MATTER : Section 138B of the Transfer of Land Act 1893 Caveat K335514

BETWEEN : INTERVIEW HOLDINGS PTY LTD (ACN 009 325 320)

MATTER : Section 138(2) of the Transfer of Land Act 1893 (As Amended)

BETWEEN : STERLING CAPITAL PTY LTD (ACN 109 253 554)

Caveats - caveat in respect of interest of unit holder under trust deed - Whether caveat fell within Transfer of Land Act 1893 s 138A(b) for purposes of notice under s 138B(1)

Caveats - Caveat in respect of interest of unit holder under trust deed - Application under Transfer of Land Act 1893 s 138(2) by holder of registered second mortgage registered before caveat lodged - Whether serious question to be tried - Whether where caveatable interest established but no arguable case it was prior to registered mortgage caveat shown caveat should be removed - Exercise of discretion in respect of removal

Transfer of Law Act 1893 (WA), s 138, s 138A, s 138B, s 138C

Application for declaration of invalidity of notice under Transfer of Land Act s 138B(1) granted

Caveat ordered to be removed unless caveator within reasonable time had commenced litigation to establish its priority

1 These are two actions, both by originating summons, in relation to a caveat by the holder of units in a unit trust. The caveat was lodged in respect of land that at lodgement was, and is, the subject of registered first and second mortgages granted by the corporate trustee of the unit trust. The mortgage was granted over a trust asset to secure the obligations of a related company of the trustee company.

2 The earlier action (CIV 1605 of 2008) is one by the caveator, Interview Holdings Pty Ltd, for a declaration that a notice by the Registrar under Transfer of Land Act 1893 (WA) s 138B (TL Act) be declared invalid, and, in the alternative, that the operation of the caveat be extended until further order of the court. The other action (CIV 1621 of 2008) is by the holder of the interest under the registered second mortgage for an order pursuant to TL Act s 138(2) for the caveator to show cause why the caveat should not be removed. Sterling Capital Pty Ltd is that holder and is also the second respondent to the action by Interview Holdings.

3 In my view, Interview Holdings is entitled to the declaration it seeks, but not to the extension of its caveat, other than on its meeting the condition that it commence litigation to determine the priority of its interest as against the registered second mortgage.

4 The following are my reasons for these conclusions.

5 By a document dated 7 August 1998 styled 'Deed of Settlement the Macau Unit Trust' (the trust deed) between Liquid Engineering Overseas Marketing Pty Ltd (called in the trust deed the trustee) and eight named individuals and companies (called in the trust deed the first unit holders) there was the following paragraph under the heading 'Background : C':

The beneficial interest in the Trust Fund will be divided into certain notional Units of value and each person who contributes money to the Trust Fund and who owns a beneficial interest in it will own and deal with his interest in the Trust Fund in terms of those Units and he will be known as a 'Unit Holder'.

6 A trust fund was constituted as follows, in material part (cl 2):

2.1 The Trustee hereby declares that it will throughout the Trust Period hold the whole of the beneficial interest in the Trust Fund upon trust for all of the Unit Holders for the time being, subject to the rights, powers and liabilities set out in this deed.

2.2 Each person who becomes registered as a Unit Holder will be deemed to have agreed to become a party to this deed and any supplemental deed and will be entitled to the benefit of and will be bound by the terms and conditions of this deed or of any supplemental deed as fully and effectually as if that Unit Holder had executed this deed.

2.3 A Unit Holder will not be entitled to any particular property or interest comprised in the Trust Fund nor will a Unit Holder be entitled to have any property comprised in the Trust Fund transferred to him.

...

7 The present trustee is Port Kennedy Golf Accommodation Pty Ltd (hereinafter the trustee). Interview Holdings at all material times has had 333 ordinary units (of 1,000 ordinary units, to which must be added 465,000 special units), a relatively small holding.

8 The term 'Trust Fund' is defined in the trust deed cl 1.1.21 as follows:

'Trust Fund' means all subscription amounts paid to and received by the Trustee under clause 6 and all other money, property or choses given or transferred by any person to and accepted by the Trustee or otherwise acquired by the Trustee and intended by the donor or the transferor and the Trustee to form part of the Trust Fund and any accumulations of the income from that property made in accordance with this deed and all the money, investments or property and accretions or additions thereto into which from time to time that money, property or choses or accumulations or accretions may be converted.

9 The trust deed provides for the creation of units and classes of units in the trust fund in part in cl 5.1 as follows:

The whole of the beneficial interest in the Trust Fund will be deemed to be divided into separate Units of equal value and the holding of a Unit in the Trust Fund will confer upon the holder an interest equal to that of the holder of each other Unit in the whole of the Trust Fund subject to the rights and restrictions attaching to each Unit as provided for in this deed and the Third Schedule.

10 The trust deed provides for terminating distributions to unit holders in cl 3.2 as follows:

Upon the last day of the Trust Period (or so long before as is reasonably necessary) the Trustee will distribute the whole of the Trust Fund amongst the Unit Holders in accordance with their respective rights and interests (except so much only as is necessary to pay for the expenses of the winding up of the Trust Fund).

11 The trust deed gives the trustee a variety of powers, including the following in cl 25.4:

25. The Trustee will in addition to the powers conferred on the Trustee by law have the following powers:-

...

