Coppola v Patrick Moloney t/as Moloney Lawyers

EX TEMPORE Judgment 1Application is made by Maria Coppola for orders pursuant to s 74MA of the Real Property Act 1900 ('the Act'), compelling a solicitor, Mr Patrick Moloney, and a legal practice, Denison & Toyer Pty Ltd, to withdraw caveats, which, in the case of Mr Moloney have been lodged with respect to four properties, and in the case of Denison & Toyer with respect to three properties. Mrs Coppola accepts that if the orders she seeks are made, then the caveators should be granted leave under s 74O(2) of the Act for the lodgement of further caveats. 2This application is attended by considerable urgency and has been dealt with in the course of a duty list. As a consequence, these reasons are less fulsome and more infelicitously expressed than would be desirable if there was no time constraint. 3Mrs Coppola and her late husband, Mr Coppola, are or were the registered proprietors of four properties: one at Stanmore, one at Coledale and two at Concord. To the extent necessary, I will differentiate between the Concord properties by referring to them as No.9 and No.11. All four properties are encumbered by first registered mortgages: to BankWest in the case of Stanmore and No.11, to Sydney Wide Mortgages in respect of No.9, and Peppers Mortgages in respect of Coledale. These mortgages are all in arrears, and at least BankWest has obtained Writs for Possession that have been stayed until today. 4Caveats are registered by both solicitors over all properties, except in the case of Denison & Toyer which has not yet registered a caveat over the Stanmore property. It says that it intends to do so. Mrs Coppola lives in No.9. It is her house and has been for some years. 5Mr Coppola, who was the registered proprietor of all four properties, although jointly with his wife, Mrs Coppola, in respect of No.11 and Coledale, died on 5 November 2012. He has left the entirety of his estate to his daughter, Gabriella Farmakis. Ms Farmakis, who is not a party to these proceedings, and her mother, who is the applicant, wish to rearrange the existing ownership and financing arrangements for the four properties. 6Ms Farmakis has approved loan facilities in place, which, subject to time constraints, will allow the following things to happen: (a)the purchase by her of her mother's interests in No.11 and Coledale; (b)the discharge of all existing first mortgages, thereby remedying existing defaults; (c)a restructure and simplification of the financing of the properties, so that there would be one loan secured by one mortgage on the Stanmore property and one loan secured by the mortgages over the other three properties, and (d)the cessation of claims for possession by the existing first mortgagees, thereby terminating existing court proceedings. 7There are obvious advantages to both Mrs Coppola and Ms Farmakis to this restructuring and sale proposal, including, but not limited to, reducing the accumulating default interest rate to the ordinary rate, thereby preserving equity in the properties, allowing an orderly sale to be conducted by the registered proprietor rather than a forced sale, and allowing Mrs Coppola to remain living in her house until a time of her choosing. However, the existing caveats prevent these arrangements being concluded, hence the application to the Court. 8Mrs Coppola accepts, as is the fact, that the caveators have an undisputable equitable interest in the land which they are entitled to protect by the lodging of the caveats. The caveats secured debts owed by Mrs Coppola to the solicitors for legal costs. 9The caveators oppose the orders sought. 10The material before the Court, which is not particularly detailed, nor entirely satisfactory, suggests that the present value of the four properties is estimated to be about $4M. The current mortgage debt is about $2.658M, leaving overall equity in all four properties of about $1.43M. But that equity is diminished by the total of the claims supported by the caveats, which amount to about $600,000. Because of the current mortgage arrangements, and on the basis of the estimates of value which the court has been given, the caveators ought be able to be fully repaid from the equity which exists in No.9 alone, without having to have regard to the other properties. 11An order can be made under s 74MA of the Act, where the balance of convenience favours the withdrawal of the caveats. The principle is that the Court will order a withdrawal of a caveat, even an indisputable caveat, where the balance of convenience favours that course. Brereton J, in Buchanan & Anor v Crown & Gleeson Business Finance Pty Ltd [2006] NSWSC 1465; (2007) NSW ConvR 56-173, at [8] said: "8 Where there is a seriously arguable or undisputable caveatable interest, the Court retains a discretion, based on the balance of convenience, as to whether it will maintain the caveat or require its withdrawal. There is a valuable discussion of the cases and principles by Sheryl Jackson in Removal of a Valid Caveat - How Convenient (1996) 4 APLJ 1. The circumstance that a caveator has a caveatable interest is not conclusive that the caveat will