Law Mortgagees Queensland Pty Ltd v Thirteenth Corp Pty Ltd [1999] VSC 360

5. The history of this matter relates to a building at 471 Little Bourke Street, Melbourne being the land described in Certificate of Title Volume 9748 Folio 452 and Volume 9451 Folio 092 ("the Land"). Built upon the land is an 11 storey building that has undergone refurbishment and reconstruction. Carsten Pty Ltd ("Carsten") is the registered proprietor of their land. On 5 March 1997 Carsten entered into a contract ("the contract") of sale for the Land with Thirteenth Corp Pty Ltd ("Thirteenth Corp"), the defendant, for the sum of $4.8M. The Land was referred to in the contract as being the land described in Title and Plans Volume 9451 Folio 092, Volume 94000 Folio 469 and being Lot 7-10 on proposed Plan of Subdivision 40887C and being Level 7-10 of the building constructed at 471 Little Bourke Street, Melbourne. The contract provided for the payment of a deposit of $480,000 upon signing and the residue at the expiration of 24 days from cl. 24. Clause 24 provided:

"The Vendor and Purchaser undertake that should the Plan of Subdivision for the Property not be approved within 120 days of the date of this Contract the Purchase shall settle the whole of the Property for the Contract Price and the Purchaser shall take Title to the whole of the property subject to discharging the first mortgage on the property, and the Purchaser shall be entitled to insert the particulars for the whole of the title in this Contract for the purposes of the settlement. The Purchaser shall hold the Title to the whole of the property after settlement until such time as the Vendor delivers to the Purchaser unencumbered Titles to the land the subject of this Contract."

9. As matters transpired neither the deposit nor any other moneys were paid under the contract of sale. On 13 May 1997 Carsten executed a mortgage in favour of H.G. & R Nominees Pty Ltd ("H.G. & R.") for the whole of the Land and that mortgage was registered on 30 July 1997. Later, on 12 May 1998 the mortgage was transferred to the plaintiff and that transfer was registered on 23 October 1998.

12. Returning to the sequence of events, on 21 August 1997 Carsten executed a third mortgage in favour of H.G. & R. over the whole of the Land and that mortgage was registered on 28 August 1997. On 7 October 1997 Carsten executed a second mortgage in favour of Homai Irani Pty Ltd over the whole of the land and that second mortgage was registered on 4 December 1997.

15. On 26 February 1998 a Deed of Variation was executed by Carsten and Thirteenth Corp purporting to vary the contract and as a consequence the purchase price was reduced from $4.8M to $2.4M. The particulars of sale were amended, as follows:

"Land described in the attached copy title/s vol 9451 fol 092 Vol 9748 fol 452...and being Lots 9-10 on Proposed land of Subdivision 408807C a copy of which is annexed hereto... (being) the land together with any improvements known as Levels 9-10, 471 Little Bourke Street, Melbourne."

19. On 26 March 1998 the Plan of Subdivision PS408887C was registered thereby sub-dividing the building on the Land into 10 storeys together with a ground storey and a top-most storey being Lots G, 100, 200, 300, 400, 500, 600, 700, 800, 900, 1000 and 1100 and corresponding to the ground storey and the first to tenth storeys and the top-most storey. Certificates of Title were created with respect to each lot.

22. On 16 April 1998 Thirteenth Corp lodged two caveats claiming an estate in fee simple in the land comprised in Certificates of Title Volume 10375 Folio 316 and Volume 10375 Folio 317 being the Lots 900 and 1000 with respect to the ninth and tenth storeys respectively of the building. These are the caveats that are the subject of the proceeding. The interest recited in the caveats was "as purchaser under a contract of sale from Carsten Pty Ltd... dated 5 March 1997". The caveats purported to prohibit dealings "absolutely save and except a transfer to the caveator or by the caveator's direction". On 8 April 1998 Carsten executed a second mortgage in favour of the plaintiff over the top-most storey of the building being Lot 1100 and which mortgage was registered on 12 May 1998. On 25 June 1998 a further Plan of Subdivision was registered further sub-dividing each floor of the building into a number of areas and providing for the consequential fresh issue of Certificates of Title.

25. On 17 September 1998 the plaintiff served a notice to pay on Carsten. On 23 October 1998 H.G. & R. transferred the mortgage to the plaintiff and which transfer was registered on 2 November 1998. On 11 January 1999 receivers were appointed by the plaintiff as a consequence of the default of Carsten. After 11 January 1999, the plaintiff as mortgagee in possession entered into and executed contracts of sale in respect of various Certificates of Title relating to the further subdivision of the ninth and tenth storeys of the building. Seven contracts in total were executed with settlement due at various dates with respect to the particular contracts the earliest of which was 30 days from 31 August 1999 and the latest being 60 days from 4 September 1999.

28. On 30 June 1999 Herbert Geer & Rundle wrote to Rogers & Gaylard, solicitors for the defendant, requesting removal of the caveat. Herbert Geer & Rundle wrote again to Rogers & Gaylard on 2 July 1999 restating the request. Between 12 July and 2 August 1999 continuous correspondence was exchanged between Herbert Geer & Rundle and Rogers & Gaylard with respect to the caveats. The outcome of the course of correspondence was that the caveats were not removed and as a consequence the plaintiff instituted these proceedings on 10 August 1999.

31. The plaintiff, as registered mortgagee, applies under s.90(3) of the Transfer of Land Act for removal of the two caveats, No. V374262K, dated 16 April 1998 and No. V37426 IN dated 16 April 1998 ("the caveats"). The plaintiff also applies under s. 103 of the Act for Orders, inter alia, that the Registrar of Titles not register the caveats on any subsequent Certificates of Title that may be issued from the parent Certificates of Title as a result of a subdivision of the building.

34. It was observed in Re Dimbuly Pty Ltd Caveat [1986] 2 Qd R 348 where Connolly J of the Queensland Supreme Court held that where an agreement for the sale of land was subject to local authority approval for subdivision and such approval has not been sought, the agreement was only effective to oblige the parties to use their best endeavours to obtain such approval. The learned judge held that until such time as consent from the local authority was obtained the interest of the purchaser was commensurate only with what would be decreed for the purchaser and did not extend to ownership or an equitable interest in land.

37. The only interest claimed in the caveats in this proceeding is an equitable interest in fee simple, under an uncompleted contract of sale alleged to have been entered into on 5 March 1997. Furthermore, although the contract purports to predate registration of the plaintiff's mortgage, on 30 July 1997 the contract of sale was subject to approval of the plan of subdivision. Arising from these circumstances, until such time as approval of the plan of subdivision was obtained, the interest of Thirteenth Corp could not extend to ownership of an equitable interest in land capable of supporting the caveat. As was observed in Re Dimbuly Pty Ltd's Caveat [1986] 2 Qd R 348 at p. 350:

"Accordingly, as the High Court observed in Brown v. Heffer [1967] HCA 40; (1967) 116 C.L.R. 344 at p.350, until the consent has been obtained, the purchaser's interest, being 'commensurate only with what would be decreed to him', does not extent to ownership of the land. For similar reasons, the High Court in McWilliam v McWilliams Wines Pty. Limited [1964] HCA 6; (1964) 114 C.L.R. 656 held that where a contract for the sale of land was subject to an implied condition that the sale was subject to the consent of a statutory authority, it could not be contended that the respondent company became entitled by force of the contract to an equitable interest in the land."

41. Hence, in the present proceeding it was not until after registration of the plaintiff's mortgage that any caveatable interest could first have arisen. It follows, therefore, that because the plaintiff's interest as registered mortgagee arose before the creation of any equitable interest claimed in the caveats, the plaintiff's mortgage prevails and the caveats must be removed. I observe that this approach was adopted in Vukicevic v Alliance Acceptance Co Ltd & Anor, unreported, NSWCA (1987) CCH Aust & NZ Conveyancing Report at p. 270.

