BIZCAP AU PTY LTD -v- NGUYEN [2024] WASC 295 (16 August 2024)

1. The factual background was not in dispute between the parties.
2. The first and second defendants are sisters (defendants). They are the registered proprietors of the property. The third defendant is the Registrar of Titles and by letter dated 15 August 2024, agrees to abide by any orders of the court.
3. On 10 January 2023, the plaintiff loaned the defendants as trustees for the Nguyen This My Trinh Trust trading as Naild It & Spa (Trust) money pursuant to a written loan agreement (Loan Agreement).[1]
4. Pursuant to cl 8.1(a)(i) of the Loan Agreement, the defendants granted a charge over all of their secured property, including the property, to the plaintiff.[2] By cl 8.2(d), the parties to the Loan Agreement consented to the lodgement of a caveat against the title of any property secured by the charge.
5. The performance of the Loan Agreement is guaranteed by each of the defendants and the defendants' mother, Thi Huynh Nguyen.[3]
6. The defendants do not dispute that they are currently indebted to the plaintiff pursuant to the Loan Agreement.[4]
7. On 27 May 2022, the plaintiff lodged the caveat claiming an equitable interest as chargee of the property pursuant to the Loan Agreement.
8. As at 13 August 2024, the plaintiff says that the amount owed by the defendants pursuant to the Loan Agreement is $146,382.50 (Debt).[5]
9. The plaintiff holds the following securities to secure the Debt:

(1) the caveat over the property;

(2) a caveat over the defendants' mother's interest in 55 Grisker Road, Wanneroo (Wanneroo Property). The Wanneroo Property is held by the defendants' mother and brother as joint tenants;[6] and

(3) a personal property security interest (PPSI) over the Nguyen Thi My Trinh Family Trust (Family Trust), the trustees of which are the defendants.[7]

1. The defendants are attempting to sell their assets, including the property, to pay their outstandings debts, including the Debt.
2. The property is encumbered by a number of registered interests, including a mortgage to Westpac and a caveat by My Linh Ly (Ly) which are both registered ahead of the caveat - the Ly caveat was lodged on 17 May 2022 (Ly caveat).[8] The Ly caveat secures an equitable interest over the first defendant's share of the property pursuant to a loan agreement dated 27 November 2019 entered into by Ly and the first defendant (Ly Loan Agreement).
3. In 2023, the defendants defaulted on their mortgage to Westpac. The defendants have entered into a deed of forbearance with Westpac, however the defendants anticipate that Westpac will foreclose on the property on 10 September 2024 if the debt to Westpac is not repaid.[9]
4. On 8 March 2024, Ly commenced proceedings in the District Court against the defendants claiming $413,133.55 plus interest and costs. The writ of summons alleges that Ly advanced $300,000 to the defendants in three tranches of $100,000 on each of 1 July 2019, 22 September 2019 and 29 November 2019.[10]
5. On 17 May 2024, the defendants entered into a contract for sale of the property. The defendants have made numerous attempts to progress to settlement but that has not yet occurred. The purchaser of the property has agreed to extend settlement of the property until 5 pm on 20 August 2024, failing which the purchaser has a right to terminate the contract for sale without penalty. Settlement of the sale of the property is scheduled for 20 August 2024.[11] The defendants say that there will be no surplus funds available at the settlement of the property if there is payment of the Westpac mortgage and part of the debt secured by the Ly caveat.[12]
6. The Wanneroo Property is contracted to be sold for the sum of $1,946,000 and the defendants assert that the plaintiff's Debt will be paid in full from the proceeds of that sale.[13] The defendants are negotiating with the purchaser of the Wanneroo Property to schedule settlement for 21 August 2024 with the purchase price to be paid in two tranches - $1 million on 21 August 2024 and $946,000 on 21 October 2024. The indicative payout to the first registered mortgagee of the Wanneroo Property is $1,088,000.[14]
7. On 23 July 2024, upon the application of the defendants, the Registrar of Titles issued a lapsing notice under s 138B of the Transfer of Land Act 1983 (WA) (TLA).[15] The effect of this notice was that the caveat would lapse unless, within 21 days of service of the notice, the plaintiff obtained from the Supreme Court an order extending the operation of the caveat and lodged a copy of the order with the Registrar of Titles. The lapsing date is 16 August 2024.
8. On 13 August 2024, the plaintiff made this application for orders extending the operation of the caveat pursuant to s 138C(1) of the TLA.

