Hanson Construction Materials Pty Ltd v Roberts

Court of Appeal (NSW)|2016-07-26|Before: Beazley P, Payne JA, Stevenson J

Appellant: J Giles SC with B Le Plastrier and E Anderson Respondent: R Marshall with E Walker

Appellant: Patane Lawyers Respondent: O'Hearn Lawyers File Number(s): CA 2016/216543 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division - Duty List Citation: [2016] NSWSC 989 Date of Decision: 14 July 2016 Before: Stevenson J File Number(s): SC 2015/371660

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

BEAZLEY P: I have had the advantage of reading in draft the reasons of Sackville AJA. I agree with his Honour's reasons and his proposed orders.
PAYNE JA: I agree with Sackville AJA.
SACKVILLE AJA: The applicant, Hanson Construction Materials Pty Ltd (Hanson), seeks leave to appeal from interlocutory orders made by a Judge of the Equity Division (Stevenson J). [1] The primary Judge, in an ex tempore judgment, ordered that a caveat lodged by Hanson on the title of a residential property owned by the respondent (Ms Roberts) be removed. Hanson lodged the caveat to protect an interest it claimed in the property as the holder of an unregistered charge granted to it by Ms Roberts.
The primary Judge made the orders to enable Ms Roberts to refinance a loan from the Commonwealth Bank of Australia (CBA) which was (and is) secured by a first mortgage over the property. The orders were subject to conditions, the effect of which was to require Ms Roberts to consent to Hanson lodging a fresh caveat to protect its security interest. However, the orders, if carried out, would reduce Ms Robert's equity in the property because the replacement first mortgage would secure a loan approximately $200,000 greater than the loan secured by CBA's mortgage.
Hanson's complaint is that the orders adversely affect its interest as equitable chargee because (it says) Ms Roberts' reduced equity in the property may be insufficient to enable Hanson to recover the full amount secured by its charge. Accordingly, Hanson seeks orders allowing the appeal, setting aside the orders made by the primary Judge and dismissing Ms Roberts' motion.

The Dispute

The dispute between the parties arises out of an Application for Commercial Credit (Application) made by Wayne Roberts Constructions Pty Ltd (Constructions) to Hanson on 2 May 2013. Ms Roberts was the sole shareholder of Constructions, although her husband, Mr Roberts, apparently played a significant role in the management of the company.
The Application included a Guarantee and Indemnity (Guarantee) which, on its face, appears to be signed by Ms Roberts and her husband, Mr Roberts, as Guarantors. Under the Guarantee, the Guarantors unconditionally guaranteed any moneys due by Constructions to Hanson. Clause 7 of the Guarantee created a charge over the Guarantors' assets as follows: "As security for payment to Hanson of the Guaranteed Moneys and for its obligations generally under this Guarantee, the Guarantor charges in favour of Hanson the whole of the Guarantor's undertaking, property and assets (including, without limitation, all of the Guarantor's interests, both legal and beneficial, in freehold and leasehold land, both current and later acquired)."
(The term "Guarantor" included both Ms Roberts and her husband.) The Guarantee also provided that the Guarantors had to pay to Hanson all costs and expenses incurred by it in connection with the exercise of any right, power or remedy under the Guarantee (cl 9).
Hanson lodged its caveat on or shortly after 14 August 2013. The caveat was duly recorded on the title to a property located at Marks Point, New South Wales (Property), of which Ms Roberts is the registered proprietor. The Property is the home of Ms Roberts and her husband.
Hanson's caveat claims: "An equitable estate or interest in the fee simple as equitable mortgagee of the interest of [Ms Roberts] in the [P]roperty." The caveat states that: "The Caveator is owed $182,749.91 pursuant to an equitable charge arising from a Guarantee dated 02/05/13 granted by [Ms Roberts] to the Caveator entitling the Caveator to an equitable mortgage over the [P]roperty."
The core of the dispute between Hanson and Ms Roberts is that Ms Roberts denies that the signature on the Guarantee is hers. She claims that she had never seen the Application or Guarantee until after Hanson commenced proceedings in the District Court against her in October 2013.

