Supreme Court of WA|2010-05-28|Before: Murphy J

McCOURT -v- NATIONAL AUSTRALIA BANK LTD [2010] WASC 121 (28 May 2010)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : McCOURT -v- NATIONAL AUSTRALIA BANK LTD [2010] WASC 121

Caveat - Caveatable interest - Alleged improper exercise by mortgagee of power of sale

Bashford v Bashford [2008] WASC 138

China & South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536

Custom Credit Corporation Ltd v Chellaston Pty Ltd (Unreported, WASC, Library No 930340, 10 June 1993)

Gangemi v Gangemi [2009] WASC 195

Gross v National Australia Bank Ltd [1992] ANZ ConvR 28

Mir Brothers Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907

R & I Bank of Western Australia Ltd v Lavery (Unreported, WASC, Library No 930567, 25 October 1993)

Re McKean's Caveat [1988] 1 Qd R 524

Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870

Star v Silvia (No 1) (1994) 12 ACLC 600

Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] VicRp 47; [1994] 1 VR 672

1 I have before me two urgent applications concerning caveats lodged over certain land in Dalkeith. The plaintiff and his wife are the registered proprietors of two properties in Dalkeith. The plaintiff lodged a caveat on each property on 30 April 2010. Both properties are currently the subject of a contract for sale by the defendant (the bank) as mortgagee. Landgate gave notice on 14 May 2010 under s 138B of the Transfer of Land Act 1893 (WA) (the Act) in consequence of which the caveats will lapse at midnight on 8 June 2010 unless an order is obtained under s 138B(2) extending their operation. The plaintiff has so applied. That is one of the applications before me today. The other application is an application by the bank filed 27 May 2010 to have the caveats removed in order to allow settlement to proceed on 31 May 2010. The properties were sold at auction on 1 May 2010 and completion under the contracts for sale is due on 31 May 2010. No point was taken that the plaintiff's co-owner of the properties was not a caveator or plaintiff. The bank applied to join the Registrar of Titles, and an order was made to that effect at the start of the hearing.

2 Each caveat dated 30 April 2010 is in identical terms. They describe the estate or interest being claimed as 'an estate or interest as registered proprietor'. They also provide that the estate or interest claimed arises by virtue of 'being registered proprietor in 9/10th share of the land described ... (see statutory declaration)'. Each forbids 'absolutely' the registration of any instrument affecting the claimed estate or interest.

3 There are statutory declarations, each dated 11 May 2010, in these terms:

1. I am the registered proprietor of 9/10 undivided shares in [Lots 1 and 2] on Survey-Strata Plan 1647 Volume 1343 [Folios 393 and 394] (the 'Property').

2. I fear there may be an improper dealing with the Property on the following basis:

(a) The National Australia Bank ABN 12 004 044 937 (the 'Mortgagee') has purported to exercise its power of sale over the Property pursuant to a mortgage agreement with me, registered with Landgate on 1 February 2008 with the registration no. [K494061 and K494062].

(b) On 1 May 2010, the Property sold for $1.35 million. Based on the market for similar properties in the same area, the Property may have been sold at $250,000 under its market value, and possibly more. If this is the case, then there is a serious risk that the Mortgagee may not have exercised its power of sale in good faith.

3. The Mortgagee has exercised its power of sale over other properties in which I have an interest in a manner that suggests that it may not have exercised its power of sale in good faith. In particular:

(a) It sold a property at 1 Agett Road Claremont for $2 million. This property had been valued at $2.6 million.

(b) It sold a property at Lot 1002 Butterly Road Yallingup for $2.8 million. This property had been valued at $3.6 million.

(c) It has failed to exercise its power of sale for 15 months over 2 Joel Crescent South Bunbury and 4 Joel Crescent South Bunbury despite these properties being ready for sale.

4. The matters noted in paragraph 3 give me additional cause to fear that there will be an improper dealing with the Property if the Mortgagee is allowed to proceed with the sale on 1 May 2010.

5. I now wish to protect my interest as registered proprietor of 9/10 shares in the Property fearing an improper dealing with the Property.

4 There were earlier statutory declarations dated 30 April 2010, which referred to the matters in point 3 of the statutory declaration referred to in the preceding paragraph. As at 30 April 2010, the properties had not been sold, so there was no reference in the earlier statutory declarations to the matters referred to in point 2 of the statutory declarations of 11 May 2010.

5 By letter dated 11 May 2010, the solicitors for the plaintiff wrote to Landgate and enclosed the statutory declarations dated 11 May 2010, which were said to replace earlier ones dated 30 April 2010. The letter also requested the caveats to be altered in the following ways. First, in relation to the estate or interest being claimed, the plaintiff's solicitors requested that the following words be inserted in place of the present text in each caveat:

The nature of the estate or interest claimed is as a registered proprietor fearing an improper dealing with the land.

