KPE Superannuation Fund Pty Limited v Two Tempe Holdings Pty Ltd; KPE Superannuation Fund Pty Limited v QRM Holdings Pty Ltd

First KPE Caveat

1. I have concluded that there should be an order for the removal of the first KPE caveat under s 74MA for two reasons. First, as a consequence of the Judgment, KPE cannot establish an entitlement to the interest claimed in that caveat under the 2020 Deed: Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [77].
2. Second, the first caveat is defective because on any view as to the effect of the 2020 Deed, KPE did not have a caveatable interest in respect of the charge referred to in the 2020 Deed at the time the first caveat was lodged, which was on 9 June 2020 (Ex A, p 11): Judgment at [34]-[35]. Hence, even if the conclusion I reached in the Judgment that the 2020 Deed is not binding is wrong, it is clear from the evidence before me in the 2020 proceedings (and was not in dispute) that Mr Quinn did not sign the Deed until 10 June 2020. Consequently, the caveatable interest claimed in the first KPE caveat did not exist at the time that caveat was lodged on 9 June 2020 and it is therefore invalid: B Edgeworth, Butt's Land Law (7th ed, 2017, Law Book Co) at [12.990]; Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49 at [104].
3. KPE asked the Court to grant a stay of any order to remove the first KPE caveat until the expiry of the appeal period on 23 December 2022 to preserve the status quo, relying on the principles set out in Sydney Attractions Group Pty Ltd v Schulman (No 4) [2013] NSWSC 1728. However, in light of the conclusion reached in the previous paragraph, a stay would have no utility and I decline to grant it.
4. In what follows, I will address only the second KPE caveat.

Interest claimed in the second KPE caveat

1. As noted above, the second KPE caveat was lodged in the afternoon of 25 November 2022. It claims an interest identified as follows: ESTATE OR INTEREST CLAIMED Charge By virtue of: Agreement Dated: 10/10/2019 Between KPE SUPERANNUATION FUND PTY LIMITED And SIMON JOHN QUINN Details Supporting The Claim: By clause 6.3(a) of the Unitholders Agreement dated 10 October 2019, the Registered Proprietor granted a charge in favour of the Caveator over the land to secure repayment of a loan advanced by the Caveator under the terms of that agreement.
2. The relevant factual background is set out in the Judgment at [5]-[73]. In summary KPE became a unitholder in the QRM Unit Trust in October 2019. The Trustee, QRM Holdings Pty Ltd (Trustee) had previously entered into a contract to purchase a property at Tempe, New South Wales. The date for completion of the contract was 12 June 2020, but completion did not occur and the vendor rescinded the contract. The charge claimed in the second KPE caveat relates to a unitholder loan made by KPE to the Trustee and arises under cl 6.3(a) of the Unitholders Agreement, referred to in the Judgment at [9], which provides as follows: 6.3 Security for Unitholder Loan (a) The director of Two Tempe Holdings Pty Ltd has agreed to provide security to [KPE] in respect of the Unitholder Loan on and subject to the following terms: (i) the property to be used as security for the Unitholder Loan is [the Jindabyne property] and owned by Mr Simon John Quinn (the Secured Property). (ii) Simon John Quinn grants to [KPE] a charge over the Secured Property, thereby creating a caveatable interest in the Secured Property in favour of [KPE]. (iii) [KPE] or its nominee shall have the right to lodge a caveat in respect of the Secured Property as security for the Unitholder Loan from the date of this Agreement up to the time that a Heads of Agreement is entered into in respect of the Property with a Total Tools entity (or similar) to the reasonable satisfaction of [KPE]. (iv) If [KPE] registers a caveat it must: (A) consent to any dealing relating to the Secured Property which is not inconsistent with the [KPE's] rights under this deed; (B) not prevent or delay registration of any dealing referred to in clause 6.3(a)(iv)(A); and (C) withdraw the caveat within 5 business days from the date that a Heads of Agreement is entered into in respect of the Property with a Total Tools entity (or similar) to the reasonable satisfaction of [KPE]. (v) Simon John Quinn may not: (A) object to the registration or existence of the caveat; or (B) prior to the date that a Heads of Agreement is entered into in respect of the Property with a Total Tools entity (or similar) to the reasonable satisfaction of [KPE], seek to have the caveat removed and will not take any action to have the caveat removed from the title to the Property.
3. It is not in dispute that in the period from 14 October 2019 to 31 January 2020, KPE advanced a unitholder loan of approximately $1.1m to the Trustee, pursuant to the Unitholders Agreement: Judgment at [9(c)]. Under cl 6.3(a)(ii), Mr Quinn granted to KPE an equitable charge over the Jindabyne property to secure the repayment by the Trustee of KPE's unitholder loan. Under cl 6.3(a)(iii), KPE is permitted to lodge a caveat in respect of the Jindabyne property from the date of the Agreement (10 October 2019) up to the date when "a Heads of Agreement is entered into in respect of the Tempe property with a Total Tools entity (or similar) to the reasonable satisfaction of KPE". Under cl 6.3(a)(iv), if a caveat is lodged then it must be withdrawn within 5 business days of such a heads of agreement being entered into. Under cl 6.3(a)(v), Mr Quinn agreed not to object to the registration or existence of the caveat or, prior to the date such a heads of agreement was entered into, seek to have it removed.
4. The parties are in dispute as to whether a heads of agreement was ever entered into in respect of the Tempe property "with a Total Tools entity (or similar) to the reasonable satisfaction of KPE". Mr Quinn gave evidence that at the time the Unitholders Agreement was entered into in October 2019 he was negotiating with Total Tools, a hardware and tools retailer, to lease part of the Tempe property once it was redeveloped. No heads of agreement was entered into with Total Tools, but a heads of agreement was entered into with at least one other entity, Ideal Spaces Pty Ltd, for at least part of the Tempe property. The evidence was inconclusive as to whether any heads of agreement with other potential lessees were entered into although Mr Quinn's evidence was that there were four in total, entered into in respect of different parts of the Tempe property. Mr Quinn gave evidence of discussions with Mr Ellems (representing KPE) regarding various leasing proposals for the Tempe property in the period from November 2019 to May 2020, which included various emails he sent to Mr Ellems to which heads of agreement were attached. Mr Quinn's evidence was that Mr Ellems agreed that the heads of agreement were satisfactory. Mr Ellems denied that those conversations occurred. Neither Mr Quinn nor Mr Ellems was cross-examined. It is clear that there is a factual dispute as to whether the requirement for a heads of agreement in respect of the Tempe property to be entered into with a "Total Tools (entity or similar) to the reasonable satisfaction of KPE" was satisfied, and it is not possible on this interlocutory application to resolve that factual dispute.

