Caveat lapsed - injunction granted restraining dealings

Unless stated to be subject to the plaintiff's estate or interest

Cruz v Osborne [1999] WASC 8

Eng Mee Yong v Letchumanan [1980] AC 331

Gasiunas v Meinhold [1964] 6 FLR 182

Halse v Embling, unreported; FCt SCt of WA; Library No 970734; 22 December 1997

Ratto v Trifid Pty Ltd [1987] WAR 237

Van Dyke v Van Dyke (1976) 12 ALR 621

1 WHITE AUJ: This matter comes before me as one of urgency and was argued on that basis.

2 By an Originating summons dated 7 June 2002, the plaintiff seeks an order that Caveat No 1083914 ("the caveat") lodged on Lots 1-4 inclusive on strata plan 40886, being the whole of the land comprised in Certificate of Title Volume 2509 Folio 697-700 inclusive ("the Land") continue to operate until further order of the court. The summons was served on the respondent prior to the first hearing of the application. The application is made pursuant to the provisions of s 138C of the Transfer Of Land Act.

3 Section 137 of the Transfer of Land Act provides, in relevant part, that:

"Any ... person claiming any estate or interest in land under the operation of this Act under any unregistered instrument document or writing or under any equitable mortgage or charge ... may lodge a caveat with the Registrar in an approved form forbidding the registration of any person as transferee or proprietor of and of any instrument affecting such estate or interest either absolutely or until after notice of the intended registration or dealing be given to the caveator or unless such instrument be expressed to be subject to the claim of the caveator as may be required in such caveat. ... "

4 The approved form is set out in appendix B to the Land Titles Registration Practising Western Australia (5th ed.) That form requires the caveator to state, inter alia, the estate or interest being claimed and the facts or circumstances by virtue of which the caveator claims that estate or interest. It is also required that, where any claim is alleged to arise out of a document, it must be lodged with the caveat.

5 The caveat claimed an estate or interest "as equitable chargee", by virtue of:

"Caveat H856854 was withdrawn to allow the strata titling and refinancing of the said land, the evidence for this caveat is the same as for caveat H856854."

6 The caveat forbids the registration of any instrument affecting the estate or interest absolutely.

7 Lodged with the caveat were the following documents, namely:

1. A copy of caveat H856854 which was registered on 31 August 2001;

8 In caveat H856854, dated 20 July 2001, the plaintiff claimed an interest in the land described as Lot 223 on Plan 3670, being the whole of the land comprised in Certificate of Title Volume 1062 Folio 618. The estate of interest claimed was as equitable chargee:

"by virtue of a mortgage dated the 5th day of April 2001 and made between the registered proprietor as mortgagor and the caveator as mortgagee."

9 A note on the caveat lists, under the heading "TITLES, DECLARATIONS ETC LODGED HEREWITH", an item "Evidence". There is no indication of the nature of the "Evidence" referred to but, because of the requirement stated in cl 4.2.4 in the Land Titles Registration Practice Manual that where a claim is alleged to arise out of a document, that document must be lodged with the caveat, the probabilities are that the "Evidence" consisted of a copy of the unregistered mortgage.

10 The letter dated 17 December 2001 was addressed by Mr A C Thorpe, the respondent's solicitor to Mr David Hatton and reads as follows:

"RE: JOHN HUGHAN & CLARK GRAY

We refer to your facsimile of 17 December 2001.

Our client proposes to refinance the Scarborough property on the following basis:

1. Beneficial Finance $457,500.00

2. Liberty Finance $520,000.00

3. Police and Nurses Credit Union $788,000.00

These sums are within the 2 million dollar limit referred to in discussions between our respective clients and confirmed in your letter of 27 November 2001.

Settlement on these matters will be delayed pending Mr Gray's return from overseas. In the meantime, we are instructed that Mr Gray will make available $60,000.00 from other sources in order to honour the spirit of his agreement with Mr Hughan. We are instructed to make that sum available in return for a withdrawal of caveat which we shall hold in a escrow till settlement on the refinancing. We undertake to re-lodge a caveat on units 1 and 2 on similar terms after the refinancing. Kindly call should you have any queries."

11 The letter dated 20 December 2001 was addressed by Mr A C Thorpe to Mr David Hatton and reads as follows:

"RE: Aaronisle/Gray and Bonera/Hughan

We acknowledge receipt of your facsimile of 18 December 2001.

