On 18 February 2014 I heard in the Duty List a notice of motion filed by the plaintiff on 4 February 2014 for an order that a caveat lodged against the title to three properties held by the defendant as a joint tenant be extended until further order of the court, or alternatively for an order under s 74O of the Real Property Act 1900 (NSW) that the plaintiff have leave to lodge a new caveat.
The plaintiff conceded during the course of the hearing that the current caveat was defective and an order would be made that it be withdrawn. The only issue was whether leave should be given under s 74O.
I delivered a judgment on that application on 12 March 2014. I did not make any orders at that time. For reasons that I set out in pars 60 and 61 I invited the parties to deliver further submissions to the court on a number of identified issues, if they wished to do so. I took that course because I formed the view that I had discussed a number of matters that the parties had not addressed, or addressed adequately, and it seemed to me to be fair to give them an opportunity to make submissions concerning those matters before I decided the application.
For convenience I will call the first defendant simply "the defendant", for the same reason that I did so in my earlier judgment.
It is not necessary for me to discuss the issues dealt with in my first reasons for judgment in any detail. The matters in respect of which further submissions were invited concerned, in essence, the proper construction of clause 13 of the agreement that the plaintiff claimed gave it a caveatable interest in the three properties, the application of a number of provisions of the Duties Act 1997 (NSW) to the current and any new caveat, and any consequential effect of those matters on the exercise of the court's discretion under s 74O.
I expected that I might receive further submissions from one or both parties, and then make a final decision on the application.
In accordance with the invitation made in my first reasons for judgment, counsel for the defendant, Mr Condon SC, delivered supplementary written submissions that dealt with each of the issues.
Then, on 28 March 2014 counsel for the plaintiff at that time, Mr Newton, who did not appear for the plaintiff at the hearing, delivered supplementary written submissions and submissions in reply.
During the course of the hearing the plaintiff gave to the court the usual undertaking as to payment of the relevant duty in the terms set out in UCPR r 31.13, in order to comply with s 304(2) of the Duties Act. The plaintiff's supplementary written submissions advised that that undertaking had been complied with, and the plaintiff had paid the appropriate duty. The plaintiff sought leave to tender the agreement endorsed with a stamp affixed by the Office of State Revenue evidencing that duty had now been paid (par 9).
It is convenient to note at this point that the plaintiff has not been required to tender into evidence the stamped agreement. The defendant is apparently satisfied that the agreement has properly been stamped. That is reflected in the consent orders to which I refer below, as well as the defendant's withdrawal of his submissions made at the hearing concerning the effect of the absence of stamp duty being paid.
The plaintiff's submissions then addressed an issue discussed in my reasons for judgment concerning the effect of s 211 of the Duties Act, as to whether, if the required mortgage duty had not been paid, the court could not make an order extending the operation of a caveat, even if the plaintiff gave an undertaking to the court to submit relevant documents for stamping. The plaintiff referred to the decision of Katzman J in Amautovic & Sutherland v Cvitanovic [2011] FCA 809 at [39] to [53]. However, the real point made by the plaintiff was that, as the required duty had been paid, the plaintiff now accepts that the agreement was dutiable on the basis that it created the charge, and as the application was for leave to lodge a new caveat, it was not necessary for the court to resolve the conflict that exists in the authorities on the issue of whether a caveat that protects an unstamped mortgage can ever be extended by order of the court, or leave be granted to lodge a new caveat.
It appears that the request by the plaintiff to tender the stamped agreement, which was in effect an application to re-open, caused the defendant to file a notice of motion on 4 April 2014 in which he sought leave to re-open his evidence on the application.
I made orders by consent on 11 April 2014 on the relief sought in the defendant's notice of motion. I granted leave to the defendant to re-open his evidence. I granted him leave to read his affidavit sworn on 4 April 2014. I made subsidiary orders for the defendant and the plaintiff to serve further written submissions concerning matters arising out of the defendant's affidavit, and the consequences of the plaintiff having paid stamp duty on the agreement.