The 2022 proceedings

1. There is a dispute between the parties as to whether any amount is owing by the Trustee to KPE in respect of KPE's unitholder loan and hence whether any amount is secured by the charge under cl 6.3(a)(ii) of the Unitholders Agreement. At a hearing before Slattery J on 12 April 2022, KPE was refused leave to amend its Statement of Claim in the 2020 proceedings to include the allegation that the Trustee was liable to repay the unitholder loan in the amount claimed of approximately $1.1m. However, his Honour gave KPE leave to file separate proceedings, noting the undertaking of the Trustee and Mr Quinn that they would not take any point arising under the principles stated in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; [1981] HCA 45. KPE then filed a Statement of Claim on 14 April 2022 to commence the 2022 proceedings, seeking judgment against the Trustee (the first defendant) for a debt of $1.1m pursuant to the Unitholder Agreement, plus interest, a declaration of an equitable charge to secure the debt and orders for judicial sale of the Jindabyne property.
2. Two Tempe and Mr Quinn are yet to file a Defence in the 2022 proceedings. KPE undertook not to seek default judgment without giving 7 days' notice.
3. Although a Defence has not been filed by the Trustee or Mr Quinn in the 2022 proceedings, it is clear (both from Mr Quinn's evidence and the draft defence in evidence) that Mr Quinn and the Trustee dispute that the Trustee is indebted to KPE and that KPE is entitled to lodge a caveat over the Jindabyne property in relation to the alleged indebtedness to KPE. The Trustee also intends to file a cross-claim against KPE in relation to its failure to provide its share of the funds for the completion of the purchase of the Tempe property which was the subject of the joint venture referred to in the Unitholders Agreement. The damages claimed will exceed the amount of $1.1m advanced by KPE as the unitholder loan. In addition, Mr Quinn disputes that KPE has an entitlement to lodge a caveat over the Jindabyne property under cl 6.3(a)(iii) on the basis referred to at [11] above.

