These reasons concern an urgent application by the plaintiff, IWC Industries Pty Ltd (IWC), seeking, amongst other things, an order for the removal of Caveat AS538995 lodged by the defendant, Union Fidelity Capital Funding Pty Ltd (Union Fidelity), over land in Killarney Heights, folio 1/87599 (Property), of which IWC is the registered proprietor.
I dealt with the application on 21 October 2022, sitting as the Duty Judge. At the end of a contested hearing, I informed the parties of my decision that the caveat should be withdrawn, failing which it would lapse, with summary reasons given at the time. Subsequently, my chambers received an email indicating that Union Fidelity requested written reasons. These are those reasons.
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Background
The background to the dispute between the parties and this application is set out in Kunc J's decision: IWC Industries Pty Ltd v Union Fidelity Capital Funding Pty Ltd [2022] NSWSC 1312 (Judgment).
In summary, Union Fidelity is a lender, or intermediary between lenders and borrowers, who claims to have entered into an agreement with IWC relating to the provision of finance pursuant to which IWC granted Union Fidelity a security interest in the Property for fees in the context where the finance was ultimately not provided. The fees claimed by Union Fidelity amount to $116,000.
On 13 September 2022, IWC commenced proceedings by summons seeking declaratory relief, including that there are no moneys payable by IWC to Union Fidelity and that IWC has not authorised Union Fidelity to lodge a caveat over the Property, and an order directing the Registrar General of NSW Land Registry Services to remove Caveat AS422231 (an earlier caveat that Union Fidelity had lodged in the same terms as caveat AS538995) from the title of the Property. In these reasons, I refer to Caveat AS422231 as the "First Caveat" and Caveat AS538995 as the "Second Caveat".
On 16 September 2022, following a hearing at which IWC and Union Fidelity were represented by the same counsel at the hearing before me, Kunc J gave the Judgment and made orders (which the parties were given an opportunity to prepare) that included orders to the following effect:
1. Upon notification from IWC Industries to Union Fidelity to register a new mortgage, Union Fidelity will withdraw the First Caveat to allow registration of the necessary discharge and new mortgage (Order 1).
2. Grant leave to Union Fidelity to lodge a further caveat upon registration of the discharge and mortgage in identical terms to the First Caveat (Order 2).
3. Direct the proceedings to continue on pleadings with the Defendant to file a Cross-Claim by 7 October 2022 (Order 3).
In the Judgment, Kunc J noted that IWC's counsel accepted that there was a serious question to be tried in relation to whether or not Union Fidelity was owed money by IWC that was secured over the Property by the finance agreement and was (himself) satisfied that there was a serious question to be tried notwithstanding the arguable matters raised by IWC's counsel: Judgment at [5] and [6]. The Judgment also records that, on the balance of convenience, Union Fidelity's counsel accepted that Union Fidelity would be no worse off and would be adequately protected if it could file a fresh caveat in identical terms to the First Caveat once IWC had paid out its existing mortgagee and a mortgage had been registered over the Property in favour of IWC's new lender, and that Kunc J was satisfied that the interests of Union Fidelity would be adequately protected if orders were made to that effect: Judgment at [7]-[9] and [15].
On 23 September 2022, IWC's lawyer, Geng Zhang, sent an email to Union Fidelity's Director of Legal Services, Bernard Ross (who is also a director of Union Fidelity) notifying Union Fidelity of the upcoming registration of a new mortgage in accordance with Order 1 made by Kunc J and requested the withdrawal of the First Caveat. As events transpired, Union Fidelity did not withdraw the First Caveat.
On 30 September 2022, IWC sought and was granted leave to file in court a notice of motion, returnable instanter, seeking various orders in relation to Union Fidelity's failure to comply with order 1 of Kunc J's orders. According to the transcript of that hearing, there was no appearance by Union Fidelity and, after receiving an affidavit from Mr Zhang of 30 September 2022, the court dispensed with any further requirement for service of the notice of motion and supporting affidavit. On that occasion, Hammerschlag CJ in Eq made the following orders:
"Pursuant to section 74MA (3) Real Property Act 1900, the time specified in Order 1 made by his Honour Kunc J on 15 September 2022 for removal of [the First Caveat] has expired and [the First Caveat] lapses when a copy of this order is lodged with the Registrar-General of New South Wales Land Registry Services…
The defendant is to pay the plaintiff's cost of the Motion;
[The remainder of the Notice of Motion is stood over] before the Registrar … on 13th October 2022."