It is necessary to refer to the effect of the evidence in the defendant's affidavit. For simplicity, I will refer to the three properties against whose titles the plaintiff's current caveat has been lodged as the Mays Hill property, the Oatlands property, and the Pendle Hill property.
The defendant stated that he is registered as joint tenant with his wife as owner of all three properties.
As to the Mays Hill property, the defendant said that it was worth between $1.5 million and $1.8 million, and was subject to a registered mortgage for approximately $200,000. The defendant annexed a copy of the mortgage document, and a statement of account that established the amount of the debt secured as being a little above $200,000.
The defendant annexed a letter of appraisal from a real estate agent that suggested that a reasonable selling price was in the vicinity of $1.5 million to $1.8 million, as the property is suitable as a construction site for home units.
The defendant said that the Oatlands property is worth between $6 million and $6.8 million, and it is subject to a mortgage to secure a line of credit up to $2 million, of which $317,000 is currently available. Again, the defendant annexed a copy of the mortgage, and a bank statement that confirmed that the current balance was a debit of $1,675,551.84, and that available funds were $319,448.16.
The defendant supported his claim as to the value of the Oatlands property by an appraisal letter by the same real estate agent who gave an appraisal of Mays Hill.
The defendant said that the Pendle Hill property is worth between $800,000 and $830,000. It is the subject of a mortgage to secure a debt of approximately $200,000. The defendant annexed a copy of the mortgage, but did not provide any separate documentary proof that the amount of the debt was about $200,000. As I understand the defendant's evidence, he says that this $200,000 is the same debt that is secured on the Mays Hill property, and accordingly the defendant relies upon the statement of account that is annexed to his affidavit concerning the debt secured on that property.
The defendant annexed an appraisal letter from the same real estate agent to support the claimed value of the Pendle Hill property.
The evidence given in the balance of the affidavit by the defendant on the issue of the balance of convenience is essentially as follows. The defendant says that he is currently in negotiation with owners of properties adjoining the Mays Hill property to purchase the adjoining properties for approximately $4.8 million. He hopes to build 72 units on the combined properties. The defendant hopes to secure an option over the adjoining properties, so that he can delay settlement until funds become available from the sale of a 45 unit development that the defendant is undertaking with another person. The defendant attached appraisal letters from the same estate agent that valued the adjoining properties at between $4.5 million and $5.4 million. The defendant proposes to borrow money to make the purchase. He will have to provide a mortgage over the Mays Hill property to secure any borrowing. The defendant plans to sell the Pendle Hill property within the next few months. He will discharge the $200,000 mortgage out of the proceeds of sale, and will use the balance towards paying the price for the properties that adjoin the Mays Hill property.
The essence of the defendant's case is that, if the plaintiff is given leave to lodge a new caveat against the titles to the Mays Hill and Pendle Hill properties, that will stymie his plan to acquire the adjoining properties and carry out the development. He will not be able to use the Mays Hill property as security, and will not be able to sell the Pendle Hill property, if they are burdened with the caveat that the plaintiff seeks the court's leave to file.
The thrust of the defendant's case, is that, assuming the court is otherwise prepared to give leave to the plaintiff to lodge a new caveat, the balance of convenience will be served by restricting that right to lodging a caveat against the title to the Oatlands property. The defendant argues that, as the plaintiff's claim is for $616,000 plus interest and costs, the equity in the Oatlands property should provide the plaintiff with sufficient security.
The defendant said that he does not propose to sell the Oatlands property, and will not take out a mortgage on that property.
As a separate matter, the defendant put into evidence a document that showed that on or about 5 March 2013 ASIC notified the plaintiff that it proposed to deregister the plaintiff under s 601AB of the Corporations Act 2001 (Cth).
As I have noted, the consent orders made on 11 April 2014 gave the defendant leave to read this affidavit. The plaintiff did not object to any of the evidence contained in it.
Mr Condon then delivered further written submissions to the court in accordance with the consent orders made on 11 April 2014. He advised that, as stamp duty had been paid, the submissions previously made on behalf of the defendant as to non-compliance with the Duties Act were (with one exception) no longer relevant.
