Karen Jane Gerard v Michael Bruno Joseph Jacquin

Judgment 1The plaintiff, Karen Jane Gerard, seeks orders under Real Property Act , s 74F(2) extending the operation of a caveat over property in Wattle Grove New South Wales. The matter came on urgently in the duty list on Wednesday, 3 August 2011 and was returned before the Court on 5 August 2011 after service in accordance with the Court's orders. The Court made orders that day granting the plaintiff the relief that she sought. Due to the press of business in the duty list on 5 August 2011, I indicated that my reasons would be published later. These are those reasons. 2The plaintiff, Karen Jane Gerard and the defendant, Michael Bruno Joseph Jacquin lived together in a domestic relationship for a number of years and have several children together. During their relationship they became joint registered proprietors as tenants in common of an investment property in Wattle Grove, the property which is the subject of the caveat. Mr Jacquin is recorded in the First Schedule of the property's Folio Identifier as having a nine tenths share and Ms Gerard a one tenth share. 3To help protect the parties against the possibility of identity theft the address and title details of the Wattle Grove property are not published in this judgment. If such information is required by persons entitled to it, then it may be sought from the Court file. 4These caveat proceedings arise out of a property settlement which concluded proceedings brought in the District Court in Sydney for the adjustment of the couple's property interests under Property (Relationships) Act 1984. The settlement took place as long ago as 9 August 2006 and give rise to Ms Gerard's claimed caveatable interest in the property. Mr Jacquin was the defendant and Ms Gerard the plaintiff in the District Court proceedings. Relevant parts of that settlement are reproduced below and show that Ms Gerard contracted to receive a sum of money in exchange for transferring to Mr Jacquin her interest in two properties, one of which was the Wattle Grove property:- "1. Within 90 days of the date hereof the Defendant pay to the Plaintiff the sum of $28,000.00 ("the payment"). 2. The Plaintiff at the direction of the Defendant do all such acts and things and sign all such documents provided by the Defendant as is required to transfer to the Defendant or his nominee all of her right, title and interest in and to the real properties situate of and known as: 2.1 [a property in Potts Point - address not published] 2.2 [the Wattle Grove property - address not published] 3. The Plaintiff do all such acts and things and sign all such documents to authorise her solicitors to hold the signed transfer until such time as the Defendant pays the payment by way of cleared funds to those solicitors at which time the said solicitors shall be authorised to hand over the signed transfers in exchange for the payment. 4. The Defendant indemnify and keep the Plaintiff indemnified in relation to all liabilities relating to the properties referred to in Order 2.1 and 2.2, including but not limited to all mortgage payments, rates, water body corp fees and any liability for capital gains tax or tax relating to the rental income derived in respect of the said properties." 5The evidence supports Ms Gerard's contention that she has signed all the documents necessary to transfer her interest in the Wattle Grove property to Mr Jacquin in conformity with these settlement terms. On 19 October 2006 her solicitor, Mr Michael Brown, forwarded an executed transfer of her interest in the Wattle Grove property to Mr Jacquin stating in the letter "I look forward to receiving confirmation as to when settlement is to take place". Mr Jacquin has paid Ms Gerard the $28,000 provided for in the settlement contract. 6The Wattle Grove property is, and was in August 2006, subject to a mortgage to St George Bank. Ms Gerard is a joint mortgagor with Mr Jacquin to the bank. On Ms Gerard's behalf on 11 October 2006 Mr Brown also forwarded to Mr Jacquin a discharge of the St George mortgage together with an authorisation for the St George Bank to release the certificate of title for the Wattle Grove property to Mr Jacquin upon discharge of the mortgage. Despite her providing both the signed memorandum of transfer and the signed discharge of mortgage Ms Gerard remains as one of the two registered proprietors of the Wattle Grove property and is still liable to the bank on the St George mortgage. 7From time to time between 2006 and the present day St George Bank officers have contacted Ms Gerard about defaults on the mortgage. St George Bank has also sent her written notices of arrears in payments. She has telephoned the bank on several occasions and requested that her name be taken off the mortgage. Unsurprisingly she says that on each occasion the St George Bank officer declined her request, saying "no, the mortgage needs to be discharged". On several occasions Ms Gerard's solicitor, Mr Brown has formally requested Mr Jacquin to discharge the mortgage but he has not responded. 8Ms Gerard and Mr Jacquin were also parties to contested parenting proceedings before the Family Court of Australia, in which parenting orders were made, after a defended hearing on 29 April 2010. On 25 March 2011 the Family Court ordered Mr Jacquin to pay Ms Gerard's legal costs of those proceedings, which are in excess of $100,000. The Wattle Grove property is said to be a tenanted investment property from which the defendant receives rental income. 