We confirm that the re-lodging of the caveat over the Scarborough properties will be on the basis that the $98,000 due from Northbridge will be further secured by that caveat. The agreement currently supporting the existing caveat will need to be upstamped to a total of $154,000. We confirm that no other interests will be registered against the lands between the first mortgages and Mr Hughan's caveat.

By this letter I, Andrew Cecil Thorpe, as attorney for Clark Gray, hereby charge the Scarborough property with the increased sum.

Please forward the existing stamped agreement so that we may attend to upstamping."

12 It is not in dispute that the respondent is indebted to the plaintiff in an amount of almost $154,000.00.

13 The applicant accepts that the relevant principles upon which the court is to act are as set out in the decision in Jandric v Jandric [1999] WASC 22 in which Commissioner Buss said, in pars 24 - 26:

"24 As I have mentioned previously, the plaintiff must demonstrate on the evidence that his claim to a caveatable interest in the Land raises a serious question to be tried. If there is a serious question to be tried, the question will not, except in the most exceptional circumstances, be determined on originating summons. See Porter v McDonald [1984] WAR 271 at 276; Halse v Embling, unreported; FCt SCt of WA; Library No 970734; 22 December 1997. It is not appropriate to attempt to resolve conflicts of evidence on affidavit. See Eng Mee Yong (supra) at 341; Halse (supra) per Parker J at page 4. As Brinsden J observed in Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129 at 141:

' ... the jurisdiction granted by section 138 should not be exercised so as to remove a caveat unless the case is one in which it is patently clear that the estate or interest sought to be protected cannot be made out and that degree of clarity will not emerge if there are disputed questions of fact, when the respondent should be left to proceed by way of action to establish the claimed interest or estate.'

25 Accordingly, if a caveator is able to demonstrate a reasonably arguable case as to the existence of a caveatable interest, the ordinary course is for the caveat to remain and the disputed question to be left for trial by writ of summons with pleadings. However, a caveator's claim must, in fact and law, be more than merely frivolous or vexatious, and it must appear from the evidence on the originating summons that the caveator might ultimately succeed in establishing his caveatable interest. See Halse (supra) per Parker J at page 14.

26 In my opinion, these principles, which have been developed in the context of applications under s 138 of the Act, apply to an application under s 138C."

14 It is apparent that the description of the plaintiff's alleged interest in the land is incorrect in saying that the evidence for the caveat is the same as for caveat H856854. That caveat was based upon an unregistered mortgage securing a total of $115,000.00 and it is not in dispute that the plaintiff has been paid $60,000.00 against that debt, so that the amount due under the mortgage is $55,000.00. The plaintiff's claim to the further sum of approximately $98,000.00 depends upon the charge expressed in Mr Thorpe's letter dated 20 December 2001, copied above, and is not derived from the unregistered mortgage. The amount secured is not stated in the caveat. Although a copy of Mr Thorpe's letter dated 20 December 2001 was lodged with the caveat, the plaintiff did not claim to rely upon it when describing the nature of the estate or interest claimed by him. Accordingly, I am of the opinion that, at best for him, the plaintiff's caveat does not secure any amount in excess of $55,000.00.

15 The respondent contends that there is no serious question to be tried because the consideration for the unregistered mortgage was past, save for the amount of $25,000.00 advanced by the plaintiff after the date of execution of that mortgage. The unregistered mortgage was executed on 5 April 2001 and amended by increasing the amount thereof from $90,000.00 to $115,000.00 on 14 May 2001. It was common ground that the plaintiff had advanced a total of $90,000.00 to the respondent by 16 March 2001 and advanced a further $5,000.00 to him on 8 May 2001, $10,000.00 on 15 May 2001 and $10,000.00 on 8 June 2001. Accordingly, by the date of the execution for the first time of the mortgage, $90,000.00 had been advanced and thereafter the further sum of $25,000.00 had brought the total amount of those loans to the figure of $115,000.00 being the amount of the mortgage as amended.

16 Mr Thorpe argued that, to the extent of the first $90,000.00 advanced by way of unsecured loans, there was no consideration for the equitable charge arising from the execution of the unregistered mortgage. In In re Earl of Lucan, Hardinge v Cobden [1890] 45 Ch D 470, the headnote conveniently summarises the decision and reads:

" An annuity was granted by deed in consideration of love and affection to C., charged on certain hereditaments and upon the 'moneys, securities for money, and other effects' of the grantor. At the date of the deed the grantor was entitled to a reversionary interest in stock standing in the names of trustees. The annuity was regularly paid for more than twenty years by the grantor, but on his death his personal estate proved insufficient to pay his debts, and the real estate was not enough to provide for the annuity:-

Held, so far as the charge on the reversionary interest in the stock was concerned, that the deed depended only upon contract, and did not create a perfect and complete equitable charge in favour of C., and that as there could be no specific performance of a contract in favour of a volunteer, C. had no priority over he creditors of the grantor.