A Chronology

On 23 October 2013, Hanson commenced proceedings in the District Court against Constructions, Mr Roberts and Ms Roberts. As against Ms Roberts, Hanson claimed a declaration that the equitable charge created by the Guarantee applied to the Property and to other land of which Ms Roberts was the registered proprietor. Hanson also claimed an order that Ms Roberts pay it the sum of $182,832.41 owed by Constructions, plus interest and enforcement costs.
On 6 August 2014, Ms Roberts filed an Amended Defence in the District Court proceedings. She denied that she had executed the Guarantee or that she was liable to Hanson under the Guarantee. Ms Roberts verified the Amended Defence on affidavit.
On 25 March 2015, Mr Morelli was appointed as administrator of Constructions. On 1 May 2015, Mr Morelli was appointed as Constructions' liquidator.
On 29 April 2015, Mr Morelli lodged a caveat over the title to the Property. The caveat claimed that an equitable charge had been created over the Property in favour of the administrator by a Deed of Guarantee executed by Ms Roberts on 23 March 2015.
On 30 April 2015, the solicitors acting for Ms Roberts in the District Court proceedings lodged a third caveat over the Property. The solicitors claimed an interest in the Property as equitable mortgagees pursuant to a Costs Agreement and Personal Guarantee said to be dated March 2014 and April 2015.
On 6 June 2015, Mr Morelli, as liquidator of Constructions, advised Bluestone Mortgages Pty Ltd, which was considering advancing funds to Ms Roberts, that if she paid $64,000 no further claim would be made against her arising from the liquidation of Constructions. This amount was said to be due by Ms Roberts to the liquidator under a Deed of Settlement and Release to which she was a party.
CBA informed Constructions on 12 October 2015 that since a liquidator had been appointed to the company, there had been an event of default under its credit facility. CBA advised that if the amount due by Constructions was not paid by 15 February 2016, it would charge penalty interest. CBA subsequently extended the date for repayment to 15 April 2016.
On 27 October 2015, Hanson agreed with the liquidator to withdraw caveats it had lodged over properties owned by Constructions. Hanson did so in order to facilitate sale of the properties by the liquidator.
On 8 December 2015, at the instigation of Ms Roberts, the Registrar-General served Hanson with a Notice of Proposed Lapsing of Caveat (Lapsing Notice) pursuant to s 74J of the Real Property Act 1900 (NSW) (Real Property Act). The Lapsing Notice informed Hanson that its caveat would lapse after 21 days unless it obtained an order extending the operation of the caveat.
On 18 December 2015, Hanson filed a summons in the Equity Division seeking an order pursuant to s 74K of the Real Property Act extending the operation of the caveat. On 22 December 2015, an order was made extending the operation of the caveat until 9 February 2016. On 5 February 2016, Darke J extended the caveat until further order, on Hanson giving an undertaking as to damages.
On 14 April 2016, Ms Roberts filed a Notice of Motion in the Equity Division proceedings seeking an order that Hanson withdraw its caveat to allow discharge of the CBA mortgage and registration of a first mortgage to Westpac Banking Corporation (Westpac). The orders sought by Ms Roberts contemplated that the Westpac loan would be used in part to discharge the debts due to the liquidator and to Ms Roberts' solicitors, who would then withdraw their respective caveats. Ms Roberts offered to undertake not to create any further interest in the Property and to consent to Hanson lodging of a fresh caveat claiming the same interest over the Property as its existing caveat.
On 6 May 2016, Ms Roberts' solicitors advised Hanson that Ms Roberts no longer proposed to refinance through Westpac, but was in the process of obtaining pre-approval from an alternative financier.
On 12 May 2016, Balla DCJ made an order pursuant to s 144(2) of the Civil Procedure Act 2005 (NSW) transferring the District Court proceedings to the Supreme Court. It appears that the order was made principally because of doubts as to whether the District Court had jurisdiction to grant the declaratory relief sought by Hanson.
Ms Roberts filed an Amended Notice of Motion in the Equity Division proceedings on 13 May 2016 substituting Bluestone Mortgages (Bluestone) [2] for Westpac as the proposed incoming lender and mortgagee.
On 5 July 2016, Bluestone informed Ms Roberts that her loan had been unconditionally approved in an amount of $692,000.50. The Loan Valuation Ratio was said to be 51.26 per cent, implying that Bluestone valued the Property at approximately $1.35 million. The purpose of the loan was stated to be the refinancing of existing home loans from other financial institutions.
Bluestone's letter of approval attached a schedule of debts to be refinanced as follows: Provider Type Owing CBA Mortgage Loan $479,252.84 Solicitor Other $35,000.00 Accountant Other $40,000.00 Bradd William Morelli Trust Ac Other $64,000.00 ATO Other $35,419.16

On 8 July 2016, Ms Roberts signed a Loan Agreement with Bluestone as Manager for the lender, Permanent Guarantors Ltd. The Loan Agreement was on the terms previously communicated by Bluestone. The variable interest rate for the loan was 7.79 per cent per annum and the default interest rate was 13.79 per cent per annum. The Loan Agreement provided for Ms Roberts to make monthly repayments of principal and interest amounting to $4,976.72. The Loan Agreement also required that on settlement Ms Roberts procure the removal of the caveats that had been lodged by Hanson, the liquidator and the solicitors.

The Hearing

The primary Judge heard Ms Roberts' motion on 14 July 2016, in the Equity Division Duty List. Counsel for each of the parties referred without objection to various affidavits that had been filed. None of the affidavits was formally read, but his Honour was taken to the parts of the affidavits and to certain annexed documents.
Hanson's solicitor stated in his affidavit that Hanson's enforcement costs to that time amounted to the (surprisingly large) figure of $221,000. The solicitor estimated that Hanson would incur a further $117,000 in costs if Hanson's claim against Ms Roberts required a trial on the merits.
Counsel for Ms Roberts tendered a valuation of the Property prepared by a valuer which estimated its market value as at 3 March 2016 to be $1.5 million. Although the valuation was not given an exhibit number, the primary Judge and the parties apparently regarded the valuation as having been admitted into evidence.

