Practice and procedure - Application to remove caveat - Limits of power to amend caveat - Requirement for parties to confer before hearing - Matters turns otherwise on own facts

Transfer of Land Act 1893 (WA), s 138

Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

Hayes v O'Sullivan [2001] WASC 55; (2001) 24 WAR 40

Midland Brick Company Pty Ltd v Welsh [2006] WASC 122

Porter v McDonald [1984] WAR 271

Professional Services of Aust Pty Ltd v Mila Properties Pty Ltd [2004] WASC 30

Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161

Anscor Pty Ltd & Ors v Clout (Trustee) [2004] FCAFC 71; (2004) 135 FCR 469

Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 227 ALR 425

Buyquick.Com Ltd v Foxgold Pty Ltd [2000] WASC 216

Cobbold v Barrett & Anor [2006] WASC 252

Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129

Jones as liquidator and agent for Ravenswood Resort Pty Ltd (Receivers and Managers Appointed) (In Liq) v Rustic Haven SDN BHD [2006] WASC 3

Kitay as Liquidator of Allstate Mining Machinery & Sales Pty Ltd (in liq) v Strathfield Holdings Pty Ltd & Ors, unreported; SCt of WA; Library No 980149; 31 March 1998

Multi-Span Constructions No 1 Pty Ltd v Portland Street Pty Ltd [2001] NSWSC 696

Neubacher v Good [2003] NSWSC 379

Peldan v Anderson [2006] HCA 48; (2006) 80 ALJR 1588

Re Robinson; Ex parte Bray v Nilant & Sherwood, unreported; Fed Ct of Aust; 8 February 1995

Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 80 ALJR 589

Westgold Resources NL v Precious Metals Australia Ltd [2001] WASC 262

1 MURRAY J: This is an application brought under s 138(2) of the Transfer of Land Act 1893 (WA), that the first defendants show cause why a caveat over a piece of land in Wakeford Road, South Greenough, should not be removed. Under s 138(2) the Court is given a wide power to, "make such order ... as to such court or Judge may seem fit."

2 The plaintiff is the registered proprietor of the land. The first defendants are trustees, registered under the provisions of the Bankruptcy Act 1966 (Cth), and are the trustees in bankruptcy of a Mrs and Mr Andony ("the Andonys") having been appointed on 26 August 2003 and 3 June 2004 respectively.

3 The caveat in question was lodged with the second defendant on 10 December 2004. It is apparently not thought by the second defendant to be one of those caveats to which the provisions of s 138A - 138D of the Transfer of Land Act apply, because that regime does not apply, inter alia, to a caveat lodged under any Commonwealth Act: s 138A(f). The Act in question is, of course, the Bankruptcy Act, under which the first defendants have been appointed.

4 It is not necessary for these reasons to express a view about the correctness of the proposition that having been appointed as trustees in bankruptcy of the estates of the Andonys, a caveat lodged by the trustees claiming an interest in land as trustees is a caveat lodged under the Bankruptcy Act, but for practical purposes it has meant that the mechanism which will lead to the lapse of a caveat under s 138B has not been available to the plaintiff. Hence this application, made now, I am told, because the plaintiff wishes to deal with the land by way of its development.

5 The caveat absolutely forbids any registration of an instrument in relation to the land. The caveators, reciting their status as trustees in bankruptcy of the Andonys, claim an interest in the land on behalf of the Andonys by way of a constructive trust which, the caveat asserts, vested in the caveators upon the bankruptcy of the Andonys. The caveat is supported by a statutory declaration. The Andonys' interest in the land by way of constructive trust, is said, in the statutory declaration, to arise by virtue of their having made financial contributions with borrowed moneys towards the acquisition of the land by the registered proprietor.

