GARNOCK & ORS v BLACK & ORS

Court of Appeal (NSW)|2006-02-22|Before: Beazley JA, Ipp JA, Basten JA, Lloyd J

Background 69 The Fifth Respondent, Marilyn Claire Smith, is the registered proprietor of a property known as "Wanaka" at South Bukalong near Bombala in southern New South Wales. In mid-2005, Mrs Smith and her husband were in financial difficulties. The land was heavily encumbered. In addition, they were liable under a judgment given in the District Court on 17 September 2004, in an amount then in excess of $200,000, to the First-Fourth Respondents ("the judgment creditors"). 70 On 15 July 2005 the Appellants ("hereinafter "the purchasers") entered into a contract to purchase the land from Mrs Smith for an amount of $1 million ("the sale contract"). Settlement took place on 24 August 2005. The judgment creditors were aware of the proposed sale of the property in July and, on 28 July 2005, sought an assurance that they would be paid in full on settlement. 71 On 19 August 2005 the solicitors for the Smiths advised the judgment creditors of the proposed settlements involving the sale of two properties on 24 and 25 August 2005, the amounts secured over those properties and the purchase price in each case. It was noted that funds would not be available to pay the judgment creditors in full and that Mr and Mrs Smith had other creditors. 72 On the morning of 24 August 2005 the judgment creditors, through their solicitors, took three steps: first, they obtained a charging order from the District Court in relation to the deposit under the sale contract, which was held by a real estate agent pending completion. Secondly, they obtained from the District Court a "Writ for Levy on Property", which was enforceable against any property of Mr and Mrs Smith situated in New South Wales. 73 Thirdly, at 11.30am on 24 August the solicitors lodged an application at the office of Land and Property Information, seeking to register the writ with respect to "Wanaka", the land subject to the sale contract. Unbeknownst to the parties to the sale contract, the writ was registered on the land at 11.53am on 24 August. 74 At about 2pm on the same day, the sale contract was completed and the balance of the purchase moneys paid by way of bank cheques, mainly to secured creditors, at the office of solicitors in Sydney. 75 Although settlement occurred on Wednesday, 24 August, the documents were not lodged for registration on that day, but were sent to a conveyancing agent two days later. When the documents were lodged for registration is not known; there is a notation on a title search dated 26 September 2005 which refers to the various documents as "unregistered dealings". 76 On 26 August 2005 the writ of execution was delivered to the Sheriff. The judgment creditors' contention is that the Sheriff had a period of 6 months from the date of issue of the writ within which to arrange a sale of the property. 77 On 8 September 2005, the solicitor for the purchasers received advice from the registration agent that a writ had been lodged and that the transfer to the purchasers, and accompanying dealings, could not be registered. On the same day, the solicitor prepared and lodged a caveat on behalf of the purchasers, described as bona fide purchasers of the land for value without notice, being the transferees referred to in the unregistered transfer. The notation on the search indicates that the caveat is also an unregistered dealing. 78 On 28 September 2005 the purchasers commenced proceedings in the Supreme Court seeking a declaration that, as purchasers of the land, they were "entitled to priority over any interest in the land" held by the judgment creditors. They also sought orders against the judgment creditors and the Sheriff restraining them from executing the writ and requiring the judgment creditors to lodge an application for cancellation of the recording of the writ. 79 They argued that a sale pursuant to the writ would result in a transfer the effect of which, if registered under the Real Property Act, would be to deprive them of any estate or interest in the land which they had obtained from the judgment debtor. They contested the right of the Sheriff to sell the land, so that the prospective purchaser (hereinafter called "a Sheriff's purchaser") would gain priority over their interest. 80 On 7 October 2005, the proceedings came before Campbell J in the Equity Division, the purchasers seeking an interlocutory injunction restraining the judgment creditors and the Sheriff from executing the writ. His Honour granted the interlocutory injunction, subject to the usual undertaking in relation to damages in accordance with r 25.8 of the Uniform Civil Procedure Rules 2005. 81 On 21 November 2005 the summons came before Lloyd AJ in the Equity Division, at which time his Honour directed that a separate question be determined before the further trial of the proceedings, namely: "Have the plaintiffs [the purchasers] acquired title to the land as defined in paragraph 1 of the amended summons within the meaning of s 112(2) of the Civil Procedure Act 2005 (NSW)?"

In an ex tempore judgment, his Honour answered that preliminary question in the negative: see Garnock & Ors v Black & Ors [2005] NSWSC 1217. 82 The answer to the preliminary question did not dispose of the proceedings. On 2 December 2005, his Honour handed down a final judgment dismissing the proceedings: see Garnock & Ors v Black & Ors (No. 2) [2005] NSWSC 1218. The proceedings having been determined against the purchasers, the interlocutory summons was discharged and the Sheriff was at liberty to sell the property. 83 On 12 December 2005 the purchasers filed a notice of appeal challenging the judgment of Lloyd AJ and seeking, in substance, from this Court the orders which had been sought from the Equity Division. On 16 December 2005 a further stay was granted by this Court, substantially in the terms of the orders of Campbell J. Reasons for judgment were delivered on 21 December 2005: see Garnock v Black [2005] NSWCA 475. 84 Although expedition was granted, the earliest date available to the parties and the Court for hearing the appeal was 22 February 2006, that being two days before the expiry of the 6 month period during which the Sheriff could sell the property and confer an interest on the Sheriff's purchaser in priority to the purchasers, on the best case for the judgment creditors. The judgment creditors recognised at the hearing of the appeal that they were no longer in a position to sell the property, but asserted that the right of the purchasers to the injunctive relief which they had obtained on an interlocutory basis remained an issue, the determination of which would resolve their right to claim damages pursuant to the usual undertaking, being the condition on which the purchasers obtained the interlocutory injunctions. 85 To resolve this dispute requires an analysis of various provisions of the Real Property Act 1900 (NSW) and the Civil Procedure Act 2005 (NSW) providing for the effects of recording a writ for the levy of property on the land register maintained by the Registrar-General under the Real Property Act.

