Dominion Lifestyle Tower Apartment Pty Ltd v Global Capital Corporation Pty Ltd [2004] VSC 307

2 Putting aside the procedural aspects, the substantive application heard by me yesterday was an application by Dominion under s.90(3) of the Transfer of Land Act 1958 for an order that the second defendant, the Registrar of Titles, remove caveat No. AC296315E lodged by the first defendant, Global Capital Corporation Pty Ltd ("Global") over land at 285 City Road, South Melbourne, which is the land more particularly described in Certificate of Title Vol. 8202 Folio 506.

3 The matter has come on in circumstances which Dominion claims are extremely urgent. Dominion alleged that it has to have a clear title to the land by tomorrow, 6 August 2004, so that loan documents can be executed whereby Dominion will be borrowing some $21 million to fund the construction of a 15-storey building consisting of 60 residential apartments, of which 43 are said to have been sold off the plan. It is feared that if this loan is not finalised by tomorrow, then the financier may withdraw its offer, leading to the financial collapse of Dominion.

4 As I said yesterday during argument, it seems to me that Dominion has only itself to blame for the pressing urgency, because of its delay in seeking the caveat's removal. For example, Dr Hanscombe SC, who appeared with Mr Fary of counsel for Global, pointed out that although the loan facility was said to have been signed by the plaintiff on 17 June 2004, the originating motion was not issued until 26 July, with a summons returnable on 29 July 2004. Dr Hanscombe submitted that there was no credible explanation of the near six-week delay in acting on the new development, namely, the signing of the loan facility.

5 The caveat lodged by Global in August 2003 claimed an interest as chargee pursuant to a charge dated 26 June 2003 and made between Dominion as borrower and Global as chargee. It was common ground that this could only be a reference to a mandate to act dated 26 June 2003 and given by Dominion to Global, which confirmed that Global had been appointed by Dominion to obtain approval of a commercial loan facility of at least $16 million, or up to 66.67% value of the security. A commitment fee of $22,000 was payable upon execution of the document. This was paid by Dominion. An application fee was payable to Global on presentation of the loan offer. It was further provided that if Dominion chose not to proceed for whatever reason after the loan approval had been obtained, the application fee still applied.

"The undersigned consents to GCC [Global] lodging a caveat over the land defined as the security property/properties below in support of its charge and consequential interest in the land. Such caveat shall not be released until payment of GCC's application fee and other agreed disbursements have been paid in full. The borrower/borrowers hereby irrevocably authorises and directs the lender and the lender's solicitor to deduct the GCC application fee from the loan amount at settlement and further irrevocably directs that sum be paid directly to Global Capital Corporation immediately thereafter."

The schedule then set out the amount of the loan which I have already referred to, the loan term, 18 months, and the security property which was identified as 285 City Road, South Melbourne. The application fee is 2% of the loan amount plus GST.

7 Global submitted that the first part of the document that I have just quoted justified its caveat, whereas Dominion argued that there was no caveatable interest created because there were no charging words in that passage. This is a legal issue involving construction of the agreement.

8 There is also a factual dispute which cannot be resolved on an application such as this. Indeed, there is another proceeding, No. 4119 of 2004, between Global and Dominion dealing with these very issues. The first proceeding was commenced by Global to prevent Global's caveat being removed following an application by Dominion's solicitor to the Registrar under s.89A of the Transfer of Land Act 1958. Dominion has counter-claimed in that proceeding, in essence for the same relief sought in the originating motion, namely, an order pursuant to s.90(3) of the Transfer of Land Act 1958 that the Registrar remove caveat No. AC296315E in the Office of Land Titles from Certificate of Title Vol. 8202 Folio 506 in the register book in the Office of Land Titles, and an order pursuant to s.118 of the Transfer of Land Act 1958 that the first-named defendant make to the plaintiff such compensation for damage sustained by the plaintiff as the court deems just. That earlier proceeding was still wandering through the interlocutory steps when the originating motion came before me yesterday.

9 It was submitted by Dr Hanscombe that the issue of the second proceeding was an abuse of process.[1] Mr Fraser of counsel, who appeared for the plaintiff, submitted that there was no abuse of process in circumstances such as this, where urgent relief is sought and such cannot be obtained in the first proceeding. I do not need to resolve that question at this stage, as I determined to put aside procedural arguments and attempt to deal with the substantive issues.