6 It is well accepted that in proceedings under s 138 the onus rests upon the caveator to demonstrate that there is a serious question to be tried on the issue of the existence of a caveatable interest. It is put that way because it is recognised that in the exercise of the discretion conferred on the court by s 138, the court will have regard to matters akin to those affecting the grant or refusal of an interlocutory injunction. It will therefore be the case that the court may have regard to questions of the balance of convenience. But nonetheless, the fact that the court is dealing with the question of the existence of a caveatable interest and its maintenance by the caveat on an interim basis will make it unusual that the caveat would be removed, with the practical effect of the destruction of the proprietary interest, on the ground of the balance of convenience. It is convenient to refer to the decision of Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, per Owen J, with whom Malcolm CJ and Walsh J agreed, at 48 - 50.

7 In the result, the court will generally be in the position of considering the nature and existence of the caveatable interest upon affidavit evidence. It will be precluded by that fact, generally speaking, from resolving disputed questions of fact. On the other hand, the court will have the capacity to consider and deal with the arguments of the parties with respect to matters of law. Because of the effect that the removal of the caveat will ordinarily have upon the destruction of the proprietary interest which it is sought to protect, the court will only remove the caveat in a clear case, both factually and legally, although where the matter turns on a question of law, albeit of a complicated kind, if the court is satisfied about the law it will act to give it effect. These principles have been applied in many cases and I do not pause to cite and discuss them, because at the hearing of the application to show cause the proceedings took a rather unusual course.

8 The application was made by originating summons filed on 22 September 2006. Programming orders were made. Affidavits were sworn. Submissions were exchanged. Then on 8 November 2006, a second caveat was lodged by the first defendants over the same land. This caveat did not seek to protect a proprietary interest of the Andonys vesting in the first defendants as their trustees in bankruptcy, but it was asserted that the caveat protected a proprietary interest of the first defendants as trustees because there had been a transfer of the proprietary interest in the land of the Andonys to the plaintiff which was void under s 120 of the Bankruptcy Act with the result that the bankrupts' proprietary interest transferred away vested in the caveators under s 58 and s 116 of the Bankruptcy Act.

9 Section 120 is concerned to bring back into the estate of a bankrupt, property which has been transferred away by the bankrupt during the period of five years immediately preceding the date of the bankruptcy, if it is the case that the transferee has given no consideration for the transfer, or has given consideration of less value than the market value of the property. In that case the transfer is simply declared to be void as against the trustee in bankruptcy who must, however, pay to the transferee an amount equal to the value of any consideration given by that person for the transfer.

10 There is no requirement to establish that the transfer was made for the purpose of defeating the creditors of the bankrupt. That is a type of transaction dealt with under s 121 of the Bankruptcy Act. Under s 120, all that is necessary is to consider whether there was consideration given for the transfer and if so, the adequacy of that consideration when measured against the market value of the property transferred at the time of the transfer. It is unnecessary for present purposes to consider here the detailed arguments advanced by the parties in relation to the application of s 120.

11 The point is that if s 120 has application, its effect is to divest the transferee of the proprietary interest transferred away by the bankrupt and to vest that interest in the trustees in bankruptcy by virtue of the vesting processes of the Bankruptcy Act under s 58 - which provides the general rule as to the vesting of property upon bankruptcy - and s 116 - which provides that the property divisible among the creditors of a bankrupt includes all that property vested in the bankrupt at the commencement of the bankruptcy.

12 By the statutory declaration provided in support of the second caveat, the first defendants seek to develop the nature of the caveatable interest by saying that before the plaintiff became the sole registered proprietor of the land, a one-third interest was jointly the property of the Andonys. They transferred that interest to the plaintiff by a transfer registered on 23 May 2001. That was done to give effect to an agreement signed a little earlier in 2001, the broad effect of which, it is asserted, involved not only the transfer of land but an impugned share transaction, also said to be void pursuant to s 120 of the Act.