Statutory Scheme (a) Effect of a writ of execution - "title" to land 86 As from 15 August 2005, being the date of commencement of the Civil Procedure Act, the statutory provisions in relation to writs for levy of property are to be found, in relation to land, in ss 112-116 of the Civil Procedure Act. Further provision is made for enforcement of writs of execution in Part 39 of the Uniform Civil Procedure Rules 2005 (NSW) ("the UCPR"). Commencing with the statutory provisions, s 112 of the Civil Procedure Act states: 112 Effect of judgment and writ of execution on land (1) A writ of execution against land binds the land, as from the time the writ is delivered to the Sheriff, in the same way as a writ of execution against goods binds the property in the goods. (2) Despite subsection (1), a writ of execution does not affect the title to land acquired by a person in good faith and for valuable consideration unless, when the person acquires title, he or she has notice that such a writ has been delivered to the Sheriff and remains unexecuted. (3) A judgment in any action at law does not of itself bind or affect any land. 87 The effect of a writ of execution on goods, referred to in s 112(1), is dealt with in s 109 and possibly s 110. As noted by Campbell J in the interlocutory proceedings in the Equity Division, the cross-reference to property in goods is not illuminating: Garnock v Black [2005] NSWSC 1052 at [14]. Secondly, it is necessary to look elsewhere to know precisely what is meant by the statement that the writ against land "binds" the land, a matter discussed by Kitto J (Dixon CJ and Windeyer J agreeing) in Hall v Richards (1961) 108 CLR 84, 89-92. Thirdly, it is necessary to note the statement in sub-s (2) that a writ of execution does not "affect the title" to land acquired by a person in good faith, for valuable consideration and without notice. In the present case, one limb of the purchasers' argument was that they acquired "title" to the land upon entering into the contract of sale on 15 July 2005, prior to the existence of the writ of execution. If they acquired title at that time, they clearly did so for valuable consideration and without notice. There was no challenge in this Court to the proposition that they acquired their interest in good faith. Alternatively, if they acquired title upon completion of the sale, again they did so without notice and otherwise met the requirements of sub-s (2). Thirdly, sub-s 112(2) appears to operate at a time when sub-s (1) applies, namely after the writ has been delivered to the Sheriff. The title of a purchaser prior to delivery cannot be weaker: as the contract was both entered into and completed prior to delivery of the writ to the Sheriff on 26 August, the purchasers' title was, it was submitted, unaffected by the writ or its delivery to the Sheriff. 88 Section 112(2) does not have any ready application in relation to the title of the judgment debtor. It is, presumably, referring to a title acquired by a third party after the writ has been issued and delivered to the Sheriff. It is at least consistent with, and arguably assumes that, the judgment debtor has power to sell or dispose of an interest in the land after the writ has been delivered to the Sheriff. As will be seen, that power may be subject to a constraint where the writ has been recorded or registered under the Real Property Act, but that effect must arise under a different statutory provision. 89 In his first judgment, Lloyd AJ accepted the argument for the judgment creditors, that "title" in relation to land subject to the Real Property Act, only passes upon registration and that, accordingly, use of the word "title" in s 112 of the Civil Procedure Act had that meaning. It did not matter that the purchasers had either an equitable interest or even a deemed "legal estate" pursuant to s 43A of the Real Property Act: neither would constitute "title" for the purposes of s 112: [2005] NSWSC 1217 at [15]. 90 The reliance on s 43A in references to s 112 makes it convenient to note its terms, so far as relevant: 43A Protection as to notice of person contracting or dealing in respect of land under this Act before registration (1) For the purpose only of protection against notice, the estate or interest in land under the provisions of this Act, taken by a person under a dealing registrable, or which when appropriately signed by or on behalf of that person would be registrable under this Act shall, before registration of that dealing, be deemed to be a legal estate. 91 The scope and effect of this provision, which must be limited by its sole express purpose, appear from its statutory context. Thus, indefeasibility of title is conferred by s 42(1), which is in the following terms, so far as relevant: 42 Estate of registered proprietor paramount (1) Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except: … (d) a tenancy … of which … the registered proprietor before he or she became registered as proprietor had notice against which he or she was not protected … . 92 Consistently with s 42, s 41(1) provides that no dealing shall be effectual to pass any estate or interest in land until registered. Section 43, which immediately precedes s 43A, provides, relevantly: 43 Purchaser from registered proprietor not to be affected by notice (1) Except in the case of fraud no person contracting or dealing with or taking or proposing to take a transfer from the registered proprietor of any registered estate or interest shall be required or in any manner concerned to inquire or ascertain the circumstances in or the consideration for which such registered owner or any previous registered owner of the estate or interest in question is or was registered… or shall be affected by notice direct or constructive of any trust or unregistered interest, any rule of law or equity to the contrary notwithstanding; … . 93 In relation to the priority accorded to the order of lodgement and registration of documents, s 36(4) and (5) of the Real Property Act provide: (4) Where two or more dealings which affect the same land have been lodged and are awaiting registration, the Registrar-General may register those dealings in the order which will give effect to the intentions of the parties as expressed in, or apparent to the Registrar-General from, the dealings. (5) Subject to section 12A, where the intentions of the parties to dealings referred to in subsection (4) appear to the Registrar-General to conflict, the order of registration shall be the order in which the dealings were lodged in registrable form. 94 On one view, s 36(4) only operates where there are two dealings affecting the same land, in respect of which the parties have specific intentions, as in the case of a transfer and mortgage by the transferee. Where there are two dealings, each undertaken without the knowledge of at least one of the other parties, it may be not be appropriate to speak of conflicting intentions, as does sub-s (5). However, before this Court the rule for registration in order of lodgement in registrable form, was assumed to be of general application, unless sub-s (4) operated. In addition, the power to register conferred by sub-s (4) was treated as a power coupled with an obligation, which may be the subject of an order of the Court, if not carried out. Further, the two provisions appear to assume that each dealing can be registered and that the registration of one does not preclude the registration of the other. That assumption would not apply in the present case. The judgment creditors also argued that a dealing which could not, at the time of lodgement, be registered was not "in registrable form" and was therefore not a dealing "registrable under this Act" for the purposes of s 43A. It is not necessary to rule on that submission, which is not entirely attractive. 