Garnock v Black [2005] NSWSC 1052 | Case summary

5164/05 BRYCE LACHLAN GARNOCK & ORS v STUART ALEXANDER BLACK & ORS JUDGMENT - Ex Tempore 1 HIS HONOUR: This is an application to continue an interlocutory injunction. The plaintiffs are the purchasers of rural land of which the fifth defendant is the registered proprietor. The first, second and third defendants are judgment creditors of the fifth defendant, who obtained a judgment against her in the District Court on 17 September 2004. By 23 August 2005 the amount owing under that judgment, inclusive of interest and certain other costs which were part of it, exceeded $243,000. 2 The plaintiffs entered a contract on 15 July 2005 to purchase the land for $1m from the fifth defendant. A real estate agent acted in connection with that sale. A deposit was paid to the real estate agent upon exchange, of the conventional 10% of the purchase price. 3 Settlement of that sale was fixed to take place on 24 August 2005 at 11am. On the previous day, at 4.53pm, the first, second and third defendants obtained from the District Court a writ for the levy of property against the fifth defendant. The writ was against the fifth defendant and her husband, but it is the fact that it was against the fifth defendant which is important for present purposes. 4 At some stage on 24 August 2005 - and it seems from a fax header as though it was in the morning - the first, second and third defendants obtained a charging order from the District Court against the deposit money which was held by the real estate agent in connection with this transaction. As well, at some stage on 24 August 2005 - and the evidence at present does not suggest at what time of day - they made application to the Registrar-General to record the writ which had issued the previous day. 5 The solicitor acting for the purchasers was telephoned, around 9.30 on the morning of 24 August 2005, by a solicitor acting for the first, second and third defendants. He said that his clients had entered judgment of $228,000 against the fifth defendant and her husband in September 2004 and had served a bankruptcy notice on the judgment debtors in March 2005. He said that unless satisfactory arrangements were made in relation to the sale of the property his clients would proceed with bankruptcy and the sale would be liable to be set aside. He said that there was a higher offer for the property - but did not say what it was - and that the District Court had made a charging order over the 10% deposit held by the agent. Significantly for present purposes, he did not say anything about any writ being registered against the land, or indeed about any writ for levy of property being issued at all. 6 A different solicitor in the office of the purchasers' solicitors also received a telephone call on the morning of 24 August 2005, from the first defendant. The first defendant told him that he was owed about $300,000 by the fifth defendant and her husband, that he had bankruptcy proceedings on foot against her, and that the sale was below market value and to a relative of the fifth defendant. He said that he would be trying to stop the sale that day. He also said that there were other creditors of the fifth defendant beside the first, second and third defendants. 7 The plaintiffs' solicitors obtained a final search of the register at Land and Property Information on the morning of 24 August 2005, which did not disclose any writ, or indeed anything irregular about the title. They also conducted a bankruptcy search against the fifth defendant, which did not disclose any proceedings. The plaintiffs then went ahead and settled the sale, at around 2pm on 24 August 2005. 8 It was only on 8 September 2005 that the plaintiffs' solicitors first had notice of the writ being issued. The writ has now been recorded in the office of the Registrar-General, and was recorded before the transfer from the fifth defendant to the plaintiffs, and documents associated with that transfer, were lodged for registration. In consequence, the Registrar-General has not recorded the transfer to the plaintiffs, or the other associated documents. 9 The present proceedings were commenced on 28 September 2005, and have been given a fast track through the Court system so far. The fourth defendant in the proceedings is the Sheriff of New South Wales. The Sheriff has been served, but has not appeared. The fifth defendant has likewise been served, but has not appeared. 10 In the principal proceedings, the plaintiffs assert that they have priority over any interest in the land held by the first, second and third defendants, and seek a permanent injunction against first, second, third and fourth defendants from executing the writ against the land, and a mandatory injunction that the first, second and third defendants lodge with the Registrar-General an application for the cancellation of the recording of the writ. 11 Until today, there has been a consensual regime in place under which the first, second, third and fourth defendants have been restrained from executing the writ. Today, the plaintiffs seek to extend that interlocutory injunction until the hearing of the suit or further order. I have, earlier today, in the expedition list, set the hearing down for a date in November 2005. 