6 Secondly, in relation to the basis by virtue of which the estate or interest claimed is asserted, the plaintiff's solicitors requested that the following text be inserted in place of the present text in each caveat:

By virtue of the facts contained in the Statutory Declaration of Daniel Patrick Redden McCourt dated 11 May 2010.

7 The relevant principles are well known and have been summarised in cases including Bashford v Bashford [2008] WASC 138 [42] - [57] and Gangemi v Gangemi [2009] WASC 195 [38] - [45].

Whether a registered proprietor has a caveatable interest

8 There are competing lines of authority as to whether a registered proprietor has a caveatable interest in its own property. The point was considered in detail by Needham J in Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870. That was a case in which the registered proprietor contended that it had an equitable interest in its own property to prevent the transfer of the property by a mortgagee to a third party where the mortgagee was (allegedly) fraudulently exercising its power of sale. The decision was predicated on an assumption that the registered proprietor could establish an arguable case in that regard (871). His Honour said (872):

Although Hogg, The Australian Torrens System (1905), p 1031 said that '(t)he right of a registered proprietor to enter a caveat in the nature of a restriction on his own powers of disposition would seldom be contested', I would think that a caveat in the form of the present caveat could not be supported ... . The registered proprietor, as such, cannot be said to be claiming any estate; he has indefeasible title to the highest estate attainable. It may be, however, that there are circumstances in which he could, by lodging a caveat in a limited form, enjoin the registration of a particular, or a particular kind of dealing. That possibility was recognized by the Privy Council in Great West Permanent Loan Co v Friesen [1925] AC 208, at p 216, where it was said, in effect, that the lien of an unpaid vendor could support a caveat forbidding dealings with the land by the purchaser.

9 After a detailed review of the authorities, his Honour concluded (875):

The question is whether the mortgagor, maintaining his registered title, has, nevertheless, in his proprietary right to enjoin the completion of his mortgagee's contract for the sale of his land, a caveatable interest in the land. I do not think that the fact that the mortgagor remains the registered legal owner makes it impossible for him to hold, at the same time, an equitable interest in the land. The right, which is an equitable right, to prevent the completion of a voidable sale, is not one which arises solely from his position as registered proprietor. It arises from (1) the charge created by him by entering into the mortgage; (2) the action of the mortgagee in entering into the voidable contract. It is no less 'an equitable claim enforceable by reason on the principles of the Court of Chancery' than if the right existed shorn of the registered estate. Accordingly, in my opinion, the question whether the registered proprietor may lodge a caveat before the completion of the contract is not different from the question whether, after the contract has been completed and the transfer registered, the mortgagor may lodge a caveat to protect his right to have the sale set aside.

In my opinion, until a higher court decides otherwise, the registered proprietor should be held to be within s 72(1) where there is a voidable sale entered into by his mortgagee. The caveat would, I think, need to be drafted in such a way as to forbid only the registration of a transfer executed pursuant to the voidable transaction.

10 Other cases to similar effect include Re McKean's Caveat [1988] 1 Qd R 524; Gross v National Australia Bank Ltd [1992] ANZ ConvR 28; R & I Bank of Western Australia Ltd v Lavery (Unreported, WASC, Library No 930567, 25 October 1993).

11 On the other hand, in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] VicRp 47; [1994] 1 VR 672, the Victorian Court of Appeal held that whilst a mortgagor had an equity to have set aside a sale effected by a mortgagee in consequence of a fraudulent exercise of power, until the equity had been established in curial proceedings, the mortgagor had no equitable interest in the land and no right to lodge a caveat in respect of it. That decision has been the subject of some criticism: D Wright 'Does the registered proprietor have a caveatable interest' (1995) 69 ALJR 935; Meagher RP, Heydon JD & Leeming MJ_, Meagher, Gummow and Lehane's_ Equity: Doctrines & Remedies (4th ed, 2002) [4-170].

12 It is unnecessary for the purposes of these proceedings to reach a final view on the divergence of opinion expressed in these authorities. That is because, even assuming that the plaintiff in this case had, potentially, a caveatable interest as registered proprietor, in my view, the caveat in this case ought not be permitted to continue to operate, for the reasons set out later. First, however, I should refer to the question of the mortgagee's power of sale.