That exception related to the costs of the application. The first defendant seeks an order that the costs of the application to 29 March 2014 be paid to the defendant by the plaintiff forthwith. That was on the basis that in substance the proceedings had involved an argument about the significance of the failure of the plaintiff to pay the necessary mortgage duty in relation to the agreement and the current caveat, so that the effort put into the application to the end of the hearing was substantially wasted.
Even though the defendant was forced to abandon the submissions that it made based upon the non-payment of the mortgage duty, it maintained its submission that clause 13 of the agreement does not, on its true construction, create a caveatable interest in any of the properties.
The defendant made a number of additional submissions. First, he submitted that the draft new caveat is also defective because it covers the interest of the defendant's wife in all of the properties. The defendant relied upon Andrews v Wilcox [2008] NSWSC 280.
Secondly, the defendant submitted that the court should not exercise its discretion in favour of the plaintiff under s 74O until it is satisfied that the plaintiff will not be de-registered.
Thirdly, in the alternative, if the court does exercise its discretion, it should only do so to the extent necessary to protect the plaintiff's claim. It should only permit the caveat to be lodged against the defendant's half interest in the Oatlands property. If that property is worth $6 million, the defendant's half share is worth $3 million. The amount presently secured on the property is approximately $1.675 million. If the caveat is lodged against the titles to the other two properties, that will stymie the proposed development.
Mr Newton responded to these further submissions with submissions of his own dated 2 May 2014. Those submissions were filed together with an affidavit of the defendant's solicitor, Mr Hidayat.
I will treat Mr Hidayat's affidavit as having been read on the application. I infer the defendant's consent to that course from what happened at the most recent hearing in this matter, to which I refer below.
The effect of the affidavit was as follows. First, it attached an amended draft new caveat that varied the description of the estate or interest in the properties claimed by the plaintiff by making it clear that it was a charge over only the defendant's interest in the properties.
Mr Hidayat also annexed a printout that he obtained from the realestate.com.au website on 1 May 2014 showing all properties sold on the website's database in the suburb of Oatlands, sorted from highest price two lowest. He also annexed a printout from the same source showing the median property price in the Oatlands area as at 1 May 2014. The earliest of the properties was sold on 29 August 2008. There is evidence of 19 sales. The highest sale price was for a property at 6 Volmer Street, Oatlands, which sold on 22 May 2013 for $2,810,000. A property at 20 Wyoming Avenue, Oatlands, sold for $1,550,000 on 9 February 2013. The address of the defendant's Oatlands property is 21 Wyoming Avenue. The median house price is said to be $988,000. It is not clear from the printout how that figure was reached.
The affidavit annexes a letter dated 29 April 2014 from the defendant's solicitor to the solicitor for the plaintiff that advised her of this information concerning values of properties at Oatlands, and requested certain information to confirm the total amount of the debts secured by mortgages over the properties. Finally, the plaintiff offered to withdraw the caveat if the defendant provided $719,000 security for the plaintiff's claim. The plaintiff's solicitor has not replied to that letter.
In the context of this additional evidence, Mr Newton made the following submissions.
First, he submitted that the appropriate way to deal with the defendant's submission that the proposed new caveat was defective because it covered the defendant's wife's interest in the properties was for the plaintiff to amend the draft caveat to take the form of the document annexed to Mr Hidayat's affidavit. That would cure the problem.
Secondly, Mr Newton submitted that ASIC has not proceeded with the notice dated 31 March 2013, which would have permitted ASIC to de-register the plaintiff after 2 months. The plaintiff continues to operate.
Thirdly, Mr Newton submitted that the defendant's argument that any new caveat that the court gives the plaintiff leave to lodge should only be lodged against the title to the Oatlands property, should not be accepted because it was only based upon market appraisals, and not proper expert evidence of value. Mr Newton specifically submitted that the market appraisals should not be admitted as evidence of the market value of the properties.