12 To decide whether there is a serious question to be tried, it is necessary to give consideration to the statutory background against which the case arises. Sections 105 to 105D of the Real Property Act 1900 set out a regime under which writs of execution can operate with respect to Real Property Act 1900 land. The following provisions are relevant for present purposes: "105 Recording of writ in Register (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. (1A) An estate or interest in land under the provisions of this Act, being 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. Note. Completion of the sale, including execution of the transfer, is authorised by section 116 of the Civil Procedure Act 2005. . (2) Subject to subsections (3), (5) and (6), the Registrar-General may record a writ in the Register pursuant to an application in the approved form which: (a) identifies, by reference to a folio of the Register or to a registered dealing, the land in respect of which the recording is sought, (b) is accompanied by a sealed copy of the writ, (c) incorporates, or is accompanied by, a statutory declaration that, to the satisfaction of the Registrar-General, identifies the judgment debtor named in the writ with the registered proprietor of the land comprised in that folio or registered dealing, and (d) is lodged before the date shown on the writ as the date on which the writ expires. … 105A Effect of recording writ (1) Subsection (2) does not apply to a dealing affecting land in respect of which a writ is recorded under section 105 where the dealing is: (a) a transfer giving effect to a sale under the writ, … (2) Where a writ is recorded under section 105 and a dealing (other than a dealing to which, by the operation of subsection (1), this subsection does not apply) 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. … (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. … (9) In this section, protected period , in relation to a writ, means the period: (a) that begins when the writ is recorded in the Register, and (b) that ends at the expiration of 6 months after the writ is recorded in the Register, or on the expiration of the writ, whichever first occurs. 105B Registration of transfer pursuant to sale under writ (1) A transfer pursuant to a sale under a writ is registered when it is recorded in the Register and the Registrar-General may make a like recording on the relevant certificate of title or duplicate registered dealing when it becomes available to the Registrar-General. (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 or on the relevant registered dealing, (b) are preserved by section 42, and (c) [not presently relevant] 105C Lapsing of writ in relation to land (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."

As well, sections 109 to 116 inclusive of the Civil Procedure Act 2005 set out a regime under which writs for the levy of property operate. 13 Section 112 Civil Procedure Act 2005 provides. 112(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. 14 Section 109 Civil Procedure Act 2005 gives content to section 112(1) (but not much content) by saying: "(1) A writ of execution against goods binds the property in the goods as from the time the writ is delivered to the Sheriff. (2) Despite subsection (1), a writ of execution does not affect the title to goods 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." 15 The present provisions contained in sections 105 to 105D of the Real Property Act 1900 were introduced into the Act by an amendment in 1976. Before those amendments were made, there was a course of authority which made clear that all that could be sold by a Sheriff under a writ of execution was the interest of the judgment debtor in the property to which the writ of execution related: Coleman v De Lissa (1885) 6 LR (NSW) Eq 104, especially at 111; Re Elliot (1886) 7 LR (NSW) 271; Smith v Deane (1889) 10 LR (NSW) Eq 207 at 209; Re Retallack and Real Property Act (1911) 11 SR (NSW) 332 at 333. The position in New South Wales at that time was, it seems, like that described by Connolly J (with whom Campbell CJ and Demack J agreed) in Commonwealth Trading Bank of Australia v Austral Lighting Pty Limited [1984] 2 Qd R 507 at 510-511: "If this analysis be correct, s 35 says nothing to the position of a prior equitable mortgagee before registration of the Sheriff's transfer. Until this has occurred, the prior equitable interest may be set up and will in an appropriate case be protected by injunction. It is true that by virtue of s 91 the Sheriff's transfer has, during the three month period, priority over dealings subsequent to the lodgment of the writ. As to earlier dealings, whether registered or not, the following passages from Professor Sykes' article, The Effect of Judgments on Land in Australia (1953) 27 ALJ 306 at pp 310-311, in my opinion accurately state the position, supported as they are by the authorities he cites: "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. 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 … It is quite clear that the interest need not be one contained in a registrable instrument or capable of being embodied in a registrable instrument under the Act. It may be an unregistrable interest. Further it is clear that if it is embodied in a registrable instrument, for instance a transfer, there is no requirement that that transfer be lodged for registration before the date of entry of writ or event that it was executed before that date, provided that in the latter case the transaction out of which it took its rise was consummated before such date." It is true that a registrable instrument which antedates the delivery of the writ of execution may not be registrable during the three month period: Registrar of Titles v Paterson [(1876) 2 App Cas 110] at p 118; Re Shears and Alder (1891) 17 VLR 316 but this does not prevent resort to the court for the protection of the equitable interest and of course, once the binding effect of the delivery of the writ of execution has expired, the instrument will be registered in the priority to which the date of lodgment entitles it, as indeed has occurred here." 16 Mr Stoljar, for the first, second and third defendants, has taken me to the second reading speech by which the Real Property (Amendment) Bill 1976 was introduced in 1976. In that second reading speech the Minister for Lands, Mr Crabtree said (Hansard, 30 September 1976 page 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 this judicial ruling has proved disastrous. Upon such a sale, because potential purchasers are buying an asset whose value cannot be ascertained, the maximum bid is usually a couple of dollars, not sufficient to cover the advertisement and conduct of the sale. As a result the judgment creditor usually gets nothing of the amount owing to him; the judgment debtor loses ownership of the land without any reduction of the judgment debt; a purchaser from the sheriff or from the district court bailiff may get a windfall or more probably, if unregistered interests affect the land, get nothing. 