13 The plaintiff submitted that the mortgagee has a duty to exercise its powers of sale in good faith. It was submitted that:

In Western Australia, a mortgagee improperly exercises its power of sale if it does not exercise it in good faith. A mortgage does not act bona fide if it fraudulently, wilfully or recklessly sacrifices the interests of the mortgagor: R & I Bank of Western Australia v Lavery (unreported; SCt of WA; Lib. No. 930567; 25 October 1993) at 8.

The defendant did not dispute the correctness of that proposition.

14 The following propositions, taken from Tyler ELG, Young PW & Croft CE, Fisher & Lightwoods Law of Mortgage (2nd Aust ed) 496 - 500 (Fisher & Lightwoods), may also be noted. The power of sale is given to the mortgagee for its own benefit, to enable it to better realise its debt. The mortgagee is not a trustee of the power for the mortgagor and the court will not enquire into its motives for exercising it. The duty of the mortgagee in respect of the sale itself is to act in good faith. That concept does not involve a duty of care as understood in the law of negligence, but embraces the notion that bona fide steps must be taken not to 'sacrifice' the mortgagor's interest. The mortgagor's duty, being a fiduciary duty, is of variable content. It is less intense, the smaller the possible surplus that may be due to the mortgagor, and is discounted if it can be seen that there is only a slim possibility of the mortgagor being entitled to any surplus, no matter what the conduct of the mortgagee. The burden of proof is on the mortgagor or other person seeking to impugn the sale to prove breach of duty by the mortgagee. Subject to acting in good faith, the mortgagee may choose the time for sale and may sell when it considers it appropriate to do so. The mortgagee is not bound to postpone the sale in the hope of obtaining a better price later, but must allow sufficient time to permit proper advertising, etcetera, so that the best price reasonably obtainable may be obtained.

15 The learned authors also refer (500) to Lord Templeman's observations in China & South Sea Bank Ltd v Tan Soon Gin [1990] 1 AC 536, 545:

No creditor could carry on the business of lending if he could be liable to [a] mortgagor ... for a decline in value of the mortgaged property, unless the creditor was personally responsible for the decline.

16 As to the variable content of the mortgagee's duty, Young J in Star v Silvia (No 1) (1994) 12 ACLC 600, 606 said:

The principle is that the obligation on the mortgagee to consider the interests of the mortgagor proportionately increases depending on the probability or possibility of something being left over for the mortgagor after a proper sale by the mortgagee. Accordingly, in a situation where one has got to the stage of a real or substantial possibility, rather than a probability, that there will be something left over for the mortgagor, the duty in equity to consider the mortgagor's interests is not as strong as a situation where the mortgagee's debt is relatively small and the property very valuable. Accordingly, one discounts the duty of the mortgagee in cases such as the present.

17 In my view, the plaintiff has not shown that he has a valid caveat or that the caveat discloses a proprietary interest, for the following reasons. First, even on the statutory declarations dated 11 May 2010, they disclose, in substance, two things. One is that the relevant contracts for sale in relation to the properties in question 'may' have been sold at $250,000 under market value. The evidence in support of this speculative belief is a valuation of the property dated 3 December 2009 annexed to the plaintiff's affidavit. The valuation, on its face, states that it was obtained on behalf of the bank in these proceedings. That, apparently, is a misstatement. I was told by counsel for the plaintiff, that despite the references in the document to it having been prepared for the bank, it was in fact prepared for another financial institution at a time when the plaintiff was seeking to refinance the properties.

This valuation is current as at the date of valuation only. The value assessed herein may change significantly and unexpectedly over a relatively short period (including as a result of general market movements or factors specific to the particular property) ... we do not assume any responsibility or accept any liability where this valuation is relied upon after the expiration of 3 months from the date of the valuation ...

19 At the time of sale, 1 May 2010, approximately five months had elapsed since the publication of the valuation. There is no evidence of an up-to-date valuation.

20 Secondly, the statutory declarations disclose that, in relation to the sale of other properties in which the plaintiff had an interest, the plaintiff believes that the bank 'may not' have acted in good faith. This belief is said to be based on sales at values less than earlier valuations, including valuations taking into account previous historical sales evidence.

21 The plaintiff's stated beliefs in the statutory declarations do not, in my view, raise even an arguable case of bad faith in the exercise of the power of sale. There is no evidentiary basis for thinking that there was any calculated indifference to the plaintiff's interests, or that the sale was colourable by reason of it being to a party related to the bank. There is no evidence of conflict of interest, or collusion. The fact that the sale occurred at auction itself indicates, in the absence of any circumstances suggesting inadequate advertising, that there was a reasonable testing of the market: cf Fisher & Lightwoods [20.32]. The evidence relied on by the plaintiff does not arguably lead to an inference that the bank has sacrificed the plaintiff's interests.