25.4 To give any guarantee and/or indemnity for payment of money or the performance of any contract obligation or undertaking by any person firm company corporation or association (whether a Unit Holder or otherwise) and for that purpose to given any security over any real or personal property comprised in the Trust Fund in respect of any such payment contract obligation or undertaking such security being in such form and containing such covenants and conditions as may be required by the lender of such money or any party to any such contract obligation or undertaking which may be acceptable to the Trustee;

12 The Trustee is also given investment powers in the terms in trust deed cl 30.2 as follows:

The Trustee may invest the Trust Fund in any manner that the Trustee would be entitled to invest the Trust Fund as if the Trustee were beneficially entitled to and the absolute owner of the assets comprised in the Trust Fund.

13 Further, as to alterations of the trust deed under the power in cl 38, cl 38.3 says this:

No alteration to this deed may be made under this clause unless the alteration or amendment does not prejudice the interests of Unit Holders and all consents required by law of any authority prescribed under any statute ordinance regulation or by-law to the amendment modification or alteration have been obtained.

14 One set of the assets forming part of the trust fund at present is a number of parcels of land at Port Kennedy (the Port Kennedy lands).

15 One part of the Port Kennedy lands originally comprised Lot 141 on Deposited Plan 219418 being the whole of the land comprised in former Certificate of Title Volume 2114, Folio 534 (former Lot 141). Former Lot 141 was subdivided into 11 lot titles, being Lots 1 to 11 on Deposited Plan 53925, being respectively the whole of the lands on Certificates of Title Volume 2677 Lots 460 to 470 (the deposited plan 53925 lands).

16 The other part of the Port Kennedy lands is Lot 2 on Survey Strata Plan 49800 being the whole of the land comprised in Certificate of Title Volume 2642, Folio 585 (the current Lot 2).

17 The Port Kennedy lands are subject to two registered mortgages. One is a first mortgage, J34383, in favour of Police & Nurses Credit Society Limited (the Police & Nurses first mortgage). I do not have an indication as to the date of registration of that mortgage. The other is a second mortgage J085695, in favour of Sterling Capital, which was registered on 15 November 2004 (the Sterling Capital second mortgage). The mortgagor under the Sterling Capital second mortgage was the trustee.

18 The Sterling Capital second mortgage secures moneys owing under a loan facility agreement between Sterling Capital as lender and Golf Club Properties Limited as borrower. The trustee has at all material times been a wholly owned subsidiary of Golf Club Properties.

19 On or about 7 September 2007 a caveat K335514C, naming Interview Holdings as caveator was registered on the former Lot 141 and the current Lot 2 (the Interview Holdings caveat). The Interview Holdings caveat described the estate or interest being claimed as 'an equitable interest as the beneficiary of a trust which is the beneficial owner of the land above described'. The trust deed was annexed to the Interview Holdings caveat, which states, under the heading 'And FORBIDS the registration of any Instrument affecting the estate or interest' as follows:

Unless such instrument be expressed to be subject to the caveator's claim.

20 Three types of caveat are recognised, at least for caveats under TL Act s 137: absolute caveats, forbidding all dealings; what might be called subject to claim caveats, being ones forbidding registration of any instrument 'unless the instrument be expressed to be subject to the claim of the caveator'; and notice caveats, being ones which forbid registration of any transfer or instrument 'until after notice of the intended registration or dealing be given to the caveator': Binningup Nominees Pty Ltd as Trustee for the Lakewood Shores Unit Trust v Brogue Tableau Pty Ltd [2004] WASC 14 [34] (Pullin J). The Interview Holdings caveat was of the second or subject to claim type.

21 On 12 March 2008 Golf Club Properties was placed in liquidation. On the same day Sterling Capital served on Golf Club Properties a notice of default under the Sterling Capital second mortgage. Golf Club Properties failed to comply with the notice.

22 As at 11 June 2008 the amount owing under the Sterling Capital second mortgage was $5,689,299.47. Sterling Capital wishes to have the Port Kennedy lands sold to pay down the debt secured by the Sterling Capital second mortgage.

23 In order to understand the two actions making up the present proceedings, I must provide some statutory background.

24 TL Act s 138A identifies a particular type of caveat for the purposes of the procedure in s 138B attracting the powers of the court in s 138C. Steps purportedly taken under s 138B(1) gave rise to action by Interview Holdings in CIV 1605 of 2008 (the Interview Holdings action).

25 TL Act s 138A reads in material parts as follows:

A caveat that has not been lodged

...

(b) by or on behalf of a beneficiary claiming under a will or settlement;

...

is a caveat for the purposes of sections 138B to 138D.

(1) If a section 138A caveat has been lodged then the proprietor of the land in respect of which the caveat was lodged, or the judgment creditor named in a property (seizure and sale) order registered under section 133 in respect of the judgment debtor's saleable interest in such land, may apply, in an approved form and on payment of the prescribed fee, for the Registrar to serve the caveator with a notice to the effect that, unless the caveator takes the action referred to in subsection (2) within 21 days after the day on which the notice is served, the caveat will lapse.