Primary Judgment

The primary Judge noted that counsel for Hanson accepted that there was a serious question to be tried as to whether Ms Roberts' signature on the Guarantee was genuine. [3] His Honour also observed that there were "obvious differences" between the purported signature and examples of Ms Roberts' genuine signature. He therefore considered that her contention that she was not bound by the Guarantee was "by no means fanciful". [4]
His Honour recorded that Ms Roberts proposed to use the Bluestone advance to repay CBA's debt (to secure a discharge of its mortgage); pay $64,000 to the liquidator (to secure removal of his caveat); pay $35,000 to the solicitors (in exchange for which they would withdraw their caveat); and pay the Australian Tax Office $35,400. His Honour commented that the practical effect of the proposal: [5] "would be that Mrs Roberts' equity in the Property would be reduced by some $200,000, being the difference between the amount she owes the CBA (around $500,000) and her proposed borrowing from Bluestone (a little under $700,000). To some extent this is because of Bluestone's requirements, which include that Mrs Roberts discharge all her obligations (other than her disputed obligation to Hanson) before draw down."
Hanson's position before the primary Judge was that Ms Roberts owed it $290,000 (including interest) under the Guarantee and that, if successful in the District Court proceedings, it would recover all of its costs under the "all expenses" clause in the Guarantee. [6] As has been seen, Hanson's solicitor estimated that its total enforcement costs would be in the order of $338,000, assuming the matter proceeded to a full hearing.
The primary Judge referred to the valuation of the Property given by Ms Roberts' valuer, Mr Craine, ($1.5 million) and to the value apparently attributed to the Property by Bluestone for the purposes of its advance ($1.35 million). His Honour continued as follows: [7] "19 In this complicated circumstance, a balance has to be struck. On the one hand Mrs Roberts contends she has no liability at all to Hanson because she did not sign the Agreement. There appears to be at least some substance to that contention. 20 On the other hand, Hanson has a caveat on the title of the Property being, in effect, the only 'security' it has for its debt. 21 Currently, it ranks next after the CBA which is owed nearly some $500,000. If the arrangement proposed by Mrs Roberts is put into effect it will retain its position in the second rank, but now after Bluestone which will be owed some $200,000 more than is due to the CBA. 22 If Hanson's estimate of the value of the property ($1.35 million) is right and if it is, as it contends, entitled to recover all of its legal costs, and if its solicitor's estimate is correct, it will be a close run thing as to whether there is sufficient equity in the property to secure all of its debts. 23 On the other hand, if Mr Craine's opinion turns out to be correct, the position is less problematic. 24 [Counsel for Hanson] drew my attention to the observations of Brereton J in Buchanan v Crown & Gleeson Business Finance Pty Ltd [2006] NSWSC 1465 at [11]-[12] and Tadrous v Tadrous [2009] NSWSC 407 at [8]-[9] to the effect that: (1) only in a rare case will a valid caveat be removed for reasons of balance of convenience if to do so would have an adverse effect on the priority of the caveator's claim; (2) it is unusual to remove a caveat on an interlocutory basis where an arguable case for the existence of the caveat has been established; (3) removal of a caveat should not be countenanced where such removal would have the practical effect of preferring unsecured rights over the proprietary rights of a caveator; and (4) a factor relevant to whether an order should be made compelling withdrawal of a caveat to allow refinance is whether there will be equity left in the property following refinance. 25 However, the circumstances before me are different from those which are considered in those cases in that: (a) the question of whether Hanson has any rights against Mrs Roberts, and any caveatable interest in the property turns on the stark question of whether her signature has been forged; (b) Mrs Roberts does not seek to remove, for all time, Hanson's ability to protect its alleged interests under the Agreement by a caveat and will consent to a further caveat being lodged on the title of the Property after the CBA loan is refinanced by Bluestone; (c) although the effect of Mrs Roberts' proposal will be to cause certain of her unsecured creditors to be preferred to Hanson, that is not as a result of a choice made by Mrs Roberts but rather on the insistence of the incoming lender; and (d) although there will doubtless be less equity available to Hanson in the proposed circumstances, it seems likely there will be sufficient equity to protect its interest. 26 Overall though the question is finely balanced. I am persuaded I should make the orders that Mrs Roberts seeks."
I have referred to the orders made by the primary Judge. [8] Those orders are subject to a stay pending the determination of Hanson's application for leave to appeal.

Hanson's Submissions

Mr Giles, who appeared for Hanson, did not dispute a number of matters:

As the primary Judge found, Ms Roberts had an arguable defence to Hanson's claim to an equitable charge over the Property.
Hanson could have treated Ms Roberts' motion as an application to vary the order made by Darke J extending Hanson's caveat until further order. Had Hanson done so, Ms Roberts might well have been required to show that circumstances had changed before being able to obtain a variation of the orders so as to require Hanson to withdraw its caveat. However, Hanson had not conducted the hearing before the primary Judge in this way and could not now change course.
Hanson accepted before the primary Judge and accepts in this Court that on an application for the withdrawal of a caveat, the caveator bears the onus of persuading the Court that the caveat should be maintained. [9]
Hanson also accepted before the primary Judge and accepts in this Court that it bears the burden of showing that the balance of convenience favours maintaining the caveat.
In order to succeed on the appeal, Hanson must show that the primary Judge committed an error of the kind that would vitiate his exercise of discretion, in accordance with the principles stated in House v The King. [10]

Mr Giles submitted that the primary Judge had misdirected himself and accordingly had committed an error that justified the intervention of this Court. The error related to the significance his Honour attributed to his finding that it seemed "likely" that if the orders were made, there would be sufficient equity in the Property to protect Hanson's interest. His Honour incorrectly regarded the finding as sufficient to justify re-ordering the existing priorities between the holders of security interests in the Property. According to Mr Giles, his Honour should first have considered whether ordering the removal of Hanson's caveat, albeit on terms permitting a fresh caveat to be lodged, would derogate from Hanson's security over the Property. His Honour's failure to address this question constituted an error.
Mr Giles also contended that the primary Judge's finding implicitly acknowledged that there was a significant risk that Ms Roberts' equity in the Property would not be enough to ensure that Hanson's security interest would be adequately protected. In the absence of an unequivocal finding that the caveator's priority would not be "derogated from in a meaningful way", the power to order Hanson to remove its caveat had not been enlivened.
Mr Giles submitted that, in any event, the primary Judge should not have considered the balance of convenience until he had determined whether the circumstances were sufficiently unusual to justify displacing the priority enjoyed by Hanson. Since the effect of the orders was to prejudice Hanson by altering the order of priority among creditors claiming security interests over the property, it was not open to his Honour to make an order simply by reference to the balance of convenience. The first sentence in par [19] of the Primary Judgment, where his Honour stated that "[i]n this complicated circumstance, the balance has to be struck", showed that he had proceeded directly to a consideration of the balance of convenience.
When it was put to Mr Giles in oral argument that he was elevating the "unusual" standard into a legal test, he said that this was not his intention. He reformulated the argument by contending that the primary Judge failed to consider whether there would be a "practical derogation" from Hanson's security interest on the Property.