44. However, even if the interest claimed in the caveats had existed prior to registration of the plaintiff's mortgage, the caveats must still be removed because notwithstanding the order of creation of the interest claimed by the Thirteenth Corp and of the plaintiff's mortgage, in the absence of fraud, the plaintiff as registered mortgagee holds its registered estate in the Land free of the claims of Thirteenth Corp. So much arises from s.42 of the Transfer of Land Act 1958. See also, Fairless v Official Trustee, Hansen J, unreported no. 4562 of 1990 (affirmed on appeal at [1997] 1 VR 404); Pyramid Building Society v Scorpio Hotels [1998] 1 VR 188 at p. 191; Nichols & Anor v Go-Tell Nominees Ltd VSCA, unreported, 9 October 1997. In the latter case J.D. Phillips JA in delivering the judgment of the court observed:

"As appears from the affidavit filed on behalf of the plaintiffs, the sale of the land was arranged in response to pressure brought to bear by the first mortgagee, which was moving to exercise its own right of sale under the mortgage. The sale, when effected, was, in form, a sale by the first mortgagee, and both the first and second mortgagees, who, as I have said, held registered mortgages, were paid out of the proceeds of the sale in priority to all others. None of this could have been successfully resisted by the caveators, claiming only an equitable interest in the land, or, if it be different, an equitable charge over it. The priority of the registered mortgagees was plain beyond argument, so the caveat had to be removed to permit the sale by the first mortgagee to be completed -and once that sale had been completed, the caveat could not have been renewed. The order under appeal was simply that the caveat be removed, and that order seems to me unimpeachable."

48. Indeed, it is not alleged that the registration of the plaintiff's mortgage is affected by fraud. Mr Parncutt who appeared for Thirteenth Corp acknowledged that the claim of his client was not based in fraud. He submitted that the case of Thirteenth Corp was based upon "knowledge". The highest that the evidence of Thirteenth Corp reaches is an assertion that "the plaintiff had knowledge of the legal entitlement (of the first defendant) to floors 9 and 10". Even if there was evidence of knowledge of the kind alleged that would still not amount to fraud for the purposes of s. 42 of the Act: see Transfer of Land Act 1958, s. 43; Friedman v Barrett [1962] Qd R 498 at p. 512; Mills v Stockman [1967] HCA 15; (1967) 116 CLR 61 at p. 78, per Kitto J. Bahr v Nicolay (No.2) [1988] HCA 16; (1988) 164 CLR 604 at p. 653, per Brennan J; Macquarie Bank Limited v SixtyFourth Throne Pty Ltd [1998] 13 VR 133 at p.136; Bradbrook et al, Australian Real Property Ed. at par. 4.43. It is instructive to re-visit the observation of Gibbs J in Friedman v Barrett, supra (at 512) where the learned judge observed " ... It is now very well established, in relation to the Torrens statutes of most of the States and New Zealand, that 'fraud' means actual fraud - dishonesty of some sort - and not what has been called constructive or equitable fraud".

51. Mr Parncutt in the course of his argument relied upon authorities include Bahr and Anor v Nicolay and Ors [1988] HCA 16; (1987) 164 CLR 604. However, the authorities he relied upon, including Bahr were cases that involved fraud. That is not the circumstance before me. Rather, Thirteenth Corp claims an interest in land that constitutes no more than an interest as a purchaser under a contract of sale but which did not create an equitable interest in the land until the plan of sub-division was approved. In those circumstances, the Court will not hesitate to order removal of the caveats: Re Stewart Fitzsimmons Projects Pty Ltd's Caveat [19751 Qd R. 187 at p. 188; Re Dimbury Pty Ltd's Caveat, supra at pp. 350-351; State Bank of New South Wales Limited v Topfelt Ply Ltd, unreported, Brownie J, NSWSC 2657 of 1992; Lindsay, Caveats Against Dealings in Australia and New Zealand at pp. 20-21 and 203-204.

54. Mr Parncutt submitted that the interest claimed by Thirteenth Corp to support an equitable interest was made out by reliance upon the contract. He relied upon the judgment of Deane and Dawson JJ in Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489, 522 where it was held that it is sufficient to sustain a purchaser's caveat where a contract of sale is subject to a condition requiring a stranger to the contract to give a consent or to take a step such as approve a plan of sub-division and that a court will order the vendor to do everything necessary to fulfil the condition and would restrain the vendor from dealing with the land inconsistently with the purchaser's rights. The approach in Stern is distinguishable from the present proceeding in that it is not a matter concerned with disputes between vendor and purchaser and, furthermore, the interest recited in the caveats is no more than rights as a purchaser under the contract. Furthermore, until Thirteenth Corp actually obtained approval of the plan of sub-divis ion it did not have the rights it asserts.