(2) If the notice referred to in subsection (1) is served on the caveator then the caveat lapses 21 days after the day on which the notice was served unless, before that time, the caveator has -

(a) obtained from the Supreme Court an order extending the operation of the caveat

(i) for such further period as is specified in the order; or

(ii) until the further order of the court;

(b) lodged with the Registrar a copy of the order.

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

(2) On the hearing of an application under subsection (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.

28 I note for the purposes of TL Act s 138B(1) and more generally in the TL Act that 'proprietor' is defined in TL Act s 4(1) as including the 'owner' of a 'mortgage ... over land'.

29 On 8 May 2008 on the application of Sterling Capital to the Registrar the latter issued a notice purportedly under TL Act s 138B(1) in respect of the Interview Holdings caveat. By originating summons dated 29 May CIV 1605 of 2008 was commenced.

30 On 29 May 2008 Master Sanderson made orders that the operation of the Interview Holdings Caveat be extended to 11 pm, Friday 13 June 2008 and of a programming kind.

31 By originating summons dated 30 May 2008 CIV 1621 was commenced.

32 On 12 June 2008 Master Sanderson made further orders, in CIV 1605 of 2008, that the operation of the Interview Holdings caveat be extended until further order of the court, that the application be adjourned to the present hearing and of a programming kind. At the same hearing Master Sanderson made further orders, in CIV 1621 of 2008, that the hearing of that originating summons be adjourned to the same hearing as that for CIV 1605 of 2008.

33 I deal now with the two applications, in their date order.

CIV 1605 of 2008: the application for a declaration

34 It is common ground that the claim of Interview Holdings to the declaration it seeks cannot be made unless its caveat was one 'lodged by or on behalf of a beneficiary claiming under a will or settlement' (TL Act s 138A(b)).

35 For Interview Holdings it is put that it is only necessary a claim is made by a caveator purporting to fall into the excluded category. It is not necessary to go further to show that the caveator is actually a beneficiary claiming under one of the described types of instrument or has, or does not lack, a caveatable interest because of characteristics of that instrument. As will become apparent the fact that an instrument in form a deed of settlement provides for beneficiaries need not confer on them an equitable interest of the sort required to support a caveat.

36 No authority was cited to me on Interview Holding's submission. In view of my conclusion the reasons for which appear below, that Interview Holdings has made a sufficient case that it was a beneficiary with an interest in the Port Kennedy lands sufficient to support a caveat, it is unnecessary for me to reach a final view on the submission. Such a conclusion in my view is sufficient for the purposes of TL Act s 138A(b).

37 Interview Holdings having shown its caveat falls within the exclusion in TL Act s 138A(b), in my view a declaration is appropriate relief in respect of that showing. The contrary was not put to me by counsel for Sterling Capital were I to have concluded there had been such a showing.

CIV 1605 of 2008: the operation of the caveat be extended; and CIV 1621 of 2008: the caveator show cause

38 The claim in CIV 1605 of 2008 is brought in the alternative, under the procedure in TL Act s 138C(2), in the event the first claim, for a declaration, did not succeed. Strictly, then, the alternative claim does not arise.

39 However, the matter of the future of the Interview Caveat is squarely in issue in CIV 1621 of 2008. It arises there under the procedure in TL Act s 138(2) thereby invoked. The considerations to be applied under that procedure are the same as those arising under the procedure in s 138C(2): Jandric v Jandric [1999] WASC 22 [26] (Commissioner Buss QC). Those considerations, as described in relation to s 138(2) in Jandric [5] referring to Eng Mee Yong v Letchumanan [1980] AC 331 and Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, are as follows:

The onus is upon a caveator in an application under s 138 of the Act to demonstrate that there is a serious question to be tried as to whether a caveatable interest exists. See Eng Mee Yong ... 337; Custom Credit (supra) at 48. Although the balance of convenience is a factor to be considered in such an application, interlocutory removal of a caveat where a reasonably arguable case as to the existence of a caveatable interest has been demonstrated, will be unusual. See Eng Mee Yong (supra) at 335, 341; Custom Credit (supra) at 48 - 50.

40 For reasons which will shortly appear, I consider I need only to deal at any length with the first consideration, serious question to be tried, and a related consideration. I will not deal at any length with the matter of the balance of convenience, although I will address a matter going to my discretion under TL Act s 138(2).

41 The test for a 'serious question to be tried' was described in Jandric [24] and [25] referring also to Porter v McDonald [1984] WAR 271 (a case which was heavily relied upon by counsel for Interview Holdings) as follows:

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 ... 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.'

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.

42 The principal arguments put to me concerned whether or not a serious question to be tried had been made out that Interview Holdings had the interest it claimed. Indeed it was put to me that the case made went beyond a serious question to be tried, to show Interview Holdings had that interest.

43 For Interview Holdings, reliance was particularly placed on Binningup Nominees (Pullin J), and especially upon the following passages, [19] - [21] and [23], referring to, among other authorities, Costa & Duppe Properties Pty Ltd v Duppe [1986] VicRp 9; [1986] VR 90, Bonini v Western Australian Real Estate Custodian (1984) Pty Ltd [2001] WASC 258 and Karingal 2 Holdings Pty Ltd v Commissioner of State Revenue [2002] VSC 431:

The plaintiff does not seek to argue against the proposition that the holder of a unit in a unit trust has an equitable proprietary interest in all the property which is for the time being subject to the trust deeds: Charles v Federal Commissioner of Taxation [1954] HCA 16; (1954) 90 CLR 598 at 609; Read v Commonwealth [1988] HCA 26; (1988) 167 CLR 57 at 61-62; Costa ... at 92.