Competing security interests in the Jindabyne property

1. The title search for the Jindabyne property in evidence disclosed that (as at 6 December 2022) there are a number of competing security interests in respect of the Jindabyne property: 1. A registered mortgage to AFSH Nominees Pty Ltd. The amount outstanding under this mortgage (which takes priority over all the other security interests) is approximately $467,347.47. 2. A caveat lodged by Australian Secure Capital Fund on 23 August 2022 under which the interest claimed is a charge by virtue of an agreement dated 21 July 2021 between Australian Secure Capital Fund and Mr Quinn. 3. A caveat lodged by GI 417 Pty Ltd (GI 417) on 22 November 2022 claiming an interest under a charge by virtue of an agreement between GI 417 and Mr Quinn identified as including a facility summary dated 3 August 2022 and a registered memorandum of common provisions.
2. The two caveats referred to above were both lodged before the second KPE caveat. It is necessary to set out briefly some relevant facts regarding these two prior caveats.
3. On around 21 July 2021, Certane CT Pty Ltd (Certane) (as custodian for the Australian Secure Capital Fund) as lender and Diamond Constructions Pty Ltd (as trustee for the Tullimbar Unit Trust) entered into a loan agreement for a facility of $5.4m for the purpose of facilitating the purchase of land at Tullimbar, New South Wales. Mr Quinn (who was the sole director of Diamond Constructions Pty Ltd) gave a guarantee to Certane secured by charge given by him over all his assets, including the Jindabyne property. Diamond Constructions Pty Ltd drew down under this facility in August 2021. The term of the facility expired on 5 September 2022, with the result that the debt became due and payable by Diamond Constructions Pty Ltd on or around that date.
4. On 22 August 2022, Tullimbar Village Pty Ltd purportedly replaced Diamond Constructions Pty Ltd as the trustee of the Tullimbar Unit Trust.
5. On 23 August 2022, as noted above, Certane lodged a caveat on the Jindabyne property. The amount outstanding under the Certane facility is at least $5,567,069.
6. On or about 15 September 2022, Tullimbar Village Pty Ltd (as trustee of the Tullimbar Unit Trust) entered into a loan facility agreement with PrivateInvest Capital Securities Ltd (PrivateInvest) for a loan facility in an amount equal to the lesser of $28.25m and 65% of the latest value of the Tullimbar property, to refinance the Certane facility and fund the development of the property. No moneys have been advanced by PrivateInvest. The evidence does not reveal clearly why that is so, but there is a suggestion that it is due to the inability of PrivateInvest to secure funding for the facility.
7. In September 2022, due to the difficulty obtaining funds from PrivateInvest, Mr Quinn engaged Vanguard Capital Finance Pty Ltd (Vanguard), a finance broker, to assist with obtaining a loan to refinance the Certane facility. Vanguard identified two potential lenders for the refinancing, Hastings Capital Australia Pty Ltd (Hastings) and Fincore Pty Ltd (Fincore).
8. On 28 October 2022, Certane appointed a receiver to the assets of Diamond Constructions Pty Ltd and Mr Quinn, among others.
9. On 9 November 2022, Hastings' solicitors sent to Mr Quinn's solicitors a letter setting out the requirements for Hastings to provide a facility of $2.636m to Tullimbar Village Pty Ltd to refinance the Certane facility. The proposed security included a registered mortgage from Mr Quinn over the Jindabyne property (Ex A, p 252). On the next day, Hastings' solicitors sent a letter to Mr Quinn's solicitors with a conditions precedent checklist which included as one of the conditions precedent the withdrawal of KPE's first caveat (Ex A, p 339).
10. On 10 November 2022, Fincore's solicitors sent a letter to Mr Quinn's solicitors setting out the terms on which Fincore would be prepared to make a loan to, among others, Tullimbar Village Pty Ltd of $4.337m for the purpose of refinancing the Certane facility. The letter states that it is a condition precedent to settlement that Fincore holds a first ranking security interest over all present and after acquired property of Tullimbar Village Pty Ltd, Diamond Constructions Pty Ltd and Mr Quinn (Ex A, p 332).
11. The draft agreements provided by Fincore include a Deed of Guarantee and Indemnity for execution by Mr Quinn which provides in cl 8.2 that Mr Quinn will register charges in favour of the lender over all of his interest in any freehold land to secure the performance of his obligations under the Deed and permits the lender to lodge a caveat over any land that he has an interest in. I infer from this and the identification of the security in Schedule B to the Loan Deed (which does not identify Mr Quinn as being required to provide a registered real property mortgage) that the requirement of Fincore is that Mr Quinn provide a first ranking charge over his interest in the Jindabyne property which is to be protected by a caveat lodged by Fincore.
12. There is evidence that Vanguard informed Mr Quinn on 3 November 2022 that the first KPE caveat needed to be withdrawn before Vanguard would be able to find lenders to refinance the Certane facility.
13. On 3 November 2022, Vanguard informed Mr Quinn that Hastings is no longer willing to participate in the refinancing of the Certane facility, but Vanguard has identified another lender to replace Hastings. Mr Quinn has been informed by Vanguard that this other lender has also requested that the second KPE caveat be removed. As Mr Hewitt SC submitted on behalf of Mr Quinn, there is no reason to think that any new lender or lenders proposing to refinance the Certane facility (including the replacement for Hastings) will take a different position in relation to the second KPE caveat than to the first.
14. The Certane caveat, GI 417 caveat and second KPE caveat all relate to equitable charges which confer equitable interests in the land which are unregistered. The general principle is that the priority between competing equitable interests is that where the merits are equal the earlier in time prevails over the later: IWC Industries Pty Ltd v Sergienko [2021] NSWCA 292; 20 BPR 41,785 at [63]; Barlin Investments Ltd v Westpac Banking Corporation (2012) [2012] NSWSC 699; 16 BPR 30,671 at [31].
15. It is also well established that the mere failure of the holder of a prior equitable interest in land to lodge a caveat does not of itself constitute disentitling conduct but is rather one of the circumstances to be considered in combination with others in determining whether it is inequitable that the prior equitable holder should retain his or her priority: IWC Industries at [118]; Double Bay Newspapers Pty Ltd v AW Holdings Pty Ltd (1996) 42 NSWLR 409 at 423.
16. Whether KPE has lost its priority over the Certane charge and the GI 417 charge through its delay in lodging the second KPE caveat is not a matter which can be determined in this interlocutory proceeding because it would depend at least in part on whether Certane or GI 417 searched the register for the Jindabyne property and acted in reliance on the apparent absence of any interest of KPE under the charge contained in cl 6.3(a) of the Unitholders Agreement. I note in this regard that the first KPE caveat identified a charge under a different instrument and would not, on its face, put either Certane or GI 417 on notice of the existence of the charge relied upon under the second KPE caveat. The delay on the part of KPE in lodging the second KPE caveat means that KPE's priority over the two later charges is not clear, and is relevant to the consideration of where the balance of convenience lies, as discussed below.

