Lilex Pty Limited (receiver and manager appointed) and Bred & Chees Pty Limited (receiver and manager appointed) v Smallseeds Pty Limited

Judgment 1These proceedings are brought by Lilex Pty Limited (receiver and manager appointed) ("Lilex") and Bred & Chees Pty Limited (receiver and manager appointed) ("B&C") and seek the removal of a caveat lodged by the Defendant, Smallseeds Pty Limited ("Smallseeds") under s 74MA of the Real Property Act 1900 (NSW). The proceedings also seek an order for the withdrawal of a document headed "Application to Record New Registered Proprietor" lodged by Smallseeds with the Office of Land and Property Information ("LPI") on 19 October 2011. The substantive argument is between B&C on the one hand and Smallseeds on the other in respect of the part of the relevant property owned by B&C. 2The directors of Lilex and B&C are Mr Brad Wrightson and Ms Chelsey Wrightson and Ms Wrightson is the secretary of both companies. Ms Chelsey Wrightson is also the sole director and secretary of and holds the single issued share in Smallseeds. Chronology of events 3I should first set out a chronology of relevant events, which emerge from the documents and are largely undisputed. 4A trust deed dated 11 September 2003 ("Trust Deed") titled "The B&C Wrightson Family Trust" (not lodged with LPI until 18 October 2011) provided for the appointment of B&C as trustee of that trust ("Trust"). 5Westpac Banking Corporation ("Westpac") advanced financial accommodation under a Business Finance Agreement for the purpose of funding the purchase of the part of the property owned by B&C, another part of the property owned by Lilex and the construction of a block of units on that property, secured by a mortgage and fixed and floating charges dated 29 March 2007 over the assets and undertakings of the companies. 6On 18 June 2009, a receiver and manager, Mr Tolcher, was appointed to the assets and undertakings of Lilex and of B&C following an alleged default by Lilex and B&C. Mr Tolcher gives evidence on information and belief that the amount currently owing by Lilex and B&C to Westpac exceeds $17.3m and the property is the only remaining asset of the companies. 7Mr Tolcher has sought to market the property since February 2011 and entered a contract for sale of the property on 30 June 2011 ("Sale Contract") which was due to be completed on 31 October 2011. 8On 19 October 2011, by Deed of Appointment of New Trustee ("Deed of Appointment"), Mr Wrightson appointed Smallseeds as trustee of the Trust under clause 19(b) of the Trust Deed and Smallseeds consented to that appointment. An Application to Record New Registered Proprietor ("Application") was lodged with LPI on behalf of Smallseeds which recorded B&C as the current registered proprietor and Smallseeds as the proposed new registered proprietor of the relevant part of the property. 9While there was reference in argument before me to the possibility that Smallseeds might have been appointed as trustee of the Trust in addition to B&C, the Application indicates such an appointment was not intended, referring to: "The vesting in Smallseeds (appointed by Deed dated 19 October ... in place of retired trustee Bred & Chees Pty Limited by deed dated 19 October) as trustee of the B&C Wrightson Family Trust ... pursuant to the execution and registration of the said Deed." (emphasis added) 10Smallseeds lodged a caveat dated 26 October 2011 ("Caveat") over the part of the property owned by B&C which claims an interest being the right to be registered as registered proprietor of the land owned by B&C in the capacity of trustee of the B&C Wrightson Family Trust by reason of the Deed of Appointment. 11The receiver's solicitors wrote to Ms Wrightson requesting the removal of the Caveat and she responded by letter dated 9 November 2011 to the effect that: "By operation of the Trust Deed, a copy of which has been previously provided to Westpac, Smallseeds Pty Ltd is now the trustee for the B&C Wrightson Family Trust. As such we have recently received legal advice to say that [B&C] and hence the Receiver does not have a power of sale over the Celsius Apartments. On that basis we have been advised that Smallseeds Pty Ltd has a caveatable interest in the Property which resulted in the caveat being lodged. Smallseeds Pty Ltd will not remove the Caveat unless and until your client is prepared to resolve all outstanding issues." That letter in turn refers to issues including allegations that the receiver conducted the company's affairs in an improper manner and has sacrificed the property of the mortgagor. 12There is evidence that a transfer of the property executed by the receiver would not have priority over the presently unregistered Caveat and Application and the continued existence of those unregistered dealings will prevent the completion of the Sale Contract. Completion of the Sale Contract has now been deferred for 90 days. Under the terms of the Sale Contract, the purchaser will be entitled to rescind the contract if completion does not occur in that period. Whether the Caveat should be removed 13Mr Pritchard SC, who appears with Mr Shepherd for Smallseeds, accepts that, on an application by B&C as registered proprietor for removal of the Caveat, the Court will adopt the same approach as it would adopt in an application by Smallseeds for an order extending the operation of the Caveat, and Smallseeds bears the onus of showing that it has a seriously arguable case for final relief in the nature of the caveatable interest claimed and that the balance of convenience favours retention over removal of the Caveat: Martyn v Glennan [1979] 2 NSWLR 234; Morkaya v Parkinson [2010] NSWSC 596 at [2]. The Caveat should be ordered to be withdrawn unless an interlocutory injunction would be granted to protect the interest claimed in it: Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 at [20]. 14Smallseeds seeks to support the Caveat on the basis that: