HONG KONG INTERNATIONAL CREDIT LTD -v- REGISTRAR OF TITLES [2012] WASC 17 (17 January 2012)

3 One of my concerns on 5 January 2012 was whether there had been effectual service on the second defendant. The plaintiff provided an affidavit of service which attested that a copy of the papers had been served on an adult person at an address which was said to be the registered office of the second defendant. An occupant of that property, a residential house, attended court and advised that he knew nothing of the company and that the person served was his aged mother who suffers from Alzheimer's disease. In those circumstances I was not satisfied that the application had been brought to the attention of the company or those who control it. Accordingly, I made an order on 5 January 2012 that the papers be served on the directors of the second defendant. This has subsequently been done.

4 I also had a concern on 5 January 2012 that the information provided to the court was deficient in a number of important respects. In particular, there was no reference in the affidavit in support of the application as to whether the property in question was subject to dealing and whether any other interests would potentially be affected by an extension of the caveat. On inquiry by me, counsel for the plaintiff conceded that he had been informed that a sale of the property was pending. On my request he also provided a copy of the certificate of title which showed a registered mortgage to a bank. In these circumstances, there appeared to be at least two other parties whose interest might be affected. No other information was provided in this regard by the plaintiff. Nor was any information provided as to what was known of the second defendant or how an extension may affect its interests.

5 It is necessary to note that a caveat is in effect a statutory injunction. On an ex parte application for an injunction there are wellrecognised obligations of disclosure on the party making the application. The applicant in such circumstances is obliged to put before the court all relevant information available to it, including that which relates to the interests of other parties and that may not favour a grant of the application. A party fails in this obligation if he or she does not bring forward all material facts which the absent party would have been expected to bring forward in opposition to the application: Thomas A Edison Ltd v Bullock [1912] HCA 72; (1913) 15 CLR 679, 682; Commonwealth Bank of Australia v Oswal [2011] WASC 84. The duty of disclosure applies not only to material facts known to the applicant but also to any additional facts which could be discovered on making proper enquiries: Brink's Mat Ltd v Elcombe [1988] 1 WLR 1350.

6 Such a disclosure obligation applies equally in respect of an ex parte application to extend a caveat. I had significant reservations as to whether that obligation has been adequately complied with on 5 January 2012.

7 In support of the application made on 5 January 2012 an affidavit of James Benjamin Lee sworn on 3 January 2012 was filed. That affidavit is very brief, comprising eight numbered paragraphs over one and a half pages. In it Mr Lee states that he is an authorised signatory of Zetland Nominees Ltd, which he states is the corporate director of the plaintiff. He says that he is authorised to make the affidavit on behalf of the plaintiff in support of an application to extend the caveat. A copy of the caveat numbered L775872 registered over the land described as 6 Scadden Street, Duncraig comprised in Certificate of Title Volume 1459 Folio 31 is annexed to the affidavit.

8 Mr Lee states that the caveat was lodged to protect an interest in the land held by the plaintiff pursuant to the terms of a loan agreement between the plaintiff and the second defendant dated 3 December 2007. A copy of that loan agreement is also annexed to the affidavit. Nothing was said in that affidavit in regard to whether any repayments of the loan had been made, the amount that was said to be outstanding, when default occurred and whether any demands for payment had been made.

9 The copy of the caveat annexed to Mr Lee's affidavit is undated and unsigned by the caveator. It does appear to bear the signature of a lawyer as a witness to the caveator's signature. Presumably the original is signed by the caveator or an agent, but a copy depicting such a signature has not been provided. The Landgate time stamp on the back of the caveat indicates that it was lodged on 4 November 2011. The estate or interest claimed by the caveator is stated as 'as chargee'. The interest is said to arise by virtue of 'the terms of a loan agreement entered into between the registered proprietor and the caveator dated 3 December 2007'.

10 The loan agreement states that it was made on 3 December 2007. The imprint of a stamp from the Office of State Revenue indicates that the loan agreement was not presented for stamping until 5 December 2011. The loan agreement states that the plaintiff is a Hong Kong registered company licensed as a 'moneylending firm' in Hong Kong. It states that the plaintiff is to lend $350,000 to the second defendant for the purpose of purchasing the property at 6 Scadden Street, Duncraig. Clause 3 provides that the loan is interest free but that the principal sum and an amount equal to 10% of that sum, being $35,000, shall be repayable on the due date. Clause 5 provides that the due date is 3 December 2009 or the date of resale of the property, which ever occurs first. Clause 6 permits prepayment of all or part of the loan principal at any time prior to the due date without penalty. Clause 7 provides that the plaintiff can at any time demand repayment of the loan principal and any unpaid interest thereon. The agreement is apparently signed (though not sealed) on behalf of Nicolmade Pty Ltd, but whose signature it is is not stated. Whether or not it was validly executed is a matter that was raised in subsequent evidence that I will refer to later in these reasons.