9This situation creates three immediate difficulties for Ms Gerard. First, she has attempted to borrow money from St George Bank to pay her legal fees in the Family Court parenting proceedings. Her application has been refused in part because she has been advised that she has an outstanding liability in relation to the St George mortgage, even though she is indemnified in respect of that liability. Secondly, she is concerned that Mr Jacquin may yet deal with the Wattle Grove property contrary to her interests. Thirdly, she is still liable on the St George mortgage even though she has provided Mr Jacquin with a signed memorandum of transfer. 10To protect her interests in the property on 9 November 2010 Ms Gerard lodged a caveat claiming the following estate or interest in the land:- "Schedule 1 - Estate or interest claimed Nature of the estate or interest in the land An equitable interest in the land based upon the caveator's interest in the subject land as security for mortgage 8683211 in which the caveator is a mortgagor, and the indemnity in relation to the liability secured by then said mortgage provided to the caveator by the registered proprietor pursuant to orders of the District Court of NSW of 9 August 2006." 11The facts stated in Schedule 1 to the caveat said to support this estate or interest in the land were:- "By virtue of the facts stated below: An equitable interest in the land based upon the caveator's interest in the subject land as security for mortgage 8683211 in which the caveator is a mortgagor, and the indemnity in relation to the liability secured by then (sic) said mortgage provided to the caveator by the registered proprietor pursuant to orders of the District Court of NSW of 9 August 2006." 12On 19 July 2011 the Registrar General issued Ms Gerard a notice to caveator of the proposed lapsing of the caveat under Real Property Act , s 74J. Ms Gerard approached the Court within the 21 day period allowed by the lapsing notice. The matter first came to the duty list on 3 August 2011 when directions were made for filing of the Summons and Ms Gerard's affidavit of 3 August 2011 and the abridging time for service to 12 noon the following day, 4 August 2011. The proceedings were then made returnable before the Court on 5 August 2011. 13Mr Jacquin did not appear and the Court proceeded in his absence. I am mindful that the facts recorded in these reasons are only based on evidence from Ms Gerard, which Mr Jacquin has not as yet had an opportunity to contest. But it is open to Mr Jacquin to contest those facts at a final hearing and to dispute the continuation of interlocutory relief when the matter is next before the Court. In my view the plaintiff has demonstrated that she has a caveatable interest and I therefore will extend the caveat. 14This is an unusual case. Ms Gerard has received the purchase money of $28,000 under the August 2006 settlement agreement and provided a signed transfer and discharge of mortgage. But she has remained on title for five years. An arguable analysis of this situation is that: Ms Gerard has contracted to sell her interest in the Wattle Grove property but received only part of the purchase price, namely the cash consideration of $28,000; the rest of the purchase price is the money, if any, that may be payable under the clause 4 indemnity in the settlement contract, in the event that Mr Jacquin defaults in the future to St George Bank. 15The existence of an equitable lien (as unpaid vendor under the settlement contract) is at least arguable in these circumstances. To extend the caveat the Court need only be satisfied that the caveator's claim "has or may have substance" before making an order extending the operation of the caveat: Real Property Act 1900, s 74K(2). This provision has been described as "not a very demanding test": Dowdle v Inverell Shire Council (1999) ANZ ConvR 429 at 430. The test may be satisfied if a caveator can show that there is an arguable case for final relief even though establishing that claim may not be without its own difficulties: Queanbeyan Leagues Club Ltd v Poldune Pty Ltd (1996) 7 BPR 15,078. 16A vendor's lien can exist over land under the Torrens system but may be defeated by the operation of the indefeasibility provisions of that act: Reliance Finance Corporation Pty Ltd v Heid (1982) 1 NSWLR 466 and see also on appeal (1984) 154 CLR 326. The New South Wales Court of Appeal stated the applicable law in relation to vendor's liens in Reliance Finance Corporation Pty Ltd v Heid (1982) 1 NSWLR 466, at 478D-E:- "The correct view would seem to be that in theory the lien may arise when an enforceable contract is entered into, but that the nature of the remedies available to the vendor as a result of the lien varies depending upon the extent to which the contract has been performed. However, even though it may arise earlier, it certainly arises or exists when completion has taken place and part of the purchase price has not been paid, unless a contrary intention appears. A contrary intention may appear where the contract provides for the satisfaction of the purchase price by some means other than payment on completion.." 