Solicitors:
Allsop Glover Lawyers - for the applicant and plaintiff
Kemp Strang - for the first defendant
Paramonte Legal - for the second defendant
File Number(s): 2015/162637
[2]
Judgment
I am only dealing with one aspect of a complicated matter. The next aspect of the case is fixed before Black J in the Corporations List on 7 July next. The matter that I have to consider is whether a caveat lodged by the plaintiff is to be extended until 7 July 2015. The caveat in question is numbered AJ274783D. It is in the standard form and it affects three folio identifiers of Torrens System land.
Schedule 1 to the caveat, which is headed 'Estate or Interest Claimed', contains the following words:
Caveatable interest in the land by virtue of a documented share farming agreement.
Supreme Court proceedings for breach of Farm Debt Mediation Act 1994 - matter 71424/2014.
It then notes the instrument relied on as a share farming agreement between Sundara Pty Limited and the plaintiff and then continues:
James Estate Wines Pty Ltd holds a share farming agreement with Sundara Pty Limited which includes a caveatable interest in the land. Current proceedings are also before the Supreme Court of NSW for a breach of the NSW Farm Debt Mediation Act 1994 section 6.
The caveat prohibits actions in respect of numbers 1, 2, 4 and 7 in the schedule, which virtually means prohibiting the recording in the register of any dealing.
A lapsing notice was given by the Registrar General under section 74J of the Real Property Act 1900. The effect of that notice is that 21 days after the service of the notice the caveat lapses.
There is a dispute as to when the notice was served, including a dispute as to whether section 76 of the Interpretation Act 1987 applies because there was service by post, albeit by registered post. There is some dispute as to whether section 76 applies where the document posted is by registered post. In Deputy Commissioner of Taxation v Barroleg (1997) 25 ACSR 167. I held that with respect to the corresponding Commonwealth Act, service by ordinary post included registered post. However, there are a series of unreported cases referred to in Mr Assaf's book Statutory Demands and Winding Up in Insolvency (2nd edition Butterworths 2012) paragraph 3.65 to the contrary. There is also in this case a contention that there was no need to look at any statutory presumptions as to when documents served by post was received because the notice was in fact served otherwise.
Now I do not need to spend time evaluating this dispute because if the Registrar General has already lapsed the caveat then even if the caveator has applied to the Court after the 21 day period the Court can just order the grant of an injunction or extend the caveat as the case may be.
The application came on before me in the duty list at about 3.30pm yesterday. Very learned arguments were presented and, at about 3.45pm, I ordered that the caveat be extended to 11.59pm tonight in order that I could give proper consideration to the arguments that were being made.
The plaintiff's case was well presented to me by Mr J Baird. He was opposed by Mr S Lipp of counsel for the mortgagee, who sold the land to the second defendant, for whom Mr F Assaf of counsel appeared. The sale, as I mentioned, was a mortgagee sale. The purchaser has actually paid the purchase price which appears to be some millions of dollars. Although the transfer has not been registered because of the caveat, section 43A of the Real Property Act may need to be considered as to whether it confers notionally indefeasibility on the purchaser in the instant case.
There is an argument that it does not because of two reasons:
1. That the second defendant had notice of the plaintiff's interest before it paid its money; and
2. That section 43A cannot prevail in the light of the farmer's rights under the Farm Debt Mediation Act. I will return to these in due course.
Section 75K(2) of the Real Property Act provides that:
On the hearing of an application made under subsection (1) (that is, an application to extend a caveat) the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application.
Mr Baird properly put that there are two basic questions to consider - namely:
1. Has the plaintiff a claim which 'has or may have substance,' and
2. Does the balance of convenience favour extension of the caveat.
As to (1), the present caveat is lodged under section 74F of the Real Property Act. Section 74F(1) and (5) provide as follows:
(1) any person who, by virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the registrar general a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled.
(5) a caveat under this section must:
(a) be in the approved form,
(b) specify:
...
(v) the prescribed particulars of the legal or equitable estate or interest, or the right arising out of a restrictive covenant to which the caveator claims to be entitled...'
It is insufficient to comply with section 74F(5)(b)(v) to state that an equitable interest is claimed. This has been established by many decisions in this Court; see Hanson Construction Materials Pty Limited v Vimwise Civil Engineering Pty Limited (2005) 12 BPR 23,355 (Campbell J); Circuit Finance Pty Limited v Crown & Gleeson Securities Pty Limited (2005) 12 BPR 23,403 (Brereton J); and Complex Scaffolding Solutions Pty Limited v Doueihi (2014) 17 BPR 33,753 (Robb J).