Urgency

1. Mr Quinn has an urgent need to refinance the Certane loan facility which is due and payable by Diamond Constructions Pty Ltd. Mr Quinn has guaranteed the obligations of Diamond Constructions Pty Ltd. Certane appointed a receiver over the assets of Diamond Constructions Pty Ltd and Mr Quinn without notice on 28 October 2022. Mr Quinn commenced Supreme Court proceedings No. 2022/335936 and on 16 November 2022 undertakings were provided to the Court which, in effect, gave Mr Quinn an opportunity until 9:00am on 29 November 2022 to refinance the Certane facility. Certane provided an undertaking not to reappoint a receiver and manager to the assets of Mr Quinn or Diamond Constructions Pty Ltd until that time.
2. On 28 November 2022, orders were made in Supreme Court proceedings No. 2022/335936 which included, among other things: 1. An undertaking from Certane not to appoint a receiver and manager to the assets of Mr Quinn, Diamond Constructions Pty Ltd and the Tullimbar Unit Trust until 5:00pm on 17 January 2023; 2. A note of an agreement that if Certane has not been repaid in full by 5:00pm on 17 January 2023, Certane is entitled to appoint a receiver and manager over the assets and undertakings of Diamond Constructions Pty Ltd and Mr Quinn without further notice.
3. Mr Quinn gave evidence that he is seeking to refinance the Certane facility by the deadline of 17 January 2023. As noted above, Mr Quinn was informed by his finance broker, Vanguard, that Hastings may no longer be willing to participate in the refinancing of the Certane facility, but has also been informed by Vanguard that another potential lender has also requested that the second KPE caveat be removed for the purposes of any such refinancing