Mr Newton made the related submission that the printouts concerning general property values and the history of sales of properties at Oatlands undermine the likelihood that the value of the Oatlands property truly lies in the range between $6 million and $6.8 billion.
Mr Newton also pointed out that the effect of the defendant's evidence only was that he is in negotiations to acquire an option to purchase the properties that adjoin the Mays Hill property, and he only plans to sell the Pendle Hill property. He submitted that the defendant's evidence is "little more than assertions of uncommunicated thoughts or plans of the first defendant".
A submission was also made that there is no evidence of the amounts secured by the mortgages over the properties. I am not sure that I understand this submission, as the defendant's affidavit does include some evidence of the amounts secured.
Fourthly, Mr Newton submitted that the court should make the following orders:
1. Leave to the plaintiff to lodge the caveat in the form annexed and marked A to the affidavit of Mr Hidayat made 2 May 2014.
2. The plaintiff pay the first defendant's costs in relation to the notice of motion filed 4 February 2014 as agreed or assessed up to 12 March 2014. Thereafter, the costs of the motion filed 4 February 2014 are costs in the cause.
In suggesting this costs order the plaintiff effectively acknowledges that it should pay part of the defendant's costs because the plaintiff changed its case part way through the application. Mr Newton submitted that this was not an appropriate case for the court to order that those costs be paid forthwith.
Mr Newton's submission that the market appraisals attached to the defendant's affidavit should not be admitted into evidence caused me concern, because I understood that the effect of the consent orders made on 11 April 2014 was that the defendant's evidence had already been read without objection.
I therefore made an arrangement for the matter to be re-listed to resolve this problem. That took place on 15 May 2014. Mr Newton withdrew his submission that the court should not admit the market appraisals into evidence. He put the alternative submission that the market appraisals, although in evidence, should be given little weight.
The parties then jointly put to the court that the court should decide the application on the evidence and submissions as they stand at present.
As noted above, in my first judgment I canvassed a number of construction issues that were relevant to the question of whether clause 13 of the agreement permitted the plaintiff to create a charge by lodging a caveat. As I understand it, the plaintiff's position now is that the agreement itself created the charge, whether or not the plaintiff was also authorised to create a charge by producing a mortgage or lodging a caveat.
I accept the plaintiff's submission that it has established that there is a serious case to be tried that the effect of clause 13 of the agreement was, one way or another, to create a charge over the defendant's interests in the properties. The construction issue is sufficiently complicated that it is not appropriate to try to determine that issue on an interlocutory application.
The question therefore becomes one that depends upon the balance of convenience.
Although this is an interlocutory application, and it will often be the case that the evidence that the parties can put before the court on such an application will not be complete or adequate, the nature of the valuation evidence in this case gives rise to problems in making a proper determination of the application. That observation should not be taken to be a criticism of the parties' legal representatives.
Given the unusual course that this matter has followed, in the sense that the effective part of the evidence and submissions was received by the court in chambers, after the completion of the hearing of the application, the practical position is that I must simply act upon the evidence that is before the court, taking it at face value. There has been no examination as to the reliability of the evidence, even at the level that can be undertaken on an interlocutory application.
In my view, even though there is clearly a serious question to be tried that clause 13 of the agreement does create a charge over the defendant's interest in the three properties, there is a real possibility that clause 13 will be found to be ineffective to achieve that result. The strength of the plaintiff's case is sufficient that the court should make an interlocutory order that provides substantial protection to the plaintiff's position, but the plaintiff's case is not so strong that the court should simply give leave to the plaintiff to lodge the caveat against the title to the three properties, if that will cause real prejudice to the defendant.
At present, the defendant only has a plan to obtain an option over the properties that adjoin the Mays Hill property, and to sell the Pendle Hill property, to facilitate the purchase and the development of the properties. That is not sufficient reason for the court to decline leave to the plaintiff to lodge the new caveat against the defendant's title to the three properties at this stage.
