substance'. If the Court is not so satisfied, s 74K(2) commands the Court to dismiss the application.
11. It is well established that on an application for an order extending the operation of a caveat, a test substantially the same as that for an interlocutory injunction applies. First, the applicant must demonstrate that the caveat has or may have substance, the phrase 'may have substance' encompassing the concept of a seriously arguable case; secondly, the Court will have regard to considerations of the balance of convenience and prejudice; and finally, to other discretionary considerations.
12. The starting point, however, is to consider whether or not this caveat has or may have substance. In order to judge that, it is necessary to turn first to the caveat itself and the claim stated in it. … Real Property Regulation provides, by clause 7, that a caveat must specify the particulars as set out in Schedule 3 in relation to the estate or interest to which a caveator claims to be entitled. A central concept in the Act and the Regulation is that of "the nature of the estate or interest claimed" by the caveator: it is that claim that the Court must be satisfied has or may have substance before making an order. The characterisation and description of the nature of the estate, interest or right claimed by a caveator is more than a mere formal requirement of the provisions of the Act, but goes to the heart and substance of their operation, because without a description of the estate, interest or right claimed, neither the Registrar-General nor a person reading the caveat can know whether a dealing would adversely affect the estate claimed, nor can the Court tell whether the caveator's claim has or may have substance..."
Counsel for the Plaintiff submitted that the interest being protected by the caveat was an "equitable mortgage". However, the interest claimed in the caveat itself is instead "estate in fee simple".
While Counsel accepted that the interest was not correctly described and a mortgage could not give rise to an interest of an estate in fee simple, he sought to overcome this difficulty by resort to s 74L of the Real Property Act 1900 (NSW) which relevantly provides:
If in any legal proceedings a question arises as to the validity of a caveat lodged under a provision of this Part, the court shall disregard any failure of the caveator to comply strictly with the requirements of this Part, and of any regulations or conveyancing rules made for the purposes of this Part, with respect to the form of the caveat.
Counsel submitted that if the caveat is read as a whole, then it is possible to discern that the "real" interest being claimed is an interest as a mortgagee, not the estate in fee simple. He submitted:
"Estate in fee simple" does not render nugatory the words… which are details supporting the claim "mortgage granted pursuant to the commercial sublease".
We would say that the mortgage is referenced, so too is the agreement, so too is the date, and so too are the parties. The estate in fee simple is a misdescription but the remainder of the interest that is described there isn't. …
… one reading of the caveat, which is a warning at large to the world that there is a claimed interest as against the property, it says there is a security against, you would see that someone is claiming a mortgage by way of grant from the owner of the property. … I submit that the fact that the mortgage is referenced is enough.
Counsel referred to Windella (NSW) Pty Ltd v Hughes (1999) 49 NSWLR 158 at 162 for the proposition that the Court has power to overlook any deficiency in the drafting of a caveat provided that the caveator possesses a caveatable interest.
Counsel did not elaborate on that submission, nor take the Court to any later decisions that have concluded that Santow J's reasons in Windella must now be viewed in the context of later decisions, including for example Darke J's decision in Woodsman Pty Ltd v Jozic [2018] NSWSC 1311 at [11]-[16] (Woodsman), which adopted Brereton J's statements in Circuit Finance Pty Ltd v Crown and Gleeson Securities Pty Ltd [2005] NSWSC 997 at [17]-[27] including:
Those authorities, coupled with what I have said about the significance of the role of the description of the estate, interest or right claimed in the operation of Part 7A of the Real Property Act 1900, compel the conclusion that an inadequately described claim cannot sustain a caveat.
Recently Santow J's reasons in Windella have also been described as a 'relatively liberal view of the operation of [s 74L]': Stonebark Pty Ltd v Disage Pty Ltd [2022] NSWSC 1015 at [16] (Black J).
Counsel for the Plaintiff was not able to assist the Court with any submissions as to how the misdescription in the caveat before me should be approached any differently to the approach taken by Williams J in COMSERV (No 210) Pty Ltd v Robert Ristevski [2022] NSWSC 821 (COMSERV).
There, the plaintiff came before Williams J, as Duty Judge in Equity, seeking the extension of a caveat under s 74K of the Real Property Act. The caveat was registered in terms which stated that the estate or interest claimed was an "Estate in Fee Simple" and that was "by virtue of Beneficial Interest in Trust".
There the Plaintiff submitted that it was the beneficiary of a constructive trust by virtue of contributions to construction costs and development of the property under a joint venture agreement (at [4]).
The Plaintiff accepted the interest was wrongly described but submitted that it could be otherwise disregarded under s 74L of the Real Property Act because there was still sufficient identification of the claimed interest, citing Mayrin DM Pty Ltd v Kaiyu Deng [2019] NSWSC 1552, [47].
Williams J first considered the statement of Brereton J in Sutherland v Vale [2008] NSWSC 759, [12] as set out above.