Undertakings proffered by Mr Quinn

1. Mr Quinn (on his own behalf and on behalf of companies he controls) indicated a preparedness to give the following undertakings, if necessary, in relation to the orders he is seeking for the removal of the second KPE caveat: 1. First, the usual undertaking as to damages within the meaning of rule 25.8 of the Uniform Civil Procedure Rules 2005 (NSW) for any damages flowing from the making of orders pursuant to section 74MA of the Real Property Act 1900 (NSW) for the withdrawal of caveat AS664987 (the Damages Undertaking): see Affidavit of Simon Quinn dated 28 November 2022 (Quinn 2) at [38(a)]. 2. Secondly, on and from 14 December 2022, an undertaking on behalf of Redzel Consulting Pty Ltd to grant a charge over Lot 102 in DP 1283494 (the Warners Bay Property), with the consent of Private Invest Capital Securities Ltd, to secure the Damages Undertaking referred to in 1 above, on the basis that KPE may lodge a caveat on the title to the Warners Bay Property. 3. Thirdly, upon the refinancing of the loan from GI 417 Pty Ltd and the cessation of the appointment of the receiver appointed by GI 417 Pty Ltd (but not before 14 December 2022), an undertaking to cause the registered proprietor of the property at Level 7, 301 Castlereagh Street, Sydney NSW 2000 (being Lots 45, 46, 47, 48, 49 and 50 in Strata Plan 40301) (301 Castlereagh Street) to grant a charge over its interest in 301 Castlereagh Street to secure the Damages Undertaking referred to in 1 above, on the basis that KPE may lodge a caveat on the title of 301 Castlereagh Street. 4. Fourthly, an undertaking not to encumber [the Jindabyne Property] any further, except in connection with the refinancing of the loans made by Certane CT Pty Ltd and Australian Secure Capital Fund Ltd (on the basis that this does not entitle KPE to lodge a caveat on the title of the Jindabyne Property). 5. Fifthly, an undertaking to take reasonable steps to seek the removal of caveat AS496031 lodged by Central Real Capital Pty Ltd on the title of 301 Castlereagh Street. 6. Sixthly, an undertaking, upon or in connection with the refinancing of the loan from GI 417 Pty Ltd, to take reasonable steps to seek the removal of caveat AS652450 lodged by GI 417 Pty Ltd on the title of the Jindabyne Property.
2. These undertakings contemplate the provision of security to KPE for Mr Quinn's undertaking as to damages arising from removal of the second KPE caveat. It is necessary to set out the nature of the security offered over two properties, Warners Bay, which is owned by Redzel Consulting Pty Ltd, and 301 Castlereagh Street, which is owned by Offices Castlereagh Pty Ltd.
3. In relation to the Warners Bay property, the position may be summarised as follows: 1. It has recently been valued by the valuer retained by Mr Quinn at $15.38m; 2. It is subject to a mortgage with PrivateInvest securing a facility with a maximum facility amount of the lesser of $9.275m and "an amount in dollars that would result in a LVR that is not greater than 56%"; 3. The further facility to be provided by Fincore contemplates an advance of $4.337m secured by a mortgage over the Warners Bay property and three other properties. While the current value of these other properties was not established by the evidence there is evidence indicating that they are substantial pieces of real estate with a value that is not insignificant.
4. KPE obtained a "desktop valuation" of the Warners Bay property which placed a value on the property of between $5m to $6.3m. However, this valuation is of no assistance to the Court given the qualifications to which it is subject. It is expressed to be "preliminary valuation advice" which "should not be relied upon without further investigation and information". When the total amount secured by the PrivateInvest and Fincore facilities ($13.612m) is subtracted from the valuation tendered by Mr Quinn's valuer ($15.38m) the net surplus is approximately $1.768m. In addition, it is relevant that the Fincore facility will be secured over other substantial real property, not just the Warners Bay property. Hence there is a reasonable basis to conclude that the equity retained by Redzel in the Warners Bay property, even after the Fincore facility is entered into, will exceed the amount owing by the Trustee to KPE in respect of the unitholder loan.
5. In relation to the 301 Castlereagh Street property, there is little dispute as to its current value. Mr Quinn's valuation evidence places its value as at 8 August 2022 at $7.7m. KPE's valuation evidence is that it has a current market value (as at 3 December 2022) of $7.5m. I will assume for present purposes the lower figure of $7.5m is a reasonable estimate of its value.
6. The 301 Castlereagh Street property is currently subject to a mortgage in favour of GI 417, which secures approximately $5.3m. There is also another security over the property securing a loan of $700,000. Mr Quinn has obtained a proposal to refinance the GI 417 facility from a new lender, Palace Funds Pty Ltd for a facility of $5.439m (but limited to 70% of the "as is" value of the property). The property is also subject to a caveat in favour of Central Real Capital Pty Ltd, but Mr Quinn's evidence is that no loan has been made by that entity and hence is prepared to provide an undertaking to take reasonable steps to have the caveat removed.
7. On 6 December 2022, GI 417 appointed a receiver to Offices Castlereagh Pty Ltd and to the 301 Castlereagh Street property. It can be inferred that the receivers will retire once the GI 417 facility is refinanced by Palace Funds Pty Ltd, as is proposed.