Donaldson v Donaldson, Kay, 711 discussed."

17 In that case, Chitty J observed that the deed though voluntary created a charge on the real estate which was unquestionably valid.

18 In the present case, it is plain that the parties intended the mortgage to secure the total of $115,000.00 and in my opinion, effect should be given to that intention. As I have mentioned, however, that amount was reduced by the payment of $60,000.00.

19 During February 2001, the plaintiff advanced further sums totalling $98,122.00 to a company, Aaronisle Pty Ltd, being a company under the control of the respondent. It is to that loan that the letter from Mr Thorpe dated 20 December 2001 in which, in his capacity as the attorney for the respondent, he charges the Scarborough property, relates.

20 Mr Thorpe argues, I think correctly, that the plaintiff was in error in claiming an absolute prohibition under the caveat. The nature of the plaintiff's claim was such that the caveat should have been expressed to prohibit further transactions unless stated to be subject to the plaintiff's claim under the caveat.

21 Section 138 C (1) and (2) of the Transfer of Land Act provide that:

"(1) A caveator who is served with a notice under section 138B(1) may apply to the Supreme Court, in accordance with the rules of the Court, for an order extending the operation of the caveat.

(2) On the hearing of an application under sub-section (1), the Supreme Court -

(a) if satisfied that the caveator's claim has or may have substance -

(i) may make an order extending the operation of the caveat for such period as is specified in the order;

(ii) may make an order extending the operation of the caveat until the further order of the Court; or

(iii) may make such other orders as it thinks fit concerning the caveat or the land in respect of which the caveat was lodged;

(b) if not satisfied that the caveator's claim has or may have substance, shall dismiss the application; and

(c) may make such ancillary orders in relation to the application as it thinks fit."

22 In my opinion, the evidence discloses that there is a serious question to be tried as to whether the plaintiff has a caveatable interest in the property in question, arising from the unregistered mortgage executed by the respondent, securing an amount of $55,000.00. I do not think that it is an answer to the plaintiff's claim that the consideration for the charge may have been past consideration and the respondent has subsequently informed me that it does not proceed further with the submission that an equitable charge over land requires valuable consideration. In my opinion, the equitable charge in this case does not depend only upon contract (as was the case in Lucan; Hardinge v Cobden, supra) and it does not require consideration for its validity.

23 Mr Thorpe argued strongly that the balance of convenience favours the respondent in that the plaintiff's company, Bonera Investments Pty Ltd, in its capacity as trustee for Aaronisle Pty Ltd, is the registered proprietor of the Northbridge land; that the valuation of that land exceeds the existing prior charges by an amount of some $700,000.00 and Bonera Pty Ltd is entitled to have recourse to that land as security for the moneys now claimed by the plaintiff. Counsel pointed out that the respondent is in a parlous financial position, that he has sold some of the property the subject of the caveat but that the caveat prevents settlement on that sale, with the result that he is incurring penalty interest and may lose the sale.

24 It has been pointed out in several decisions that although the balance of convenience is a factor to be considered in an application under s 138 of the Transfer of Land Act, interlocutory removal of a caveat where an arguable case as to the existence of a caveatable interest has been demonstrated, will be unusual: Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42; Porter v McDonald [1984] WAR 271; Commonwealth Bank of Australia v Garon Pty Ltd [1999] WASC 170, 15 September 1999. In my opinion, the balance of convenience is not sufficiently in favour of the respondent to warrant the unusual step of setting aside the caveat with the possible result that the plaintiff's admitted claim may be defeated. However, I am satisfied that the caveat is defective in claiming an absolute prohibition. Accordingly, it would be inappropriate to extend the caveat in its present form. I shall make the following orders under s 138C (2)(iii) of the Transfer of Land Act:

1. The caveat No 1083914 is to be treated as having lapsed;

2. Subject to the filing of an undertaking as to damages in proper form, I grant an injunction until further order restraining the respondent from creating, disposing of or dealing with any estate or interest in the Land, unless the creation, disposition or dealing is expressed to be subject to any proprietary estate or interest which the plaintiff may have in the Land;

3. There will be liberty to either party to apply to vary or discharge this injunction on 48 hours notice;

25 The costs are to be costs in the proceedings for the determination of the serious question to be tried which I have identified.