The court must accept the defendant's evidence concerning the nature of his proposal. It should also be accepted that if the plaintiff is given leave to lodge caveats against the defendant's title to the Mays Hill and Pendle Hill properties, that will stymie the defendant's plans, if he succeeds in negotiating the option and the sale that he proposes. If the court can be satisfied that the Oatlands property will provide sufficient security to the plaintiff, the appropriate course would be to make an order that the plaintiff withdraw the caveat in so far as it covers the Mays Hill and Pendle Hill properties, upon receipt of appropriate evidence that the defendant has succeeded in negotiating an entitlement to the option, as well as a contract for the sale of the Pendle Hill property.
That leads to the question of whether the plaintiff would be adequately protected by a caveat lodged against the defendant's title to the Oatlands property.
That question must be addressed having regard to the fact that, if clause 13 of the agreement did create an effective charge, that charge will be valid in relation to all three properties. The reason put forward by the defendant for the court to only give the plaintiff leave to lodge a new caveat against his title to the Oatlands property involves a positive statement of intention by the defendant to deal with the other two properties in a manner that will cause the plaintiff to lose the benefit of his charges over those properties. If the defendant sells the Pendle Hill property, and uses the net price of that property, after paying out the existing mortgage debt of $200,000, towards the purchase of the adjoining properties at Mays Hill, the plaintiff will probably lose the benefit of its charge over the Pendle Hill property completely. If the defendant gives a mortgage over the Mays Hill property to secure a loan that he will use to purchase the adjoining properties, that security will be registered against the title to the Mays Hill property in a way that will give it priority over the plaintiff's charge. As the defendant's borrowing will be for the whole amount necessary to purchase the adjoining properties, less the net amount available from the sale of the Pendle Hill property, the value of the plaintiff's charge over the Mays Hill property may become very dubious. The defendant has not volunteered that he will provide a security to the plaintiff over the aggregated Mays Hill properties. That is perhaps understandable, because any lender who finances the purchase may not consent to a subsequent mortgage. All of this leaves out of account provision of security for construction finance.
It does not follow from the existence of this difficulty that the court is precluded from limiting the leave to lodge a new caveat to the title to the defendant's interest in the Oatlands property. It does mean that, from the perspective of the balance of convenience, the court needs to be satisfied with some confidence that a charge over the Oatlands property will be adequate to protect the plaintiff's position.
It is at this point that the form of the valuation evidence is unfortunate, as it impedes the formation of the necessary degree of confidence that the court requires. The defendant's submissions acknowledge that the plaintiff will only have a claim against the defendant's half interest in the Oatlands property. They also acknowledge that the whole of the existing security should be thrown upon the defendant's share. As the low end of the range of the appraised value is $6 million, and the amount of the existing loan that is secured on the property is $1,675,551.84, the defendant's equity is $1,324,448.16. That will only be true if the defendant does not draw down on the remaining credit of $319,448.16.
Plainly, this calculation is very sensitive to the true market value of the Oatlands property, particularly if it is considered from the perspective of a forced sale.
I do not mean to generalise, but given this sensitivity, even on an interlocutory application, the court may well ordinarily require proper expert valuation evidence as to the value of the Oatlands property. That is not available. The plaintiff asks the court to place little weight on the appraisal values. However, those values are in evidence. The plaintiff could have objected to the tender of the evidence, and would probably have succeeded. Even though the application is an interlocutory one, even if the appraisal evidence had been admitted into evidence, the court may well have been open to requiring that the appraiser be made available for cross examination. As it is, the court is faced with apparently genuine appraisal evidence by a real estate agent who may be assumed to have some competence to give appraisals of the value of the property. I do not think that I can ignore the evidence. The appraiser gave a substantial range as to the possible value. The plaintiff is protected to some degree as the defendant invited the court to act upon the bottom of the range. The court might also place an arbitrary discount on that figure.