Applicable principles

1. The relevant principles to be applied are not in dispute. In determining whether to order removal of a caveat under s 74MA, the matter is to be approached by asking whether an interlocutory injunction would be granted to protect the interest claimed in the caveat, which in turn raises two questions (on both of which the caveator bears the onus): first, whether there is a serious question to be tried concerning the interest claimed in the property that is sought to be protected by the caveat, and second whether the balance of convenience is in favour of maintaining the caveat: Hanson Constructions Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [77]; Abraham v Abraham [2012] NSWSC 254 at [8].
2. A Court will order a withdrawal of a caveat which is indisputably valid where the balance of convenience favours that course: Buchanan v Crown & Gleeson Business Finance Pty Ltd [2006] NSWSC 1465; 13 BPR 24,513 at [8]; Hanson Constructions at [72].
3. It is recognised that a valid caveat can be removed if it prevents the registered proprietor from the legitimate exercise of a right in respect of the land, including a proper sale or refinance: Buchanan at [10]-[11]; Hanson Constructions at [74]. In such a case, subject to the observation in the next paragraph, it will be highly relevant to determine whether the removal of the caveat would derogate from the caveator's claim and priority: Buchanan at [11]-[12].
4. Where a caveat claims an interest in land as security for the payment of money, if the registered proprietor is prepared to put up an alternative security which is commercially adequate, then the Court will remove the caveat even though the caveat may be completely valid: Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255 at 15,257; Marinkovic v Pat McGrath Engineering Pty Ltd (2004) 61 NSWLR 150; [2004] NSWSC 571 at [56]; Renascent Interiors and Refurbishers Pty Ltd v ASEL Property Group Pty Ltd [2002] NSWSC 345; 10 BPR 97,956 at [13]-[16]. In such a case, the diminution of the caveator's claim and priority in relation to the land the subject of the caveat would be balanced by the claim to the alternative security.
5. In Devefi, Young J (as his Honour then was) said: However, there is another reason: the court has said in cases such as Martyn v Glennan that it will not allow caveats, even if they are legitimate caveats, to oppress the registered proprietor unduly. The court does not live in some commercial vacuum. The court knows that the mere presence of a caveat may prevent a whole series of bona fide commercial transactions taking place and if a case gets into that sort of area the court will be extremely careful as to whether the caveat should be retained. An example is Re Clement's Caveat [1981] Qd R 341. If in such a circumstance a substitute security can be given then the court is often minded to order that the caveat be removed.
6. Other matters relevant in assessing the balance of the convenience include: 1. the strength of the caveator's claim, in particular whether there is real doubt whether the interest claimed by the caveator is valid and enforceable: Hanson Constructions at [79]); 2. whether the caveator made a contractual promise not to lodge a caveat: Devefi at 15,257; Biseja Pty Ltd v NSI Group Pty Ltd [2006] NSWSC 1331 at [18]; 3. whether the registered proprietor has given a contractual promise to the caveator that it will not take action to remove a caveat lodged by the caveator: Depsun Pty Ltd v Tahore Holdings Pty Ltd (1990) 5 BPR 11,314 at 11,318-11,319; 4. delay on the part of the caveator: XCEL Rural Properties Pty Ltd v South Creek Dairy Pty Ltd [2002] NSWSC 139; 10 BPR 19,607 at [65]-[69]; Capgemeni US LLC v Case [2004] NSWSC 674 at [40].