11 There was no reference in Mr Lee's affidavit of 3 January 2012 as to whether the amount referred to in the loan agreement was repaid in whole or part on 3 December 2009 or whether any prepayments were made. There was no suggestion that there was any demand for payment at any time, nor was there reference to any notice of default having been issued. It is not appropriate to infer from the fact of lodgement of the caveat that the loan had not been repaid. It is to be expected that there would be some evidence on oath in this regard. It is noteworthy that if the loan was not paid on 3 December 2009, and if the second defendant was in default at that time, then there was apparently no attempt by the plaintiff to lodge a caveat over the property until comparatively recently. The reasons for that delay were not explained in the affidavit of Mr Lee of 3 January 2012.

12 The plaintiff placed particular reliance on clause 8 of the agreement. That clause provides as follows:

Notwithstanding any right or clause of this agreement, in the event of default in payment of the annual interest, borrower shall be in default. In any default, the entire loan amount or the balance thereof shall become due and payable immediately. Borrower have granted the right to and hereby authorises HKIC to charge 2% (two percent) per month on the outstanding loan principal together will (sic) all unpaid interest thereon, from the date of default until such time as full payment is made. Borrower hereby grants the right to and hereby authorise (sic) HKIC to recover the full costs and fees for enforcement of this agreement. Furthermore, borrower agrees, undertakes and confirms that borrower shall provide to HKIC a legally registered caveat against the property in favour of and in the name of HKIC as and when borrower is or becomes in default and execution of any documents necessary for the purpose of applying for the said caveat shall be promptly made without any delay after the default occurs.

13 As is apparent from that clause, any obligations that the second defendant has in respect of a caveat only arise 'as and when' the second defendant is in default. It is not clear why the clause refers to 'the borrower' providing a legally registered caveat against the property, but putting that to one side, the clause clearly envisages that a caveat will be registered only in circumstances of default. Accordingly, in the absence of sworn evidence that the loan is in default it may be difficult to construe this clause as creating a caveatable interest.

14 At the time the application was first made on 5 January 2012 the caveat was due to expire on 10 January 2012 and if not extended there was a real risk that the plaintiff would lose any security interest that it might have in the property. In these circumstances, I gave the plaintiff the opportunity to file additional affidavits in support of an application to further extend the caveat. I also ordered that the registered mortgagee be served with the papers, as well as the directors of the second defendant.

15 The plaintiff has today applied for a further extension of the caveat. In support of this application the plaintiff relies on the previously filed affidavit of Mr Lee and two additional affidavits.

16 The first affidavit is one of Mr Timothy Pepper sworn on 11 January 2012. Mr Pepper is the solicitor acting for the plaintiff and has appeared as counsel for the plaintiff at both the original application and today. The contents of that affidavit relate to the service of papers on a director of the second defendant and the registered mortgagee, BankWest Ltd. The affidavit adds nothing to the issue of whether there is a caveatable interest on the part of the plaintiff which justifies an extension of the caveat.

17 The second affidavit is a further affidavit of Mr Lee sworn on 11 January 2012. In it Mr Lee states that the sole director of the second defendant is one Toni Rose De Villers. A copy of a company search confirming this is annexed. That search shows that Ms De Villers has been the sole director of Nicolmade Pty Ltd since it was registered on 23 October 2007 and holds the one issued share.

18 Mr Lee also states that 'the plaintiff' is currently in default of the Loan Agreement and that a notice of default has been served on 'the Plaintiff'. This is presumably an error and the reference should be to the second defendant. That is consistent with the notice of default, which is annexed; it is addressed to the second defendant and dated 6 January 2012. That date is not an error; that is to say the notice of default appears to have been sent only after this matter was first heard on 5 January 2012 and after I raised the issue on that date. The notice states that there was default in that the loan was not repaid on 3 December 2009. The notice makes demand for the principal sum, interest and further interest at 2% per month. It states that if the moneys demanded are not paid by 12 January 2012 legal proceedings will be commenced. There is no evidence to suggest that any proceedings, other than the present ones, have been commenced.

19 This is an application to extend a caveat under s 138C of the Transfer of Land Act 1893 (WA). The caveat was liable to expire on 10 January 2012 because the Registrar of Titles issued a 21 day notice under s 138B.

