Biseja Pty Ltd v NSI Goup Pty Ltd

CATCHWORDS : REAL PROPERTY - Land under Torrens Title - Caveats - Balance of convenience - Relevance of agreement between parties - refinancing

LEGISLATION CITED : Real Property Act 1900 (NSW), ss 74MA, 74O

CASES CITED : Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255 Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) 5 BPR 11,314

PARTIES : Biseja Pty Ltd (plaintiff) NSI Goup Pty Ltd (defendant)

COUNSEL : M Willmott SC w M Sneddon (plaintiff) G Moore w F Hicks (defendant)

SOLICITORS : L Capolupo & Co, Solicitors (plaintiff) William Costis & Associates (defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST

2969/06 Biseja Pty Limited v NSI Group Pty Limited JUDGMENT (Ex tempore) 1 HIS HONOUR: The applicant Biseja Pty Limited seeks an order pursuant to Real Property Act 1900 (NSW), s 74MA, that the respondent NSI Group Pty Limited withdraw three caveats lodged in respect of three lots in a Strata Plan which relates to a development of land of which Biseja is the registered proprietor - namely, Lots 79, 80 and 81 in SP 70843. NSI asserts that it was engaged by Biseja under a project management agreement to manage the development, and that under that agreement it is entitled to receive, as at least part of its remuneration, the three lots in lieu of a monetary sum for project management fees.

2 Previously, on or about 3 May 2006, NSI had lodged seven caveats in respect of seven of the lots in the Strata Plan, namely, lots 44, 53, 57, 58, 89, 112 and 119, each claiming: A legal or equitable interest in the property arising from a contract dated 5 February 2002 for the performance of building works upon the said property and further and in the alternative arising from the provision of building works and services upon the said property.

3 At that time, the land the subject of the Strata Plan, and all the lots in the Strata Plan, were subject to a mortgage to Commonwealth Bank of Australia securing advances of about $17 million. The Commonwealth Bank loan facility expired on 30 April 2006, and Biseja had a requirement to refinance. On 29 May 2006, Biseja commenced these proceedings, claiming an order that NSI remove the seven original caveats. Having obtained an abridgment of time for service, the proceedings returned before the court on 2 June 2006. 4 Meanwhile, on 31 May, there was a conversation between Mr Capolupo (the solicitor for Biseja), and Mr Cotsis (the solicitor for NSI). In the course of that conversation, a version of which is set out in para 4 of Mr Cotsis' affidavit sworn 21 September 2006, Mr Capolupo informed him that, in respect of the refinance, one bank, BankWest, was ready to settle immediately, as soon as security documents were executed, for about $6 million, but that the other proposed refinancier had withdrawn, and an alternative was being sought which would settle at the earliest in about six weeks and possibly in around two months. Mr Cotsis made a file note of that conversation. While it is not possible entirely to reconstruct the conversation from that file note, it includes a reference to "three months to refinance" and "U/T [which I take to mean 'undertaking'] if occurs let us know". It is clear that, at that stage, a total refinance of the Commonwealth Bank debt by more than one replacement financier, but which might take a couple of months to complete, was envisaged.

5 When the matter came before the court on 2 June 2006, consent orders were made requiring that NSI withdraw the original caveats, granting leave to NSI to lodge fresh caveats, and noting an agreement between the parties. The precise terms of the orders and the agreements are important on the present application, and were relevantly as follows:- 1. Order that the defendant forthwith deliver to the plaintiff a withdrawal of the caveats AC 276958H; AC 276969C; AC 276974K; AC 276983J; AC 276984G; AC 276989V; AC 276949J.

2. Leave be granted to the defendant to lodge fresh caveats over Lots 79, 80, 81 in the current Strata Plan 76449; claiming in interest as the equitable owner of these lots pursuant to a collateral contract on or before 18 June 2004 by which these lots would be transferred to the defendant in lieu of the payment of the futher sum of $1,471,600 (in addition to the sum of $14,716,000) for management fees and/or building profit

(a) The defendant will only be entitled to lodge any fresh caveats after the earlier of the expiration of three months from the date of these orders or after the registration by any incoming mortgagee of any mortgage over any part of the property, which is subject to the lodged caveats; and that

(b) The plaintiff will advise the defendant, within tow business days of settlement of any mortgage over any part of the property, which is subject ot the lodged caveats, that it has settled any such mortgage.