Mr Baird says that the caveat does not fall foul of this principle as it identifies the equitable interest claimed - namely, the interest in land specified in the share farming agreement. This, to my mind, still does not get over the problem. The purpose of stating the quantum of the interest in the caveat is to show the extent of the caveator's claim because there should only be a prohibition of further dealings with the land which protect the claim made by the caveator and no further. In the instant case, it is almost impossible to know what is the extent of the caveator's equitable interest.
However, I do need to consider the terms of the share farming agreement and general matters because this is not just a case of a caveat defective in form, though it is a case of a caveat being defective in form.
The share farming agreement bears the date 10 July 2002. The then registered proprietor Sundara Pty Limited is described as the owner and three companies, of which is the present plaintiff, are described as the farmer. The agreement purports to last until 30 June 2027. Clauses 19 and 24 reads as follows:
19. It is agreed the owner has more than a contractual obligation to the farmer and it is to be deemed to have provided a license to the farmer to enter or remain upon the farm with an interest in the land.
24. It is agreed:
(1) the owner acknowledges that the farmer has an interest in the land and the irrigation licence associated with the land.
(2) the owner consents to the farmer lodging a caveat on the land described in the third schedule and A schedule ('the farmer') to protect its interest pursuant to this agreement.
(3) the owner consents to the farm lodging a caveat on the irrigation licence described in the A schedule to protect its schedule pursuant to the agreement.
It is noteworthy that the same persons signed under the common seal of Sundara Pty Limited and James Estate Wines Pty Limited as well as to the other two companies who are within the term 'farmer'. It appears that the signature is David James in each case as the officer of each of the companies. That would seem to indicate that the former registered proprietor was the company in the same group as the present plaintiff. Perhaps nothing turns on that in the instant case. What was the interest that the share farming agreement brought about?
The classic case involving share farming agreements is Dudgeon v Chie (1954) 55 SR (NSW) 450, where both a decision of R Brereton J, at first instance, and the Full Court case of Street CJ, Herron J and Roper CJ in Eq are reported. The loser in the Full Court applied to the High Court. That appeal was struck out as incompetent Dudgeon v Chie [1955] HCA 42; (1955) 92 CLR 342, but, at page 352, five justices of the High Court said that the opinion expressed by the Full Court at page 470 was one with which the justices agreed.
The Full Court agreed with R Brereton J, whose learned judgment sets out in great detail the legal rights and obligations in the standard share farming agreement. That learned judge said, at page 456 of the report:
Such a licence (that is, a licence under a share farming agreement) confers no estate in land. A mere licence does not have legal possession, and this is so even though he have exclusive occupation...his licence gives him a personal right to enter upon the premises and a personal right in the present case to use them for his own and the owner's benefit. The fact that he has an interest in the nature of an incorporeal hereditament to which the licence is ancillary does not alter the position, since an incorporeal hereditament gives no right to possession either.
His Honour then noted the authorities to which supported that proposition - namely, Lane v Lane (1913) 13 SR (NSW) 657; Hindmarsh v Quinn [1914] HCA 27; 17 CLR 622. He then quoted what Dixon J said in the leading case of Cowell v Rosehill Racecourse Co Limited [1937] HCA 17; (1937) 56 CLR 605 at 631:
The general rule of the common law that a landowner has possessory rights cannot be renounced or altered by mere contract. The rights continue to subsist notwithstanding the contract which operates only to impose obligations and not otherwise to prevent the exercise of rights arising from the property.
On appeal, Roper CJ in Eq dealt with the matter on a particular basis which does not concern us. The majority, K W Street CJ and Herron J, said, at page 470:
In the view of the importance of a subject matter raised on this appeal...to make some observations on the position of a defendant in an accident law of ejectment who sets up, by way of defence, that he is in possession under a share farming agreement of a holding within the meaning of the Agricultural Holdings Act 1941. In Carter v Smith (1952) 52 SR (NSW) 290 this Court said no estate in possession was conferred by the share farm but the true position was that a licence was created which constituted no defence to an accident of ejectment. The defendant's remedies, if he has any, being available to him only in a separate action or suit. Which he has no reason to differ from the clear decision in that case.