Nor does the plaintiff argue against the proposition that a unit holder has a proprietary interest in each of the assets which comprise the entirety of the trust fund and that provisions in unit trust deeds to the effect that a unit holder is not entitled to any particular asset in the trust fund or to an interest in any particular asset, are to be construed in context as meaning no more than that the unit holder is not entitled to have the exclusive use or ownership of any particular asset: Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352 at 374; Bonini ... at [13] and the other authorities cited in Karingal 2 Holdings ... at [27].

There is no doubt that these conclusions must depend upon the terms of the unit trust in each case and on what effect the law will give to the instrument considered as a whole in the light of applicable principles: Costa & Duppe Properties... (supra) at page 93 per Brooking J and Suncorp Insurance & Finance v Commissioner of Stamp Duties [1997] QCA 225; [1998] 2 Qd R 285 at 300-301. There is nothing in the terms of the trust deeds here which alters the proposition set out in the two preceding paragraphs.

44 For Sterling Capital, there was no quarrel with the statement of principle appearing in those passages. However, particular emphasis was laid on Binningup Nominees (Pullin J) [21] above, and the passage in the Costa & Duppe Properties 93 (Brooking J) as follows:

Things are not always what they seem. A unit is an undivided part or share in the trust fund, but it does not necessarily follow from this definition that the holder of a unit has a proprietary interest in any of the assets making up the trust fund; a testator may in terms give a share of his residuary estate, but the law says that the residuary beneficiary has no proprietary interest in any of the assets of the unadministered estate. By CL7(a) of the deed the beneficial interest in the trust fund shall be vested in the unit-holders, but 'beneficial interest' does not always mean an interest that is proprietary; moreover the effect of an instrument in relation to the creation of proprietary interests depends, not simply on any express provision it may contain in that regard, but on what effect the law will give to the instrument considered as a whole in the light of applicable principles.

45 In my view, the provisions of the trust deed in 'Background : C' and cl 2 and cl 5.1, read with cl 1.1.21, cl 3.2, cl 30.2 (particularly the 'as if' language) and cl 38.3 all lead me to the view that unit holders under the trust deed have caveatable interests. I also note Western Australian Real Estate Custodian Ltd v W J Green & Co (1984) Pty Ltd [2006] WASC 278 [53], [68] and [69] (Hasluck J).

46 However, as I will explain, those caveatable interests are susceptible to subsequent dealings by the trustee, which include the creation of encumbrances by way of registered mortgages to secure obligations owed to third parties. See Western Australian Real Estate Custodian [71] - [76], on absolute transfers: on first principle, it seems to me that the law there described extends to the creation of encumbrances, including registered mortgages.

47 However, counsel for Sterling Capital drew my attention to the difference between the language in the Trust Deed cl 2.3 and that of the trust deed in Binningup Nominees (Pullin J) [15] which reads as follows:

Clause 8 provided:

(a) The beneficial interest in the Trust Fund and the income thereof as originally constituted and as existing or produced from time to time shall be held by the Unit Holders according to and in the proportion to the rights and entitlements for the time being and as such may be changed from time to time attaching to the particular class of units issued and classified by the Trustees.

(b) Each unit of a particular class shall entitle the registered holder thereof equally with the registered holders of units of the same class and according to the proportionate rights attaching to the units of that Class to a beneficial interest in the Trust Fund and the income thereof as an entirety and shall not entitle the Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and save as herein expressly provided no Unit Holder shall be entitled to the transfer to him of any property comprised in the Trust Fund.

(c) the Trust Fund as originally constituted by the said initial sum shall be divided into the number of units and into the classes (if any) set forth in the First Schedule which units shall be held by the original Unit Holders the names and addresses of which are specified in the First Schedule each of which shall hold the number of units and in the classes (if any) specified against their respective names in the First Schedule.

48 The language of 'security or investment' used there in cl 8(b) was also used in the corresponding provisions of the trust deeds in Costa & Duppe Properties and Bonini, in each of which it was held unit holders had caveatable interests. It was put to me the language in the trust deed of 'property or interest' was of a different kind, being apt to disaffirm any proprietary right or interest sufficient to support a caveat.

49 I disagree. In my view the language in the trust deed cl 2.3 is directed in broader terms than that of the instruments in which 'security or investment' was used to the constituents of the trust fund with the intent with respect to each constituent described in Binningup Nominees (Pullin J) [20] above. See the use of 'property' in trust deed cl 1.1.21 above, and in cl 25.8, and 'property' and 'interest' in cl 25.13. The language of 'property or interest' is in my view equivalent to 'assets' that was used in the counterpart to trust deed cl 2.3 in the trust deed in Karingal 2 Holdings where it was held that the trust deed conferred on the unit holder an equitable estate or interest in each of the assets of the trusts: see [15], [26], [35], [46] and [47]. It is true that the determination was not addressed to whether or not a caveatable interest was created thereby. However, Costa & Duppe Properties was one of the authorities relied upon, while Karingal 2 Holdings was one of the authorities cited in Binningup Nominees (Pullin J). The application to that determination in Karingal 2 Holdings of the analysis in Binningup Nominees (Pullin J) would in my view be sufficient for a caveatable interest for the purposes of the TL Act to be made out.