13 So far as the land is concerned, it is asserted that it was valued at $710,000 as at 25 September 2000, and $1,425,000 as at 12 March 2002. Therefore, it is asserted that in April 2001, when the agreement was entered into, the land was probably valued at about $1M. The first defendants then do a series of calculations in relation to the agreement for the transfer of the property and related transactions which result in the assertion that, having regard to the market value of the property transferred away by the Andonys, their one-third interest in the land and a 50 per cent shareholding in the plaintiff, they received about $206,000 less than the market value. The first defendants elect to avoid those transfers under s 120, and so they ground their claim to a caveatable interest of the kind described in the second caveat.

14 I note in passing, without resolving the matter, that there is an argument between the parties as to whether there has been a transfer of the shareholding of the Andonys in the plaintiff because what occurred was the issue of shares by the plaintiff in favour of a related third party. It is unnecessary that I should consider that argument.

15 What is clear, I think, is that the caveatable interest now maintained, and the subject of the second caveat, is not that asserted in support of the first caveat the subject of these proceedings. The question arises whether under s 138 of the Transfer of Land Act the power of the Court to make in the proceedings directed to the removal of the caveat, such order as "may seem fit" includes a power to amend the caveat (not the supporting statutory declaration) so that it does not assert the maintenance of a caveatable interest of the Andonys vested in their trustees in bankruptcy, but so that it asserts a caveatable interest maintained by the trustees in bankruptcy which arises by the process of bringing back into the bankrupts' estate (already vested in the trustees) a void transaction by which they earlier divested themselves of a proprietary interest in the land.

16 As I have said, that property then immediately vests in the first defendants, who personally have the obligation, as trustees, to pay to the transferee an amount equal to the value of the consideration given. It is important in this regard I think, as I have noted, that the constructive trust relied upon to ground the first caveat expresses an equitable interest in the land which arises in quite different asserted circumstances to those relied upon to ground the first defendants' claim to a caveatable interest made in the second caveat.

17 It has long been held that the power to make such order as to the Judge may seem fit includes a power to order that the caveat be amended: Porter v McDonald [1984] WAR 271, per Rowland J at 275, but the question here is the ambit of the power.

18 In Hayes v O'Sullivan [2001] WASC 55; (2001) 24 WAR 40, the caveatable interest originally relied upon was the plaintiff's claim in respect of a settlement of property to be made under the Family Law Act 1975 (Cth). But by the time the matter came before the court, the caveator sought to support the caveat by arguing for an interest in the land as the beneficiary under a constructive trust said to arise in the caveator's favour by reason of contributions made to the property. Counsel cited the case as authority for the proposition that there was ample power to amend under s 138 of the Transfer of Land Act, but in fact Roberts-Smith J dismissed the application to extend the caveat upon the basis that, even upon the claim now made, the proceedings before the Court were necessarily incidental to and related to proceedings for the property settlement which constituted the matrimonial cause in respect of which the Family Court had exclusive jurisdiction.

19 In Professional Services of Aust Pty Ltd v Mila Properties Pty Ltd [2004] WASC 30, Le Miere J had occasion to consider whether there was a power of amendment under the provisions of s 138C(2) of the Transfer of Land Act. Relative to this question, the grant of power was that made in s 138C(2)(a)(iii), which provides the 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;

(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;

"Subsection 138C(2) does not vest in the Court a discretion to make 'such order as it thinks fit'. There is no such provision in s 138C. In New Zealand Mortgage Guarantee Co Ltd v Pye [1979] 2 NZLR 188 at 198 and Nichols Constructions Pty Ltd v Henry [1995] ANZ Conv 192 at 194, it was held that legislation similar to s 138C conferred no power to amend a caveat to claim a different estate.

The power conferred by s 138C(1)(a)(iii) is conditioned by the requirement that the Court be satisfied that the caveator's claim has or may have substance. In my view 'the caveator's claim' refers to the estate or interest claimed in the caveat. If the caveator's claim in the caveat has no substance then the Court does not have power under s 138C(1)(a)(iii) to amend the caveat to claim a different estate. The plaintiff's claim in the caveat has no substance. The interest that justified the lodging of the caveat no longer exists."