1. Section 137 of the TLA provides that any person claiming an interest in land may lodge a caveat. A caveat has the effect of preventing registration of any dealing against the land until the person who lodged the caveat has an opportunity to justify the caveat by pursuing available remedies.[16]
2. Section 138C of the TLA provides that the court may make an order to extend a caveat:

138C. Supreme Court's powers on application by caveator

(1) A caveator who is served with a notice under section 138B(1) may apply to the Supreme Court, in accordance with rules of the court, for an order extending the operation of the caveat.

(2) On the hearing of an application under subsection (1), the Supreme Court -

(a) if satisfied that the caveator's claim has or may have substance -

(i) may make an order extending the operation of the caveat for such period as is specified in the order; or

(ii) may make an order extending the operation of the caveat until the further order of the court; or

(iii) may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;

and

(3) if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and

(4) may make such ancillary orders in relation to the application as it thinks fit.

1. In determining whether the caveat should be extended pursuant to s 138C of the TLA, the plaintiff has the onus of satisfying me that:

(1) the plaintiff's claim has or may have substance, that is, there is a serious question to be tried as to the existence of a proprietary interest in the property[17]; and

(2) the balance of convenience favours the maintenance of the caveat.

1. The principles relevant to an application to extend the operation of a caveat are not in dispute. They were summarised by Beech J (as his Honour then was) in Bashford v Bashford [2008] WASC 138 [47] to [50]. I apply those principles to this application.
2. The defendants do not dispute that the plaintiff has a caveatable interest in the form of an equitable charge over the property. The issue on this application is where the balance of convenience lies.
3. In considering the balance of convenience, the strength or weakness of the plaintiff's claim is a relevant factor. As was said by Pritchard J (as her Honour then was) in Bateson v Jones:[18]

[t]he existence of a serious question to be tried involves showing a sufficient likelihood of success to justify the preservation of the status quo in all of the circumstances. How strong the likelihood of success needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the order sought. Consequently, whether there is a serious question to be tried, and the consideration of those factors going to the balance of convenience, are not wholly independent inquiries. (citations omitted)

1. It is also important to consider, in assessing the balance of convenience, whether the failure to extend the caveat will have the effect of defeating the proprietary interest which is claimed.[19]
2. However, where the interest claimed by a caveator is a security interest or a competing interest with another creditor against the owner of land, the balance of convenience may be the decisive factor in refusing to extend the caveat, even where the caveator has a strong claim.[20]

Does the balance of convenience favour extension of the caveat?

