Manttan v Equititrust Limited

Hanson Construction Materials Pty Limited v Vimwise Civil Engineering Pty Limited [2005] NSWSC 880; (2005) 12 BPR 23,355 Circuit Finance Pty Limited v Crown & Gleeson Securities Pty Limited [2005] NSWSC 997; (2005) 12 BPR 23,403 Wildschut v Borg Warner Acceptance Corporation (Aust) Limited (1987) 4 BPR 9453 CASES CITED : Wright v Bridge Wholesale Acceptance Corporation (Australia) Limited [1993] 1 VR 502 Kingstone Constructions Pty Limited v Crispel Pty Limited (1991) 5 BPR 11,987 Toma Services Pty Limited v Kusido Hospitality & Property Group Pty Limited [2008] NSWSC 492 Equititrust Limited v Manttan [2010] NSWCA 95

PARTIES : Plaintiff: Michael Alan Manttan Defendant: Equititrust Limited

COUNSEL : Plaintiff: D E Baran Defendant: M W Young

SOLICITORS : Plaintiff: Burkett & Taylor Lawyers Defendant: Bransgroves Lawyers

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2010/91165 Michael Alan Manttan v Equititrust Limited JUDGMENT 1 HIS HONOUR: This is an application pursuant to s 74MA of the Real Property Act 1900 (NSW) for an order that a caveat lodged by the defendant over various properties of which the plaintiff is the registered proprietor be withdrawn. The plaintiff seeks an order that the defendant be restrained from lodging any other caveat in respect of the subject land based upon the same grounds as those set out in the caveat in question. 2 The caveat was lodged on or about 20 April 2009 over some 10 lots in a strata plan of a property in Annandale Street, Annandale and in respect of one lot in a strata plan of a property in William Street, Double Bay. Prior to the commencement of the proceedings the caveat was withdrawn in respect of four of the Annandale lots to permit the plaintiff to sell the units in question. 3 In the caveat the defendant claims an interest in the land as an equitable mortgagee pursuant to an unregistered second mortgage. That interest is claimed by virtue of an instrument described as a Deed of Guarantee and Indemnity dated 21 November 2007 between the plaintiff as guarantor and the defendant as lender. 4 Proceedings were commenced on 14 April 2010. There was some immediate urgency because the plaintiff had exchanged contracts for the sale of two of the units in the Annandale Street property, being numbers 50 and 65. On 23 April 2010 Gzell J ordered that the caveat be withdrawn from the titles to those properties for the purpose of the plaintiff's completing the sale of those properties. His Honour ordered that the net proceeds of sale, after payment of all reasonable costs of sale and payment to the first mortgagee, be paid into court. 5 Two other properties, being unit 27 in the Annandale Street property and a strata lot in William Street, Double Bay, are the subject of contracts for sale which remain uncompleted. On 22 August 2009 the plaintiff obtained valuations of the Annandale units and the William Street unit from a registered valuer, Mr Christopher Mitrothanasis of John Virtue Valuers. Relevantly for present purposes, he valued unit 27 of the Annandale property at $215,000 and he valued the William Street property at $300,000. 6 On 8 September 2009 the plaintiff exchanged contracts to sell the William Street property to a Mr Marcus Levy for $300,000. The contract provided for a 10 per cent deposit to be released to the vendor. On 18 December 2009 the plaintiff exchanged contracts to sell unit 27 to a Mr Warwick Mirzikinian for $130,000. Again, the deposit was 10 per cent and was released to the vendor. 7 There is no evidence of the plaintiff's having exchanged contracts in respect of the remaining Annandale lots, being units 23, 51, 56 and 70. 8 The National Australia Bank holds a first registered mortgage over all of the properties in question. As at 17 June 2010, and after completion of units number 50 and 65, the sale of which was completed following the orders of Gzell J of 23 April, the National Australia Bank was owed $745,139.41. 9 Both parties retained valuers. The valuers have produced a joint report, which I am told was received yesterday. The current agreed value of the remaining properties, including the William Street property and unit 27, is $1,400,000. There will therefore be moneys available to the defendant to reduce its claimed debt if the properties are sold for their market value. The current values of the William Street property and unit 27 are agreed by the valuers to be $340,000 and $230,000 respectively. 10 No issue has been raised concerning the plaintiff's debt to the defendant. On 21 November 2007 the plaintiff guaranteed the obligations of Tomasa Pty Limited ("Tomasa"), which then borrowed $570,000 from the defendant. On 8 January 2008 the loan was increased to $804,000. As at 14 May 2010 the debt owed by Tomasa to the defendant was $1,124,399.01. I am told that Tomasa has gone into liquidation. None of the sale proceeds from the sale of units 50 and 65 were paid to the defendant. 