21 That decision was, in its turn, applied by Hasluck J in Midland Brick Company Pty Ltd v Welsh [2006] WASC 122.

22 In my respectful opinion, the reasoning employed by Le Miere J applies with equal facility to s 138(2) as it does to s 138C(2)(a)(iii). Certainly the power to make such order as to the court may seem fit in s 138(2) is a power of great amplitude. But if one is concerned with the amendment of a caveat in the caveator's endeavours to discharge the onus to show cause why it should not be removed, then to my mind, under s 138(2), the court is concerned with a power to amend so that the caveat (as opposed to any supporting statutory declaration) expresses with more facility the caveatable interest relied upon. The power of amendment cannot, in my opinion, be exercised so as to abandon the support of that caveatable interest and substitute for it another caveatable interest of a different kind.

23 In this case, as I have said, the caveatable interest claimed in the first caveat, the subject of these proceedings, was not supported as such, but a caveatable interest arising in a different way, in different circumstances, was advanced. Hence my order that the caveat be removed.

24 There is one further matter to which I should refer before parting with the case. For the first defendants it was argued that the requirements of O 59 r 9 of the Rules of the Supreme Court had not been complied with and, that being the case, the plaintiff was in jeopardy as to its costs. It was not specifically the defendants' contention that I should decline to hear the plaintiff's application by originating summons until O 59 r 9 was complied with. I think that is understandable because in relation to the substantive argument about s 120 of the Bankruptcy Act and the Court's capacity to amend the first caveat, if necessary, the parties were fundamentally opposed and there was certainly no halfway house available to them even in respect of a narrowing of the issues.

(1) No order shall be made on an application in chambers unless the application was filed with a memorandum stating -

(a) that the parties have conferred to try to resolve the matters giving rise to the application; and

(b) the matters that remain in issue between the parties.

(2) The Court may waive the operation of paragraph (1) in a case of urgency or for other good reason."

26 These proceedings were by way of originating summons. The first defendants say that although the plaintiff's application was not heard in chambers in the sense that the courtroom was not so described, but the hearing was in open court, the proceedings were of a kind to which O 59 r 9 applies, pointing out that under O 59 r 1(2), civil proceedings commenced by originating summons are within the business to be disposed of in chambers. That rule is subject to O 59 r 2 which permits matters commenced by originating summons to be moved for hearing backwards and forwards between open court and chambers. Order 59 r 3(1) recognises that an application in chambers may be made by originating summons.

27 To my mind, this part of the debate is quite sterile. As I read the provisions to which I have referred, proceedings commenced by originating summons constitute an application in chambers within the meaning of O 59 r 9. That is so even though later, for particular reasons, the mode of hearing may be altered.

28 Nor, I think, is there any merit in the plaintiff's argument that this was not an originating summons of the kind to which O 59 refers, because it was by way of a power conferred directly by s 138(2) of the Transfer of Land Act to "summon the caveator to attend before the Supreme Court or a Judge in chambers to show cause why such caveat should not be removed". I do not accept the plaintiff's argument that the provision confers a right of access directly to the Court without the need to comply with a procedural rule like O 59 r 9, and it is to be noted that, prima facie under s 138 (2), the caveator will be required to show cause before a Judge in chambers. In my opinion, that is a general reference to proceedings conducted with a degree of informality and expedition. Further, it is clear that the provisions of O 59 may apply to originating process of this kind.

29 I accept the proposition advanced by the first defendants that proceedings to show cause why a caveat should not be removed bear an interlocutory character in the sense that if the caveat is maintained it will generally, by the order of the court, be maintained pending the conduct of proceedings brought for the purpose of finally establishing the claim of the caveator, the arguable nature of which supports the caveat.