1. The plaintiff submitted that the balance of convenience favours the extension of the caveat. The plaintiff submits firstly, that there is no evidence before the court of the value of the other security interest it has in the form of the PPSI and given the financial distress that the defendants are experiencing, it is unlikely there is any value in that security.
2. Secondly, in relation to the equitable charge over the Wanneroo Property, the plaintiff says that it is only entitled to a 50% interest in the surplus proceeds of sale. The plaintiff says that, given there is no evidence before the court of the amounts owing to the other caveators registered ahead of the plaintiff in relation to the Wanneroo Property, or of the costs of sale, there is no certainty that the Debt would be wholly repaid upon the sale of the Wanneroo Property.
3. Thirdly, the plaintiff says that it is uncertain who has priority over the surplus funds from the sale of the property (after Westpac is repaid). The plaintiff says that Ly is only entitled to 50% of the surplus sale proceeds because the Ly caveat is only registered over the interest of the first defendant. The plaintiff says that even if the Ly equitable interest has priority over its equitable interest, the plaintiff would still be entitled to the remaining 50% of the surplus sale proceeds. Further, the plaintiff says there is no evidence before the court as to the quantum of the first defendant's debt to Ly, or whether Ly has recourse to other security. The plaintiff says it is not for the defendants to unilaterally determine the priority between the plaintiff's and Ly's security interests over the property - that is for the court to decide.
4. Fourthly, the plaintiff has provided an undertaking as to damages which protects the defendants if the plaintiff's claim turns out not to have foundation.
5. Finally, the plaintiff has offered to remove the caveat if the defendants consent to the surplus sale proceeds from the property being placed in a solicitor's trust account.[21]
6. On the other hand, the defendants submit that the balance of convenience is not in favour of extending the caveat. They give three reasons for this.
7. Firstly, they say the Wanneroo Property is more than adequate to secure the plaintiff's equitable charge. The defendants say that the plaintiff's entitlement to the equitable interest is in relation to 100% of the Wanneroo Property, not 50%. The defendants say that, even if the plaintiff is only entitled to 50%, given the value of the Wanneroo Property and the amount of the mortgage thereon, the solicitors for the defendants have represented, in good faith, that the Debt will be fully repaid upon the sale of the Wanneroo Property.[22]
8. Secondly, the defendants submit that there is no benefit to the plaintiff if the caveat is extended. That is because after payment of debts owed to Westpac and Ly, there are no surplus funds that are available to the plaintiff to repay the Debt. The defendants say that there is no serious question to be tried as to the priority between the equitable interests of Ly and the plaintiff, but even if there is, it is up to the plaintiff to commence proceedings against Ly to have that priority determined.
9. Thirdly, the defendants point to the consequences to themselves, Westpac and Ly if the caveat is extended and the sale of the property does not proceed. The purchaser of the property has an entitlement to terminate the contract of sale if the settlement does not occur on 20 August 2024.[23]
10. While it was not in issue that the plaintiff has an equitable interest in the property capable of sustaining a caveat, what is in issue is whether the plaintiff's equitable interest has priority over Ly's equitable interest. The strength of the plaintiff's claim to the surplus sale proceeds in priority to Ly's claim over the surplus sale proceeds is a matter that is relevant to the balance of convenience.
11. Although the Ly caveat was registered first in time, the order of registration of a caveat does not determine the priority of competing equitable interests. Where there is competition between unregistered equitable interests in land, the general rule is that priority is given to the equitable interest that is created first in time (provided that those equitable interests are in all other respects equal).[24]
12. The evidence before the court was that the Ly Loan Agreement was entered into on 27 November 2019 and that the Ly caveat was registered on 17 May 2022. The Loan Agreement was entered into on 10 January 2023 and the caveat was registered on 27 May 2022.[25] In the absence of any other evidence that supports the contention that the plaintiff's equitable interest has priority over Ly's equitable interest, I consider that a claim by the plaintiff that its equitable interest has priority over Ly's equitable interest is weak.
13. However, that does not address the plaintiff's submission that Ly is only entitled to 50% of the surplus sale proceeds, leaving the remaining 50% (approximately $44,000) available to the plaintiff. Counsel for the defendants referred me to the case of Lyons v Lyons (1967) VR 169 in support of his contention that Ly is only entitled to 50% of the sale proceeds given that the property is held by the defendants as joint tenants. Counsel for the plaintiff referred me to the case of Van den Heuval v Perpetual Trustees Victoria Ltd; Registrar General of NSW v Van den Heuval [2010] NSWCA 171 in support of his contention that where a caveat is held in respect of the interest of only one of the joint tenants to a property, the caveator is only entitled to an equitable charge over 50% of the property.
14. In Van den Heuval, Young JA said the following at [150], citing Lyons as authority:

Again, it must be said that it is always open to a joint tenant to mortgage his or her aliquot share in the land if he or she can find a person willing to lend on that security. Under the Torrens System, such a mortgage, being a mere hypothecation, does not sever the joint tenancy. The security is over the mortgagor's interest alone. If the mortgagor predeceases the other joint tenants, the security ceases to exist over the land.