20 The principles relevant to the exercise of the court's discretion to extend a caveat are summarised in Bashford v Bashford [2008] WASC 138 [52] [56]. The caveator bears the onus of satisfying the court that the interest claimed in the caveat 'has or may have substance'. That statutory phrase has been judicially equated with the familiar concept from injunctions of 'serious question to be tried'. If the caveator establishes that the claim has or may have substance, the court has a discretion as to whether to grant an extension. That discretion is exercised by reference to considerations including the balance of convenience.

21 Removal of a caveat where an arguable case as to the existence of a caveatable interest has been demonstrated will be unusual: Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1982) 8 WAR 42, 50 (Owen J). Removal of a caveat, and by analogy allowing a caveat to expire by declining to extend it, may have the consequence that the interest the subject of the caveat is effectively destroyed.

22 In Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [42] [44] the Court of Appeal stated that the principles in respect of caveats must be understood in light of a decision for High Court in ABC v O'Neil [2006] HCA 46; (2006) 227 CLR 57. Accordingly, the existence of a serious question to be tried involves showing a sufficiently high likelihood of success as to justify in the circumstances the preservation of the status quo. How strong the likelihood of success needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the orders sought.

23 In considering the balance of convenience, it is necessary to consider the effect of orders on other parties and not merely the registered proprietor. It must be recognised that a registered mortgagee has a better priority in respect of the property than a person seeking to protect an interest by way of caveat. See Navarac v Moondancer Holdings Pty Ltd [2009] WASCA 95 [22]. See also s 68 of the Transfer of Land Act. If the court is asked to extend a caveat which affects the interests of other parties (such as a purchaser who has entered into a contract to buy the land), the caveator should join those parties: McCourt v National Australia Bank [No 2] [2010] WASC 151 [4].

24 A factor which may be relevant in assessing the balance of convenience is whether the caveator has lodged an undertaking as to damages. An undertaking is usually required: See Practice Direction 4.3.4. Such an undertaking has been filed in this case, though it refers to an injunction rather than an extension of the caveat. The undertaking was signed by Mr Lee on 4 January 2012 on behalf of the plaintiff. Of course, in assessing the value of such an undertaking it must be recognised that the plaintiff is a foreign registered company and there is no information available as to its assets or capacity to honour the undertaking if necessary. A court may be justified in rejecting an application to extend a caveat because an undertaking has no economic substance: Wildgum Nominees Pty Ltd v Land Alliance Pty Ltd [2009] WASC 244 [73] [77].

25 The first defendant is the Registrar of Titles. By letter dated 4 January 2012 the Registrar has informed the court that he does not intend to enter an appearance in the action and agrees to abide by any orders made by the court. This is based upon the assumption that no allegations or claims are made against the Registrar, no order as to costs is made against the Registrar and the Registrar is able to give effect to the terms of any orders made by the court.

26 The only information available prior to today's hearing regarding the second defendant was the company search annexed to Mr Lee's second affidavit. As mentioned earlier, that search indicates that Ms De Villers is the sole director and shareholder of the company. Ms De Villers was served with the papers following the first application on 5 January 2012.

27 Ms De Villers sent to the court some written submissions on behalf of the second defendant. Those submissions contain factual issues which were not confirmed by affidavit. Ms De Villers appeared today and sought to be heard on behalf of the second defendant. She said that she had no money to engage a lawyer and that Nicolmade has no assets other than the property.

28 Order 4 r 3 and O 12 r 1 of the Rules of the Supreme Court 1971 (WA) prohibit any step being taken in legal proceedings on behalf of a company other than by a legal practitioner. However, there are circumstances where, in the exercise of its inherent jurisdiction, the court may permit a person who is not a legal practitioner to appear as an advocate for another person or a company: see Re Hoffman [2004] WASCA 238 and Sammut v AVM Holdings Pty Ltd [2011] WASC 194. Mr Pepper did not object to me hearing from Ms De Villers on this basis. I therefore granted her leave to speak on behalf of the second defendant. Had I not done so, there would have been no one to speak in opposition to this application.

29 Ms De Villers sought to place information before the court. As she had been only recently served and, not being a lawyer, was unfamiliar with affidavit procedure, no such affidavits had been filed by her. In these circumstances I permitted Ms De Villers to give evidence on oath. There was no objection to this by the plaintiff.