Later that day, IWC lodged a request for the removal of the First Caveat with the Registrar General. It appears that this request was not registered until around 10 October 2022, with the effect that the First Caveat lapsed on that day.
On 13 October 2022, the Registrar in Equity made orders in the online system for the proceedings to continue by way of pleadings and made a timetable in respect of those steps that required IWC to file a statement of claim by 20 October 2022, despite Order 3 of Kunc J's orders.
On 18 October 2022, the proceedings came before me as Duty Judge. On that occasion, leave was granted to IWC to file a further notice of motion seeking, amongst other things, to set aside the orders of the Equity Registrar made on 13 October 2022 and reinstate the orders made by Kunc J in respect of the timetable for the pleadings. These orders were not the subject of contest and were made by the consent of the parties that day.
The notice of motion also sought orders in relation to the Second Caveat and associated orders. These were sought in the context where, on 17 October 2022, IWC became aware that Union Fidelity had lodged the Second Caveat on the title of the Property claiming the same interest as that claimed in the First Caveat. Directions were made for Union Fidelity to file and serve its evidence in response and the balance of IWC's notice of motion was listed before me sitting as Duty Judge at 10.00am on Friday 21 October 2022.
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IWC's application
IWC's notice of motion sought the nine following orders:
1. pursuant to s 74MA(1) and (2) of the Real Property Act 1900 (NSW) (Real Property Act), Union Fidelity withdraw the Second Caveat (paragraph 3 of the notice of motion);
2. pursuant to section 74MA(3) Real Property Act, should the Second Caveat not be withdrawn by the time and date in Order 3 above, the Second Caveat lapses when a copy of this order is lodged with the Registrar-General of New South Wales Land Registry Services (paragraph 4 of the notice of motion);
3. restrain the defendant, its officers and employees from lodging any further caveats over the land known as Lot 1 in Deposited Plan 87599 (paragraph 5 of the notice of motion);
4. Order 2 made by His Honour Kunc J on 16 September 2022 be vacated (paragraph 8 of the notice of motion);
5. the defendant pay $29,683.19 (to compensate the plaintiff for Interest incurred by the plaintiff for the period 23 September 2022 to 10 October 2022 as a result of the defendant's failure to comply with Order 1 made by His Honour Kunc J on 16 September 2022) by 21 October 2022 (paragraph 9 of the notice of motion);
6. the defendant compensates the plaintiff for any loss incurred by the lodgement of the Second Caveat (paragraph 10 of the notice of motion);
7. defendant pay (an amount of money as determined by the Court for legal costs incurred by the plaintiff in obtaining an Order pursuant to section 74MA(3) Real Property Act before His Honour Hammerschlag CJ in Equity on 30 September 2022 as a result of the defendant's failure to comply with Order 1 made by His Honour Kunc J on 16 September 2022) by 21 October 2022 (paragraph 11 of the notice of motion);
8. the defendant pay the plaintiff's legal costs incurred in obtaining an Order pursuant to section 74MA Real Property Act for the removal of the Second Caveat (paragraph 12 of the notice of motion);
9. pursuant to section 74P Real Property Act, the defendant compensates the Plaintiff for any pecuniary loss attributable to the lodgement of the Second Caveat (paragraph 13 of the notice of motion).
In support of its application, IWC read the affidavits of Mr Zhang affirmed on 12 October 2022, 17 October 2022, 18 October 2022 and 21 October 2022.
Union Fidelity read on an affidavit from Mr Ross, sworn on 20 October 2022.
