Counsel for the Defendant Mr. A. Ashhurst

Solicitors for the Defendant Paul H. Henke and Co. ORDER Orders made JUDGE1 HODGSON J On 18th May 1992 the first defendant, Mr. Soong, and a Mr. Brett Kelly executed a document entitled Guarantee and Indemnity addressed to the plaintiff, Composite Buyers Limited, and to another company, Composite Pty. Limited. This document provided that Mr. Soong and Mr. Kelly in consideration of either or both of these companies "having agreed or agreeing to sell goods or provide services or extend credit to Red Cliffs Pty Limited" (called the debtor) "jointly and severally guarantee due and punctual payment to you by the debtor of all moneys now and hereafter payable by the debtor to you on any account whatsoever." The document went on to provide that Mr. Soong and Mr. Kelly "jointly and severally charge as beneficial owners all freehold and leasehold interests in land which we or any of us now have or during currency of this instrument may acquire with the whole of our obligations hereunder."

On 6th June 1994 the plaintiff had Caveat U327103 registered over a number of parcels of land of which the first defendant and his wife, who is the second defendant, were registered proprietors. The defendants instituted the lapsing procedure; and on 18th October 1995, on the usual undertaking as to damages, that caveat was extended until further order. The defendants now seek an order that the caveat be withdrawn.

It appears that some of the properties are being sold. The plaintiff accepts that it must withdraw caveats on these properties in return for the payment into an account, to abide the result of proceedings between the parties, of one half of the net proceeds of each sale, after the discharge of registered mortgages.

The defendants accept that there is a serious question to be tried as to whether the plaintiff has a caveatable interest; but they seek a final determination of a separate question, as to whether the document of 18th May 1992 is capable of giving rise to a caveatable interest. The plaintiff consents to the determination of such a separate question, and I will proceed to do this.

Mr. Newlinds for the plaintiff has provided written submissions which I will leave with the papers. In short, he submits the document of 18th May 1992 created an equitable charge, which is an equitable interest in land within s.74F of the Real Property Act and accordingly supports a caveat.

Mr. Ashhurst for the defendants has also provided written submissions which I will leave with the papers. He relied on the decision of Batt J of the Victorian Supreme Court in the case of Classic Heights Pty Limited v Black Hole Enterprises Pty Limited (unreported, 27th June 1994). In that case, Batt J held that, to support a caveat under s.89(1) of the Victorian Transfer of Land Act (1958), the estate or interest relied on must either arise from a registerable instrument, or be based on a transaction which would entitle the caveator to an instrument which would lead to a recording in the Register.

Mr. Ashhurst in his submissions relied further (as did Batt J) on the Privy Council case Miller v Minister of Mines (1963) AC 484. In that case, the Privy Council was dealing with New Zealand Torrens Title legislation and with a caveat which had been lodged to protect a mining licence. The Privy Council held that the mining licence could not be registered under the relevant New Zealand legislation, and that the caveat could not be supported. In delivering the judgment of the Privy Council, Lord Guest said this at p.497: "The caveat procedure is an interim procedure designed to freeze the position until an opportunity has been given to a person claiming rights under an unregistered instrument to regularise the position by registering the instrument."

Mr. Ashhurst submitted that it was consistent with the scheme of the Torrens system that caveats should only protect interests which were capable of being perfected by the registration of an instrument. The system was a system not of registration of some title which exists outside the system, but rather a system whereby title is given only by the registration itself: see Breskvar v. Wall (1971) 126 CLR 316 at 385-6.

He submitted that this was confirmed by the wording of s.74K of the Real Property Act itself, which enabled the use of caveat procedure only where the caveator claimed to have an "estate or interest in land under the provisions of this Act". In relation to charges, the provisions of ss.3, 56(2), 104, 39 and 41 showed that the instrument in this case was not registerable, and that the plaintiff did not have an estate or interest which was capable by registration of becoming an estate or interest under the Act.

Mr. Ashhurst submitted that this case was to be distinguished from Bridge Wholesale Acceptance Corporation v Burnard (1992) 27 NSWLR 415, because in that case the instrument in question contained a promise that the guarantor would provide an instrument in registerable form if required to do so. He submitted that the case was also distinguishable from Troncone v Aliperti (1994) NSW ConvR 55-703, because in that case the instrument contained an express agreement that the guarantor could lodge a caveat.

I have come to the view that the entitlement to lodge a caveat is not limited in the way suggested by Mr. Ashhurst's submissions.

I note firstly that (as pointed out by Mr. Newlinds) the Classic Heights decision was expressly not followed by Harper J in the Victorian Supreme Court in Crompton v French (1995) V Conv R 54-529. In that case, Harper J distinguished the decision in Miller on the basis that mining licences did not create any interest in land. I would add that, in my opinion, the statement which I have quoted from the decision of Lord Guest should not be taken as an exhaustive statement of the role of the caveat procedure, certainly not for the purposes of the New South Wales legislation.

In my opinion, cases such as Murphy v Wright (1992) 5 BPR 11738 and J and H Just Holdings v Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546, as well as Bridge Wholesale and Troncone, support the view that any equitable interest in land is sufficient to support a caveat, even if the caveator does not have a registerable instrument, and even if the caveator may not be entitled to an instrument which will lead to a recording in the Register.

In my opinion, what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registerable instrument, or in some other way giving satisfaction of the interest claimed by the caveator out of land itself, for example by ordering the sale of the land and payment out of the proceeds of an amount in respect of which the caveator has a charge.

The view that the important requirement is that the interest be one in respect of which the Equity Court will give specific relief against the land is supported by the judgment of Mahoney JA in Troncone v Aliperti, where he goes to the extent of saying in a covenant by deed by the registered proprietor that until a loan be repaid he will not sell or deal with the land would, if the Court would enforce that covenant by injunction, give rise to a legal or equitable estate or interest in land within s.74F.

In relation to the submission based on the wording of s.74F, in my opinion the words in s.74F(1) "under the provisions of this Act" qualify only the word "land", and do not require that the equitable estate or interest relied on can be described as an equitable estate or interest under the provisions of the Act. Indeed, it would seem that in general there cannot be estates or interests which are both equitable, and also estates or interests under the provisions of the Act, because once an estate or interest becomes an estate or interest under the provisions of the Act, it is ipso facto a legal interest.

For those reasons, in my opinion the instrument relied on is capable of supporting a caveat. Whether ultimately it is an equitable interest will depend upon whether Equity would exercise its discretion to grant specific relief against the land itself. That in turn will depend upon discretionary considerations, which cannot be dealt with in this preliminary hearing.

I would formulate the preliminary question in this way: "Is the document entitled Guarantee and Indemnity executed by the first defendant on 18th May 1992 capable of giving the plaintiff an equitable interest in the defendants' land which supports a caveat?" I would answer that question, "Yes, provided Equity would grant specific relief against the defendants' land on the basis of that instrument".

Otherwise I dismiss the Notice of Motion filed today.

I order that the defendants pay the plaintiff's costs of the Notice of Motion and of today's hearing.

I stand the summons over to 16th November 1995 before the Registrar.