22 Moreover, the evidence of the bank shows that the total debt owed by the plaintiff to the bank well exceeds not only the value of the properties caveated, but also the combined values of those properties, plus the other properties sold by the bank, even assuming that all such properties have been sold for the amounts now suggested by the plaintiff. In other words, there would be no surplus in any event. The plaintiff contends, however, that nevertheless the plaintiff may have been able to retain at least one of the Dalkeith properties if the bank had sold other properties to which its mortgage relates at values contended for by the plaintiff. That submission, in my view, fails to take into account the relevant principles referred to in the preceding section of these reasons in relation to the bank's powers of sale.

23 Secondly, the caveat is invalid on its face. In my view, even assuming that an equitable right to set aside a voidable contract for sale entered into by a mortgagee in the fraudulent exercise of its power of sale constituted a proprietary interest, the caveat ought state, in this context, on its face and in terms, that the interest claimed is as registered proprietor: (a) who has granted a mortgage, and (b) where the mortgagee has entered into a contract for sale of the property in bad faith in the purported exercise of the power of sale. Those matters are not disclosed in the caveats lodged by the plaintiff, whether as originally formulated, or as amended as suggested by the plaintiff's solicitor's letter dated 11 May 2010. The proposed amended caveats are expressed in terms of possibilities of bad faith. As with any allegation of bad faith, it should be expressed distinctly and positively, and only on proper grounds.

24 Thirdly, I would adopt, on the balance of convenience, the following observations of White J in R & I Bank of Western Australia v Lavery (21):

[T]his is not the case discussed in Custom Credit Corporation Limited v Ravi Nominees Ply Ltd where a grant of the relief sought by the plaintiff might have the effect of destroying the defendant's claim - his claim is really for money in the nature of the difference between the sale price of the land and the alleged higher market value thereof - on all fours with a claim for damages. The grant of the order sought would not operate to deprive the defendant of a claim for damages, and the plaintiff is doubtless in a position to meet any such claim that the defendant were able to establish. In Commercial Bank of Australia Ltd v Schierholter [1981] VicRp 32; [1981] VR 292, at 296, Young CJ (with whom Anderson and Jenkinson JJ concurred) said:

'The caveators are preventing the bank from effecting an undoubted right to sell the land as first mortgagee and they can as well bring proceedings against the bank to establish their claim after the caveat is removed as before. If the price for which the bank sold the land is unreasonably low, or if the bank can be shown not to have attempted to obtain the best price available, that can be established in proceedings against the bank.'

Those remarks seem apposite in relation to the present case.

25 Further, the plaintiff did not offer the usual undertaking as to damages: Supreme Court Practice Direction 4.3.4. That, in itself, is an important indication that the plaintiff's application should be refused on the balance of convenience: Chia v Rennie (1997) 8 BPR 15,601; Butt P, Land Law, (6th ed, 2009) [18,167]. Also relevant to the balance of convenience, in my view, is the fact that, in substance, a considerable part of the plaintiff's present complaint concerns allegations to the effect that the bank has, in respect of other dealings with other properties of the plaintiff, acted in bad faith. Adopting and adapting the words of Anderson J in Custom Credit Corporation Ltd v Chellaston Pty Ltd (Unreported, WASC, Library No 930340, 10 June 1993), the plaintiff has had ample opportunity prior to now to commence proceedings to vindicate such complaints.

26 Finally, had the point been argued, I would also have inclined to the view that the caveats are invalid on their face as they forbid absolutely any dealing with the property. That would seem to exceed any legitimate claim which the plaintiff might otherwise have had in relation to an equity to set aside a contract entered into in pursuance of a fraudulent exercise of the power of sale: see Sinclair v Hope Investments Pty Ltd (875); Mir Brothers Projects Pty Ltd v 1924 Pty Ltd [1980] 2 NSWLR 907, 922. It is unnecessary, however, to make any final determination on that matter.

27 For these reasons, I would dismiss the plaintiff's application and allow the defendant's application.

The plaintiff's application dated 20 May 2010 be, and is hereby, dismissed.
The Registrar of Titles be joined as a second defendant to these proceedings, CIV 1738 of 2010.
The Registrar of Titles immediately remove:

(a) the caveat lodged over Certificate of Title Volume 1343 Folio 393; and

(b) the caveat lodged over Certificate of Title Volume 1343 Folio 394.

The requirements to comply with O 59 r 9 of the Rules of the Supreme Court 1971 (WA) be dispensed with.

29 I will hear the parties on the question of costs.

Bashford v Bashford

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McCOURT -v- NATIONAL AUSTRALIA BANK LTD [2010] WASC 121 (28 May 2010)

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