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." 17 And at 1294: "… the priority of the interest taken by a purchaser at a sale under a writ attaches at the time of the sale and is not dependant upon lodgment of any implementive transfer or upon whether any such transfer is, upon lodgment or subsequently, in registrable form". 18 Mr Stoljar submits that the way in which this policy is implemented is by section 105A(1)(a) Real Property Act being exempted from section 105A(2) and, he submits, by "a transfer giving effect to a sale under the writ" in section 150A(1)(a) referring to a transfer which carries into effect a contract of sale which the Sheriff has entered under the writ. 19 It is put by Mr Grant, for the plaintiffs, that, if the Sheriff were to enter into a contract to sell the land in question in this case, then there is, at the least, a very real risk that a transferee from the Sheriff would become registered, and, furthermore, would, pursuant to section 105B(2) become registered in a way which was free of any interest in the land which the plaintiffs might have. As I understand his submissions, it is that risk which the plaintiffs seek protection against, pending the hearing. 20 Mr Stoljar submits that there is no serious question to be tried, because the provisions of the 1976 amendments to the Real Property Act 1900 are ones which effectively implement the policy outlined in the second reading speech, and that the way in which that policy is implemented is by reversing the previous common law principle that the only interest which the Sheriff could sell in execution of a writ was the beneficial interest of the registered proprietor at the time of the Sheriff's sale. He points out that Torrens title is a system of title by registration, not of registration of title: Breskvar v Wall (1971) 126 CLR 376 at 385 per Barwick CJ; Hemmes Hermitage Pty Limited v Abdurahman (1991) 22 NSWLR 343 at 344-5. 21 While that last proposition is indisputably correct, there can also be equitable interests in Torrens title land, and there is some authority to the effect that the Real Property Act 1900 changes previous conveyancing principles only to the extent that necessarily arises from the provisions of that Act being inconsistent with those earlier principles: Tietyens v Cox (1916) 17 SR (NSW) 48. 22 Mr Grant submits that one effect of section 112 Civil Procedure Act 2005 is that the issuing of a writ of execution does not affect the equitable title which has been acquired by a purchaser of land under a contract for sale entered before the issue of the writ. He submits that, to the extent to which the old common law principle that a purchaser from the Sheriff could not acquire more than the interest of the judgment debtor in the land, the old principles continues to apply to section 112, at least up to the time when a transfer pursuant to a sale by the Sheriff is registered, or perhaps up to the time that a sale by the Sheriff occurs. Thus, he submits that, even now, it is possible to give effect to the priority which, he asserts, the purchasers have by virtue of their equitable interests in the land, over the first, second and third defendants. He submits that pursuant to section 105(1) those defendants do not have any interest in the land at all - though they do have the capacity to cause the Sheriff to enable a purchaser from the Sheriff to acquire an indefeasible interest in the land free of equities. He submits that it is still possible for the Court to protect the equitable interest of the purchaser, even during the period when registration of the transfer to that purchaser is prohibited because of the writ having been entered on the title, in just the way that Connolly J described in Commonwealth Trading Bank of Australia v Austral Lighting Pty Limited [1984] 2 Qd R 507, in the passage quoted at para [15] above. 23 It is not expedient to decide on a final basis the difficult questions of law that are involved in this application today. However, I am satisfied that there is a serious question to be tried about whether these contentions of Mr Grant are right. 24 Another question which will arise concerns the proper construction of section 112 of the Civil Procedure Act 2005. At least one construction which is open is that the way in which section 112(2) works is that it starts from the general rule established by section 112(1), that any writ of execution binds the land of the judgment debtor from the moment the writ is delivered to the Sheriff. Section 112(2) first of all, makes an exception to that rule by providing that the title to land acquired by a person in good faith and for valuable consideration is not affected by the issue of a writ of execution against the land. Then, however, it makes an exception to that exception, by providing that, if a person who acquires title to land has notice of such a writ having been delivered to the Sheriff and remaining unexecuted, that person does have their title to the land affected by the writ of execution. Mr Grant submits that on the evidence presently available, there is a strong case that his clients had no notice of any writ being delivered to the Sheriff, and remaining unexecuted, at the time of the transfer. That contention seems to me to be right. When I say that, I am, of course, talking about how the evidence appears today. I mention the apparent strength of the case today because that is something which can sometimes be relevant to the balance of convenience. 