(c) The orders in paragraphs 1 and 2 hereof are made without admission by either party and without prejudice to the plaintiff's continued entitlement to assert that the defendant has no caveatable interest as per order 2 or otherwise.

6 The three months referred to in para 5(a) expired on 2 September 2006. 7 As had been foreshadowed in the conversation between Mr Capolupo and Mr Cotsis, Biseja completed a refinance with BankWest on 18 June 2006 for $6 million. The BankWest mortgage was registered on 22 June 2006. Amongst the securities for that mortgage were three of the lots which had been subject to NSI's original caveats.

8 A refinance with Perpetual was settled on 23 June 2006, for $5 million. The Perpetual mortgage was registered on 13 July 2006. The security included two of the lots which had been subject to NSI's original caveats. On 29 June 2006 an affidavit was served on behalf of Biseja, which mentioned that two refinances for a total of $11 million had been completed, and anticipated that a third for $5 million would be completed on or about 15 July.

9 In due course - the evidence did not disclose precisely when - the third refinance, with Australian Executor Trustees Limited, was settled for a sum of $5 million. The security offered to Australian Executor Trustees included, amongst other lots in the Strata Plan, lots 79, 80 and 81, being the lots referred to in para 2 of the short minutes of 2 June 2006. The mortgage to Australian Executor was not registered immediately, apparently because it had to be stamped in other jurisdictions. Before it was registered, NSI, on 10 August 2006, lodged three further caveats - AC519361 affecting lot 79, AC519374 affecting lot 80, and AC519366 affecting lot 81. They are the caveats that are the objects of the present application. Each of them claimed:- An estate or interest as the equitable owner of this lot pursuant to a collateral contract on or before 18 June 2004 by which this lot would be transferred to the caveator in lieu of payment (whether in whole or in part) of the further sum of $1 471 600 (in addition to the sum of $14 716 000) for mnagement [sic] fees and/or building profit.

10 On 18 August 2006, the solicitors acting for Australian Executor found that those caveats prevented lodgement of their mortgage and, at their prompting, Biseja's solicitor sought the withdrawal of the fresh caveats. On 22 August the solicitors for Australian Executor submitted withdrawals of the caveats to the solicitor for NSI. It would seem, from a copy letter of that date which presumably was obtained from Australian Executor's solicitor and is p14 in Exhibit AX 01, that that solicitor had a conversation with Mr Cotsis, in the course of which reference was made to "any mortgages registered on title, and/or any parts of". The correspondence of those words with the words used in the Short Minutes of 2 June suggests that, at least by 22 August, the solicitors for NSI were alert to the terms of cl 5(a) of the Short Minutes, and were taking a particular view about its construction.

11 On 23 August, the solicitors for NSI wrote to the solicitors for Biseja, inviting submission of the withdrawal of caveats for execution and return, and foreshadowing that upon registration of the mortgage: "...our client will be relodging the same." However, on 25 August, the solicitors for NSI sent Biseja's solicitors a further letter, which added: The withdrawal of caveats by our client is agreed on the assumption that no fresh mortgage over any part of the property has been registered.

12 While it may well not have been apparent to the recipient at the time, it is now apparent that the words "fresh mortgage over any part of the property" were being used in the sense in which they were now understood by Mr Cotsis to have been used in the agreement contained in the short minutes of 2 June, namely that NSI was entitled to relodge a caveat as soon as a mortgage affecting any part of the property was registered.

13 In subsequent correspondence, the detail of which it is unnecessary to recite, the solicitors for NSI sought an explanation as to why it had taken so long to register the mortgages, and an assurance that no fresh mortgage had been registered on any part of the property. In a letter dated 31 August 2006, Mr Capolupo confirmed that: the mortgage to be registered is the original mortgage and that no fresh mortgage has been registered.