10 The factual issue was whether Global had presented a loan offer to Dominion and thereby earned its application fee, or whether Dominion had validly terminated the agreement before any presentation of a loan offer, following Global's failure to perform its part of the contract before the alleged cut-off date. Thus, one argument would be that even if Global is correct in its construction of the critical part of the document, it would not have any entitlement to maintain the caveat if it had not performed its part of the contract before the defendant terminated the agreement for Global's breach. This issue can only be resolved after a full hearing.

11 On the other hand, if I could be satisfied, as a matter of the proper construction of the agreement, that no equitable charge was created by the mandate to act, then the inability to resolve the factual dispute did not matter, because Global would never be in a position to resist the removal of the caveat, whatever the findings on the facts.

12 I turn, then, to the question of whether an equitable charge was created in favour of Global by the mandate to act. For this purpose, after some discussion I expressed the view, and the parties agreed, that I should look only at the mandate to act and work on the assumed basis that the facts had been found on the most favourable basis for Global: that is, that it had presented a loan offer to Dominion before any valid termination by Dominion and thereby earned its application fee.

13 Mr Fraser submitted that on any view the mandate to act contemplated a later document which did not charge the land. He argued that the mandate to act did not itself charge the land in any way. There were no operative words of any sort. Therefore, he submitted, the caveator, Global, had no equity in the land capable of supporting a caveat. He drew my attention to the decision of the High Court in Leros v Terara[2], in which it was stated that a caveat is not of itself a species of legal or equitable right.

14 Mr Fraser submitted that there was a difference in the way in which caveats were treated by the courts in Victoria compared with those in New South Wales. He submitted that the authorities in New South Wales suggested that it is the right to lodge the caveat which carries with it by implication the grant of the estate or interest in the land: see Murphy v Wright[3]; Troncone v Aliperti[4]; Coleman v Bone[5]; Hu Ha Nguyen v. Larry Quok Huong[6].

15 On the other hand, Mr Fraser submitted that in Victoria there were authorities which supported the proposition that no caveat could be maintained unless there was some existing caveatable interest: that is, that there had been a grant of an estate or interest in land which carried with it the implication to do all that is necessary to give effect to that grant of the estate or interest in the land, then the right to lodge a caveat. Mr Fraser referred me to the decisions of Harper J in Crampton v French[7] and Ashley J in Chiodo v Murphy[8]. Mr Fraser argued that the New South Wales approach was, in colloquial terms, putting the cart before the horse. He drew attention to an interesting paper delivered by Bryson J of the Supreme Court of New South Wales, in which he criticised the logic of concentrating on whether there was some agreement to lodge a caveat, rather than on whether there had been created a caveatable interest in the land.[9]

16 Dr Hanscombe submitted that the suggested dichotomy between the New South Wales and Victorian approaches was not as dramatic as suggested by Mr Fraser. For example, she drew attention to the fact that Ashley J in Chiodo v Murphy[10] specifically followed the New South Wales Court of Appeal decisions in Murphy v Wright and Troncone v. Aliperti. Dr Hanscombe submitted that the wording of the mandate to act was sufficient to create a caveatable interest. She emphasised the use of the words "charge" and "consequential interest in the land". What else could they refer to, she asked, if not to a charge created over the land in favour of Global? Dr Hanscombe argued that the plaintiff's submission that there would be a later document to be signed by the borrower which would charge the land would lead to extraordinary results. A borrower, for example, who wrongly refused to proceed with the offer presented by Global, could deny Global any security for its fee by simply refusing to sign the later document.

17 It is instructive to compare the wording of the relevant clause in this case with the wording of clauses in other cases which have been held to create caveatable interests. In Murphy v Wright and Chiodo v Murphy, which both involved the same form of document, the wording was that the lender was: "... in the event of default, entitled to attach the debt due and register a caveat." In Crampton v. French, the clause read: "In the event that the borrower defaults under this agreement, the borrower authorises the lender to lodge any necessary caveat against property known as 28 Portland Street, Mulgrave, to better secure the amount outstanding including any interest." The strongest authority for Global, if the New South Wales cases apply, which I believe I do not need to decide in this dispute, is Troncone v. Aliperti, where the clause simply read: "The debtor authorises the creditors to lodge a caveat on any property owned by the debtors to protect his interest."

18 In the little time available to me to deal with this matter, it has been extremely difficult to consider fully all of the complex issues involved in this dispute. However, I have concluded that I am not satisfied that the wording of the mandate to act does not charge the land in question and thereby create a caveatable interest on the part of Global. In my opinion, there is therefore a serious question to be tried as to whether in all the circumstances of this case Global had a caveatable interest which justified it lodging its caveat.