95 Lloyd AJ held that s 43A did not operate in the present circumstances, because the purchasers did not have a dealing registrable under the Real Property Act until they took the transfer, by which time the writ of levy had been recorded and the transfer was then not registrable: [2005] NSWSC 1217 at [16]. What is meant by "registrable" in the present context need not be considered, but the judgment creditors accepted that the transfer would be registrable if the writ were not executed by a sale within six months of registration. Section 43A is limited by its purpose to protection against notice. The concept of "protection against notice" may arise in relation to the exception from indefeasibility provided by s 42(1)(d). Reliance by the purchasers on this provision is not for that purpose, but to establish a title to land, which arguably has nothing to do with protection against notice. However, one element of the purchasers' argument appears to have been more limited, namely to demonstrate that the term "title" was used in the Real Property Act in a sense which was clearly not limited to holders of registered title. 96 Lloyd AJ held that, in the Civil Procedure Act, the term "title" should be understood as referring only to a registered title. In this respect, it is significant that there is no such consistent use in the Real Property Act. Putting to one side the phrase "certificate of title" which must refer to a registered title, the Act also speaks of documents or instruments "evidencing title" which are clearly not certificates of registered title (including in s 42 dealing with indefeasibility) and speaks of persons "claiming title" or asserting a "common law title" or "possessory title" as against the registered proprietor. Indeed, a reference to documents "evidencing title" may be found in the definition of "interest" in s 3 of the Real Property Act. The definition of "transmission" refers to "the acquirement of title to or interest in land consequent on the death, will, intestacy or bankruptcy of a proprietor", the term "proprietor" not being limited to a registered proprietor. The fact that the courts have held that the Real Property Act creates a system of title by registration, rather than registration of title, does not mean that the statutory use of the term "title" is restricted to registered interests. The Real Property Act itself demonstrates the contrary. Thus, although the concept of "native title" was not adopted until after the commencement of the Native Title Act 1993 (Cth) it did not create anomalous terminology. 97 One explanation of the use of the word "title" in s 112(2) is that s 112(2) is merely a repetition with respect to land of the language used in s 109 with respect to goods. Because goods are not the subject of transfer by registration, "title" in s 109(2) cannot have that meaning. Further, it is difficult to understand why s 112(2) would give protection to a registered interest in land, but not an unregistered interest nor, which must be the corollary of that understanding of "title", why the relevant date at which the question of notice is to be determined is the date of registration, being the date when "the person acquires title". Although in legal terminology it makes sense to speak of the date of registration as a date "when the person acquires title", that would be an unusual use in non-technical language. The preferable view is that the language of s 112(2), being a reflection of s 109(2), is intended to cover any legal or equitable interest in land, vested in a person, other than the judgment debtor. This view obtains some support from the legislative history of the provision. 98 The precursor to s 112 was s 13 of the Judgment Creditors' Remedies Act 1901 (NSW). Section 13 provided: 13. (1) No judgment recovered or to be recovered in any action at law shall bind or affect or be deemed to have bound or affected any land in New South Wales. (2) Provided that every writ of execution on any such judgment against the land of the person against whom such judgment is obtained, when delivered to the Sheriff shall affect and be deemed to have bound such land from the time of such delivery in like manner as a writ of execution against property binds goods and chattels. 99 Consistently with this scheme, s 14 of the 1901 Act provided that it was not necessary for a Sheriff to make an actual seizure of land under a writ in order to authorise a sale. Publication of particulars of the writ in a prescribed form replaced seizure and "the publication of such notice shall be equivalent to an actual levy by him on the land indicated by such notice". 100 Before leaving the Civil Procedure Act it may be noted that it also contains two relevant machinery provisions, namely: 115 Effect of sale of property (1) A sale of property by the Sheriff under this Part is as valid and effectual as if the property had been sold to the purchaser by the judgment debtor personally. … 116 Effect of expiry of writ Subject to section 135: (a) the expiry of a writ for the levy of property does not affect any agreement for sale or other transaction entered into under the authority of the writ before that expiry, and (b) any action necessary to complete that sale or give effect to that transaction may be taken as if the writ were still in force. 101 In addition, the Civil Procedure Act makes express provision for circumstances where a writ is registered. 113 Sale or mortgage by judgment debtor of land affected by order (1) This section applies to land the subject of a writ for the levy of property: (a) that is registered, in the Register kept under the Real Property Act 1900, pursuant to section 105 of that Act … . (2) During the period: (a) that begins when the writ is registered in the relevant register, and (b) that ends at the expiration of 6 months after the writ is registered in the relevant register, or on the expiration of the writ, whichever first occurs, land the subject of the writ may not be sold or mortgaged by the judgment debtor otherwise than in accordance with this section. (3) Before the land may be sold or mortgaged by the judgment debtor: (a) the judgment creditor: (i) must consent, by notice in writing, to the sale or mortgage of the land by the judgment debtor, and … (b) the judgment debtor must lodge the notice of consent with the Sheriff, and (c) the Sheriff, after due inquiry, must endorse the notice of consent with a certificate to the effect that the land has not been sold under the writ. (4) During the period of 8 weeks commencing on the date on which the Sheriff endorses the notice of consent, as referred to in subsection (3)(c): (a) the judgment debtor may enter into an agreement for the sale or mortgage of the land, and (b) the Sheriff is prohibited from causing the land to be sold. 102 Section 113 has a different focus from s 112, discussed above. It is not addressed to the title to land, nor the circumstances in which a person acquires title, but rather the circumstances in which a judgment debtor may sell or mortgage land. The prohibition exists during the period beginning when a writ is registered under the Real Property Act, pursuant to s 105 of that Act, and ending at the expiration of 6 months thereafter, or upon earlier expiration of the writ. The Real Property Act, in provisions discussed below, describes this as the "protected period", at least in relation to registration under that Act, and subject to the terminological variation which refers to the writ being "recorded" rather than "registered" in the register: Real Property Act 1900, s 105A(9).

