Coleman v Bone

Judgment (ex tempore) 1HIS HONOUR: Pursuant to a summons filed on 6 December 2012, the Commonwealth Bank of Australia paid into court a sum of $35,797.36 being the surplus from the sale of property at 8 Utson Road, Cabramatta West in the State of New South Wales, which it had sold as mortgagee exercising its power of sale under a mortgage from the then registered proprietor Giang Thanh Thi Duong. Prior to the sale, a number of caveats had been lodged in respect of the property, although they were withdrawn prior to or concurrently with completion of the sale. In the affidavit filed at the time of the payment in, the solicitors for the Bank identified, as parties who may have an interest in the surplus funds, Giang Thanh Thi Duong (the former registered proprietor and mortgagor), Thuy Ngoc Phung (the present first respondent); Thi Phan Dang (the present second respondent); Hung Thanh Vu and Tran Thuy Nguyen (the present applicants); Belinda Templeton; and Van Phuoc Phan. 2By notice of motion filed on 20 December 2013, the applicants Hung Thanh Vu and Tran Thuy Nguyen apply for payment out to them of the funds in court. By motion of 17 February 2014, the second respondent Thi Phan Dang applies for payment out of funds in court. By a letter dated 6 February 2014, the first respondent Thuy Ngoc Phung applies for payment out of the funds in court to her. 3The fundamental issue is one of priorities. 4On 19 June 2010, the registered proprietor Giang Thanh Thi Duong entered into a "Deed of Loan Agreement" with the first respondent Thuy Ngoc Phung, which recited that Duong as borrower had approached Phuong as lender for "an unsecured loan" of $150,000, that Thuy Ngoc Phung had agreed to grant "the unsecured loan facility" of $150,000 to Giang Thanh Thi Duong for the period 25 June 2007 to 25 August 2012, that Giang Thanh Thi Duong had approached Thuy Ngoc Phung for an unsecured loan of $70,000 for the period from 25 June 2010 to 25 August 2012, and that Thuy Ngoc Phung had agreed to grant an "unsecured loan facility" of $70,000 for that period; and recorded that Thuy Ngoc Phung granted Giang Thanh Thi Duong an unsecured loan of $150,000 and an unsecured loan of $70,000, with interest. The agreement further provided: The borrower has agreed to allow a caveat to be registered on the property of the borrower at 8 Utson Road, Cabramatta West. 5It seems that, on or about 29 June 2010, a caveat by Phung claiming an "equitable interest" by virtue of "direct financial contributions to acquisition, conservation and preservation of the property" - which, incidentally, appears to have nothing to do with what was, in fact, the purpose of the loan - was signed by the registered proprietor by way of consenting to lodgement of the caveat. It is not entirely apparent whether that caveat was ever lodged - nor, indeed, whether the loan agreement or caveat was ever stamped so as to be enforceable - but assuming that it was, the fundamental question is whether it creates an interest in land capable of ranking ahead of other interests validly created in the land. 6The effect of an agreement to permit a caveat to be lodged was comprehensively discussed by Bryson J in Taleb v National Australia Bank Limited [2011] NSWSC 1562, as follows (at [53]): [53] The principle on which consideration should start was stated by Handley JA in Murphy v Wright [1992] NSW Conv R 55-652 Section74F (1) of the Real Property Act enables a person who claims to be entitled to an estate or interest in any land to lodge a caveat against the title. A registered proprietor cannot by contract confer a right to lodge a caveat where no caveatable interest exists. See Tooth & Co v Barker (1960) 77 WN (NSW) 231 at 233, 242-3. If the clause only confers a contractual right it will be ineffective. However the existence of this right suggests that the Lender was intended to have an equitable charge which would support a caveat. [54] In Murphy v Wright the clause in question after referring to security documents said: In the event of default by the borrowers in payment of moneys due under the Security Documents or in performance or observance of any covenants therein then the Lender shall in addition to the rights set out herein or in the Security Documents be entitled to attach the debt due to any of the assets of the Guarantor or Guarantors whether such assets be real or personal and further the parties hereto agree that in the event of such default the Lender may register a caveat against any property registered in the name of any or all of the Guarantors until the Moneys secured are repaid. That is to say, in that case there was much more material than a simple authorisation to lodge a caveat upon which to discern whether or not there was an intention to create a charge. In that case the majority (Priestley JA and Handley JA) concluded that there was such an intention, for reasons stated in markedly different terms; while Sheller JA dissented and would have upheld the primary judge, Brownie J. With respect I would say that in Murphy v Wright context made a strong case for implication but implication was not made readily, and the difference of opinion shows the difficulties of the subject. The implication must exist in reality; it cannot be spun out of