Mr Zhang gives evidence that:
1. on 19 August 2022, IWC obtained an unconditional loan approval to payout and discharge the mortgage AR278908 (First Registered Mortgage) on the Property but could not obtain the loan until the First Caveat was removed;
2. on 26 September 2022, in response to an enquiry from Mr Ross about a claim that the Property was being sold, Mr Zhang sent Mr Ross an email stating that "we never expressed or indicated that [IWC] is going to sell the Property, and in any case, it is a separate issue". Mr Zhang's email also formally gave notice that IWC had obtained the loan, the lender needed to register the mortgage and, pursuant to Kunc J's orders, Union Fidelity was required to withdraw the First Caveat to allow registration of the discharge and the new mortgage;
3. on 29 September 2022, IWC sent an email to Mr Ross at Union Fidelity, as a final notice, requesting the withdrawal of the First Caveat by 4.00pm on Thursday, 29 September 2022, failing which IWC would be left with no alternative but to restore the proceedings in the Court against Union Fidelity and would rely on the correspondence on the question of costs;
4. as at 5 October 2022, interest was accruing on the First Registered Mortgage at a daily rate of $1,746.07;
5. on 17 October 2022, Mr Zhang was informed by Mr Ross that Union Fidelity had lodged "another caveat", which Mr Zhang identified on a title search undertaken later that day; and
6. IWC has obtained an unconditional loan to pay out and discharge the First Registered Mortgage on the Property but cannot do so and register it until such time as the Second Caveat is removed.
Mr Zhang's evidence also purported to calculate the loss and damage caused by Union Fidelity's conduct during the period from 23 September 2022 to 10 October 2022, being the interest incurred by IWC in the amount of $29,683.19.
Mr Ross' affidavit annexes extracts from various correspondence with Mr Zhang, Union Fidelity's lawyers, Dye & Durham, and the PEXA Workspace. As IWC submitted at the hearing, it is fair to say that Mr Ross' evidence is difficult to follow, particularly as the correspondence extracted appears to be incomplete in some respects, and was objectionable in part, which parts I read as submission only.
I took from Mr Ross' affidavit that:
1. Union Fidelity appeared to have joined the PEXA Workspace for settlement to proceed on Monday, 26 September 2022 to create a "withdrawal of caveat document";
2. Mr Ross gave instructions to his lawyers to "re-lodge the Caveat" on 11 October 2022 after being advised that day that the First Caveat had been removed;
3. as at 19 October 2022, the settlement schedule for the PEXA Workspace in relation to the Property referred to the Commonwealth Bank as an "Incoming Mortgagee", Union Fidelity as a "Caveator on Title", Killarney Point Pty Ltd as an "Incoming Proprietor", Killarney Point Holdings Pty Ltd as an "Incoming Mortgagee", and identified other third parties as caveators on title and the mortgagee on title; and
4. on 18 October 2022, Mr Ross wrote to Mr Zhang asking for details of the replacement mortgagee and the amount of the replacement mortgage, to which he says he received no response.
Mr Ross' affidavit asserted that the only notice Union Fidelity received that a lapsing notice had been lodged in relation to the First Caveat was the advice from its lawyers on 11 October 2022, the lapsing notice in relation to the First Caveat was contrary to and not in accordance with Kunc J's orders, it is unnecessary to make an order restraining Union Fidelity from lodging further caveats as they have agreed to uplift the Second Caveat and he opposes an order vacating Order 2 (and also Order 1) as it is the only protection Union Fidelity has to maintain its present equitable claim.
In an affidavit in reply to Mr Ross' affidavit, Mr Zhang gave evidence that he responded to Mr Ross' 18 October 2022 email the following day in which Mr Zhuang stated that Kunc J's orders did not require IWC to provide the details as per his request, and that Mr Zhuang had not been informed that Union Fidelity agreed to uplift the Second Caveat until he received an email from Mr Ross at 3:20pm on 20 October 2022 that stated that the Second Caveat "is now in uplifting within PEXA".
IWC submitted that Union Fidelity should be ordered to withdraw the Second Caveat as Union Fidelity had, without reasonable cause, failed to comply with Order 1 and then lodged Second Caveat without leave, as required under s 74O of the Real Property Act. It was submitted that, as leave had not been obtained, the Second Caveat had no effect, in accordance with s 74O(2) of the Real Property Act.
In support of the restraint, IWC submitted that it had been successful in the proceedings before Kunc J for the First Caveat to be removed and the Second Caveat was lodged without leave of the Court in support of its claim that there was a serious question to be tried. On the balance of convenience, it was submitted that Union Fidelity's conduct of not withdrawing the First Caveat and lodging the Second Caveat was causing IWC to incur time, trouble and inconvenience in attempting to payout the mortgage, which cannot be adequately compensated by an order for costs, and that restraining Union Fidelity from lodging any further caveats would preserve the status quo.