57. I turn now to deal with issue of the assertion of loss on behalf of Thirteenth Corp. It has filed an affidavit of Caralapati Premraj in which a number of assertions are made about loss, said to have been suffered as a consequence of having been induced to enter into an option agreement for the sale of some or all of the Land to a company related to the plaintiff. Such allegations are not relevant to the maintenance of a caveat which claims nothing more than an interest as the holder of an equitable fee simple under an uncompleted contract of sale. Whatever wrongs are alleged to have been done to the first defendant by the plaintiff, or companies associated with it, they do not and cannot support a claimed equitable interest under an uncompleted contract of sale. And, even if there had been a claim made in the caveats for something in the nature of an equitable interest as a consequence of wrong done by the plaintiff to the first defendant, the caveats would still be removed. The caveats would be removed in any event either because claims of that kind will not support a caveat: see Swanson Mortgage v Trepan Investments [1994] VicRp 47; [1994] 1 VR 672 esp. at pp. 682-683, per Brooking J or, because the claim (if true) could be compensated adequately with an order for damages: see Commercial Bank of Australia Limited v Schierholter [1981] VicRp 32; [1981] VR 292 (FC) at p. 296 per Young CJ; Wright v Bridge Wholesale Acceptance Corp (Australia) Limited [1993] VicRp 34; [1993] 1 VR 502 at p. 507 per Tadgell J.

60. Finally, and in any event, the court would only entertain the maintenance of the caveats on the condition that Thirteenth Corp amend the caveats, institute proceedings forthwith to establish the interest claimed, and, most importantly, pay into court the whole of the amount due under the mortgage: see Swanson Mortgage Trepan Investments supra at p. 683. Thirteenth Corp does not express itself as willing so to do: cf Cunningham v National Australia Bank Limited (1987) 15 FCR 495 at pp. 500-502. The issue arose in the course of argument as to whether Thirteenth Corp would offer security. No offer was forthcoming.

63. The present case bears many similarities with the principles expressed by Brooking J in Swanston Mortgage especially at 682-683 where the learned judged observed:

"In my opinion the present caveat claims an interest in the land which the facts alleged in the 'grounds of claim' in the caveat are incapable of establishing. In other words, the interest set up as a caveatable interest is not an interest in land known to the law ... I should make it clear that in my view this case is to be determined by holding that the caveatable interest asserted in this caveat did not on any view of the facts exist to support the caveat ... ".

67. And, further, at 603 Brooking J observed with respect to the issue of security:

"The learned primary judge, being of opinion that the caveator did claim an estate of interest in land, and evidently overlooking the complication resulting from the caveat's being unrecorded, asked himself what order he should make in the exercise of his discretion upon the footing that the application under s.90(3) was a competent one, so that the court was to make such order as it thought fit. Since the caveator was shown to his Honour's satisfaction to be pursuing its claim to have the sale set aside, his Honour thought that the caveator should not be put on terms and that the application should simply be dismissed. In my opinion, if the right asserted in this caveat was, contrary to my view, a caveatable interest, his Honour, in the exercise of his discretion under s.90(3) to make such order as he thought fit, should have required payment into court of, or the giving of security for, the amount due under the mortgage. Compare the terms imposed in re McKean's Caveat [1988] 1 Qd. R. 524. The caveator should not have been permitted to use its caveat to delay the completion of the mortgagee's sale without submitting to the terms which would have been imposed upon it if it had sought an injunction against completion of the sale. I refer to Harvey v. McWatters (1949) 49 S.R. (N.S.W.) 173 and Inglis v. Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 C.L.R. 161."

71. In summary, therefore, the caveats must be removed firstly because the interest of the plaintiff is first in priority, secondly, there is no allegation of fraud to support interference with the paramountcy of the prior interest of the plaintiff, thirdly, the interests upon which the caveats are based are not equitable interests in land and fourthly, the proper remedy to Thirteenth Corp is an order for damages. Although the court does not reach the point, there is a fifth factor, namely, the failure of Thirteenth Corp to proffer any security.

74. It follows that the plaintiff succeeds on its application and I will make declarations and orders as proposed in the plaintiff's summons.