Consideration

1. There is no dispute that there is a serious question to be tried as to the existence of the equitable interest claimed under the second KPE caveat and the parties accepted that the question whether the Court should order that the caveat be removed turns on the balance of convenience.
2. The starting point in relation to the balance of convenience is the impact of the removal of the caveat on KPE's security. KPE submitted that Mr Quinn is seeking the removal of the second KPE caveat so that he can refinance the Certane facility (which ranks in priority behind KPE) with a new facility which will be secured by a registered mortgage which will rank ahead of KPE. KPE also submitted that the evidence before the Court on this application as to the value of the Jindabyne property was the desktop appraisal by a real estate agent relied upon by KPE which estimated the value to be in the range of $2.5m to $3m based upon comparable sales. The only other material as to value of the Jindabyne property before the Court was an estimate by Mr Quinn that its value was in the order of $5.2m, but as it was not supported by an independent valuation I will treat the value for the purposes of this application as being in the range of $2.5m to $3m. Hence, KPE submitted, it will effectively lose its security over the Jindabyne property if the second KPE caveat is withdrawn.
3. While I accept that cl 6.3(a) of the Unitholders Agreement creates an equitable charge in favour of KPE, and that if a registered mortgage is granted to the new lender (or lenders) on the refinancing of the Certane facility, KPE's security interest in the Jindabyne property will be diminished, it is necessary to take into account a number of other matters.
4. First, it is by no means certain that KPE's charge under cl 6.3(a) of the Unitholders Agreement takes priority over the charge granted to Certane in July 2021. If in all the circumstances the failure of KPE to lodge the second KPE caveat led Certane to acquire its charge in July 2021 on the mistaken assumption that KPE's earlier charge did not exist, the refinancing would have no adverse effect on KPE's charge and priority - it would be "out of the money" irrespective of the refinancing. There is a reasonable prospect that Certane would make out such a claim, although on the material before me, I cannot express a view one way or the other as to the strength of Certane's claim.
5. Second, Mr Quinn has offered alternative security over two properties, Warners Bay and 301 Castlereagh Street. There was a dispute between the parties as to whether this alternative security will provide adequate security to KPE for the amount of KPE's unitholder loan (approximately $1.1m). However, based on the evidence on this application, I am satisfied that there is sufficient equity in the Warners Bay property even after the proposed Fincore financing, to secure the amount of KPE's unitholder loan.
6. Third, KPE relied on the promise given by Mr Quinn in cl 6.3(a)(iv)(B) of the Unitholders Agreement not to seek to have the caveat removed. A contractual promise not to take action to remove a caveat is an important and possibly decisive consideration against an application to remove a caveat under s 74MA: see Depsun Pty Ltd v Tahore Holdings Pty Ltd at 11,318-11,319; Biseja Pty Ltd v NSI Group Pty Ltd at [18]. However, in the present case it is not clear that cl 6.3(a)(iv)(B) is binding on Mr Quinn as explained at [11] above. There is a factual dispute as to whether what is in effect a condition precedent to the operation of that clause has been satisfied which cannot be resolved until the final hearing. For that reason, I do not take into account cl 6.3(a)(iv)(B) in assessing the balance of convenience.
7. Fourth, it is relevant to consider the strength of KPE's case. As noted above, the 2022 proceedings were commenced on 14 April 2022 and the defendants, including the Trustee and Mr Quinn, have not yet filed a defence. KPE agreed not to apply for default judgment without giving 7 days' notice, because the parties were engaged in the 2020 proceedings which were finalised (subject to any appeal) by the Judgment. Mr Quinn has put into evidence a draft Defence which is currently being settled by his senior counsel. It is apparent from the draft Defence and the other evidence of Mr Quinn that there will be a real issue as to whether any amount is ultimately payable by the Trustee to KPE. While I do not accept the submission for Mr Quinn that KPE's claim is weak, it is certainly clear that there will be a hotly contested dispute at the trial of the 2022 proceedings as to whether any amount is payable by the Trustee to KPE and hence whether any amount is secured by the equitable charge created under cl 6.3(a)(ii) of the Unitholders Agreement. This is the relevant matter in favour of the grant of the relief sought.
8. Fifth, KPE's delay is a significant matter in the present case. The delay in lodging the second KPE caveat is very significant. It was not lodged until 25 November 2022, which is more than three years after the Unitholders Agreement was entered into which expressly permitted KPE to lodge a caveat in respect of the equitable charge securing KPE's unitholder loan immediately: Unitholder Agreement, cl 6.3(a)(iii). Further delay occurred in bringing the 2022 proceedings, which were not commenced until April this year. There is no explanation given for why KPE did not lodge the second KPE caveat at an earlier time, whether it be in October 2019 (when the Unitholders Agreement was entered into), 9 June 2020 (when the first KPE caveat was lodged) or 22 April 2022 (when the 2022 proceedings commenced). There is no reason in principle why a party cannot claim caveatable interests in the alternative: Re Nymboida River Pty Ltd (in liq); ex parte Nimdale Pty Ltd (unreported, Supreme Court of Queensland, Ambrose J, 30 September 1988). The significant delay by KPE is a factor which, in the balance of convenience, favours the withdrawal of the second KPE caveat because it is delay where a third party (Certane) has acquired an interest in the land in July 2021 which gives rise to a realistic prospect that this third party can maintain that its claim takes priority over that of KPE for the reasons given at [50] above: see XCEL Rural Properties Pty Ltd v South Creek Dairy Pty Ltd at [65]-[69]; see also Capgemeni US LLC v Case at [40] in relation to the relevance of delay more generally in the assessment of the balance of convenience.
9. Sixth, I am satisfied that there is real risk of serious prejudice to Mr Quinn if the second KPE caveat is not withdrawn because it is likely, if it remains, that the Certane facility will not be refinanced with the consequence that Certane is likely to appoint a receiver over the assets of Mr Quinn, including the Jindabyne property. That will potentially trigger events of default under other loan facility agreements for which Mr Quinn is a guarantor. Further, given the competing security interests in the Jindabyne property, there is no certainty that this will benefit KPE (ie. there is no certainty that KPE's charge will take priority over Certane and GI 417 for the reasons explained above).
10. Weighing all the above matters, in particular the alternative security which has been offered, the delay by KPE in lodging the second KPE caveat and the potential prejudice to Mr Quinn if that caveat remains, in my opinion the balance of convenience taking into account the consequences, for both parties, of continuance of the second KPE caveat compared to its withdrawal favours the withdrawal of the caveat provided that the undertakings set out at [34] above are given.