Her Honour concluded at [68]:
If the Plaintiff's submission were accepted, it would follow that a person examining a caveat would need to form their own opinion about the nature of the estate or interest claimed by the caveator by undertaking their own analysis of the potential consequences at law or in equity of the facts specified in the caveat as the foundation of the claim to the estate or interest specified. That would be an absurd outcome in my opinion, bearing in mind that the person examining the caveat may not be the registered proprietor and may not have any knowledge of or involvement in the facts and circumstances specified in the caveat as giving rise to the estate or interest claimed by the caveator. The Plaintiff's submission, if accepted, would give no effect to the express requirements of s 74F(5) of the Real Property Act and clause 7 and Schedule 2 of the Real Property Regulation specify the estate or interest in land claimed by the caveator. Moreover, as counsel for the Defendant submitted, the Plaintiff would have the Court extend a caveat that was apt to mislead by reason of the interest claimed being wrongly described.
In Brose v Slade [2022] NSWSC 1785 (Brose), a similar factual circumstance arose. The plaintiffs came before Kunc J, as Duty Judge in Equity, seeking to extend two caveats. The plaintiffs were the daughter and son-in-law of the defendants. The plaintiffs' primary case was that the defendants held the properties under a common intention constructive trust arising out of a deed of family arrangement. This, it was said, allowed for a transfer of the fee simple to the plaintiffs. The caveats were registered in the same terms as in COMSERV.
There the defendants submitted that the claim to an estate in fee simple was plainly wrong because a constructive trust does not confer an estate in fee simple so as to enable a transfer of the land and, as a matter of substance, this could not be rectified under s 74L of the Real Property Act: Brose v Slade [2022] NSWSC 1785, [66].
Kunc J reached a different conclusion to Williams J and found there was no difficulty with the description of the caveat, if it was read with the detailed attached information provided. Accordingly, there was no need to rely on s 74L. His Honour noted several differences with COMSERV. First, counsel for the caveator in COMSERV had accepted that the interest claimed was wrongly described. Secondly, the attached explanation of the interest was more extensive than in COMSERV and more clearly identified the plaintiffs' interest. Finally, there was evidence before Kunc J that the reason for the claimed "Estate in Fee Simple" was because of limited options available on the PEXA system and that evidence was unchallenged (at [70], [75]).
In the alternative, his Honour found that s 74L could operate where there was no alternative for the caveator to use the PEXA system, and no alternative on the PEXA system to claim other than an "Estate in Fee Simple" (at [76]). For those reasons, the caveator was prevented by the system of conveyance mandated by the current rules from strict compliance with identifying an interest with substance.
I consider the situation before me is closer to that in COMSERV, rather than Brose for the following reasons.
First, Counsel for the Plaintiff appropriately accepted that an equitable mortgage could not give rise to an interest in "estate in fee simple". In Brose, the nature of the constructive trust asserted, if found, could lead to the whole of the estate in fee simple being transferred to the caveator. That is not the case here.
Secondly, there is no detailed explanatory document attached to the caveat to provide clarity to a person investigating the register, unlike in Brose.
Thirdly, there is no evidence before me of how and why the caveat was drafted in the way that it was and if any issues were confronted by the person lodging the caveat, such that I could draw the same conclusion as Kunc J.
I consider that the caveat here suffers from a material misdescription of substance, such that it is defective and cannot be remedied by s 74L. Neither can the deficiency be overcome by orders permitting the amendment of the caveat: see Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) 5 BPR 11,314; Ron Medich Properties Pty Ltd v McGurk [2010] NSWSC 552 at [9] (Palmer J); Woodsman at [17] (Darke J).
I consider the caveat is incurably deficient, and even though the Plaintiff may have a caveatable interest, it would not be appropriate to make an order that the operation of the caveat be extended.
Counsel for the Plaintiff did not seek to agitate relief in the form of an order pursuant to s 74O Real Property Act and no proposed new caveat was proffered to the Court.
Section 74O applies to successive caveats that claim the same estate, interest or right and purport to be based on the same facts. Section 74O(2)(a) provides:
A further caveat to which this section refers has no effect unless the Supreme Court has made an order giving leave for the lodgment of the further caveat and the order or an office copy of the order accompanies the further caveat when it is lodged with the Registrar-General …
I would not have considered it appropriate in these circumstances to grant leave to the Plaintiff under section 74O to lodge a further caveat. Even if a fresh caveat claiming an interest under an equitable charge or mortgage based on the sub-lease dated 1/12/2020 could be said to be one purporting to be based on the same facts, it would not be a caveat in respect of the same estate, interest or right as that claimed in the first caveat: see FTFS Holdings Pty Ltd v Business Acquisitions Australia Pty Ltd [2006] NSWSC 846 at [12]-[13] (Palmer J).
Finally, I note that the Plaintiff did not volunteer the usual undertaking as to damages when seeking the extension of the caveat. In circumstances where the Plaintiff has sought the extension of the caveat ex parte and so close to the lapsing of that caveat, I consider that it would have been necessary for such an undertaking to have been given when sought, in order for the Court to exercise its discretion to extend the caveat, had that otherwise been the decision of the Court.
For those reasons, I will make the following orders:
1. Dismiss prayers for relief 6, 7 and 8 in the Summons filed 29 March 2023.
2. Stand the Summons over for directions in the Real Property List on 21 April 2023.
[2]
Amendments
03 April 2023 - Removal of underlining in paragraphs [21] and [24].
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Decision last updated: 03 April 2023