14 It is now reasonably clear that Mr Cotsis and Mr Capolupo had, in their respective minds, different understandings of the meaning of the agreement of 2 June, and different understandings of what Mr Cotsis was seeking when asking for a statement that no fresh mortgage had been registered in respect of any part of the property. Unfortunately, the absence of consensus on this issue was not apparent at the time and led to some unnecessarily heated exchanges between the solicitors. It suffices to say that thereafter there was no agreement to withdraw the caveats and that, as at 18 September 2006, searches disclosed that, in respect of lots 79, 80 and 81, a discharge of mortgage (which I take to be of the Commonwealth Bank mortgage) and a mortgage (which I take to be that of Australian Executor) were pending but unregistered.

15 NSI maintains that it was entitled to lodge the fresh caveats now in dispute, on the basis that, for the purposes of para 5(a) of the 2 June orders, a mortgage (indeed, two mortgages - those to BankWest and Perpetual) had been registered, which affected parts of the development property (including, if it be relevant, parts which had been the subject of the original caveats) and that they were, therefore, at liberty to lodge fresh caveats. NSI also contends that, in breach of the agreement recorded in para 5(b) of the short minutes, of 2 June, Biseja had not advised NSI, in accordance with that provision, of the registration of the BankWest and Perpetual mortgages. I do not understand it to be seriously contended by Biseja that there has not been technical default in this respect, although the affidavit of 29 June contained general information about two refinancers. Nonetheless, on this application, it is a matter of relatively little importance.

16 On an application such as the present for the withdrawal of a caveat, the court approaches the issues much as it does an application for an interlocutory injunction: it is for the caveator to show a seriously arguable case that it has a caveatable interest that would prevail against the proposed dealing, and that the balance of convenience favours maintaining the caveat over removing it.

17 For Biseja, Mr Wilmot SC did not submit there was no serious question to be tried that NSI had a caveatable interest, and it is unnecessary to examine in any detail this question. Prima facie, the Project Management Agreement, if construed as it might be to give a right of the type described in the caveat, could create an interest in land, placing NSI effectively in the position of a purchaser under contract. I am satisfied that there is a serious question to be tried that NSI has a caveatable interest in the three lots, which interest could prevail against a subsequent mortgage. The real question in this case is the balance of convenience.

18 A significant starting point for the examination of the balance of convenience, though it is not conclusive of it, is the agreement contained in the 2 June Short Minutes. The relevance of an agreement to permit a caveat to be lodged, or not to lodge a caveat, is illustrated by a number of cases. There are, on the one hand, those which hold that an agreement that a party to a contract may lodge a caveat is sufficient of itself to create a caveatable interest: see Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) 5 BPR 11,314. More relevant for present purposes is Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255, in which Young J, as the Chief Judge then was, in considering whether to extend a caveat, took into account a promise made by the plaintiff, in the contract of sale, not to lodge a caveat - a promise which, in appropriate circumstances, the court might have enforced by injunction, and was to be taken into account on whether or not the caveat should be extended. His Honour concluded that the caveat should not be extended, the contractual promise not to lodge a caveat being an important, though not decisive, discretionary consideration.

19 To some extent at least, then, it is necessary to consider which of the competing versions of the construction of the agreement recorded in cl 5 of the short minutes is correct. Literally there is much to commend the construction for which Mr Moore, counsel for NSI, contends. In referring to registration by "any" incoming mortgagee of "any" mortgage over "any part of" the property, sub-cl (a) on its face, literally, means that, as soon as one incoming mortgagee registers a mortgage over a single lot of the property which had been subject to the seven original caveats, NSI immediately became entitled to lodge fresh caveats over the three lots in question. In my view, the term "the lodged caveats" refers to the seven original caveats, as distinct from the contemplated fresh caveats, and is used as a means of identifying the whole development property, to which the agreement related - a view that is supported by its use again, for the same purpose, in sub-cl (b).