50 For Sterling Capital it was put to me that the conclusion that a caveatable interest was created by the trust deed in this case should not be reached because of the nature of the language used in cl 2.3 considered in the light of one of the evident purposes of the clause, to prevent a unit holder, including (as here) one with a relatively small proportion of the total units in the unit trust, through lodgement of a caveat interfering with the operation of the trust by the trustee. The trust had wide powers of management conferred on it by cl 25.

51 However, in my view the authority cited to me for this purpose does not in fact offer it any strong support. Schmidt v 28 Myola Street Pty Ltd [2006] VSC 343 [30], [31] (Warren CJ) states that the consideration just described does not prevent the conclusion being reached that where on construction of the trust instrument as a whole suitable language has been used in it unit holders have caveatable interests. The consideration's role in that case is in relation to the exercise of the discretion under a provision like TLA s 138(2).

52 An aspect of the discretion recognised in Schmidt [32] (Warren CJ) was 'whether the caveator claims an interest wider than what the caveator may be entitled [to]' (footnote omitted). I consider that a similar if not the same point is recognised in Binningup Nominees (Pullin J) [35] - [40] as follows, referring to among other authorities State Bank of India v Sood [1997] Ch 276:

However, the caveator may not lodge a caveat which goes beyond the legitimate claim necessary to protect the caveator's rights: DCT v Corwest Management Pty Ltd [1978] WAR 129 at 131 and Vandyke v Vandyke (1976) 12 ALR 621 at 624.

In this case, the trustee of the Binningup Trust has powers of sale which may be legitimately exercised, subject to the advice and direction of an advisory committee. If the property was sold by the trustee in the proper exercise of its power, the defendant would have no further interest in the property and no right to maintain a caveat. In short, the defendant's equitable interest may be overreached by a sale by the trustee within his dispositive powers: State Bank of India ... at 281. Only an ultra vires disposition by the trustee will not overreach: State Bank of India ... at 281.

On the point about the form of the caveat, the defendant referred to Midland Co Pty Ltd v Welsh [2002] WASC 248. In that case, an absolute caveat was extended in circumstances where the plaintiff, which was a brick maker, had sold adjoining land but on the condition that the defendant/purchaser would not subdivide the land without written consent of the plaintiff. The agreement permitted the plaintiff to lodge a caveat. The caveat was an absolute caveat, prohibiting any dealing. It was argued that this was too wide, but the court held it was maintainable. It was apparently argued that only a subject-to-claim caveat should have been lodged. Hasluck J held that a caveat in that form would not provide the plaintiff with protection. In effect, Hasluck J reasoned that a subject-to-claim caveat would not be appropriate because there would be no point allowing a subdivision and conveyance of title in circumstances where the plaintiff claimed a right to prevent that happening at all. In my opinion, that case is distinguishable and affords no reason for allowing an absolute caveat in this case. An absolute caveat would prevent any dealing whatsoever, even a dealing resulting from the proper exercise of the trustee's powers of sale, acting with the approval of the advisory committee. That is an inappropriate restraint.

In my opinion, the defendant had no right to lodge an absolute caveat based merely upon the existence of its interest as beneficiary in a unit trust.

Should the caveat be amended?

The appropriate caveat in such circumstances would have been a "notice" caveat. A notice caveat has the effect that the caveator is given notice of a proposed transfer or dealing. Fourteen days after notice is given, the proposed dealing or transfer may be lodged, whereupon the caveat will then lapse, unless in the meantime the operation of the caveat has been extended by the court pursuant to s 138C of the Transfer of Land Act.

The provisions of s 138 authorise the court to amend a caveat: Porter ... at 275.

See also Floriston Nominees Pty Ltd v Kingsley Brown Finance Pty Ltd [2005] VSC 467 [17] - [20] (Hansen J).

53 Whether the matter is one of the discretion referred to in Schmidt or the disentitlement referred to in Binningup Nominees (Pullin J), it appears to have been accepted by counsel for Interview Holdings that it would be appropriate, if a caveatable interest were found to be established in this case, that an order to the effect of that in Binningup Nominees [39] could be made, to which Interview Holdings would consent. I agree such is an appropriate order.

54 However, there is a further, related matter I must consider. It goes to an aspect of the nature, being the priority position, of the caveatable interest in this case. The matter is one that concerns that which a caveat in respect of that interest may properly protect: see Binningup Nominees [35].

A related consideration: that which the caveat may properly protect

55 There was a power in the trust deed for the trustee to grant a mortgage to secure the obligations of a third party debtor: see cl 25.4, above. The Sterling Capital second mortgage was a mortgage of that kind. The proper exercise of the power in cl 25.4 would subordinate interests of the unit holder in the asset of the trust fund so dealt with to the later interest created by that exercise: see Binningup Nominees [36], and the authority there referred to, State Bank of India 281 (Peter Gibson LJ). I would understand a proper exercise of the power as one in accordance with cl 25.4 as properly construed, for the purposes for which that power was conferred, in good faith and with a view to the best interests of those it was the duty of the trustee to serve: Heydon J D and Leeming M J, Jacobs' Law of Trusts in Australia (7th ed, 2006) [1606].