11 The defendant has a clear interest in the remaining properties over which it has security being sold for their full market value. Both the contract for sale for unit 27 and the contract for sale of William Street, Double Bay are below current market value. That is especially so in the case of unit 27. Moreover, as the deposits under each contract have been released to each vendor, the amount of those deposits will not be available to be paid to the National Australia Bank from the sale. 12 In broad terms, if the William Street property were sold today for its current market value and all proceeds after costs of sale were applied to reduce the plaintiff's debt to the National Australia Bank, then that debt would be reduced by about $70,000 more than would be the case from the bank's receipt of the balance of the purchase price under the contract for sale to Mr Levy. 13 In the case of unit 27, the reduction of the debt would be in the order of $113,000 more if that property were sold for its current market value than would be the case if the National Australia Bank receives only the balance of the purchase price payable under the existing contract. 14 These figures could, of course, be subject to adjustments to reflect different selling costs, but such adjustments might be either upwards or downwards. Whatever the precise figures, it clearly appears the defendant has a legitimate interest in maintaining its caveat so as to prevent these sales, to which it has not consented, from proceeding to completion. 15 The plaintiff contends first, as I understood his submissions, that the defendant does not have a caveatable interest. The plaintiff also submits that any interest the defendant might have was not stated in the caveat. He says that the caveat is invalid. 16 Clause 9.3 of the Deed of Guarantee and Indemnity of 21 November 2007 provides: " 9.3 As further security the Guarantor hereby charges (by execution of this deed as beneficial owner) all freehold and leasehold interest in any land(s) (or any part thereof) which the Guarantor may now have or during the currency of the securities may acquire and the Guarantor further agrees that the Mortgagee may require execution by the Guarantor of such form of additional security containing the same terms and conditions as the Mortgage referred to in the Schedule hereto. The Mortgagee shall in addition have the right to lodge a Caveat over any real and/or personal property of the Guarantor howsoever held [and] the Guarantor hereby (by execution of this deed) agrees and acknowledges that this Deed creates in favour of the Mortgagee a Caveatable interest in respect of any Real Property of the Guarantor howsoever held. " 17 By the first part of this clause the plaintiff charged, amongst other things, all his freehold interest in lands he then owned or might later acquire during the currency of the security. Such a charge creates an equitable interest in land sufficient to support a caveat. 18 The second part of clause 9.3 contains an agreement by the plaintiff, on request, to execute additional security containing the same terms and conditions as the mortgage referred to in the schedule. The schedule refers to the defendant's having security by way of transfer of a specified registered Real Property Act mortgage given to it by Tomasa over land, it can be inferred, owned by Tomasa. 19 On its proper construction, clause 9.3 provides that if the request for additional security is made, the plaintiff is to execute a mortgage containing the same terms and conditions as the Tomasa mortgage, but with the necessary changes to reflect the fact that the mortgagor is the plaintiff and the mortgaged property is land of the plaintiff. This is an agreement to give a mortgage. No reason has been advanced, and none is apparent, why that agreement would not be capable of being enforced by an order for specific performance (if such an order were necessary). Such a specifically enforceable agreement to create a mortgage is an equitable mortgage. 20 The third part of clause 9.3 provides for the defendant to have the right to lodge a caveat over, inter alia, real property of the plaintiff. It is ancillary to the first two parts of the clause. It is unnecessary to consider whether, if the third part of the clause stood alone, it would itself be sufficient to confer on the defendant a caveatable interest. 21 The clause in question is contained on the ninth page of a document containing 15 pages of conditions, and appears in a clause headed "Principal Liability." The agreement in which it is contained is called a "Deed of Guarantee and Indemnity" although its true nature is a deed of guarantee, indemnity and charge. 22 However, in these proceedings the plaintiff makes no claim to avoid the agreement or any of its terms. The plaintiff deposed that he read clause 9.3 when the document was signed and noticed that the clause "raised some issue as to caveats." He deposed that he could not find a list of any properties in connection with clause 9.3 and understood that, since no such properties were identified, the defendant would not be entitled to lodge a caveat upon any property except for the property subject to the loan. I infer the plaintiff was there referring to a property of Tomasa in Brighton-le-Sands. The construction of the clause which the plaintiff says he placed on it is not one which is fairly open. It is unnecessary to pursue this matter because, as I have said, the plaintiff has not sought relief in respect of the clause.