The Legislative Framework

Part 7A of the Real Property Act (ss 74A-74R) deals with caveats. Section 74F(1) permits a person claiming to be entitled to a legal or equitable interest in land to lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled. On the lodgement of the caveat, the Registrar-General must give notice in writing of the caveat to the registered proprietor (s 74F(6)). The Registrar-General is also to record in the Register such particulars of the caveat as the Registrar-General considers appropriate (s 74G).
The Registrar-General is not required to be satisfied that the caveator is entitled to the estate or interest claimed in the caveat. The Registrar-General is obliged only to ensure that a caveat apparently complies on its face with the requirements of Part 7A of the Real Property Act and with the requirements of any regulations (s 74Q).
Section 74H states the effect of a caveat lodged under s 74F. While the caveat remains in force, the Registrar-General must not, except with the caveator's written consent, record any dealing if it appears that the recording of the dealing is prohibited by the caveat (s 74H(1)(a)(i)). However, the caveat does not have the effect of prohibiting a dealing except to the extent that the recording of the dealing would affect the estate or interest claimed in the caveat (s 74H(1)(b)(i)).
The Real Property Act provides for the lapsing of a caveat in certain circumstances. One such circumstance is when the registered proprietor applies successfully to the Registrar-General to serve a lapsing notice on the caveator (s 74J(1)). The notice informs the caveator that unless the caveator obtains within 21 days an order from the Supreme Court extending the caveat and lodges with the Registrar-General a copy of the order, the caveat will lapse. If the caveator does not lodge a copy of such an order, the Registrar-General is to make a recording in the Register to the effect that the caveat has lapsed and the caveat thereupon lapses (s 74J(4)).
A caveator served with a lapsing notice under s 74J(1) may apply to the Supreme Court for an order extending the operation of the caveat (s 74K(1)). Section 74K(2) provides that on such an application: "the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application."
An order under s 74K(2) may be made ex parte (s 74K(4)).
If the Supreme Court orders the operation of a caveat to be extended for a specified period and no further order is made before expiration of the period, the caveat lapses (s 74LA(1)). A caveat may also be withdrawn by the caveator (s 74M).
Section 74MA of the Real Property Act allows for an application to be made to the Supreme Court for an order that the caveat be withdrawn. It provides as follows: "(1) Any person who is or claims to be entitled to an estate or interest in the land described in a caveat lodged under section … 74F may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator ... (2) After being satisfied that a copy of the application has been served on the person who would be required to withdraw the caveat if the order sought were made or after having made an order dispensing with service, the Supreme Court may: (a) order the caveator … to withdraw the caveat within a specified time, and (b) make such other or further orders as it thinks fit. (3) If an order for the withdrawal of a caveat is made under subsection (2) and a withdrawal of the caveat is not, within the time limited by the order, lodged with the Registrar-General, the caveat lapses when an office copy of the order is lodged with the Registrar-General after that time expires."
If a caveat lapses or is withdrawn, a further caveat in respect of the same estate or interest purporting to be based on the same facts has no effect unless the Supreme Court grants leave for the further caveat to be lodged (s 74O(1),(2)).
Any person who lodges a caveat without reasonable cause, or who refuses to withdraw a caveat after being requested to do so, is liable to pay compensation to any person who sustains pecuniary loss attributable to the first person's actions or failure to act (s 74P(1)(a),(c)). Similarly, a person who, without reasonable cause, procures the lapsing of a caveat is liable to any other person who sustains pecuniary loss attributable to the first person's actions (s 74P(1)(b)).

Nature of a Caveat

The effect of lodging a caveat is expressly stated in s 74H of the Real Property Act. While the caveat is in force, the Registrar-General is prohibited, except with the consent of the caveator, from registering a dealing which affects the estate or interest of the caveator. If an inconsistent dealing is lodged for registration or a lapsing notice is served, the caveator must seek an order continuing the operation of the caveat or the caveat lapses. An order extending the caveat ensures that the caveator's unregistered estate or interest cannot be extinguished by the registration of an inconsistent dealing.
Different views have been expressed as to whether lodging a caveat has significance for purposes other than preventing the registration of an inconsistent dealing. The orthodox view is that stated by Barwick CJ in J & H Just (Holdings) Pty Ltd v Bank of New South Wales [11] (Just v Bank of NSW). His Honour said that the purpose of a caveat: [12] "is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator's estate or interest though if noted on the certificate of title, it may operate to give such notice. If the caveator does not take proceedings in due time against the person who has lodged a dealing for registration, and the dealing is registered, awareness of the existence of the caveat, and through it, that an estate or interest is claimed by the caveator, will be irrelevant except possibly as an element in establishing fraud in the procurement of the registration. But of itself such awareness will not vitiate the registration."
Windeyer J in the same case addressed the significance of the holder of an unregistered interest failing to lodge a caveat where there are competing unregistered or equitable interests: [13] "the fact that a caveat discoverable by a search of the title is 'notice to all the world' of the interest claimed does not mean that the absence of a caveat is a notice to all and sundry that no interest is claimed. To say that would, it seems, be to equate the noting of a caveat in the register book with the registration of a dealing: it would make competing equitable interests depend not upon priority of creation in time and other equitable considerations, but upon priority of the lodgement of caveats. After all, the primary purpose of a caveat against dealings is not to give notice to the world of an interest. It is to warn the Registrar-General of a claim."
Some authorities have attributed greater significance both to the lodgement of a caveat and the failure to lodge a caveat, usually in the context of competition between unregistered interests in the same land. [14] For example, Callinan J in his concurring judgment in Black v Garnock [15] strongly disagreed with Barwick CJ's observations in Just v Bank of NSW. Callinan J said that the complete statutory code in the Real Property Act relating to caveats was designed not just to prevent registration of inconsistent dealings, but to serve as notice to anybody interested in the land who searched the Register that there was some other dealing or transaction on foot. [16] For that reason, he disagreed with the limited operation and purpose attributed to a caveat by Barwick CJ. In Callinan J's view: [17] "What is much more likely to be subversive of the whole of the scheme of the Torrens system is that a person interested in, or entitled to deal with, land, who has not acted fraudulently, might suddenly and unexpectedly be saddled with, or postponed to, an equitable estate or interest in land which could have been, but was not made the subject of protection by prompt lodgement of an instrument or the filing of a caveat pending the lodgement. I am not speaking of course about a contest between two holders of competing equitable interests or estates, neither of whom has thought to avail himself of either of the statutory means of protection of his interest that I have just mentioned. Subject to other registered estates or interest, their respective entitlements will fall to be adjusted according to ordinary equitable and proprietary principles."