no more than reference to a caveat. [55] In Troncone v Aliperti [1994] NSW Conv R 55-703, the Court considered a loan agreement which included: "5. The Debtor authorises the Creditors to lodge a Caveat on any property owned by the Debtors to protect his interest." [56] Mahoney JA was of opinion that the caveat should not be set aside because: The right, by the enforcement of an express or implied negative covenant, to restrain a dealing with land is in my opinion an interest in land within this branch of the law. and decided to the effect that the caveat should remain, although as his Honour said: ... it is not necessary to determine what is the precise nature of the interest in the land which, by this implied grant, was passed to the creditors. [57] In my understanding the implication which Mahoney JA drew from the document was not that there was a charge over the land, but that there was an implied negative covenant to restrain dealing with the land. Priestley JA agreed. Meagher JA agreed and also went further to say that the interest granted was a charge, a conclusion which, I would respectfully say, the other members of the Court of Appeal avoided. Meagher JA said: First, once one reaches the conclusion that Mr Aliperti did intend to grant each of his lenders an interest in his land, that interest in the circumstances can only be an equitable charge. Secondly, since the clause in question was of obvious importance of the parties to the transaction, one can assume it was not intended to be meaningless; and, unless one construes it as granting a charge, it would be meaningless. [58] In Coleman v Bone (1996) 9 BPR 16,235 at 16,239, McLelland CJ in Eq said: So far as the "caveat" is concerned, it has been held by the Court of Appeal (in Troncone v Aliperti (1994) 6 BPR 13,291; NSW ConvR 55-703) that if in a contract between A and B, A grants B authority to lodge a caveat in respect of property of A, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised. Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money ( Troncone at BPR 13,293-4, ConvR 60,020 per Meagher JA). [59] In Iaconis v Lazar [2007] NSWSC 1103; (2007) 13 BPR 24,937 Young CJ in Eq said: The current commercial enthusiasm for this sort of clause in a contract and for lodging a caveat was given a great boost by the decision of the Court of Appeal in Troncone v Aliperti (1994 ) 6 BPR 13,291. This decision has often been interpreted by persons seeking charges as meaning that every time there is an agreement that X can lodge a caveat over any property Y may own, that an equitable charge is created. It should be remembered, as McLelland CJ in Eq said in Coleman v Bone (1996) 9 BPR 16,235 at 16 and 239, that the true principle is that "Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money." ([2007] NSWSC 1103 at [23]). [60] With respect I do not agree with either of these observations. In my view the meaning conveyed by a contractual document, including what is conveyed by implication, must be understood by addressing the terms and the whole terms of the document in question, and there is no principle or true principle establishing what implication must be drawn in all cases from authority to lodge a caveat in connection with an obligation to pay money. In my opinion Mahoney JA did not state such a principle in Troncone v Aliperti and in my opinion there cannot be such a principle, because a principle of law of that kind would divert the court from addressing the terms of each document to discover what it means, by expression and by implication. [61] The circumstances that there was a debt and that there is to be a caveat, together with the nature of the caveat, certainly direct attention to whether it was intended that the debt should be protected by a charge or some other interest. It is quite likely that there was some such intention in the mind of one party or of both, but if that intention is not found expressed or by implication in their document there is no equitable interest. Authorisation to lodge a caveat does not create by necessary implication the conclusion that there must have been an intention to create an equitable interest, and that there must have been the further intention that that interest should be a charge over the property. 7In this case, it is unnecessary to decide whether to accept the observations of McLelland CJ in Eq in Coleman v Bone (1996) 2 ACSR 323 and of Young CJ in Eq in Iaconis v Lazar [2007] NSWSC 1103 referred to in paras 58 and 59 of that judgment, or to join in Bryson J's disagreement with them. Even if one accepts the observations of the two Chief Judges, in preference to Bryson J's later differing opinion, the fundamental proposition that they articulated is that, where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money. 8In this case, the agreement in question repeatedly describes the transaction as an "unsecured loan". Whatever might have been the intention so far as the permission to lodge a caveat was concerned, it was not to create an equitable interest by way of charge. In my view, the deed of loan gave rise to no equitable interest capable of ranking in priority to a later equitable interest. 