23 On the same day the plaintiff entered into another agreement with the defendant called a Credit Facility Deed. Under clause 4.2 of that agreement the plaintiff separately gave a charge in the same terms as clause 9.3 of the Deed of Guarantee and Indemnity. 24 It is clear that the plaintiff has a caveatable interest. The question then is whether that interest was sufficiently stated in the caveat. Counsel for the plaintiff submitted that on no view did the defendant have an interest as equitable mortgagee "pursuant to an unregistered second mortgage". He submitted that clause 9.3 of the Deed of Guarantee and Indemnity could not itself be characterised as an unregistered second mortgage. 25 Counsel for the defendant submitted otherwise. He submitted that because clause 9.3 is an equitable mortgage it is properly characterised as an unregistered mortgage, albeit one not in registrable form. It is a second mortgage because it ranks behind that of the National Australia Bank. 26 It is a nice question whether an equitable mortgage arising from a specifically enforceable agreement to give a mortgage should itself be characterised as an "unregistered second mortgage". I do not find it necessary to decide this question. If it is not to be so characterised, nonetheless the use of the words "pursuant to an unregistered second mortgage" would be a defect in form which the Court is required to disregard by virtue of s 74L of the Real Property Act. This is not a case in which there is a defect in the specification of the nature of the defendant's interest. That interest is properly specified as the interest of an equitable mortgagee. The case is quite unlike Hanson Construction Materials Pty Limited v Vimwise Civil Engineering Pty Limited [2005] NSWSC 880; (2005) 12 BPR 23,355 and Circuit Finance Pty Limited v Crown & Gleeson Securities Pty Limited [2005] NSWSC 997; (2005) 12 BPR 23,403 (to which the plaintiff's counsel referred) where the caveats in question described the interest claimed as an equitable interest, without specifying its nature. In my view the caveat is not invalid. 27 I should add that if I had been of a different view, in the circumstances of this case it would nonetheless have been appropriate to give the defendant leave to lodge a fresh caveat correcting whatever deficiency might have been found in the caveat lodged. 28 The conclusion that the caveat is valid does not resolve the matter as undoubtedly the Court has power under s 74MA in an appropriate case to remove a valid caveat. 29 Counsel for the plaintiff submitted that the plaintiff has sold and is continuing to attempt to sell the properties in respect of which the caveat has been lodged. He submitted that the caveat has no proper purpose and is sought to be maintained solely for the improper purpose of putting illegitimate pressure on the plaintiff. 30 If that were a correct analysis of the facts, then the caveat should be removed as the court will not allow a caveator to maintain a caveat solely for the purpose of placing pressure on the registered proprietor to give the caveator something to which he or she is not entitled (Wildschut v Borg Warner Acceptance Corporation (Aust) Limited (1987) 4 BPR 9453 at 9455). 31 Counsel referred to a number of authorities including Wildschut v Borg Warner Acceptance Corporation (Aust) Limited in support of a submission that where a first mortgagee will get the whole proceeds of sale of property subject both to the first mortgage and a subsequent mortgage, the caveat of the subsequent mortgagee should be removed. I do not think the authorities cited support so wide a proposition. 32 The first case cited was Wright v Bridge Wholesale Acceptance Corporation (Australia) Limited [1993] 1 VR 502. There, the issue was one of priorities between the first and second mortgagees. It was held that the caveat should be removed to permit the sale, as the issue of priority could be determined once the proceeds had been obtained as well as before they were obtained. There was no question of the price being below market value. Nor was there any such question in Wildschut v Borg Warner Acceptance Corporation (Aust) Limited. The case was decided on the basis that the caveator was not seeking to protect any legitimate interest but was asserting a kind of legal blackmail (at 9454). 33 In Kingstone Constructions Pty Limited v Crispel Pty Limited (1991) 5 BPR 11,987 there was no question as to the adequacy of the sale price. In any event Young J (as his Honour then was) extended the caveat, observing: " ... it is certainly the case that this Court has ensured that caveats are not used as a blackmailing device so that a caveat can legitimately be lodged in respect of a relatively small claim and force the registered proprietor to pay out such a claim even though it is bitterly contested. The Court has consistently taken the attitude that if the registered proprietor is prepared to put up an alternative security, then it will remove the caveat, even though, as I have said, the caveat may be completely valid. ... It may be that the discretion vested in the Court under s74K(2) is wider than what I have just indicated ... However, whatever the extent of the discretion is, in my view it would not be an appropriate exercise of that discretion to remove the caveat in the instant case on the grounds of balance of convenience ... [o] ne would have to balance the 'convenience' of the registered proprietor being able to deal with the land with the 'inconvenience', if a court should hold that the caveator has a valid equitable charge, of its interest losing priority to any interest which would be created by the registered proprietor if the transactions which that proprietor wishes to enter into proceeded." 34 In the present case no alternate security is proffered. If the caveat were removed the defendant would face the risk of losing priority to any subsequent encumbrance that might be given by the plaintiff. The defendant would also face the risk of receiving less from the realisation of the secured property if the realisation were left in the hands of the plaintiff without the constraint of needing to obtain the defendant's consent to a particular sale than it might receive if the secured properties were sold either by the bank as first mortgagee or by the defendant if it obtains an order for judicial sale. 35 Counsel also referred to Toma Services Pty Limited v Kusido Hospitality & Property Group Pty Limited [2008] NSWSC 492. There Young CJ in Eq summarised Wright v Bridge Wholesale Acceptance Corporation (Australia) Limited and Wildschut v Borg Warner Acceptance Corporation (Aust) Limited as being to the effect that: " ... where there is a substantial first mortgage ... and the caveator claims to have a subsequent mortgage and the evidence points to the fact that the first mortgagee will get the whole proceeds of the sale in any event, then the caveat by the second mortgagee should be removed. "