Hanson's Priority

It is not necessary in this case to express an opinion on the conflict of judicial opinion as to the nature and purpose of a caveat. The present case does not involve a contest between competing unregistered or equitable interests. There is no dispute that Hanson's equitable charge, if valid, takes priority over the security interests of the liquidator and of the solicitors. Hanson's charge was first in time and there is no suggestion that it did or omitted to do anything that would justify postponing its interest to the later unregistered interests on equitable principles.
As has been seen, Hanson's caveat was lodged well before the liquidator or the solicitors acquired their interests in the Property. However, unless the unorthodox views of Callinan J prevail, it was not Hanson's lodgement of a caveat that conferred or preserved priority on its interest over the other unregistered interests. Nor was it the fact that the liquidator's caveat and the solicitors' caveat were lodged after Hanson had lodged its caveat. Hanson's interest had priority because of the general equitable principle that where the merits are equal, priority in time gives the better equity. [18]

The Scope of the Statutory Power

Section 74MA of the Real Property Act operates within a legislative framework in which the principal, if not necessarily the only, purpose of lodging a caveat is to prevent the registration of a dealing inconsistent with the caveator's interest. The legislation recognises that the lodgement of a caveat may create difficulties for others who hold or claim interests in the land, including the registered proprietor. Section 74J(1) accommodates this difficulty by allowing the registered proprietor to obtain the issue of a lapsing notice. Such a notice forces the caveator to demonstrate to the Court that he or she has at least an arguable claim to the interest protected by the caveat. Section 74MA provides an alternative mechanism by permitting the registered proprietor (among others) to seek an order from the Court that the caveator withdraw the caveat.
The only express statutory precondition to the exercise of the Court's power under s 74MA to order the withdrawal of a caveat is that the Court must be satisfied that a copy of the application has been served (relevantly) on the caveator. If the precondition is satisfied, the Court: 1. may order the caveator to withdraw the caveat; and 2. make such order or further orders as it thinks fit.
The language of s 74MA of the Real Property Act is very broad. Once the precondition is satisfied the Court's power to order the withdrawal of a caveat is not subject to any express constraints. As was said of a legislative predecessor to s 74MA(2)(b), the legislative text gives the Court the widest powers in the making of orders. [19]
The generality of the statutory language accommodates the great variety of circumstances in which an application to remove a caveat may be made. For example, the application may be made on the ground that the caveator's claimed interest is spurious. Alternatively, the applicant may accept that the caveator has a caveatable interest, but dispute the extent of the caveator's interest, for example the amount claimed to be due under an unregistered mortgage. In some cases, of which the present case is an example, there is real doubt as to whether the caveator has an interest in the land but the doubt cannot be resolved until a hearing on the merits of the caveator's substantive claim takes place. Even where there is no doubt as to the nature and extent of the caveator's interest, the registered proprietor may have strong reasons for seeking an order for the withdrawal of the caveat, perhaps subject to the conditions designed to minimise prejudice to the caveator.
The breadth of the statutory language does not mean that the Court has an untrammelled power to require a caveator to withdraw a caveat. The language of s 74MA of the Real Property Act must be construed having regard to the other provisions of Part 7A and to the subject matter, scope and purpose of the legislation as a whole. The Court clearly must pay close attention to such matters as the nature of the interest claimed by the caveator, whether there is any dispute as to the existence or extent of the interest and the likely consequences of ordering the caveat to be withdrawn. But the text of s 74MA gives little support to Hanson's contention that the Court's power to order the withdrawal of a caveat cannot be enlivened unless an unstated precondition is satisfied.