(b) Effect of writ - "sold" 103 Relevantly for the purchasers' argument, the issue in relation to s 113(2) is what is meant by the term "sold". On one view, the prohibition could extend merely to entering into a contract of sale during the protected period, or it could extend to completion of a contract validly entered into prior to the protected period. 104 Subsection 113(4) provides an exception where the Sheriff endorses a notice of consent lodged with him or her by the judgment debtor under s 113(3)(b). The effect of the endorsement is to lift the prohibition, so that the judgment debtor "may enter into an agreement for the sale … of the land", suggesting that that is what is otherwise prohibited. The endorsement does not in terms permit the debtor to complete an existing agreement for sale. Similarly, for the period during which the prohibition is lifted in relation to the judgment debtor, it is imposed upon the Sheriff, who is prohibited from causing the land "to be sold". Both in legal and in practical terms, this language should be understood as internally consistent and as dealing in each case with the power to enter into an agreement for sale. 105 The provisions in the Civil Procedure Act, taken as a whole, do not impose a prohibition on completion of a contract of sale entered into prior to either the registration of a writ, or its delivery to the Sheriff.

(c) Effect of recording writ 106 Turning to the Real Property Act, the principal operative provisions relied upon by the parties in their arguments are ss 105-105D. Section 105 is entitled "Recording of writ in Register". This language is used consistently in the Real Property Act; in s 113 of the Civil Procedure Act, the reference to registering a writ should be given the same meaning, the different term being used, presumably, to allow for uniform terminology in relation to that adopted in s 186 of the Conveyancing Act 1919 (NSW) which refers to registration of writs. 107 The first substantive aspect of s 105 to be noted is that sub-s (1) provides: (1) A writ, whether or not it is recorded in the Register, does not create any interest in land under the provisions of this Act.

A new sub-s (1A), complementing s 116 of the Civil Procedure Act , provides that "an estate or interest arising under a contract of sale under a writ, is not extinguished or otherwise affected merely because the writ subsequently expires". 108 Subsection 105(2) empowers the Registrar-General to record a writ in the register, but sub-s (3) provides a qualification in the following terms: (3) Where application is made under subsection (2) for the recording of a writ and it appears to the Registrar-General that the land to which the application relates is held by the registered proprietor in a fiduciary capacity the Registrar-General may refuse to record the writ unless it is proved to the Registrar-General's satisfaction that the writ was issued pursuant to a judgment against the registered proprietor in that fiduciary capacity. 109 In the course of the hearing, there was discussion as to whether, in circumstances where, under a contract of sale, the beneficial interest in the land had vested in the purchasers, sub-s (3) would be engaged, if the Registrar-General were aware of that fact. Because it was not suggested that the Registrar-General was so aware, prior to recording the writ on 26 August 2005, the issue did not require to be determined. The limited relevance of the provision in the circumstances of the case was whether it demonstrated the need for an express exception to protect a prior equitable interest, or whether the provision revealed a general statutory intention not to affect the interests of the beneficial owners of land by recording a writ. 110 Subsection 105(6) provides that the writ shall not be recorded if there is, at the time the writ is lodged, "a dealing for valuable consideration affecting the land … awaiting registration" which is "in registrable form". 111 In s 105A, the key operative provision is sub-s 105A(2), which, so far as relevant, reads: (2) Where a writ is recorded under section 105 and a dealing … that affects the land to which the recording relates is lodged for registration within the protected period, the Registrar-General shall not, during the protected period, register the dealing unless the writ is referred to in the dealing as if it were a prior encumbrance. 112 There are exceptions to this prohibition, set out in s 105A(1), which include, understandably, a transfer giving effect to a sale under the writ. The exceptions are not otherwise directly relevant, but they are numerous and, taken as a whole, demonstrate that the recording of a writ is by no means a complete freeze on dealings in the property. For example, one exception arises in respect of "a dealing by a mortgagee … in exercise of the mortgagee's … powers under a mortgage … that was recorded in the register before the writ was so recorded": s 105A(1)(f). 113 Subsections (3) and (4) are, somewhat curiously, said to operate "notwithstanding anything in subsection (7)" to which reference will be made below. Their clear intention is to lift the prohibition under sub-s (2) to allow for a transfer, with the consent of the Sheriff, pursuant to s 113 of the Real Property Act. (The terms of these provisions would be more comprehensible if the reference in the opening words in each was a reference to "notwithstanding anything in subsection (2)" and it should perhaps be so understood.) 114 Subsection 105A(5) provides for the registration of a transfer pursuant to a sale under the writ, conferring on a Sheriff's purchaser an interest freed from any estate created in a dealing which referred to the writ as if it were a prior encumbrance, that kind of dealing being one which may be registered pursuant to sub-s (2), being defeasible in the case of a sale under the writ. 115 Subsection 105A(6) is revealing of the scope of the protection conferred on creditors by sub-s (2). It provides: (6) Where a writ recorded under section 105 has not, within the protected period, been executed by sale of the land to which the recording relates, a dealing with that land lodged for registration before the writ is so executed may be registered notwithstanding the recording of the writ.

Such a dealing registered under that provision would appear, however, to be defeasible if not expressed to be for valuable consideration, by a subsequent lodgement of a transfer in registrable form pursuant to a sale under the writ: see sub-s (8). (The exception in par (g) of sub-s (8) is obscurely worded, but appears to envisage a situation where the judgment debtor's dealing is a prior encumbrance noted in the transfer to a Sheriff's purchaser.) 116 The intended scope of sub-s (6) is not entirely clear: it could refer to a dealing entered into by the judgment debtor before the commencement of the protected period, and hence before the prohibition on sale or mortgage contained in s 113(2) of the Civil Procedure Act, but not registered because of s 105A(2), or it could be intended to refer to a dealing by the judgment debtor after the expiry of the protected period, or both. Given the structure of the provision, which deals in sub-ss (3) and (4) with transfers or mortgages by the judgment debtor during the protected period, with the consent of the Sheriff, sub-s (5) which deals with a transfer pursuant to a sale under the writ, and the following sub-ss (7)-(8) which deal with sales under the writ occurring after the protected period, it may seem that sub-s (6) was intended to deal only with a transfer by the judgment debtor, executed after the protected period. 117 Pursuant to s 105B, the Registrar-General is empowered to register a transfer to a Sheriff's purchaser. The effect of such registration is set out in sub-s (2) in the following terms: (2) Upon the registration of a transfer referred to in subsection (1), the transferee holds the land transferred free from all estates and interests except such as: (a) are recorded in the relevant folio of the register on the relevant registered dealing, (b) are preserved by section 42 … . 118 The writ is expressed to be enforceable, subject to renewal, for a period of 12 months: UCPR, r 39.20. However, s 105C of the Real Property Act provides: 105C Lapsing of writ (1) Upon the registration of a transfer or other dealing that for valuable consideration disposes of the whole estate or interest in land affected by a recording of a writ (not being a transfer pursuant to a sale under the writ) the writ lapses in relation to that land unless the transfer or other dealing refers to the writ as if it were a prior encumbrance.