20 However, the result of the literal construction is so inconsistent with the commercial purpose of the agreement that it casts serious doubt on whether it truly encapsulates the interest of the parties. First, it is plain that the purpose of the agreement was to permit Biseja to refinance the CBA mortgage, and that the refinancing would be in the order of $17 million. Secondly, it was clear that the CBA mortgage expired on 30 April 2006. Thirdly, it was clear, prior to 2 June, that the refinance would be not from a single financier, but from two or more: yet the literal construction would allow Biseja to use the three lots as security for the first refinancier, but not for the second or third. Fourthly, no satisfactory rationale for why the parties would agree that caveats should be able to be lodged on the three lots in question as soon as any part of the refinance had taken place was ever advanced.

21 Although the language used by the parties is not the most elegant to achieve this result, I think that in the commercial context that obtained, their true contractual intent was that NSI's right to lodge fresh caveats over the three lots was to be postponed for three months, or until all mortgages required by the refinanciers had been registered, which ever was the earlier. Thus the words "any", in the way in which they were used in cl 5(a), really mean "any one or more", and the intention of the parties recorded in cl 5(a) was that all the refinancing incoming mortgagees should be permitted to have the mortgages registered before the caveats could be lodged, provided this was completed within three months. If that view is correct, then Biseja has a contractual right to have the mortgage to Australian Executor lodged in priority to the fresh caveats. 22 If that view were not correct, I would still conclude, on the balance of convenience, that in this case the caveats should be removed to permit the mortgage to be registered. The balance of convenience is really all one way on this issue. Prior to the refinancing, any claim of NSI to the three lots in question was subject to the mortgage to the Commonwealth Bank, securing something in the order of $17 million - although that seems to have been reduced by the time of the refinance. To enable that mortgage to be discharged and replaced by an equivalent mortgage in approximately the same quantum involves no prejudice to NSI's position. Of course, the Commonwealth Bank, if it exercised its powers as mortagee, could sell as mortgagee and defeat NSI's claim. Substitution of a replacement mortgagee occasions no detriment to NSI.

23 On the other hand, preventing registration of the mortgage to Australian Executor would put Biseja into default of its obligations to that mortgagee and, in addition, occasion serious potential detriment to Australian Executor, who has paid out money on the faith of obtaining a mortgage. It would result in a windfall to NSI, by promoting its claim in priority over that of Biseja's financier - a priority which, on the evidence so far, it does not seem ever to have been intended or contemplated that it should gain.

24 For those reasons, regardless of which view of the construction of the agreement is correct, on the balance of convenience I would order that the caveats be removed for the purpose of permitting the mortgage to Australian Executor to be registered.

25 It is unnecessary for me to resort to the additional factor that Biseja has offered NSI alternative security, in the form of deposit of the title deeds to three other of the lots in the Strata Plan, an offer which NSI apparently declines. There is force in NSI's submission that there is no evidence that these lots are comparable to the subject lots, although one would have thought that its position could only be improved by taking security over them without forgoing its equitable claim to lots 79, 80 and 81. As I say, I do not need to resort to this factor, although the offer of that security only enhances the preponderance of the balance of convenience in favour of Biseja. 26 I make the following orders:-

1. Order, pursuant to Real Property Act, s 74MA, that the defendant forthwith withdraw caveat AC519316, caveat AC519374 and caveat AC519366 in respect of lots 79, 80 and 81 respectively in Strata Plan 70843.

2. Order, pursuant to Real Property Act, s 74O, that the defendant have leave to lodge fresh caveats over lots 79, 80 and 81 in Strata Plan 76449 claiming the same interest as those claimed in caveats AC519316, AC519374 and AC519366 upon and following registration of a mortgage by the plaintiff to Australian Executor Trustees Limited, being the mortgage a copy of which is at p 36 of Exhibit AX O1.

3. Order that the plaintiff notify the defendant when the mortgage to Australian Executor Trustees Limited has been registered forthwith upon the plaintiff becoming aware of that registration.

4. Order that the defendant pay the plaintiff's costs of the motion.

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.