1. It is the interpretation of this passage that causes the parties to differ as to whether the equitable charge relates to a joint tenant's 100% interest in the property or 50% interest in the property. I do not consider however that it is either necessary or appropriate, given neither Ly or the defendants' brother[26] is a party to these proceedings, to express a view on the correct interpretation. I do, however, make this observation. Even on the plaintiff's case, it is entitled to 50% of the surplus sale proceeds after payment of the higher-ranking securities on the Wanneroo Property. I am satisfied, on the evidence before me that, given the value of the Wanneroo Property, the amount of the mortgage over the Wanneroo Property and the amount of the Debt, there is a high likelihood that the plaintiff's equitable interest on the Wanneroo Property, secured by a caveat, will be fully paid from at least 50% of the surplus funds from the sale of the Wanneroo Property. The existence of other adequate security for an equitable interest is a compelling factor in favour of refusing to extend the caveat.[27]
2. As to the plaintiff's offer to remove the caveat on the condition that the surplus funds from the sale of the property are held in a solicitor's trust account, Ly has indicated she is not prepared to remove the Ly caveat on that basis.[28] The practical consequence of the position taken by Ly is that the sale of the property will not proceed on 20 August 2024.
3. While there may be substance to the plaintiff's claim for 50% of the surplus proceeds from the sale of the property, that is a matter that can only be determined between the plaintiff and Ly. If the plaintiff wishes to make such a claim, then it is open to it to commence proceedings against Ly and seek injunctive relief.
4. For all of these reasons, the plaintiff has not satisfied me, on the balance of probabilities, that the balance of convenience favours the maintenance of the caveat. I therefore, dismiss the application.
5. I will hear the parties as to final orders and costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[2] First Yam Affidavit; Attachment B; cl 8.1(a)(i) of the Loan Agreement.

[3] First Yam Affidavit; Attachment B, sch 1.

[5] First Yam Affidavit [37] - [38].

[6] Defendants' Affidavit; Annexure TMDN-2.

[7] Defendants' Affidavit; Annexure TMDN-3.

[9] Defendants' Affidavit [14]; [37].

[10] Defendants' Affidavit; Annexure TMDN-22.

[11] Defendants' Affidavit [24](a)].

[12] Defendants' Affidavit; Annexure TMDN-5.

[14] Defendants' Affidavit; Annexure TMDN-20.

[15] First Yam Affidavit; Attachment E.

[16] Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179 [68].

[17] Bride v The Registrar of Titles [2015] WASC 11 [14].

[18] Bateson v Jones [2013] WASC 8 [19].

[20] Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95; (2009) 40 WAR 150.

[21] Second Yam Affidavit; Attachment D.

[22] Defendants' Affidavit; Annexures TMDN-17; TMDN-19.

[23] Defendants' Affidavit; Annexure TMDN-10.

[24] Bunnings Group Ltd v Hanson Construction Materials Pty Ltd & Anor [2017] WASC 132 [22] citing Rice v Rice [1853] EngR 1102; (1854) 2 Drew 73, 78; [1853] EngR 1102; (1854) 61 ER 646, 648 and Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326, 333 (Gibbs CJ).

[25] The evidence does not address how it came to be that the registration of the caveat predates the Loan Agreement.

[26] The defendants' brother is the other joint tenant of the Wanneroo Property.

[27] KWS Capital Pty Ltd v Love [2013] WASC 294.

[28] Defendants' Affidavit; Annexure TMDN-9.