19 In reaching this decision I have been principally guided by the decision of Harper J in Crampton v French. His Honour referred to a passage from a judgment of Romer J in Cradock v Scottish Provident Institution, where his Lordship said:

"To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security."[11]

This case is cited in Fisher and Lightwood's Law of Mortgage[12] as authority for the proposition that no special form is required to create a charge.

20 Paraphrasing Harper J's conclusion, it seems to me that, at the least, it is arguable that whichever way one looks at the clause in question, one thing can be fairly gathered from it: an intention by the parties that the City Road property should constitute a security for payment of Global's application fee, if it had been earned, which might, if Global wished, be secured by the lodging of a caveat.

21 However, this is not the end of the matter. As stated by Eames J in Australian Natives' Association Friendly Society v Peball Pty Ltd[13]:

"on an application for the removal of a caveat, the onus rests on the caveator to satisfy the Court that its claim to an interest in the property raises a serious question to be tried and, having done so, then to show that on the balance of convenience it is better that the status quo be maintained with the caveat remaining on the property until after the trial of the action rather than that the caveat be withdrawn and the property be sold."

22 On behalf of Dominion, Mr Fraser submitted that the balance of convenience strongly favoured removal of the caveat. There was an extremely high risk, it was said, that if the caveat were not removed this latest attempt to obtain funding for the development would be lost and the whole project would have to be abandoned, with Dominion going into liquidation. It was further submitted that any subsequent order for the payment of the massive amount of damages which would flow from such a collapse would never be recovered. No evidence had been put forward in the earlier security for costs application in the other proceeding to suggest that Global would be able to meet such an order.

23 On the other hand, Dr Hanscombe submitted that there was a real risk that if the caveat were removed, Global would never recover its fee in the event that it was subsequently held to be entitled to it. She referred to and repeated an earlier open offer by Global to remove the caveat if the amount of the fee was paid into court or other security provided. In all the circumstances, the fact that no such step was taken by Dominion suggested to me that it was in no position financially to do so. Other material before me, such as the extraordinarily high rate of interest being paid by Dominion on its present borrowings, again suggests that Dominion's financial position is precarious. Mr Fraser did not dispute that inference. I therefore conclude that to order that the caveat be removed on condition that Dominion pay $400,000 into court would be, in effect, to deny Dominion's application that the caveat be removed.

24 I accept that the balance of convenience favours removal of the caveat. For this development to be held up, if not destroyed, by the existence of the caveat, when it may subsequently be found that Global has no entitlement to be paid any application fee, seems to me not to be a just result. However, I am concerned to ensure, if at all possible, that Global receives some alternative form of security pending the determination of the earlier proceeding.

25 In response to the repetition of Global's open offer, Mr Fraser referred to his client's offer to give as replacement for the caveat an identical security over one of the unsold units in the plan of subdivision when that plan is registered. It was said that the unit would be one which is offered to the public at between $400,000 and $450,000. However, in my opinion, that offer ignores that most, if not all, of the proceeds of the sale of such a unit will have to be paid to the mortgagee in reduction of its debt.

26 It therefore seems to me that Dominion should, as a condition of the caveat being removed, be required to do something along the following lines: that it should agree to give Global a charge over some or all of the 17 unsold apartments in order to secure payment of the application fee, if such is eventually found to be owing to Global. In order to be satisfied that the charge will be given in due course, I would require a personal undertaking from the directors of Dominion, Mr Ali Moustafa and Mr Sevket Demir, that this step will be carried out. On receipt of such an undertaking, the precise form of which will have to be worked out, I will order that Global's caveat be removed.

[1] See Lidden v Composite Buyers Limited (1996) 67 FCR 560.

[2] [1992] HCA 22; (1992) 174 CLR 407 at 422 per Mason CJ, Dawson and McHugh JJ

[4] [1994] 6 BPR 13,291

[6] [2003] NSWSC 50; [2004] NSW Conv R 56-065

[7] [1995] V Conv R 54-529

[8] [1995] V Conv R 54-531

[9] Justice John Bryson: "Caveats Against Dealings Under The Real Property Act 1900", 29 March 2003

[10] [1995] V Conv R 54-531 at 66,308

[11] (1893) 69 LT 380 at 382

[12] Australian ed., by E.L.G. Tyler, P.W. Young and C.E. Croft at para. 2.2

[13] [1993] V Conv R 54-482 at 65,611