IWC also submitted that the Second Caveat was not protecting a legal or equitable interest in the Property, as the authorisation contained in the agreement to caveat was limited to default and no finding had been made that IWC was in default of the alleged agreement in respect of which the brokerage fee has been demanded by Union Fidelity.
Mr Redmond, who appeared for Union Fidelity, contested the orders sought. He referred to Mr Ross' evidence (as outlined at [19] above) in support of a contention that the Second Caveat had been lodged by Union Fidelity with good reason and justification as it had to "protect [its] position" in the context of the evidence that raised a question as to whether there was to be a refinancing or sale of the Property and the settlement date had been moved.
In reply, Mr Wydell indicated that his instructions were that IWC was not selling the Property, although he was unable to confirm the identity of the incoming financier. After a short adjournment, Mr Wydell informed the court that his instructions were that the previous financer had pulled out and there was currently no other financier in place. However, he continued to press IWC's application for the Second Caveat to be withdrawn and for an order restraining Union Fidelity lodging any further caveats on the Property, although it was accepted that a restraint in the terms sought by paragraph 5 of the notice of motion might need to be "massaged", such as saying "pending further order of the court".
In response to these matters, Mr Redmond accepted (appropriately in my view) that Union Fidelity "erred in lodging the further caveat" and it would have been appropriate to come to Court and seek leave for that to be done. He also could not explain why there was no appearance by Union Fidelity on 30 September 2022. He accepted that if there was a refinance, IWC should immediately withdraw the Second Caveat but submitted that the Court should not order the withdrawal of the Second Caveat in the circumstances of this case and should grant leave to Union Fidelity to lodge a further caveat.
I was not persuaded by Union Fidelity's submissions or position. In my view, there were three issues with them.
First, irrespective of whether Mr Ross considered that he had reason to lodge the Second Caveat or not, as it claimed the same interest in the Property and relied on the same factual basis as in the First Caveat, IWC required leave of the Court under s 74O of the Real Property Act to lodge that caveat. In my view, at the time IWC lodged the Second Caveat, it did not have leave to do so as the leave granted by Order 2 of Kunc J's orders had not been engaged as that leave was conditioned on the "registration of the necessary discharge and new mortgage" referred to in Order 1, which had not yet occurred.
I also accepted Mr Wydell's submission that Order 2 of Kunc J's orders no longer had any work to do in circumstances where Union Fidelity had failed to withdraw the First Caveat in accordance with the regime provided for by Order 1 and the Second Caveat was lapsed following the order made by Hammerschlag CJ in Eq on 30 September 2022.
In my view, properly construed, the leave granted in Order 2 of Kunc J's 16 September order was predicated on the First Caveat being withdrawn by IWC in accordance with Order 1, an order made pursuant to s 74MA(2) of the Real Property Act. It followed that as the First Caveat lapsed pursuant to an order made under s 74MA(3) of the Real Property Act, Order 2 is no longer operative and IWC required leave to lodge the Second Caveat, and any further caveat in respect of the same interest based on the same facts set out the First Caveat.
Second, it was not open to the Court to grant Union Fidelity leave under s 74O(2) to lodge the Second Caveat nunc pro tunc or retrospectively. As IWC submitted, this Court does not have power to grant such leave. Leave to lodge a further caveat under s 74O of the Real Property Act must be sought before the caveat is lodged: Brendan Edgeworth, Butt's Land Law (7th ed, 2017, Thomson Reuters) at [12.1060], see also Hanover Investments v Registrar General [1999] NSWSC 21, McCulloch v Fern [2000] NSWSC 729 at [7] and Redman Construction Pty Ltd v Tarnap Pty Ltd [2005] NSWSC 1011 at [23].