30 In essence, Ms De Villers' evidence is that Nicolmade was incorporated in 2007 in order to purchase the property. She was then in a de facto relationship with Vincent De Villers. The intention was that the property would be owned by Nicolmade as trustee for a trust, the beneficiaries of which are their two children. Ms De Villers was aware of a mortgage to BankWest, but unaware of any loan agreement with the plaintiff until recently. Mr De Villers moved overseas and subsequently placed pressure on Ms De Villers to do likewise. She refused and he said that he would ensure that she obtained no benefit from any property belonging to him. He had been remitting funds to assist with repayments on the Bankwest mortgage, but after the disagreement with Ms De Villers these funds stopped coming. Ms De Villers had some savings, but when they were consumed she was unable to continue paying the mortgage. She had to put the property up for sale, and Mr De Villers then threatened to lodge a caveat. She saw the loan agreement for the first time when it was shown to her by the plaintiff's solicitors after a caveat was lodged. It bears a signature that, she says, looks like hers. However, she says that the signature is either forged, or that the document was signed by her without her knowing what it was.

31 Ms De Villers said that she had heard the name of the plaintiff company and its corporate director, Zetland Nominees Ltd, from discussions with Mr De Villers. She understood them to be companies with whom Mr De Villers had deposited moneys overseas. She did not know who Mr Lee was.

32 Ms De Villers said that the property has been sold. Settlement was deferred, and is now due in late January 2012. The purchaser is living in the property rentfree by agreement.

33 In taking into account Ms De Villers' evidence, I bear in mind that the plaintiff has had no opportunity to contest it. It is not possible at this stage to make any determination on contested issues. These must await any trial in relevant proceedings.

34 The plaintiff submits that the caveat should be extended further on the basis that the plaintiff's claim has or may have substance and that there is a serious question to be tried in that regard. It is submitted that the terms of the loan agreement, and in particular cl 8, create a caveatable interest over the property. It is submitted that on its ordinary construction the loan agreement creates a charge over the property and thereby creates a proprietary interest which is able to be protected by a caveat. It is said that the effect of cl 8 is that there was an agreement to lodge a caveat over the land and that agreement in itself creates a charge.

35 As regards the balance of convenience, the plaintiff submits that this favours an extension of the caveat as 'the plaintiff's rights should not be adversely affected or defeated by the second defendant acting in breach of the terms of the loan agreement by arranging a sale of the property and contesting the caveatable interest of the plaintiff in the property'.

36 A settlement is due and any extension of the caveat will act to prevent that settlement. This has the potential to adversely affect the interests not only of the second defendant but also the registered mortgagee and the purchaser of the property. The plaintiff provided no information in regard to the impact that extension of the caveat could have on such parties and I am not prepared to assume that the extension would have no impact. On the evidence of Ms De Villers, the impact on Nicolmade would be significant. She referred to the possibility that the purchasers may seek to terminate the contract and seek compensation if settlement does not proceed.

37 In assessing the balance of convenience it is relevant to take into account whether any possible claim that the plaintiff has in respect of the property could be protected by alternative security. An obvious possibility in this regard is to allow any sale to proceed but to make orders preserving the net proceeds of sale by way of injunction. This is an alternative open to the court if the affidavit evidence establishes the grounds for such an injunction: Jandric v Jandric [1999] WASC 22. The plaintiff seeks an injunction as an alternative to extension of the caveat.

38 Whilst the evidence before the court is sparse, I am prepared to conclude that the claim by the plaintiff that it has an interest in the property as described in the caveat may have substance. That interest is, arguably, that the property is security for a loan advanced to the second defendant. It is, of course, neither necessary nor appropriate to make any conclusive findings in that regard. I do note, however, that the claim is contested and that there are some aspects of the documents and the available evidence that may weigh against an ultimate finding of such an interest.

39 However, I am not satisfied that the balance of convenience justifies an extension of the caveat. The interest of the plaintiff is, at best, a security interest and there are alternative ways in which that security, if valid, can be protected. Furthermore, the interest of the caveator does not necessarily outweigh other interests and those other interests here appear to include not only the registered proprietor but a purchaser and a registered mortgagee. I have come to the conclusion that there is an alternative to extending the caveat and frustrating any settlement. That is to order that there be an injunction in respect of the net sale proceedings.

40 Any such injunction, in fairness to the parties, would have to ensure that the net proceeds were held by an independent stakeholder in trust until the resolution of any proceedings. At present the only proceedings brought by the plaintiff have been these to extend the caveat. Any injunction would therefore be conditional upon the plaintiff commencing proceedings in this or another court to seek recovery of any moneys that it asserts are owing pursuant to the loan agreement. Those proceedings would need to be commenced within a fixed period failing which the order would be that the moneys would be released to the second defendant. There would also need to be a fresh undertaking and information, on affidavit, as to the capacity of the plaintiff to meet such an undertaking if called upon. I will hear from the parties as to the precise form of the orders.