These judgments indicate quite clearly that ordinarily a share farming agreement does not give the farmer an interest in the relevant land. Mr Baird says, however, that is not a bear share farming agreement but one coupled with a grant.
Even if that were so, (I will indicate shortly I do not consider that it is so) in the present case it is almost impossible to see what interest is granted. Interest could not be a profit à prendre because nothing is taken from a land nor is it a profit à rendre because nothing beneficial to the land is placed upon the land. I should interpolate at this point that even if it was a profit à prendre or profit à rendre according to Brereton J in Dudgeon v Chie, the only effect of that would be the farmer would only be entitled to some injunction to restrict the owner from stopping him taking advantage of the profit à prendre.
It is important, for reasons I have already given, that the nature and extent of what is granted, if it is an interest in land, be readily ascertained. In the deserted wives' case, National Provincial Bank v Ainsworth [1965] AC 1175 at 1247 to 1248 Lord Wilberforce said:
Before a right or an interest in land can be admitted into the category of property, or of a right affecting property, it must be definable, identifiable by third parties, capable in its nature of assumption by third parties and have some degree of permanent source of stability.
That passage was approved by Santow JA, with whom Mason P and Beazley JA agreed in Clos Farming Estate Pty Limited v Easton [2002] NSWSC 389; (2002) 11 BPR 20,605.
Mr Baird tried very hard to answer the question as to what was the equitable interest in property conferred by the share farming agreement. Unfortunately, he, of necessity, had to resort to repeating what was in the 'agreement' and really failed to identify the quantum of the interest. I do not blame him. It was an impossible task.
In Myola Enterprises Pty Limited v Pearlman [1993] ACL Rep [355 NSW 32] BC9303625 Bryson J had to consider a caveat involving a share farming agreement. His Honour said:
If it were to be supposed that the document was intended to create an interest in land, it is not possible to say what that interest is. A departure from the statement that what it creates is a licence is a departure from the terms and also from its true meaning and effect.
However, it is well established that a contractual licence given for value and coupled with a grant of an interest such as (to take the only possible relevant example) a profit a prendre is itself an equitable interest in land, capable of being protected by equitable remedies and of supporting a caveat. The licence created by the deed of licence is not coupled with a profit a prendre, or any other grant, legal or equitable, of an interest known to the law. The rights to grow crops, or rather the duty to grow crops imposed on a defendant by the deed of licence is not a profit a prendre.
Produce of the soil grown in annual or other recurring cycle as crops is not a subject of a profit a prendre.
His Honour then refers, as authority, to the decision of Powell J in Corporate Affairs Commissioner v ASC Timber Pty Limited (1989) 18 NSW 577 at 586 to 592 and my decision in Permanent Trustee Limited v Shand (1992) 27 NSWLR 426 at 434 to 5. Both these cases were later approved by the Court in appeal in the Clos Farming Estate case. It does not seem to me that a grant of an interest as such as helps the plaintiff in any way because, as I say, the interest is not a profit and the interest is unspecified. What then about the continued reference in clauses 19 and 24 of the share farming agreement that it is intended that the share farmers have an interest in the land?
The problem with that submission is that one cannot generally create a right merely by saying in a contract that the right exists. It may operate by way of an estoppel between the parties, but that could be the furthest it went. Mr Baird rightly conceded that we are not in the same territory as cases on equitable mortgages such as Troncone v Aliperti (1994) 6 BPR 13,291, where a contract right to caveat to protect a loan was held capable of being construed as an equitable mortgage.
The submission runs contrary to the authorities that are collected in Lewison and Hughes, the Interpretation of Contracts in Australia (Law Book Company 2012); see paragraph 9.07 which is headed 'False Labels'. As Lord Denning said in Massey v Crown Life Insurance Co [1978] 1 WLR 676 - 679, applied by the Privy Council in an appeal from New South Wales in Narich Pty Limited v The Commissioner of Payroll Tax (1983) 2 NSWLR 5,970,601: 'The parties cannot alter the truth of that relationship by putting a different label on it,' or, as counsel put in this case, a hen is a hen even if the contract says a hen is a duck. In my view, clause 24 of the shareholding agreement gets into this territory. The whole document shows that there is no interest in land and cannot be converted into an interest in land that at least binds a person other than the contracting parties merely because that statement is made in the document.