The plaintiff did not tender competing valuation evidence, even in the nature of an appraisal. It relied upon the printouts that I have described above. There may be questions about the admissibility of the evidence, but no objection was taken. The evidence gives cause for doubt about the validity of the appraisal given in relation to the Oatlands property. It is possible that it could have been used in a cross examination of the appraiser. However, it does not directly contradict the appraisal of the value of the particular Oatlands property. At most, its effect is to increase the level of doubt as to the value of that property.
I am satisfied that if the defendant's equity in the Oatlands property is $1,324,448.16, that would provide sufficient security to protect the plaintiff, provided that the plaintiff prosecutes its claim against the defendant with appropriate expedition. The court does not know how much should be added to the plaintiff's claim for $616,000 to allow for interest plus costs, assuming the charge covers those additional matters. If I assume that the total is $800,000, which is an arbitrary assumption, then the amount represents about 60% of the value of the defendant's equity. That provides a significant cushion against the value of the defendant's equity being inflated by the appraisal.
On the evidence before the court, the lower range of the total value of the three properties is $8.3 million. The defendant's share is $4.15 million. The total amount secured on the three properties is $1.875 million. If the whole of that amount is thrown against the defendant's share, the defendant's equity is $2.275 million. If the plaintiff succeeds in its claim against the defendant, it will have a personal right of recovery against the defendant, as well as the right to enforce its charge. The personal right is relevant to the exercise of the court's discretion on the issue of the balance of convenience. It increases the level of confidence that if the plaintiff is limited to being given leave to lodge a caveat against the title to the defendant's interest in the Oatlands property, it will be sufficiently protected in all of the circumstances.
On 18 February 2014 I made an order that caveat No AI 223177M be extended until further order. That extension of caveat should now be revoked. It is appropriate that I order the plaintiff to withdraw the caveat, to avoid the need for the procedure in s 74LA(2) of the Real Property Act.
I propose to make the following orders:
1. Order the plaintiff to withdraw caveat No AI223177M within 14 days.
2. Leave to the plaintiff to lodge a caveat in the form annexed and marked A to the affidavit of Mr Hidayat made 2 May 2014 against the first defendant's interest in each of the three properties listed in par 1 of in the plaintiff's notice of motion filed on 4 February 2014 ("the properties").
3. Order the plaintiff to withdraw the caveat from lodgement against the first defendant's interest in
1. the title to the property listed in par 1(a) of the plaintiff's notice of motion if the first defendant gives the plaintiff evidence that the first defendant has entered into a contract to sell that property; and
2. the title to the property listed in par 1(c) of the plaintiff's notice of motion if the first defendant gives the plaintiff evidence that the first defendant has negotiated a loan to fund the purchase of properties adjoining that property that will require a mortgage to be given over that property
in each case within 14 days of receipt of the evidence.
1. Order that the first defendant be restrained until further order from granting any further security over the property listed in par 1(b) of the plaintiff's notice of motion, or increasing the amount borrowed upon the security of that property.
2. Grants leave to the parties to apply to the court on three days' notice if further relief is necessary for the enforcement of these orders.
3. Order the plaintiff to pay the first defendant's costs in relation to the plaintiff's notice of motion filed on 4 February 2014 as agreed or assessed up to 12 March 2014. Thereafter, the costs of the motion filed on 4 February 2014 are costs in the cause.
4. Direct the first defendant to notify the associate to Robb J within seven days of the publication of these reasons for judgment whether or not he will accept the making of order (4).
I will make the costs order set out above, because I accept the plaintiff's submissions that, although it is warranted that it be ordered to pay costs thrown away as a result of the change in its case, it is not appropriate in this continuing litigation to order that those costs be paid forthwith.
I have only indicated provisionally the orders that I will make, and given the direction in order (7), because I have decided that, if I limit the leave that I give to the plaintiff to file the new caveat, it should be on the condition that the defendant does not increase the amount secured on the Oatlands property. The defendant has not been given an opportunity to respond to that possibility. If the defendant does not accept that restriction, I would give unconditional leave to the plaintiff to lodge the new caveat against the defendant's interests in the three properties.
I will make final orders in chambers as soon as I receive the defendant's response to the direction.
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Decision last updated: 25 February 2016