Authorities

Mr Giles relied on the decision of the Western Australian Court of Appeal in Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd [20] (Custom Credit) which concerned legislation in similar, but not identical, terms to s 74MA of the Real Property Act. [21] Mr Giles submitted that the judgment of Owen J, with whom Malcolm CJ and Walsh J agreed, supported his contention that unless the primary Judge found that the circumstances of the present case were "unusual", his Honour was not entitled to order Hanson to withdraw its caveat.
In Custom Credit, the caveator claimed an interest in the land as equitable chargee under an unregistered mortgage from the registered proprietor, who had guaranteed the repayment of certain loans made by the caveator. The registered proprietor, who held the legal title to the land as trustee for third parties, disputed whether the mortgage was effective to charge her interest in the land. The registered proprietor also sought an order for rectification of the mortgage. The substantive proceedings were complex and involved large sums.
The registered proprietor sought an interim order for the removal of the caveat. The trial judge made the order on the ground that the caveator (who bore the onus) had not established that there was a serious issue to be tried as to whether it had a caveatable interest. The trial judge indicated that he would have ordered removal of the caveat in any event, because the caveat effectively stultified the registered proprietor's business and the balance of convenience favoured removal.
Owen J accepted that the caveator had to satisfy the Court that there was a serious issue to be tried as to whether it had the interest claimed in the caveat. [22] His Honour then said this: [23] "the balance of convenience is a factor to be considered in an application under s 138. However, it seems to me that interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated, will be unusual. It is important to bear in mind the nature and purpose of a caveat under the Torrens System. By its very nature, a caveatable interest must be a proprietary interest in land. The purpose of the caveat is to restrain the registered proprietor from dealing with the land in a way which will defeat or derogate from the incidents attaching to that proprietary interest until the respective rights of the parties have been honoured (if there is agreement) or determined (if there is a disagreement). In many cases, removal of the caveat will have the effect of destroying for all practical purposes, the benefit of the proprietary interest. For example, a creditor, having a specific security interest in land, will rank as an unsecured creditor once the property, the subject of the specific security, no longer exists. This will often be the result of removal of a caveat which permits the registered proprietor to sell the property free from any practical obligation to account to the secured creditor for the proceeds of sale."
Owen J considered that this was not "an unusual case where the balance of convenience favour[ed] removal". He inclined to the view that: [24] "removal of the caveat could, for all practical purposes, destroy the effect of the secured interest which the [caveator] would have if the charge is eventually upheld."
The reasoning in Custom Credit has not escaped criticism in Western Australia. In Navarac Pty Ltd v Moondancer Holdings Pty Limited (Moondancer), [25] the trial judge held on the authority of Custom Credit that once the caveator established an arguable case as to the existence of a caveatable interest, the caveat had to remain "unless the circumstances are so unusual as to justify its removal". The trial Judge was not persuaded to depart from the "normal rule". [26] The Court of Appeal, in allowing the appeal, observed that: [27] "Balance of convenience issues are usually of little or no significance where the caveator claims an estate in fee simple or a leasehold estate. In those fairly common cases, it is 'unusual', as Owen J states, that once an arguable case is made out by the caveator that there is such a caveatable interest, that balance of convenience issues will result in removal. However, if for example the interest claimed by the caveator is a security interest or an interest in competition with another claimant against the registered proprietor, then balance of convenience issues may become decisive."
The Court considered that, on the facts of the case, balance of convenience factors were of great importance. Among other things, maintaining a caveat over a large area of subdivided land prejudiced third parties who had entered contracts to purchase lots within the subdivision, free of encumbrances. [28] For that reason, the Court held that the trial Judge's discretion had miscarried.
Significantly, the Court added the following observations: [29] "although there is no ground of appeal to this effect, it appears that his Honour also erred by acting on wrong principle. His Honour treated what was said by Owen J in the Custom Credit case as the test to be applied under s 138 in deciding whether to make an order removing the caveat. His Honour seemed to envisage a two-step process in which once the caveator made out an arguable case for a caveatable interest, it must be shown that the 'circumstances are so unusual' that the caveat should be removed. That is not required by the statute and the comment of Owen J … that it would be 'unusual' to discharge a caveat, is not a proposition of law but simply a general observation as a matter of fact." (Emphasis added.)
These observations are inconsistent with Mr Giles' argument that no order can be made under s 74MA of the Real Property Act unless a finding is made that the circumstances of a case are so unusual as to justify removal of the caveat.
Mr Giles also relied on two decisions of Brereton J, both of which were referred to by the primary Judge. In the first, Buchanan v Crown and Gleeson Business Finance Pty Ltd [30] (Buchanan), Brereton J held, correctly in my view, that: [31] "Where there is a seriously arguable or undisputable caveatable interest, the court retains a discretion, based on the balance of convenience, as to whether it will maintain the caveat or require its withdrawal …The circumstance that a caveator has a caveatable interest is not conclusive that the caveat will not be removed. The court will order the withdrawal even of an indisputably valid caveat where the balance of convenience favours that course."
Brereton J pointed out that an obvious case of the balance of convenience favouring removal of a caveat is where the applicant has an interest in the land superior to that of the caveator, particularly where the caveat prevents the applicant legitimately exercising its proprietary rights. His Honour gave as an example Kerabee Park Pty Ltd v Daley [32] (Kerabee), in which an order was made for the removal of a caveat lodged by an unregistered second mortgagee, where the caveat effectively prevented the first mortgagee exercising its power of sale.
Brereton J in Buchanan accepted that a valid caveat can also be removed if it prevents the registered proprietor from the legitimate exercise of a right in respect of the land, including a proper sale or refinance. However, his Honour considered that there was great force in the caveator's submission that removal of a caveat should not be countenanced where it "would have the practical effect of deferring the priority of the caveator's equitable mortgage". His Honour interpreted the observations of Owen J in Custom Credit [33] as standing for the proposition that "it is a rare case where a valid caveat will be removed for reasons of the balance of convenience". [34] Brereton J did not refer to the warning by the Western Australian Court of Appeal in Moondancer against interpreting Custom Credit as laying down a proposition of law.
Brereton J identified a critical question in Buchanan to be whether removal of the caveat would derogate from the caveator's claim and priority. After considering the evidence as to the value of the property and the amounts due to the security holders, his Honour found that the proposed transaction would not derogate from the caveator's interest. His Honour was therefore not satisfied that the balance of convenience favoured maintaining the caveat and he ordered its withdrawal.
In Tadrous v Tadrous, [35] Brereton J in substance repeated the principles he stated in Buchanan. His Honour explained that the reason why orders which have the effect of deferring the priority of the caveator's equitable interest are ordinarily not to be countenanced, is that "to do so is practically to prefer unsecured rights over the proprietary rights of the caveator". [36] Accordingly, his Honour rejected an application by the registered proprietor, who sought an order requiring the withdrawal of a caveat to facilitate the refinancing of an existing first mortgage. In his Honour's view, it was critical that the caveator had a seriously arguable claim to an equitable charge over the land, the value of which would exceed the registered proprietor's equity under the proposed refinancing. [37]

The Analogy with Equity

Courts have approached applications for the removal of caveats pursuant to s 74MA of the Real Property Act by applying principles analogous to those appropriate to applications for interlocutory injunctions. [38] Since the caveator is seeking to maintain a statutory injunction preventing registration of inconsistent dealings pending resolution of any dispute, he or she bears the onus of showing that there is a serious issue to be tried as to the existence of the interest claimed in the caveat. Once the caveator discharges that onus, the continuation or removal of the caveat depends on the Court's assessment of the balance of convenience. Without attempting to be exhaustive, I have identified some matters the Court must take into account in making that assessment. [39]
In some circumstances, an application by a registered proprietor for the removal of a caveat is unlikely to succeed. If the nature and extent of the caveator's interest is undisputed and removal of the caveat will clearly destroy the caveator's interest, it is fair to say that it would be very unusual for the application to be granted. [40] An example of such a case is where the caveator has an equitable charge to secure repayment of a loan and the practical effect of removing the caveat would be to render the charge worthless. But as the Court in Moondancer observed, to say that in these circumstances it would be unusual - perhaps extremely unusual - to order the withdrawal of the caveat, is not to elevate "unusual" into a legal test that must be satisfied before an order can be made. To do so imposes unwarranted constraints on the discretion conferred on the Court by s 74MA of the Real Property Act.
The authorities also recognise that the strength of the caveator's claim to an interest in land may be significant in assessing the balance of convenience. [41] This is consistent with the well-established principle that the apparent strength of each party's case is a material factor in assessing the balance of convenience on an application for an interim injunction. [42] It follows that a registered proprietor seeking an order for the removal of a caveat to permit the refinancing of a mortgage loan, may have a stronger case if there is real doubt as to whether the interest claimed by the caveator is valid and enforceable.