not be removed. The Court will order the withdrawal even of an indisputably valid caveat where the balance of convenience favours that course. An instance of this is to be found in Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255, and reference was made to it in Esther Investments Pty Ltd v Wilson International Pty Ltd [1982] ANZ ConvR 647." It is necessary to consider the balance of convenience here. 12The proposal, by Mrs Coppola, for the sale and refinance of the properties is plainly a legitimate exercise of her remaining rights in respect of the land and also the rights of Ms Farmakis. It is obviously a favourable proposal for them. 13From the perspective of the caveators, there are three issues of disadvantage, which will or may derogate from their existing position, each of which must be considered. 14The first is that there will be an increase in the overall mortgage debt by about $200,000, which will reduce the equity in the properties that is available to satisfy the interests of the caveators. However, having regard to Ms Coppola's current position, disclosed by the estimate of value of the properties in the evidence, is broadly corroborated by the fact that the incoming financiers, which are reputable lenders, will have formed an opinion that the values of the properties are sufficient to sustain their loans, I am not satisfied that this diminution in equity will realistically be likely to have an adverse effect on the ability of the caveators to collect the debts which they are owed, and which constitute the equitable interests in the property. 15The second issue is that the restructuring of the mortgages will necessarily diminish the valuable equity which the caveators have in No.9, which of itself will be sufficient to satisfy the caveators' claims. This is undoubtedly so. However, I do not think that the fact that the caveators may need to look to equity in two properties or perhaps more, rather than one property alone where the ownership of the properties will be common, is of sufficient weight to cause the balance of convenience to fall against the applicant and in favour of the caveators. 16The third adverse effect, which is a significant one, is the inadequacy of the undertaking of Ms Farmakis, which is given in her evidence, to permit the caveats to be registered on her properties after she takes ownership. If this undertaking remains as stated, then there is considerable devaluation of the caveators' ability to access the equity in the properties. Because of this inadequacy, if the undertaking stands as it is in evidence, then the balance of the convenience would not favour making the orders sought, simply because the caveators' interests would be wholly inadequately protected. 17In order for the caveators to be put in a position of not being disadvantaged and for the balance of convenience to fall in favour of Mrs Coppola, the Court would need to be satisfied that at least the following arrangements were put in place in addition to the proposed restructure: (a)First, an enforceable guarantee by Ms Formakis in favour of the caveators with respect to the debts owed to the caveators by Mrs Coppola. (b)Secondly, a mortgage in favour of each caveator in registrable form over each of the four properties which secures the mortgage guarantee. (c)Thirdly, an enforceable undertaking by Ms Formakis that she will consent to the lodgement of caveats by the existing caveators over each of the properties, after she becomes the registered proprietor. (d)Fourthly, an acknowledgment by the caveators that they would not enforce the guarantee personally against Ms Farmakis for any amount which exceeds her equity in the four properties. In other words, Ms Farmakis' exposure to the guarantee is limited to her financial interest in the four properties and not to any other assets which she may own; and, an acknowledgment by the caveators that such new arrangements, as are put in place, will not affect the existing priorities of equitable interests. 18It would only be if each of these steps could be taken in a way which is satisfactory to each of the parties that I would be satisfied that the balance of convenience would fall in favour of the making of the orders. 19I draw attention to the fact that the one disadvantage which presently exists is that Ms Farmakis is not a party to the proceedings and, accordingly, unless there be some mechanism devised by Mrs Coppola to ensure that any step to enable the transactions to be completed satisfactorily, from the caveators perspective, which Ms Farmakis takes with respect to these properties is an enforceable one, then the balance of convenience could not fall in favour of Mrs Coppola. 20Having regard to the fact that this matter was raised urgently, and having regard to the fact that, as these reasons demonstrate, unless further steps are taken, the application will fail to be dismissed, what I propose to do is to stand the matter down to enable the parties to consider these reasons and to consider what orders, if any, the Court should be asked to make, which orders I expect would be able to address the matters which I have just identified.