56 Third persons taking with notice of at least some forms of improper exercise of the power would do so subject to the proprietary interest of the unit holders: Sood 281.

57 However, there is of course the doctrine of indefeasibility (TL Act s 68) which would avail the Sterling Capital second mortgage, subject to the exception to that doctrine of 'fraud'. A useful short statement of that exception in a context such as the present is to be found in Lindsay S, Caveats against Dealings in Australia and New Zealand (1995) 23:

A registered proprietor who acquires an interest with notice of an existing unregistered interest and knowledge that registration of the interest will defeat that unregistered interest is not guilty of fraud. However, it may be different if the registered proprietor obtains his registered status by inducing the holder of an unregistered interest to either refrain from lodging a caveat or, if a caveat has been lodged, to withdraw the caveat or consent to a dealing, on the basis that the registered proprietor will regard himself or herself as bound by the unregistered interest.

58 In this case the Interview Holdings caveat has in my view been lodged against all of the registered interests in the Port Kennedy properties, including the Sterling Capital second mortgage. It further seems to me that, if the Sterling Capital second mortgage is protected by the doctrine of indefeasibility, then the Interview Holdings caveat cannot be maintained against that interest. This is whether or not Sterling Capital's interest prior to registration was subject to that of Interview Holdings.

59 I consider that this position follows from the purpose of the institution of the caveat under a statute like the TL Act, as explained in Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222, which I shortly reach. I also note Lindsay, 196, where the following appears:

An applicant for removal should also generally succeed where his interest enjoys higher priority than the interest of the caveator, and the caveat blocks, not registration of the applicant's interest, but the legitimate enjoyment of the applicant's interest.

60 I return shortly to the qualification implicit in 'generally', and the question whether or not there was a blocking of such enjoyment in this case.

61 In Kerabee Park a registered first mortgagee successfully applied for the removal of the caveats of the defendants in respect of their interests under unregistered equitable mortgages. The mortgagee under the registered first mortgage had been put into possession by order of the court and was proceeding to exercise its power of sale by arranging a public auction. The parties' arguments proceeded on the assumption each defendant had a caveatable interest over which the plaintiff's first registered mortgage had priority, both in time and in law (226, Holland J). At 228 - 229 (Holland J) the following appears:

Another consideration is the nature and purpose of a caveat. It has been pointed out that the right to caveat is given by the statute, not for the purpose of giving notice to the world of a claim by the caveator to an estate or interest in the land, but for the purpose of protecting the caveator's interest from being defeated by the registration of a dealing without the caveator having had an opportunity to invoke the assistance of the court to give effect to his interest: Butler v. Fairclough [(1917) [1917] HCA 9; 23 CLR 78, at p 84]; J & H Just (Holdings) Pty Ltd v Bank of New South Wales [(1971) [1971] HCA 57; 125 CLR 546, at pp 552, 556]. The caveat has been described as 'nothing more than a statutory injunction to keep the property in statu quo until the Court has an opportunity of discovering what are the rights of the parties', per Owen J. in Re Hitchcock [(1900) 17 W.N. (NSW) 62, at p 63]. If the foregoing correctly describe the nature and purpose of a caveat, it would seem to me to follow that a caveator should have no right to prohibit registration of a dealing to which his alleged interest in the land would not entitle him to object, if he were to invoke the assistance of the court. A subsequent encumbrancer, registered or unregistered, has no right whatever to interfere in, or object to, a proper exercise by a mortgagee of the mortgagee's powers of sale, and would have no ground on which to seek the intervention of the court, notwithstanding the fact that registration of the transfer to the purchaser would discharge or defeat all mortgage interests in the land whether registered or not. As well as being required by s 58 (3) to apply surplus proceeds in payment of subsequent mortgages, the first mortgagee is liable by the general law to account to the holder of a subsequent encumbrance of which he has notice: West London Commercial Bank v Reliance Permanent Building Society [(1885) 29 Ch D 954].

The only class of case which the defendants suggest might lead the Court, at the instance of a subsequent mortgagee or encumbrancer, to interfere to restrain registration of a transfer to a purchaser upon the exercise of a mortgagee's power of sale is that of fraudulent or improper sales, such as were instanced above. Assuming for the moment that the mere possibility of a fraudulent or improper mortgagee's sale would entitle the holder of an unregistered mortgage to lodge a caveat prohibiting the registration of all dealings with the land except upon notice to him, it would not follow, in my opinion, that a caveator would be justified in continuing to maintain his caveat, when requested by the mortgagee to withdraw it for the purpose of promoting the prospects of a successful sale by the mortgagee, when the caveator could not point to any circumstances suggesting that the mortgagee was, or might be, going to exercise his powers improperly, or might fail to apply surplus proceeds in the manner required by law.

62 It is not suggested in this case that Interview Holdings is in a position to point to any such circumstances last mentioned so far as Sterling Capital is concerned.

63 See also Dunecar Pty Ltd (in liq) v Colbron [2001] NSWSC 1181 [18] [21] (Young CJ), and the reference at [18] to Lindsay 193 - 197.