The Present Case

The present case has two features of particular significance. The first is that there is real doubt as to whether Hanson's claimed equitable charge over the Property is valid and enforceable. The primary Judge pointed out that there are obvious discrepancies between the signature purporting to be that of Ms Roberts on the Application and examples of her genuine signature. The discrepancies lent weight to her denial that she signed the Application.
Moreover, contrary to Hanson's submissions in this Court, the evidence supporting Ms Roberts' denial was not confined to her solicitor's affidavit made on information and belief. Ms Roberts verified her Amended Defence in the substantive proceedings on affidavit. In doing so, she attested to the truth of her pleaded denial that she signed the Application. By contrast, Hanson did not adduce any evidence before the primary Judge disputing Ms Roberts' affidavit evidence. In particular, Hanson did not read any affidavit from its employee who purported to witness Ms Roberts' signature on the Application. No explanation was provided for that omission.
The second feature is that although the primary Judge found that the orders sought by Ms Roberts would reduce the equity in the Property available to Hanson, his Honour also found that it seemed likely that there would be sufficient equity to protect Hanson's interest. Bearing in mind that the onus rested on Hanson to establish that the balance of convenience favoured continuation of the caveat, this amounted to a finding that his Honour was not satisfied that the orders would cause Hanson to suffer financial loss. In other words, his Honour accepted that the orders would necessarily displace the priority Hanson enjoyed over the other creditors who had lodged caveats (assuming its claimed interest to be valid), but was not satisfied that it would suffer a practical detriment as a consequence of losing its priority.
In my opinion, the primary Judge did not commit any error of principle that vitiated the exercise of his discretionary power to order the withdrawal of Hanson's caveat, subject to conditions. His Honour accepted that there was a serious issue to be tried as to whether Hanson was entitled to the equitable charge it claimed in its caveat. His Honour then proceeded to consider whether the balance of convenience favoured continuation or withdrawal of the caveat.
The primary Judge cited Buchanan and Tadrous v Tadrous for the proposition that only in a "rare case" will a caveat be removed for reasons of balance of convenience if to do so would have an adverse effect on the priority of the caveator's claim. If anything, this proposition was too favourable to Hanson. For the reasons I have given, depending on the strength or weakness of the caveator's case and other considerations material to the balance of convenience, it will not necessarily be "rare" for an order to be made for the withdrawal of a caveat, even if there is a potentially adverse impact on the caveator's claimed priority. In any event, s 74MA of the Real Property Act does not require the Court to make a finding that the case is "rare" before the power to order withdrawal of a caveat is enlivened.
In assessing the balance of convenience, the primary Judge took into account that the validity of Hanson's claimed interest turned on the "stark question" of whether Ms Roberts' signature had been forged. His Honour accepted that there was "some substance" to Ms Roberts' contention that she never signed the Agreement, a conclusion clearly supported by the evidence. The primary Judge's observation that "a balance has to be struck" referred to the strength of the competing contentions of the parties as to the validity of the Guarantee. In my view, his Honour was entitled to give consideration to the strength of Ms Roberts' contention in determining whether the balance of convenience favoured continuation of the caveat.
The primary Judge specifically acknowledged that the orders sought by Ms Roberts, if made, would cause certain of her creditors to be preferred over Hanson's claimed interest. However, his Honour did not consider that to be an insuperable barrier to her application because he was not satisfied that Ms Roberts' remaining equity was insufficient to protect Hanson's equitable charge. His Honour also took into account that Bluestone required other creditors to be paid out before it was prepared to refinance the existing first mortgage over the Property. In these circumstances, I consider that it was well open to his Honour to require Hanson to withdraw its caveat on terms permitting it to relodge the caveat after Ms Roberts discharged the existing CBA mortgage, paid out the creditors identified by Bluestone and granted a first mortgage to Bluestone.
Contrary to Mr Giles' submissions, I do not accept that the primary Judge was required to make a finding that the proposed orders would not derogate from Hanson's security position before considering whether the balance of convenience favoured continuation of the caveat. The impact of the orders on Hanson's security position was clearly a material matter to be taken into account in determining where the balance of convenience lay and his Honour did take the impact of the orders on Hanson's interest into account. But even if there was a prospect that Hanson's security position would be detrimentally affected, that did not necessarily preclude an order requiring the withdrawal of the caveat. Whether an order having that effect could be justified depended on the weight to be given to all the material circumstances.
Similarly, I do not accept that the primary Judge was required to find that the circumstances were sufficiently "unusual" to justify displacing the priority accorded to Hanson by its caveat. Section 74MA of the Real Property Act does not require such a finding to be made before the discretion conferred by the provision is enlivened.
Mr Giles also criticised the primary Judge's finding that it seemed likely that Ms Roberts' equity in the Property, after the refinancing, would be sufficient to protect Hanson's interest. I did not understand the criticism to be a challenge to the finding of fact, which would not raise any issue of principle. I understood Mr Giles' point to be that unless the primary Judge analysed Ms Roberts' capacity to service the Bluestone mortgage loan and the consequences of any default, his Honour could not have found that the orders would not involve any practical "derogation" from Hanson's interest. As I have explained, I do not accept that a finding to this effect is required to enliven the discretion conferred by s 74MA of the Real Property Act.
If Mr Giles intended to challenge the primary Judge's factual finding, I do not think the challenge is made out. The primary Judge did not choose between the valuation apparently adopted by Bluestone ($1.35 million) and the opinion expressed by Mr Craine ($1.5 million). (His Honour observed that Mr Craine's valuation was not supported by any evidence from Mr Craine himself. The Rules, however, permit an expert valuation report to be tendered without an affidavit from the expert. [43] ) Mr Craine's opinion was supported by a detailed analysis based on comparable sales. By contrast, there was no evidence before the primary Judge explaining the basis on which Bluestone attributed a value of $1.35 million to the Property.
As the primary Judge found, if Mr Craine's valuation was accepted, Hanson's position was "less problematic". [44] The margin between Bluestone's loan (about $700,000) and the value of the Property was about $800,000, considerably in excess of the amount claimed by Hanson, even allowing for enforcement costs.
It is also relevant to point out that Hanson's action against Ms Roberts has been on foot for nearly three years, during which period interest has been accumulating on Hanson's claimed debt at penalty rates. Hanson gave no explanation to the primary Judge for the apparent delay in finalising the proceedings and it adduced no evidence to show that the proceedings cannot swiftly be brought to finality. A swift resolution of Hanson's claim minimises the risk that Ms Roberts will prejudice Hanson's interest by defaulting on the Bluestone Mortgage or accumulating substantial arrears of interest and costs.