17Here completion has taken place in that Ms Gerard has done all that the settlement contract requires of her for completion. But it is arguable that "part of the purchase price has not been paid", as Ms Gerard bargained under the settlement contract to receive $28,000 and the benefit of the clause 4 indemnity, in exchange for her signed transfer and discharge of mortgage. 18The unusual aspect of this case is that the unpaid consideration is not an existing indebtedness but only a potential indebtedness should Ms Gerard have to call on the indemnity. The indemnity may never be called on, if Mr Jacquin does not go into serious and continuing default on the mortgage. But the extent of vendors' equitable liens may arguably be wide enough to protect the benefit that Ms Gerard expects to receive under the indemnity. 19Vendors liens have, for example, been held to arise where a purchaser fails to perform acts, which the purchaser as an obligation to perform as part of the consideration for the sale: Uziull v Hamilton-Keen (1971) 22 B&CR 655. Also in Hewitt v Court (1983) 49 CLR 639 at 663 and 668 (per Deane J) the High Court explained that vendors' liens may embrace not only actual but potential rights of a vendor:- " Generally speaking, the established examples of equitable lien are between parties in a contractual or quasi-contractual relationship. The best known are the liens which equity recognizes as arising to secure the actual or potential rights of a vendor and purchaser under a contract for the sale of real estate to payment of the balance of purchase price (vendor's lien) or to repayment of instalments of purchase price (purchaser's lien): see, generally, Rose v Watson (1864) 10 HL Cas 672and 683-4 (11 ER 1187 at 1191 and 1192); Middleton v Magnay (1864) 2 H & M 233(71 ER 452 at 453). If, under such a contract, the property has passed and the whole or part of the purchase price remains unpaid, the vendor will, in the absence of express or implied agreement to the contrary, enjoy the benefit of an equitable lien over the land sold to secure the payment to him of the unpaid purchase price. If the property has not passed to the purchaser and the purchaser has paid the whole or part of the purchase price, the purchaser will, in the absence of express or implied agreement to the contrary, enjoy the benefit of an equitable lien over the subject land to secure the repayment to him of any part of the purchase price which may become repayable to him upon default by the vendor in the performance of the contract." 20It is arguable that Mr Jacquin's potential indebtedness to Ms Gerard under the indemnity may properly be the subject of an equitable lien for her benefit as vendor under the settlement contract. This is so notwithstanding that were there a default and were she actually to pay out St George Bank that she would become subrogated to the bank's security rights under the St George mortgage against Mr Jacquin's interest in the property. It is arguable in my view that equity protects the position of the partly paid vendor before any future purchaser's default and before any rights of subrogation arise. 21Ms Gerard's claim is one which should be pleaded. I will direct that it be pleaded within 21 days. The summons is currently deficient in that it does not make a claim for final relief. It should be amended to claim as final relief the interest for which Ms Gerard contends. 22The current state of affairs between Mr Jacquin and Ms Gerard concerning the Wattle Grove property is unsatisfactory. Her capacity to access credit is diminished because of her nominal liability to St George Bank. She is exposed to the risk of Mr Jacquin's future default. An action for specific performance of the contract on her part may be of little value when the principal obstacle to removing her from the title is Mr Jacquin's outstanding liability to St George Bank. The settlement contract does not give her a specific right to require him to discharge that liability by a particular date. Why that was not built into the terms of the settlement contract is unclear on the evidence but there may have been good commercial reasons for it. 23The situation may be equally unsatisfactory to Mr Jacquin. It would be more difficult for him to hold out to others that he is the beneficial owner of the Wattle Grove property in circumstances where at least nominally he shares ownership with Ms Gerard. 24This situation may be one in which either party may wish to make use of the statutory powers of sale available under Conveyancing Act 1919, s 66G. In saying this I am mindful that the Court is presently unaware of all the relevant circumstances which would affect whether a Conveyancing Act , s 66G order would, if sought, be made in this case. This would be an unusual use of the section, as Mr Jacquin in equity would prima facie be entitled to all the net proceeds of sale. But the exercise of the power would result in the St George mortgage being paid out. 25Conveyancing Act , s 66G provides that any co-owner of property may apply to the Court for the property to be sold and the proceeds distributed; and except in very special cases a co-owner is entitled to an order under this section as a right: Stephens v Debney (1960) SR (NSW) 468. But there may be circumstances in which an order may be refused. As Needham J explained, in Ngatoav Ford (1990) 19 NSWLR 72 the language of the section confers a limited discretion on the Court to decline the sale. 26In the result therefore the Court will make the following orders:-