9On 19 November 2010, the registered proprietor entered into a "loan agreement" with the second respondent Thi Phan Dang. It can be inferred, from the fact that the caveat dated 19 November 2010 and registered on 18 January 2011 is stamped with duty of $50 and marked as collateral for $150,000, that the loan agreement has, to the extent necessary, been stamped. It recites, inter alia, that the borrower has agreed for the lender to have a security interest over goods and equipment of a business, and also that the borrower agreed for the lender to exercise power of attorney to act on the borrower's behalf in selling, transferring or disposing of the property at 8 Utson Road, Cabramatta West. Clause 6 provides: In the event of default by the Borrower to pay the Loan, the Lender shall be entitled to utilise the security interest over the goods and equipments of the business Bakers Bun - Figtree and/or exercise their power there to act on behalf of the borrower to sell, transfer or dispose of the Property at Utson Road Cabramatta West New South Wales 21666 so as to cover the Loan amount. 10By clause 8: The Borrower hereby irrevocably authorises the Lender to lodge any caveat on the title of the Property to protect the Lender's interest in respect of this Loan agreement 11In that agreement, the parties manifestly recognise the difference between granting a security interest and not doing so. They clearly intended to and did create a security interest over the goods and equipment of the business, but they clearly provided for the lender to have recourse to the real property only by an indirect means, which did not involve creating a security interest; that is, by appointing the lender as power of attorney to sell the property in the event of default. If, in the event of default, the lender exercised that power, then the lender would be an unsecured, not a secured creditor. It is noteworthy that the caveat, while claiming an interest pursuant to the loan agreement, does not describe at all the nature of the estate or interest in the land claimed. That is at least partly because there was no such interest. This loan agreement did not create equitable interest in the land capable of prevailing over a later interest. 12The next relevant event was on 21 February 2011, when the registered proprietor as borrower, and the applicants Hung Thanh Vu and Trang Thuy Nguyen, entered into a "deed of agreement", reciting that Giang Thanh Thi Duong had borrowed moneys from the lenders of $110,000, particulars of which were set out, and had not repaid that sum. By recital G it was recorded that the borrower had, at the request of the lender, expressly consented to secure the loans set out in schedule 1 in the manner referred to in the agreement. Operative clause 1.1 provided that the loans would be secured against the title of the subject property by way of caveat, and clause 1.2 provided that the lender had an equitable interest by way of charge over the subject property. 13It is manifest that this document was intended to create a security interest. It is stamped with duty of $381 on consideration of $110,000. The caveat in respect of it, dated 21 February 2011, is stamped with duty of $50 and claims an interest described as "equitable interest by way of charge", by virtue of the deed of agreement. 14Those are the only three claims that have been advanced before the Court, but it is appropriate to refer to two other potential claims. In August 2011, Van Phuoc Pham and Giang Thanh Thi Duong entered into a written loan agreement. Its terms are not in evidence, but even if it created an equitable interest in the property it postdated that of Hung Thanh Vu and Thang Thuy Nguyen and, in the absence of any suggestion of postponing conduct, could not prevail over it. In October 2011, Belinda Templeton and Giang Thanh Thi Duong entered into a written loan agreement. Again, its terms are not in evidence; but even if it creates an equitable interest, it post-dates that of the applicants and could not prevail against it in the absence of evidence of postponing conduct. 15Accordingly, on the evidence before the Court, the claim of the applicants is the only claim proved to be in respect of an equitable interest in the property, and it therefore prevails against the other unsecured or later claims. 16The affidavit of Andie Minh Lam of 18 March 2014, who is the solicitor for the second respondent, establishes that the second respondent's notice of motion, which had a return date of 4 March (to which date the applicants' motion has also been adjourned), was served on all interested parties, including those that have not appeared today, namely Van Phuoc Pham and Belinda Templeton. Admittedly it was served on solicitors for the registered proprietor Giang Thanh Thi Duong, whose whereabouts are unknown, but the evidence as a whole establishes that Giang Thanh Thi Duong could not have a superior interest to those to which I have referred. As the interest of the applicants was in the amount of $110,000, of which only $20,000 has been repaid, so that $90,000 remains outstanding. The money in court, and interest, should therefore be paid out to the applicants. 17I therefore order that the funds in court standing to the credit of these proceedings together with any accrued interest be paid out to the applicants Hung Thanh Vu and Trang Thuy Nguyen.