Orders

I propose the following orders:
Grant leave to appeal.
Dismiss the appeal.
The appellant pay the respondent's costs of the appeal, including the application for leave to appeal.

Endnotes

Hanson Construction Materials Pty Ltd v Roberts [2016] NSWSC 989 (Primary Judgment).
Bluestone Mortgages was the trading name of Bluestone Group Pty Ltd.
Primary Judgment at [7].
Primary Judgment at [8].
Primary Judgment at [15].
Primary Judgment at [16].
Primary Judgment at [19]-[26].
See at [4] above.
See Martyn v Glennan [1979] 2 NSWLR 234 at 238-239 (Waddell J), explaining that the correct principles to apply are those appropriate to an application for an interim injunction; Buchanan v Crown & Gleeson Business Finance Pty Ltd [2006] NSWSC 1465; 13 BPR 24,513 at [6] (Brereton J).
[1936] HCA 40; 55 CLR 499 at 505 (Dixon, Evatt and McTiernan JJ).
[1971] HCA 57; 125 CLR 546.
Just v Bank of NSW at 552 (McTiernan and Owen JJ agreeing). See, for example, Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30; 154 CLR 326 at 342 (Mason and Deane JJ); Black v Garnock [2007] HCA 31; 230 CLR 438 at [7] (Gleeson CJ, dissenting); Jacobs v Platt Nominees Pty Ltd [1990] VR 146 at 150-151 per curiam.
Just v Bank of NSW at 558.
See, for example, Jacobs v Platt Nominees Pty Ltd [1990] VR 146; Person-to-Person Financial Services Pty Ltd v Sharari [1984] 1 NSWLR 745 (McLelland J); Heid v Reliance Finance Corporation Pty Ltd at 342 (Gibbs CJ, Wilson J agreeing).
Black v Garnock involved a competition between the interest of a purchaser and the interest of a judgment creditor under a writ of execution.
Black v Garnock at [76].
Black v Garnock at [80]-[81].
Heid v Reliance Finance Corporation Pty Ltd at 339 (Mason and Deane JJ). As it happens, the solicitors' interest in the Property seems to have been created before the liquidator's charge, but the solicitors' caveat was lodged later. Nothing turns on this for present purposes.
Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222 (Kerabee Park) at 229 (Holland J), referring to s 97(3) of the Real Property Act (now repealed).
(1992) 8 WAR 42.
Transfer of Land Act 1893 (WA), s 138(2).
Custom Credit at 48.
Custom Credit at 50.
Custom Credit at 62.
[2009] WASCA 95 (Pullin JA, Miller and Newnes JJA agreeing).
Moondancer at [17].
Moondancer at [22].
Moondancer at [28].
Moondancer at [29].
[2006] NSWSC 1465; 13 BPR 24,513.
Buchanan at [8].
[1978] 2 NSWLR 222.
See at [64]-[65] above.
Buchanan at [11].
[2009] NSWSC 407.
Tadrous v Tadrous at [8]. See also Oceanview Group Holdings v Balaz [2006] NSWSC 1469 at [10]-[11] (Brereton J).
Tadrous v Tadrous at [9]-[11].
See the authorities cited at [51]-[53] above; see also Heritage Properties (No.3) Pty Ltd v Coles Supermarkets Australia Pty Ltd (24 May 1993, SC Qld Court of Appeal); (1993) Q Conv R 54-448.
See at [59] above
Unless the applicant seeking removal of the caveat holds a superior interest and is seeking to exercise the legitimate rights associated with that interest, as in Kerabee.
Heritage Properties (No.3) Pty Ltd v Coles Supermarkets Australia Pty Ltd (Fitzgerald P and Pincus JA, McPherson JA agreeing).
Beecham Group Ltd v Bristol Laboratories Pty Ltd [1968] HCA 1; 118 CLR 618 at 624-625 per curiam; Brayson Motors Pty Ltd v Federal Commissioner of Taxation (1983) 57 ALJR 288 at 292 (Brennan J); Appleton Papers Inc v Tomasetti Paper Pty Ltd [1983] 3 NSWLR 208 at 215 (McLelland J).
Uniform Civil Procedure Rules 2005 (NSW) r 31.21 provides that unless the Court otherwise orders, an expert's evidence in chief must be given by the tender of a report.
Primary Judgment at [23].

Amendments 13 September 2016 - coversheet - corrected representation. footnotes 8, 33, 38 and 39 - deleted asterisks footnote 39 - replaced "60" with "59". paragraph [77] - replaced "interim" by "interlocutory".

replaced "60" with "59" DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 September 2016

Transfer of Land Act 1893(WA)

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (21 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (12)

Cited By (28)