Third, and as I pointed out to Mr Redmond at the hearing, there was no application before the Court by Union Fidelity for leave to lodge a further caveat in the same terms as the First and Second Caveats. To the extent that he intended his oral submissions to be taken as an informal application of that nature, I was not persuaded to proceed on that basis, particularly as the Second Caveat had not yet been withdrawn and Union Fidelity had failed, to my mind, to adequately explain why it had not withdrawn the First Caveat in accordance with Order 1 of Kunc J's order, had not appeared at the hearing before Hammerschlag CJ in Eq and had lodged the Second Caveat without leave of the court. In my view, if Union Fidelity wished to lodge a further caveat, it would need to make an application for leave to do so in the usual way, by notice of motion with an affidavit in support, and provide IWC with an opportunity to adduce evidence as to why leave should not be granted, or alternatively, obtain an endorsement with the consent of IWC as the registered proprietor, in accordance with s 74O(2) of the Real Property Act.
As I was satisfied that the Second Caveat (which claimed the same estate or interest and was based on the same facts as the First Caveat) had been lodged without leave of the Court and I had no power to grant leave retrospectively, it followed, in my view, that the Second Caveat was of no effect (s 74O(2) of the Real Property Act) and an order should be made requiring IWC to withdraw the Second Caveat, failing which it would lapse, in the terms sought by paragraphs 3 and 4 of IWC's notice of motion. Thus, the usual considerations applicable to whether a caveat should be withdrawn (namely, whether Union Fidelity had established that there is a serious issue to be tried as to the existence of the interest claimed and whether the balance of convenience favoured its continuation or removal: Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [77], [79] and [82]) did not arise for determination on this application.
After considering the evidence and the submissions made by the parties, I declined to exercise my discretion and grant an interlocutory order restraining Union Fidelity from lodging any further caveats over the Property. While noting the matters referred to at [7] above, I was not satisfied that it was appropriate to grant such an order in circumstances where the Court had been informed that IWC was seeking a new financing arrangement and there was no evidence that the existence of a caveat on title would adversely impact IWC's efforts to obtain finance from another lender. In addition, the orders made and reasons given on the day of the hearing made it clear that Union Fidelity required leave from the Court for the lodgement of a further caveat in the same terms as the First Caveat (and Second) and that Order 2 (of Kunc J's orders) was no longer operative, which I considered provided some protection to IWC going forward, and there was also no evidence to suggest that Union Fidelity was seeking to lodge a caveat on some other basis. I should also record that IWC did not proffer the usual undertaking as to damages in support of the restraint it sought.
As to the balance of IWC's notice of motion, in the light of the conclusion regarding Order 2 of Kunc J's orders the order sought at paragraph 8 of the notice of motion was not pressed. Mr Wydell accepted that further evidence might be required and asked to defer consideration of the relief sought at paragraphs 9, 10 and 13 of the motion (to which there was no objection) and did not press the order sought in paragraph 11 of the motion.
As to IWC's order seeking the payment of its legal costs incurred in obtaining an order for the removal of the Second Caveat (paragraph 12 of the motion), Mr Redmond accepted that costs should follow the event in relation to that caveat, and I made an order to that effect, which I considered appropriate to do in the circumstances outlined above.
For these reasons, I made the following orders:
1. Grant leave to the plaintiff to file in Court the affidavit of Geng Zhang affirmed 21 October 2022.
2. Grant leave to the defendant to file in Court the affidavit of Bernard Hugh Ross sworn 20 October 2022.
3. Order that, pursuant to s 74MA(1) and (2) of the Real Property Act 1900 (NSW), the defendant withdraw Caveat AS538995 by 4.00pm on 21 October 2022 failing which, order that pursuant to s 74MA(3) of the Real Property Act 1900 (NSW), Caveat AS538955 will lapse when a copy of this order is lodged with the Registrar-General of New South Wales Land Registry Services.
4. Note that Order 2 of the orders made by Kunc J on 16 September 2022 is no longer operative and that the defendant requires leave for the lodgement of a further caveat in the same terms as Caveat AS42231 pursuant to s 74O of the Real Property Act 1900 (NSW).
5. The defendant to pay the plaintiff's costs incurred in obtaining Order 3 on an ordinary basis as agreed or assessed.
6. Stand over the balance of the plaintiff's notice of motion dated 18 October 2022, being the relief sought in paragraphs 9, 10 and 13, for directions before Kunc J on 5 December 2022.
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Decision last updated: 01 November 2022