64 In this case, there was no concession that the interest of Interview Holdings protected by the Interview Holdings caveat lacked priority in law if not in time to the interest of Sterling Capital under the Sterling Capital second mortgage. Indeed it is common ground that Interview Holdings maintains the position that the creation of that interest as it was prior to registration was not a proper exercise of the trustee's power under the trust deed, and proceedings for pre-action discovery, in CIV 1260 of 2008, are presently underway to gather information in relation to that matter. See the affidavit of Teow Kim Chng of 12 March 2008 in that action, [6] - [9]: reference was made to that affidavit in the hearing before me without objection.

65 That affidavit in those paragraphs refers to the amount of the balance of the loan facility secured by the Sterling Capital second mortgage as one that 'far' exceeded 'the needs of the Trust'. However, there is no matter in that affidavit or any other affidavit before me which would point to notice of any such state of affairs to Sterling Capital; there is also no such matter sufficient for the purpose of engaging the fraud exception to the doctrine of indefeasibility to impeach the position of Sterling Capital as holder of a registered interest under the Sterling Capital second mortgage. In particular I do not consider the fact that the trustee was a wholly owned subsidiary of Golf Properties, without more, to be such matter. Nor was such a basis for an inference of either sort or any other basis for finding such notice or impeachment put to me by counsel for Interview Holdings. In this regard, I note that an order of pre-action discovery was made on 8 April 2008, although it is my understanding further such orders are being sought in CIV 1260 of 2008.

66 In those circumstances, it would seem that the present is a case in which, although a caveatable interest has been established, there is on the evidence a registered interest the holder of which seeks the caveat's removal and which is prior to the caveatable interest in law. Further the caveat is blocking the legitimate enjoyment of that interest by its holder, Sterling Capital. This blockage may be seen in the evidence, in the affidavit of Rupert Pennington Legh, sole director of Sterling Capital, sworn 11 June 2008, [11] - [15]. Those paragraphs are to the effect that the Port Kennedy lands have been advertised for sale and negotiations are ongoing with respect to their sale. However, Interview Holdings has agreed only to withdraw the Interview Holdings caveat with respect to the sale of three of the 12 lots, and this on the understanding that the proceeds of sale after costs will only go towards the discharge of the first registered mortgage. The effect of the Interview Holdings caveat is, therefore, 'that no more of [the Port Kennedy lands] can be sold (and proceed to settlement) until the Caveat is removed from the titles' ([15]).

67 I have noted that it be said it is not altogether clear on the evidence whether or not Interview Holdings will maintain this position into the future. But there was no suggestion that Interview Holdings will withdraw the Interview Holdings caveat simply to facilitate the efforts of Sterling Capital to market and sell the Port Kennedy lands in the exercise of its power of sale under the Sterling Capital second mortgage.

68 The effect on marketing and sales described might be ascribed to the form of the Interview Holdings caveat as it presently is, a matter which it might be suggested can be addressed at least in part by a change in the form of the caveat to a notice one. (See the discussion of such a change earlier, and Binningup Nominees (Pullin J) [38] and [39] above). However, I consider that the evidence I have referred to is sufficient to show there to be a blockage even in such a case, as put to me by counsel for Sterling Capital. I note for this purpose the following from Kerabee Park 227:

The plaintiff's complaint, that the presence of a caveat on the title is liable to worry or deter prospective bidders or purchasers on a mortgagee's sale must, I think, be accepted. The defendants did not contest it. An auction bidder or private purchaser might understandably be wary or put off by the possibility of buying into some dispute lurking under an unregistered claim of a caveator. Moreover, a caveat may be a hindrance to a mortgagee/vendor in assuring bidders at an auction sale, or prospective private purchasers, of his ability to remove all obstacles to registration of a transfer if a contract of sale were to be made and completed. It would be his obligation, on settlement, to put the purchaser in a position to be registered and, accordingly, the purchaser is clearly entitled to refuse to settle until the caveat has been removed, or its removal certainly assured: Godfrey Constructions Pty Ltd v. Kanangra Park Pty Ltd [(1972) [1972] HCA 36; 128 CLR 529, at pp 536, 537]. The vendor is obviously in a more favourable position, and can make the property offered more attractive, if there are no caveats on the title, or if any such caveats have been removed before the sale.

69 On that basis this case would fall under the principle in Lindsay 196 above, that the caveat would generally be removed.

70 For Interview Holdings it was put to me that it was necessary there be evidence of the impact of the Interview Holdings caveat on sale prices before I could find the effect just described. I disagree. On the evidence I have it seems to me I should infer that effect. I have no other evidence to counter such an inference.

71 I consider from the nature of the principle involved here that it does not depend for its application on the value of the mortgaged property being shown to be less than the debt secured. Therefore I do not need to address the argument put to me concerning whether or not the only evidence as to value before me, the statement without further elaboration of a value by the sole director of Sterling Capital, is admissible evidence.

72 Counsel for the plaintiff put to me, however, that, it having been shown not simply that there was a serious question to be tried that Interview Holdings had a caveatable interest but that such an interest had been established, Interview Holdings was entitled to have its caveat remain in place. This was unless and until an exercise of dispositive power with respect to any of the Port Kennedy lands was adduced as a reason for removal of the caveat. Such exercise might be by Sterling Capital under its power of sale in the Sterling Capital second mortgage. But there was no such exercise, as opposed to the possibility of one, before me now. This made any consideration of a balance of convenience kind, such as those rehearsed in the previous paragraph, irrelevant.