Mr Assaf also put two other attacks on the share farming agreement. First, that there are three share farmers noted in the agreement but only one of them is the plaintiff. As the document does not indicate whether the share farmers hold jointly or severally, it is presumed that they hold jointly; see Glanville Williams on Joint Obligations (Butterworths 1949) page 35, which sets out the general rule and the authorities. However, as a general rule, any one joint owner can deal with a joint estate; see, for instance, the cases where a husband and wife are joint tenants of a lease. The wife leaves the house and, on leaving the property, validly surrenders her lease; see Loveridge v Lambeth London Borough Council [2014] 1 WLR 4516; [2015] 1 All ER 513.
The second argument is that the share farming agreement should have been stamped. It was not and, accordingly, until it is stamped it does not give rise to any rights that can be enforced in a Court. There is really insufficient material for me at the moment to work out whether it should have been stamped. I think at this point this took Mr Baird by surprise and as I do not need to decide it I do not. Accordingly, whichever way one looks at it, the caveat is bad both as to form and substance. The party is not an owner of an interest in land and the caveat does not sufficiently describe the alleged interest.
I now pass to the question of balance of convenience, though strictly speaking it is irrelevant in view of my earlier finding. Mr Baird says that unless the caveat is maintained the second defendant will become registered and will indefeasibly prevail over any interest on the land held by the plaintiff and that is almost certainly the case. There is evidence that the second defendant has paid the purchase price to the mortgagee and the second defendant does make a claim that its indefeasibility has been obtained through section 43A of the Real Property Act. Mr Baird disputes that proposition. He says the second defendant took with notice and that, in any event, the plaintiff is a farmer protected by the Farm Debt Mediation Act 1987 and that Act, pro tanto, prevails section 43A of the Real Property Act.
The response to that is that it is disputed the plaintiff is a farmer or that there was notice before payment of the purchase price or that the Farm Debt Mediation Act trumps section 43A. On this last point, there is no authority one way or the other. I cannot resolve this on the material at this stage. I must just treat Mr Baird's submissions as possible questions which may come down in his favour.
The plaintiff also offers some security against the defendant's damages if the caveat remains until 7 July, but the land covered by the caveat is very valuable. The purchaser evidently paid many millions of dollars for it and is virtually frozen whilst the caveat remains. Mr Baird says that the extension being asked for is only for a relatively short time to 7 July and he offers some security. In view of the financial positions of the plaintiff and the group of companies in which it is situated, the security is only I think about $30,000 in the short term and it is doubtful whether it can be extended, and a problem involved in granting a short extension of a caveat is that once a Court has extended it people tend to then gradually extend and extend until they are ready to run the final suit and that might take some months.
Mr Baird also in written submissions this morning placed some reliance on the effect of the Agricultural Tenancy Act 1990. He said that one must remember that Dudgeon v Chie was decided when the 1941 Act was in force. However, in view of the consideration that Bryson J gave to this point in Salienta v Clancy [1999] NSWSC 916 at paragraphs 106 and following, I do not consider that this assists.
Mr Baird also puts that in any event equity can grant an injunction and perhaps extend the caveat on this ground on the basis that there is a contractual licence and not an interest in property. Now it is true that there are cases where equity will protect a licence by injunction. A typical one is Alonso v Leichhardt Municipal Council [1975] 1 BPR 9,368 where a Town Hall was agreed to be licensed to a group of people and then the Council purported to revoke the licence. A whole lot of people had been invited to the meeting to be held, and Helsham J granted an injunction because it was unjust that the council should change its mind in that way and so prejudice so many people. There are other cases in similar circumstances, but that is not this case and, whilst it may be that one grants an injunction if a caveat is just lapsed and there is no real fault for the caveator in delaying in approaching the Court, that does not seem to be a problem in the instant case. It should really be decided on whether the caveat should be extended or not.
There is no application in the instant case to file any fresh caveat under section 74O of the Real Property Act and that is understandable, as if there is no interest in land there is no right to caveat under section 74F.
I do not accordingly find that there is any interest in land that could be caveated and that indeed I would not consider that the plaintiff has established in the whole of the circumstances the balance of convenience favours retaining the caveat.
Thus, the caveat will expire at 11.59 tonight and the applicant must pay the costs of this application.
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Decision last updated: 10 June 2015