Conclusion

1. For the above reasons, I will make Orders 1 and 2 in the Notice of Motion dated 23 November 2022 and will make Order 1 in the Notice of Motion dated 28 November 2022, subject to undertakings being given by Mr Quinn in the terms outlined at [34] above.
2. In relations to costs of the second Notice of Motion dated 28 November 2022, my inclination is to order that the costs of the Motion be costs in the cause. However, before dealing finally with the question of costs in relation to the second Notice of Motion dated 28 November 2022, I am prepared to hear any submissions which the parties may wish to make on costs.
3. I will list the 2022 proceedings for a case management hearing in the week commencing 30 January 2023.
4. In 2020/355192 I make the following orders: 1. Pursuant to section 74MA of the Real Property Act 1900 (NSW), the Plaintiff is to withdraw Caveat AQ157103 in respect of Lot 112 in DP1072360 forthwith. 2. The Plaintiff to pay the Second Defendant's costs, as agreed or assessed.
5. In 2022/107858 I make the following orders: 1. Pursuant to section 74MA of the Real Property Act 1900 (NSW), the Plaintiff is to withdraw Caveat AS664987 lodged on or about 25 November 2022 in respect of Lot 112 in DP1072360 forthwith. 2. The court notes the undertakings to the Court proffered by the second defendant, Simon Quinn, through his senior counsel (on his own behalf and on behalf of companies he controls) (Undertakings) in the Annexure to these orders. 3. The matter be listed for case management the week commencing 30 January 2023. 4. The order that Caveat AS664987 be withdrawn is stayed until 5:00pm on 16 December 2022 on the condition that by 16 December 2022 the Plaintiff files a summons seeking leave to appeal against the order that the caveat be withdrawn.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 14 December 2022