Issue for determination 119 It would appear, from these provisions, that where the protected period expires without the execution of the writ, the pending transfer to the purchasers will be registered and, being for valuable consideration, will not be defeasible or liable to extinguishment by a later sale under the writ, pursuant to s 105A(8). However, the question is whether purchasers for valuable consideration, pursuant to a valid contract of sale entered into but not lodged for registration prior to the registration of the writ, had a defeasible interest only, contingent upon the Sheriff failing to sell the property under the writ within the protected period. Alternatively, as the purchasers put the question, if the Sheriff did sell the property in execution of the writ, who would have priority as between the purchasers and a Sheriff's purchaser?

Legislative history 120 Provisions relating to the enforcement of judgment debts against land have a long legislative history. In an article entitled "The Effect of Judgments on Land in Australia" (1953) 27 ALJ 226 at 228, Professor Sykes noted: "The Statute of Westminster II in 1284 which first made real estate liable to be taken in execution by enabling the creditor to take one moiety of the lands of the debtor under a writ of elegit was interpreted as enabling the creditor to do this even though the judgment debtor had sold or mortgaged the land after judgment but before the issue of the writ of execution. In this sense it was said that the land was 'bound' as against purchasers or mortgagees by the judgment." 121 In New South Wales, the retrospective effect of that rule was abolished by the Conveyancing Act 1919 and the Judgment Creditors' Remedies Act 1901. The relevant provisions of the Judgment Creditors' Remedies Act have been noted above. The effective provision of the Conveyancing Act relevantly provides as follows: 188 Protection of purchasers against non-registered writs etc (1) Every such writ … shall be void against … a person who becomes a purchaser of the land affected thereby without notice of the writ … unless the same is registered in the General Register of Deeds so that such registration has effect at the time of the purchase, and is so indexed that the purchaser ought reasonably to have found the entry on search. … (3) This section does not apply, and shall be deemed never to have applied, in respect of land under the provisions of the Real Property Act 1900. 122 Professor Sykes, correctly, deals separately with questions relating to Torrens title land: see 27 ALJ at 306. The two parts to the article provide a perceptive analysis of the state of the law prior to the Real Property (Amendment) Act 1976 (NSW) which introduced new ss 105-105D into the Real Property Act. In the Second Reading Speech of the Minister for Lands, the purpose of the amendments was explained as follows (Hansard, Assembly, 30 September 1976, p 1293): "Since the commencement of the Real Property Act on 1st January 1863, it has generally been acknowledged that the machinery provided by that Act for giving effect to sales in execution has not worked effectively. The breakdown is largely due to a judicial decision in Coleman v De Lissa in 1885 that, irrespective of the provisions of the Real Property Act , a transferee taking under a sale by the Sheriff or other court official selling pursuant to a writ of execution acquired only the beneficial interest of the execution debtor, burdened by any unregistered interests which might exist. The result of the this judicial ruling has proved disastrous. … The obvious solution is to provide, legislatively, that a purchaser at a sale in execution takes the estate or interest then appearing upon the register. The provisions of the Bill are designed to implement this principle." 123 The Minister's statement may be thought imprecise, insofar as the words "then appearing" may refer to the date on which the writ is recorded, the date it is delivered to the Sheriff, or the date of the sale in execution. However, because the effect of the amendments is freeze the register as at the date of the recording of the writ, that uncertainty is more apparent than real. Further, it is clear that some attempt was made to balance legitimate interests of third parties in the precise terms of the amendments, but the balancing exercising is not reflected in the Minister's speech. Accordingly, it is necessary to deal with the matter as a question of statutory interpretation, taking into account the pre-existing state of the law and the mischief identified by the Minister. 124 In terms of principle, Professor Sykes succinctly identified the legal principles in 1953 in the article referred to above at p 310: "However it is a well-settled principle that the transferee from the sheriff takes merely what interest the judgment debtor had at the time of such service or entry [of the writ]. Thus if at such time there was any equitable proprietary interest (whether it is embodied in an instrument which is registrable under the Act or springs from an unregistrable transaction) such interest has priority. This is shown in various decisions too numerous to mention and is the best known principle associated with these provisions." 125 Professor Sykes referred amongst other decisions to Coleman v De Lissa (1885) 6 NSWLR (Eq) 104. The authority applying that principle in relation to the Real Property Act 1900, was Re Broughton (1916) 17 SR(NSW) 29. Professor Sykes' discussion pre-dates Breskvar v Wall (1971) 126 CLR 376, but the approach to the Real Property Act (as demonstrated by Sykes at 314), is sympathetic to the result achieved in Breskvar. The 1976 amendments post-dated Breskvar and should be taken to be based upon a proper understanding of the principles relating to title by registration.