25 Mr Grant submits that when there was no notice of the writ being delivered to the Sheriff and remaining unexecuted at the time of settlement, then, it necessarily follows that there was no such notice at any earlier time, when equitable title to the property was acquired pursuant to the contract for sale. 26 Further, he submits that there is evidence that, at both the time of the transfer, and at the earlier time of the contract for sale, the transaction had the appearance of a transaction in the ordinary course of business. It clearly was a transaction for valuable consideration, involving as $1m. The time between the entering of the contract and the settlement is fairly short, but not indecently short in a way which might itself raise a question about the propriety of the transaction. Most importantly, there is evidence of two valuations of the property, one obtained by a financial institution which put a value of $900,000 upon it, and the other obtained by the purchasers, which put a value of $1m on it. 27 Mr Stoljar criticises the evidence on this score, and points to the fact the plaintiffs themselves have not put on evidence, and have not specifically addressed the state of their knowledge, and other matters which would be relevant to their good faith, at either the time of contract, or of transfer. While that is correct, in circumstances where there is no evidence contrary to that of the plaintiffs, it seems to me that there is sufficient evidence for the purpose of an interlocutory injunction for the plaintiffs to have shown that there is a serious question to be tried about whether they purchased the property in good faith and for valuable consideration. 28 Mr Stoljar submits that section 112(2), when it refers to "the title to land", refers to the registered title. There is a contrary argument that section 112 applies to all species of title to land, not merely the registered title to Real Property Act 1900 land. Some support for that contrary argument arises from the well recognised existence of equitable titles even to Real Property Act 1900 land, and from the policy, which was clearly established pre-1976, and which arguably continues today, that a writ of execution attaches only to such title to property as the judgment debtor has in that property. When there are these contrary arguments, I am satisfied that there is a serious question to be tried about whether section 112(2) protects the plaintiffs here. 29 Mr Stoljar submits that the plaintiffs construction of section 112(2) would reintroduce the very mischief that the statutory reforms enacted in 1976 were intended to cure. He submits that it would render nugatory the whole system of recording writs. There is, it seems to me, a contrary argument available, that, just as a caveat is capable of giving notice of an interest, so a registered writ can give notice of an interest, and so would impact upon a question of whether a purchaser under a contract entered after the date of the registration of the writ took in good faith. I am not satisfied that Mr Stoljar's submission in this respect is so correct that there is no serious question to be tried that the contrary position is correct. 30 For these reasons, I am satisfied that there is a serious question to be tried about whether the plaintiffs have priority over the first, second and third defendants. 31 Mr Stoljar also submits that there is no evidence of an imminent sale, and that the procedures for sale under a writ always require time to operate, and that the plaintiffs could approach the Court once there was evidence of a real threat to sell the property under the writ. However, he is not in a position to offer an undertaking that there will be no attempt to sell under the writ. I am satisfied that there is a risk that there would be an attempt to sell under the writ if there were no injunction. 32 The balance of convenience in my view strongly favours the granting of an injunction. If no injunction is granted, and the Sheriff were to sell the land, it is strongly arguable that the plaintiffs would lose such rights as they might have in relation to the land. It is to protect their position in that respect that the injunction is justified. Being land, it is not an ordinary item of commerce, and as well there is evidence that two of the plaintiffs already own property which adjoins this property, and that there is an agreement between the plaintiffs to partition the property, so that the plaintiffs who own the adjoining property can add to their existing holding. Thus it seems that damages would not be an adequate remedy. 33 There was some debate about the form which an interlocutory injunction ought to take, and in particular to what extent the defendants ought to be able to take steps preparatory to effecting sale, without actually effecting it. Rule 39.22 Uniform Civil Procedure Rules 2005 sets out the steps which are required to be taken for sale of land under a writ for the levy of property. It seems to me that a process of advertising and showing prospective purchasers over the land, but without there being a fixed date for sale, would be mischievous so far as those prospective purchasers were concerned - if their interest in the property were aroused and they spent money on investigating it, only to find that the Sheriff was not able to sell it. 34 In my view, some preparatory steps to selling under the writ should be permitted, but stopping short of the Sheriff fixing a date for the sale of the land. 35 I make an order in terms of clause 1 of the Notice of Motion filed 28 September 2005, adding to it "provided that this order does not prevent the first, second, third and fourth defendants from taking any of the steps listed in Rule 39.22(1)(a) to Rule 39.22(1)(d) inclusive Uniform Civil Procedure Rules 2005." These orders may be entered forthwith. **********

Garnock v Black

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Judgment (12 paragraphs)

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