73 I disagree. At the same time, I incline to the view that that consideration is one more going to limits of the character of the interest Interview Holdings may properly protect than to the balance of convenience. However, whether or not that consideration is properly so described, it seems to me that the authorities of Kerabee Park and Dunecar, and those referred to in Lindsay 194 - 197, lead to the conclusion that the caveat would generally be removed.

74 I do not consider the authority heavily relied upon by counsel for Investment Holdings in support of his position, Porter, in fact provides such support. In that case the Full Court upheld a refusal to remove a caveat in respect of an equitable charge on land granted by the appellant to secure the payment of the price of shares the appellants had contracted to purchase. There it was not in dispute that the caveator had the interest the subject of the caveat, which meant of course it was accepted it was binding on the appellants. In those circumstances, the views expressed 272 (Burt CJ), 274 (Brinsden J) and 276 (Rowland J), to the effect that further considerations were irrelevant, appear to me to follow. However, in this case the party in the position of the appellants in that case, Sterling Capital, has on the evidence a registered interest to which the caveator's interest is subject.

75 Reference was also made by counsel for Interview Holdings to TL Act s 142. That provision reads:

Where a caveat has been lodged by or on behalf of a beneficiary claiming under a will or settlement and a change in the proprietorship of or a transfer or other dealing with or affecting the land estate or interest in respect of which the caveat was lodged is presented for registration the same may notwithstanding section 139 be registered without the caveat being withdrawn and without determining the operation of the caveat provided the Commissioner is of opinion that such change of proprietorship or such transfer or other dealing is authorised by the will or settlement and the caveator either consents to the registration or does not lodge a written protest against such registration within 14 days after being served with notice as such caveator.

76 However, on the law I have described I consider that this provision has no relevance. The registration of the Sterling Capital second mortgage was before the Interview Holdings caveat was lodged.

77 The conclusion that the Interview Holdings caveat would generally be removed does not mean, however, that it must be removed. On the authorities I have referred to, it seems to me I retain a discretion in relation to the orders I may make under TL Act s 138(2). I will reach the considerations that in my view should inform the exercise of that discretion after briefly addressing the balance of convenience.

78 On the authorities for the conclusion I have arrived at, it is not clear that I need to address this consideration, except as it may bear on the orders I should make in the exercise of my discretion under TL Act s 138(2).

79 In particular, the present case in my view does not fall within the principle in Custom Credit v Ravi Nominees 50 (Owen J), that it would be 'unusual' for there to be 'interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated'. There has been no arguable case shown that the caveatable interest is prior in law to that under the Sterling Capital second mortgage.

80 I have already referred to the matters which counsel for Sterling Capital pressed on me as of a balance of convenience kind, being the ones which I described as to do with the blockage of the legitimate enjoyment by Sterling Capital of its interest under the Sterling Capital second mortgage. That enjoyment is the proper exercise of its power of sale. There was no matter of a balance of convenience kind pressed on me by counsel for Interview Holdings, who as I have indicated had taken the position such matters were irrelevant to its position.

81 However, this leaves the matter of my discretion under TL Act s 138(2). For the purpose of its exercise, I consider I need also to take account of the matters the subject of the proceedings for pre-action discovery in CIV 1260 of 2008. They indicate in my view an intention to challenge the effectiveness as against unit holders of the Sterling Capital second mortgage while at the same time also indicating a concern to have additional information before doing so.

82 It has been recognised that in cases where a caveatable interest has not been shown to be prior to a registered interest the holder of which seeks the removal of the caveat it may be appropriate to defer removal or expiry of the caveat in certain circumstances. Those circumstances include where there is an intention to challenge the validity of the registered interest, and the deferral is to be until the caveator has had a reasonable chance to commence proceedings to establish its priority. See Lindsay 196, referring to In re Dixon (1922) 39 WN (NSW) 89, 91 (Street CJ). In my view that approach is suitable in this case in the exercise of my discretion under TL Act s 138(2), given what is before me as to the proceedings for pre-action discovery. However, I note that those proceedings have been ongoing at least since March 2008, the date of the Chng affidavit I have referred to, and an order for pre-action discovery has previously been made.

83 Further, if the Interview Holdings caveat is to remain because Interview Holdings has commenced the proceedings referred to, then it seems to me it would be appropriate for there to be an undertaking as to damages. I note for that purpose that Interview Holdings has already given such an undertaking. It has not been shown not to be an adequate undertaking. See Lindsay 213 - 214.

84 It follows, in my view, that, while a case has been made on the basis of which I should make the declaration sought by Interview Holdings, a case has also been made on the basis of which I should an order the removal of the Interview Holdings caveat as sought by Sterling Capital. However, such order for removal should only have effect after a reasonable period for commencement by Interview Holdings of proceedings to establish the priority of its interest over that of the mortgagee under the Sterling Capital second mortgage. I would incline to the view that 1 month is a sufficient such period, but I will hear submissions from the parties on that period.

85 I will hear from the parties generally as to the orders to be made to give effect to these reasons, including orders as to costs.