Effect of 1976 amendments 126 There are, in principle, three different ways of approaching the legal issues raised in this case. The first, adopting the perspective of the judgment debtor and the Sheriff, is to ask at what point in time the power of the judgment debtor, as the registered proprietor of the land, to convey the land to a third party, is suspended and vested in the Sheriff (assuming for present purposes that the withdrawal and conferral of such powers occurs at the same moment). The second approach is to look at the matter from the point of view of a purchaser from the registered proprietor and ask whether the statutory scheme demonstrates a clear intention to deprive a bona fide purchaser for value of the benefit of the purchase, obtained from the registered proprietor at a time when her power to convey an estate in the land was unconstrained. The third approach, is to take the perspective of a Sheriff's purchaser, namely that, by relying upon the register, he or she had no reason to suppose that the Sheriff could not convey the title of the registered proprietor, as established by the register at the date on which the writ was recorded. 127 There are two other perspectives which could be considered. One is that of the judgment creditor, who seeks to assert an entitlement to have the Sheriff sell the property, in knowledge of the existing equitable interest in the purchasers. Another is that of the Registrar-General, who may be invited to register a transfer to a Sheriff's purchaser, whilst a transfer to the purchasers from the registered proprietor is awaiting registration, being the document lodged earlier for registration. However, for present purposes these can be put to one side. 128 It is convenient first to address these questions by reference to the statutory scheme introduced into the Real Property Act in 1976. The statutory scheme, of which the new provisions formed part, included the statement in the Judgment Creditors' Remedies Act that the writ of execution bound the land, "when delivered to the Sheriff". Although the writ conferred no interest in the land, such delivery was effective to confer on the Sheriff, on behalf of the judgment creditors, the power to sell the land, which power had previously been part of the bundle of rights enjoyed by the registered proprietor. However, the 1976 amendments said nothing about the writ "binding" the land, nor did they make provision in relation to the power of the registered proprietor or the Sheriff to sell the land. Consistently with the scheme of the Real Property Act, they provided for the circumstances in which the Registrar could record the writ in the register, and the effect of such a recording. They also provided for the circumstances in which the Sheriff's purchaser could obtain registration of his or her interest. 129 The apparent effect of these provisions is twofold. First, they preclude the purchaser for valuable consideration from the registered proprietor having his or her interest immediately recorded in the register, unless the application were lodged prior to the application to record the writ, or the transfer had the Sheriff's consent. Secondly, the Sheriff's purchaser will be entitled to have the transfer to him or her registered, pursuant to s 105A(1)(a) during the protected period. The purchasers from the registered owner will thus be pre-empted, unless they caveated their interest before the recording of the writ. 130 The purchasers' argument reflected the position before the 1976 amendments to the Real Property Act, as explained by Professor Sykes. They asserted that an equitable interest acquired for valuable consideration, without notice of any writ (particularly where the writ did not exist at the time the sale contract was entered into) should not be treated as defeasible in the event of a sale by the Sheriff pursuant to a writ recorded before the purchasers' equitable interest was recorded. That there was no such intention to destroy an equitable interest of that kind is reflected, the purchasers argued, in s 112(2) of the Civil Procedure Act. On the contrary, so it was argued, pursuant to s 112 of the Civil Procedure Act, the writ bound the land only from the time it was delivered to the Sheriff, and did not affect the title to the land acquired by the purchasers. Construing "land", consistently with s 21 of the Interpretation Act 1987 (NSW), as including any estate or interest therein, what was bound, it was submitted, was the estate or interest of the registered proprietor, which was, given the sale to the purchasers, a bare legal estate. It was that which the Sheriff was entitled to sell, and no more. 131 Furthermore, according to the purchasers' approach, if sub-s (6) encompassed a sale which had been completed but not registered prior to the protected period, it would appear that, without express acknowledgment, the interests of the purchaser under such a sale would have been extinguished by the registration of a Sheriff's purchaser. Furthermore, that effect is not expressly noted in sub-s (5) which deals with the effect of registration of a Sheriff's purchaser. Thus, the circumstances provided in s 105A for the registration of an earlier dealing in priority to a sale in execution of the writ, only if the execution sale occurred after the protected period, should be read as referring to a sale by the registered proprietor entered into after the recording of the writ on the register. 132 Subject to the effect of s 112(2), discussed below, these arguments are not persuasive. It is clear that the intention of the Parliament was to allow a Sheriff's purchaser to take, through the Sheriff, the interest of the registered proprietor, subject to whatever limitations or encumbrances might be recorded on the register, but without the risk of unregistered interests taking priority. The language of the new provisions is apt to achieve that effect. The possible vagueness as to the operation of s 105A(6) is consistent with an intention to limit the circumstances in which interests acquired both before and after the recording of the writ may be registered. Its position in the orderly structure of s 105A may be explained by the fact that it is only at the expiration of the protected period that the possibility of registration will arise. 133 What happens at the end of the protected period is less clear, but the principal uncertainty does not matter for present purposes. Section 105A(6), and following provisions, speak of execution by sale within the protected period or after the expiration of the protected period. Some difficulty may result from the fact that the powers of the Registrar thereafter appear to turn on the date of execution by sale, rather than the date on which a dealing is lodged for registration. 134 Subject to any possible variation effected by the Civil Procedure Act, the result in the present case is that the purchasers from the registered proprietor had no right to have their dealing registered prior to the expiration of the protected period, the dealing not having been lodged for registration prior to the recording of the writ. (It is not necessary for present purposes to consider the effect of a caveat which might have been lodged upon execution of the contract of sale: no caveat was sought to be lodged until after the recording of the writ.) 135 The Civil Procedure Act is a later legislation which incorporates a number of provisions which were formerly found in different statutes. There are some curiosities about the form of the provisions, which may be noted, but need not be resolved for present purposes. Thus, the suspension of the right of the judgment debtor to sell the land, contained in s 113(2) during the period of six months from the date of registration of the writ may not be entirely consistent with the provision in s 112(1) that the writ binds the land from the time it is delivered to the Sheriff. Depending on whether delivery or registration occurs first, there may be a period during which both the Sheriff and the judgment debtor have power to sell the land, or there may be a period when neither has. Further, although s 113(1) deals with both writs registered under the Real Property Act and under s 186 of the Conveyancing Act, the effects provided in s 113 of the Civil Procedure Act may not be consistent with s 188 of the Conveyancing Act. 136 More importantly, s 112(2) may have a different operation depending on whether the land is land to which the provisions of the Real Property Act apply, or is land subject to the operation of the Conveyancing Act, s 188. Section 112 does not, in its terms, purport to say anything about the effect of registration of a writ, or of the circumstances in which a transfer executed by the registered proprietor may be registered. 137 The answer to the purchasers' submission is not that they had no "title" because they had no registered title: see [95]-[97] above. Rather, they did have a title but, until their interest was recorded under the Real Property Act, it remained defeasible by the registration of another interest which obtained the protection of s 42(1) of the Real Property Act. The effect of recording the writ was to allow the Sheriff to sell precisely that interest which was vested in the then registered proprietor, subject to any registered encumbrance, but free of any unregistered estate or interest. 138 Given that the very purpose of the 1976 Amendment Act was to allow a sale in execution of a writ by the Sheriff to defeat any unregistered interest in the land, it is perhaps unfortunate that the Parliament did not expressly provide for that consequence. Nevertheless, the consequence follows inexorably from the statutory scheme and must be accepted. Unregistered interests in Real Property Act land have always been defeasible by registration of another interest. Where the holder of the unregistered interest controls the certificate of title or otherwise believes that the registered proprietor will not seek to create a later inconsistent interest which may be registered, a caveat to protect the unregistered interest may be thought unnecessary. The statutory scheme with respect to the registration of writs of levy, subverts such comfortable assumptions, by vesting in a third party, who does not hold the certificate of title and is not on the register, a right and obligation to sell the land as validly and effectually as if by the registered proprietor, as described in s 115(1) of the Civil Procedure Act. 139 Ipp JA reaches a different conclusion, based on the decision of the Full Court of the Supreme Court of Queensland in Commonwealth Trading Bank of Australia v Austral Lighting Pty Ltd [1984] 2 Qd R 507. However, the relevance of that decision for present purposes depends on the equation of s 35 of the Real Property Act 1877-1981 (Qld) with the provisions discussed above. His Honour has set out the key element of s 35 at [45]. His Honour then notes that because s 105B(2)(a) of the Real Property Act 1900 (NSW) provides that the Sheriff's purchaser will take subject to any interest recorded on the register (including by way of caveat), s 35 of the Queensland Act was to similar effect. 140 With respect, that conclusion is true, so far as it goes, but it is beside the point. In neither case was the interest of the purchasers (or the mortgagee) recorded on the register prior to the recording of the writ. That part of s 35 dealing with interests notified by caveat was irrelevant even in Austral Lighting itself, because it was limited to caveats lodged "prior to the date of the registration of the writ". In the present case, the fact that the purchasers had a caveatable interest is beside the point, because they did not seek to lodge a caveat prior to the registration of the writ. The discussion at [47] of Part 7A of the Real Property Act, dealing with caveats, does not relevantly advance the argument. 141 Austral Lighting is a clear statement of accepted principle which would have been applicable in New South Wales prior to the 1976 amendments. That may be appreciated from the fact that Connelly J (in the passage quoted by Ipp JA at [54] above) cited, and applied, the statement of "well settled principle" in the 1953 article by Professor Sykes. In his judgment with respect to the interlocutory injunction in the present proceedings, Campbell J quoted the same passage from Austral Lighting as illustrating the position in New South Wales prior to the 1976 amendments: see Garnock v Black [2005] NSWSC 1052 at [15]. Campbell J noted that Austral Lighting was a case in the same line of authority as Coleman v De Lissa, which it was the expressed intention of the Minister that the 1976 amendments would reverse. This case turns on whether the 1976 amendments were effective: Austral Lighting cannot answer that question. 142 The second step in the reasoning adopted by Ipp JA is that the "core provision" of the amendments is s 105B(2): at [58] above. However, his Honour then concludes that s 105B(2) has no relevance to the question whether holders of unregistered equitable interests that arose prior to the registration of the writ "may protect their interests" before registration of a transfer to a Sheriff's purchaser: at [61] above. 143 Section 105B(2) is relevant because it expressly confers on the Sheriff's purchaser an estate free from all interests other than those recorded on the register, upon its registration. However, s 105A(2) provides in unequivocal terms that the holder of an unregistered interest can only obtain registration of his or her dealing, after the writ is recorded, by treating the writ as if it were a prior encumbrance. If there is then a sale by the Sheriff, the Sheriff's purchaser will obtain an estate free of the other dealing, pursuant to s 105A(5). This legislative scheme provides no basis for the purchasers to "protect" their unregistered interest in a manner which would give them a right to registration over a Sheriff's purchaser, during the protected period. The contrary conclusion subverts this legislative scheme and sets at nought the express intention of the Minister to reverse the effect of the line of authority now reflected in Austral Lighting. 144 It follows that had the Sheriff sold the land during the protected period, a Sheriff's purchaser would have been entitled to register a transfer and thus obtain a title unencumbered by the unregistered interest of the purchasers. That conclusion does not, however, dispose of all the issues in the present case. First, it is necessary to address the argument put forward by the purchasers that they were entitled, in the circumstances, to an order that the judgment creditors withdraw the writ. Secondly, it is necessary to consider the consequences of that conclusion in relation to the circumstances as they now arise, the protected period having expired without a sale by the Sheriff.

Right to have writ removed 145 One way in which the purchasers put their case was that, given their equitable interest in the land, of which the judgment creditors were aware when they obtained and lodged the writ for registration, and when they delivered the writ to the Sheriff, equity should intervene to restrain them, and the Sheriff, from seeking to sell the land free of that equitable interest. To that end, they sought both negative and mandatory relief. The negative relief was an order that the judgment creditors and the Sheriff be restrained from executing the writ; the mandatory relief was that the judgment creditors execute and lodge with the Registrar an application for the cancellation of the recording of the writ. 146 The power of the judgment creditors to seek the cancellation of the recording, by applying to withdraw the writ, relies upon s 105D(1)(a) of the Real Property Act. Such an application may be recorded on the register, despite the existence of the writ, pursuant to s 105A(1)(q). The power to take those steps is not in dispute: what is in dispute is the obligation of the judgment creditors to do so in the circumstances. But that question would seem to arise only if the prior knowledge of the equitable estate of the purchasers rendered it unconscionable for the judgment creditors to seek to have the writ registered. 147 As Respondents to the appeal, the judgment creditors asserted that the purchasers relied at all stages of the proceedings below upon the "priority" of their interest as entitling them to an order requiring the judgment creditors to effect a cancellation of the writ. They conceded that unconscionable conduct on their part could enliven the jurisdiction of the Court to make a mandatory order requiring the withdrawal of the writ, but asserted that the Appellants did not run a case at trial necessary to establish such facts and, in particular, did not cross-examine any witness for the judgment creditors to allege "sharp conduct" on their part. Their submissions in that respect are consistent with the fact that the primary judge gave no attention to such an argument. 148 Their submissions are also consistent with the approach taken by counsel for the purchasers on the appeal. Thus, senior counsel accepted that the purchasers did not challenge the registration of the writ: Tcpt, 22 February 2006, p 18(40). Rather, he explained the purpose of the proceedings as being to protect the interest of the purchasers in the land during the six month protected period: Tcpt, p 19(45). There may be a nice point as to whether there is a distinction between a challenge to the registration of the writ and the assertion of a right to have the writ withdrawn. However, in the present case, it is sufficient to say that the purchasers did not seek relief on the basis that there had been unconscionable conduct in having the writ registered: rather, the relief was sought simply on the basis that the purchasers were entitled to priority over any interest which might be created in a third party through the assertion by the judgment creditors of a right to have the Sheriff sell the land pursuant to the writ. Once the writ was registered and delivered to the Sheriff, the power to have the Sheriff execute the writ by a sale within the protected period was engaged and the effect of a sale would have been to permit registration of the interest of a Sheriff's purchaser, without regard to the title lawfully obtained by the purchasers from the registered proprietor. 149 If a different view were taken of the manner in which the proceedings were conducted below, it would be necessary to remit the matter to the trial judge to have any issue of unconscionable conduct on the part of the judgment creditors litigated. No one criticised the trial judge for not addressing that issue and the purchasers should not now be allowed to run a different case on the evidence. Indeed, they do not seek to do so.