30 As to what is required by way of conferral under the rule, it is convenient to note that the Court has recently sought to reinforce the utility of and necessity for proper conferral to take place. To that end, Master Sanderson issued a circular to practitioners dated 31 January 2006. In par 3 it is observed that the purpose of O 59 r 9 is to ensure that the parties resolve issues between themselves so far as possible, and only those matters which are really in dispute are referred to the Court. When matters are to be determined by the Court, the conferral process should at least enable all parties to appreciate what the real issues in dispute are, an outcome in this case achieved by the exchange of a bewildering series of outlines of submission.

"4. Practitioners, as officers of the Court, have a duty to approach the conferral process to achieve the spirit encapsulated in par 3 of this note and not merely to comply with the letter of 0 59 r 9.

5. 0 59 r 9 requires that parties confer in the sense of there being an exchange of views, whether oral or in writing, for the purpose of trying to resolve the matters in issue. Conferral is required no matter how unlikely it is that the parties will reach agreement or even narrow the issues between them.

6. Conferral must occur shortly prior to the making of an application and must relate to the application itself rather than simply to the issue that is the subject of the application. The giving of notice of an intention to make an application is not conferral.

7. Practitioners are encouraged to confer either face to face or by telephone. While an exchange of correspondence will often be part of the conferral process it will only be where face to face or telephone contact is not feasible that reliance simply upon written communication can be justified."

32 Views of that kind were more recently reiterated in the judgment of Martin CJ in Youlden Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161 at [3] - [5].

33 Before me the parties debated whether or not there had been any or adequate conferral. There was none at all between the solicitors, but there was correspondence between the plaintiff's solicitors and the first defendants, seeking the removal of the caveat and arguing the point about its validity. Counsel for the plaintiff told me that although it was not thought that there was any requirement to comply with O 59 r 9, this was a genuine attempt to see if the matter could be resolved without an application to the Court, which was foreshadowed in the correspondence.

34 I was told that the liquidators were approached directly, because although their solicitors had lodged the first caveat, it was considered that the first defendants were not legally represented until those solicitors were again instructed upon the issue of the originating summons. On the other hand, counsel for the first defendants say, reasonably enough in my view, that there was no indication that the solicitors had ceased to act for the first defendants and the approach should have been to them. In any event, there was not even a belated approach to the first defendants' solicitors to endeavour to negotiate a settlement after the originating summons was issued.

35 In my opinion, the proposition that there was substantial compliance with O 59 r 9 is of dubious validity, but the case presented very unusual circumstances which, to my mind, warranted waiver of the need to more strictly comply with O 59 r 9, and I took that course so that the matter could be substantively dealt with upon hearing the submissions of the parties, who were fully prepared. I should set out what I have in mind. The first caveat is an old one, having been lodged on 10 December 2004. So far as I am aware, little else was done to establish the first defendants' asserted claim to the property in question. The plaintiff's solicitors were not instructed until the end of August 2005, as I understand it as part of a process by which the plaintiff sought to develop the land. There had, in the meantime, been some correspondence between the plaintiff and the first defendant. That correspondence continued, and it was substantially related to the investigation by the first defendants of the affairs of the bankrupts, the Andonys. It was only towards the end of November 2005 that removal of the caveat commenced to be canvassed as between the solicitors and the first defendants. The originating summons was not filed until 22 September 2006.

36 It is clear that thereafter, when solicitors were instructed for the first defendants and the basis of the maintainable claim in support of the caveat was considered, the first caveat was not voluntarily removed, but the underlying claim continued to be made. Although it was not argued before me, it was not formally abandoned at the hearing. It was on 8 November 2006 that the second caveat, making the different claim to which I have referred above, was lodged. That was during the process of exchange between the solicitors of outlines of submissions which raised various propositions from time to time, and then subsequently provided answering submissions.

37 I took the view that in that rather peculiar fashion there was a clear process of conferral, albeit informally and outside the bounds of O 59 r 9. Nonetheless, the process made clear what the true issues were, and that they could not be resolved by agreement between the parties. I do not think the outcome would have been different had there been proper conferral, but I am not be taken as approving what occurred. I waived compliance with O 59 r 9 and removed the first caveat.