36 As I have said, those cases have to be understood in the context in which they were decided. In Toma Services Pty Limited v Kusido Hospitality & Property Group Pty Limited there does not appear to have been any evidence that the contract of sale was less than a proper price. His Honour observed (at [5]) in the course of his ex tempore reasons that he thought until a few moments before giving judgment that it had been common ground that the price was a proper price. It then appeared that that was not a matter of concession, but the issue which arises in the present case did not arise there. 37 Counsel for the plaintiff placed some reliance on the course of events before Gzell J and before the Court of Appeal. It appears that there was some evidence before Gzell J that units 50 and 65 were sold for below their market value. Those lots were sold pursuant to a single contract for the price of $230,000. Mr Mitrothanasis in August 2009 had valued one of the units at $165,000. 38 There are no published reasons given by Gzell J for the orders which he made. I was told that the orders were made in the course of a busy Duty Judge list and that only very brief reasons were given. 39 The defendant applied to the Court of Appeal for a stay of the order of 23 April 2010. That application was dismissed (Equititrust Limited v Manttan [2010] NSWCA 95). In the course of his reasons for refusing the stay, Hodgson JA observed that an appeal would require leave to appeal on a matter where the discretion of the primary judge was highly significant. His Honour concluded the evidence as to the balance of convenience did not significantly favour the defendant. He added that: " Although there are valuations pointing to a higher value than is achieved under the contract, there are reasons in the evidence why those figures may not now be achieved, and the evidence does not suggest that these sales are anything other than genuine, arms-length sales entered into in commercial circumstances with a view to achieving the best price. "

40 In the present case there is no evidence as to why the current market value of the properties agreed upon by the valuers may now not be achieved. I accept (and I did not understand it ultimately to be disputed) that the contracts for the sale of unit 27 and the William Street property were genuine contracts entered into "in commercial circumstances". I would also accept that the contracts are properly categorised as arm's length sales, even though each purchaser was known to the vendor as a result of previous dealings. 41 There is evidence, though, that because of the purchasers' acquaintance with the plaintiff, the purchasers were aware of the plaintiff's precarious financial position, and were aware of the circumstances in which these could be characterised as distressed sales. 42 However, it seems to me that the real question is not whether the contracts made in September and December 2009 were for the best price then obtainable, but whether considering the matter as of today, the defendant has a legitimate interest in refusing to remove the caveat. 43 The evidence is that the defendant is owed a debt which is secured over the properties, and the plaintiff needs either its consent to the sale and the consensual withdrawal of the caveat, or it needs to persuade the court that the valid caveat should be removed. 44 In my view, there is potential for real prejudice to the defendant if it is ordered to remove the caveats, for the reasons which I have given. 45 I do not consider that a different conclusion is warranted by reason of the earlier successful application to Gzell J for removal of the caveats over two of the properties, and the refusal of the stay in the Court of Appeal. 46 Hodgson JA also observed that at the time his Honour heard the application for a stay, the defendant had not itself commenced proceedings to seek enforcement of the equitable interest it claims. 47 The defendant has since commenced such proceedings. It filed a statement of claim on 5 June 2010. I was told that the statement of claim had not been served because the defendant had been unable to serve the plaintiff. There was no evidence as to the attempts of service, and it is unnecessary to consider that question further. 48 The plaintiff did not, in the summons, nor in any of his affidavits, give his address. However, no submission was made that that should disentitle the plaintiff from the relief sought, were he otherwise entitled to it. 49 For the reasons I have given, the plaintiff is not so entitled. For these reasons, I order that the summons be dismissed. The exhibits may be returned after 28 days. 50 I order that the moneys paid into court pursuant to order 3(a) of the orders of Biscoe AJ of 25 May 2010 not be paid out until further order. 51 I direct that the plaintiff's solicitor notify PRDnationwide Newhouse Power and the National Australia Bank of that last order. I give liberty to PRDnationwide Newhouse Power, the National Australia Bank and either party to apply in relation to the application of the moneys paid into court on reasonable notice. 52 I order that the plaintiff pay the defendant's costs.

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