Effect of conclusion 150 In seeking to resist the result that they could obtain no protection in relation to an interest in land for which they had paid $1 million, it seemed that the purchasers assumed that a Sheriff's purchaser would have taken the land free of other interests and that the Sheriff would have accounted to the judgment creditors for the full amount of their debt, with the balance of the sale price being accounted for to the judgment debtor. The purchasers suggested a pessimistic view of their chances of recovering funds from the judgment debtor. 151 This approach, however, may not give full effect to the operation of s 105A(2). The dealings which have not been registered with respect to the land include not only the transfer to the purchasers, but also the discharges of mortgages and charges which encumbered the title of the registered proprietor, and continue to do so. In other words, what the Sheriff would have been entitled to sell was a freehold estate, subject to a number of encumbrances. The funds distributed to those persons having secured interests on settlement of the sale to the purchasers amounted to a figure in excess of $900,000. (The deposit was the subject of a charging order separately obtained by the judgment creditors.) In effect, the secured creditors were paid out by the purchasers, before the lodgement of the writ resulted in the suspension of registration of dealings. 152 No issue has been addressed in this Court as to the rights of the purchasers by way of possible subrogation to the interests of the secured creditors which remained on the register. It was assumed for the purposes of resolving the appeal, at a time when the Sheriff would no longer be in a position to sell the property within the protected period, that a sale by the Sheriff would have resulted in a payment to the judgment creditors, assuming that the sale was at approximately the price of the valuation and sale to the purchasers, namely $1 million. Whether that assumption was explored by the parties before they incurred the expense of running an appeal which assumed that the undertaking as to damages would have substantial value to the judgment creditors is not known. If such a belief were based on the assumption that the land would have been available to be sold without the encumbrances which were still registered on the title, it should be made clear that nothing determined by this appeal concerns that matter or relies on the correctness of the assumption.

Conclusions 153 On the reasoning set out above, the recording of the writ on the register prevented, for a period of six months, the registration of any prior interest acquired by the purchasers. The delivery of the writ to the Sheriff empowered that officer to sell the interest of the judgment debtor in the land, as recorded in the register under the Real Property Act, subject to such encumbrances as were recorded on the title at the date of the recording of the writ. 154 The equitable interest of the purchasers, not being identified in a dealing lodged before the lodgement of the writ, became, upon lodgement of the writ, defeasible by a sale in execution of the writ within the protected period. Accordingly, the purchasers were not entitled to the relief they sought in the Equity Division. The appeal should be dismissed with costs. **********

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Suitors Fund Act 1951(NSW)

Judgment Creditors' Remedies Act 1901(NSW)

Real Property Act 1877(Qld)

Real Property (Amendment) Act 1976(NSW)

CITATION: GARNOCK & ORS v BLACK & ORS [2006] NSWCA 140

Barry v Heider (1914) 19 CLR 197 Breskvar v Wall (1971) 126 CLR 376 Brown v Heffer (1967) 116 CLR 344 Bruce v Woods [1951] VLR 49 Butler v Fairclough (1917) 23 CLR 78 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 Coleman v De Lissa (1885) 6 LR (NSW) Eq 104 Commonwealth Trading Bank of Australia v Austral Lighting Pty Ltd [1984] 2 Qd R 507 Garnock & Ors v Black & Ors [2005] NSWSC 1217 Garnock & Ors v Black & Ors (No 2) [2005] NSWSC 1218 Garnock v Black [2005] NSWSC 1052 Garnock v Black [2005] NSWCA 475 CASES CITED: Hall v Richards (1961) 108 CLR 84 Haque v Haque (No 2) (1965) 114 CLR 98 In Re Broughton (1916) 17 SR (NSW) 29 In Re Elliott (1886) 7 LR (NSW) 271 Johnson v Johnson (1904) SR (NSW) 575 KLDE Pty Ltd v Commissioner of Stamp Duties (Qld) (1984) 155 CLR 288 Miller & Company v Solomon (1906) 2 KB 91 Pirpiris v Iovanella [1975] VR 129 Re Bosquet's Caveat (1883) 17 SALR 173 Re Retallack and The Real Property Act (1911) 11 SR (NSW) 332 Re Shears and Alder (1891) 17 VLR 316 Scarlett v Hanson (1883) 12 QBD 213 Smith v Deane (1889) 10 LR (NSW) Eq 207 Tanwar Enterprises Pty Ltd v Couchi (2003) 217 CLR 315

LOWER COURT MEDIUM NEUTRAL CITATION: Garnock & (3) Ors v Black & (4) Ors [2005] NSWSC 1217

See also Pirpiris v Iovanella [1975] VR 129. 39 In Hall v Richards (1961) 108 CLR 84 Kitto J (with whom Dixon CJ and Windeyer J agreed), after a detailed discussion of the authorities relating to the "binding" effect of a writ of fieri facias, said at 91: "A fi fa 'binds' the execution debtor's goods … from delivery of the writ to the Sheriff … ; but this means only that no dealing with any of the goods which belong to the debtor when the writ becomes binding can alter the fact that they are goods which the writ requires the Sheriff to seize and sell. It gives the creditor neither property in the goods nor possession of them …"

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