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[2003] NSWSC 1009
defendant. Summons dismissed. The Court declined to order removal of the defendant's caveat to permit the proposed refinancing. The plaintiffs were ordered to pay the defendant's costs, not on an indemnity...
Fu Pty Limited held a fourth mortgage securing $550,000 and had lodged a caveat to protect it. The plaintiffs wanted to replace the defaulted first mortgage, but the proposed refinancing would increase the effective amount secured ahead of Fu Pty Limited against the 14 lots left as security. The agreement did not require the trustee to accept that change, and the plaintiffs did not offer replacement security for its interest. The Court therefore refused to remove the caveat for the purpose of the refinancing. It also criticised contradictory price and rebate terms in some of the sale contracts, and ordered the plaintiffs to pay ordinary costs.
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In Miro v Fu Pty Limited [2003] NSWSC 1009, the Supreme Court of New South Wales considered a dispute about a caveat protecting a fourth mortgage over 17 strata lots at Gosford. The plaintiffs were Laurence Raymond Miro and Greenwood Management Pty Limited. The defendant, Fu Pty Limited, was the current trustee of the Deemain Family Trust.
No linked legislation citations have been extracted yet.
The summons initially sought several declarations, including that the trust did not exist or that Fu Pty Limited was not its trustee, along with a declaration that it had no caveatable interest and an order removing its caveat (1). By the hearing, however, the plaintiffs accepted that the trust existed, that Fu Pty Limited was trustee, and that it held a fourth mortgage. The mortgage secured $550,000, and its registration had not been completed. The caveat was lodged to protect that interest (2, 5).
The mortgage arose from a 17 June 2003 settlement agreement concerning a joint venture to develop and sell land. Deemain Development Pty Ltd was to leave the venture in return for $850,000. Of that sum, $300,000 was paid on the agreement date, and the remaining $550,000 was due on 31 January 2004 and was to be secured by a fourth mortgage over the 17 lots (5). The three mortgages ahead of it were held by Suncorp Metway Corporation, Mr Grace and Mr Renjan Keteri (6).
The practical objective of the plaintiffs' application was to obtain Fu Pty Limited's consent to new finance taking first priority, replacing the existing Suncorp Metway mortgage, which was in default (3-4). The proposed arrangement was not simply a substitution of one first mortgage for another. The evidence indicated changes to the amounts secured by mortgages ahead of the defendant and a change in the pool of lots providing the relevant security.
The judgment compared the existing priority amounts with the proposed amounts. The existing first, second and third mortgages totalled $6,746,643. The proposed first, second and third mortgages totalled $6,170,000 (17). But the refinancing would be secured over 14 units rather than 17. Using a unit-average calculation, the Court assessed the amount secured in priority to the defendant against the remaining 14 units as increasing by $613,942 (18). The Court therefore rejected the suggestion that the lower aggregate figure, viewed alone, made the proposal beneficial to the fourth mortgagee.
The Court dismissed the application for caveat removal on the basis argued. It ordered the plaintiffs to pay the defendant's costs, but refused indemnity costs (21, 23). The judgment also addressed sale contracts for several lots, including clauses presenting different price information and rebate or deposit terms. Windeyer J strongly criticised some of those provisions (14-16).
The Court's reasoning began with the plaintiffs' concession that Fu Pty Limited had a caveatable interest securing $550,000. Windeyer J said it was “difficult to see any basis” for removing the caveat unless appropriate alternative security was offered, and none had been (2). That observation made the original request for removal difficult to sustain independently of the refinancing dispute.
The plaintiffs' real argument was that Fu Pty Limited, as successor trustee and fourth mortgagee, had to cooperate with the new finance arrangements. They relied on the settlement agreement and, as the judge understood the argument, an implied term requiring consent so long as the relevant secured amounts did not exceed $7.5 million (8, 19). The judgment rejected that reading. It said there was no such agreement and no basis for the asserted implied term (19).
The Court considered clause 6.1(d), which required Deemain Developments and Mr Deemain to assist with settlement of take-out finance with Howard Finance (10, 20). It accepted that the proposed refinancing was apparently known and that the parties were proceeding towards it. But the clause did not, in the Court's view, create an obligation on the defendant, as fourth mortgagee, to agree to an increase in amounts secured ahead of it (20-21). The judgment's conclusion was specific: the proposed transaction would have that effect, and the defendant was not obliged to accept it (21).
The calculation in paragraph 18 explains why the total mortgage figures in paragraph 17 did not resolve the issue. The proposed total was lower, but the first mortgage amount was higher and the security pool was smaller. The Court assessed the relative priority burden against 14 units as greater than the existing burden across 17 units. This was an evidentiary and transaction-specific assessment, not a general formula declared for all refinancing disputes.
The judge did not endorse the defendant's position as necessarily proper. Rather, the Court said that, because the parties could not agree, their strict legal rights had to determine the application (21). The judgment therefore separates possible criticism of a party's commercial stance from whether the Court could make the order sought.
The liquidator's willingness to consent did not alter the result. The Court treated the land as a trust asset, not an asset available to the general creditors of Deemain Development Pty Ltd. It also noted that the liquidator had made no claim for an indemnity or lien, and that the authorities relied on concerned matters irrelevant to the facts in contention (22).
Finally, the Court refused indemnity costs. It regarded the initial declaratory claims as doomed to fail, but considered that the refinancing arguments actually pursued could not be characterised as an abuse of process. It also noted that the defendant had created difficulties for reasonable settlement of sales (23). The order was for the plaintiffs to pay the defendant's costs, without the additional indemnity basis sought.
The judgment does not set out a broad account of the law before the case, nor does it cite or analyse a specific earlier decision as the source of a general rule. Its legal analysis is anchored in the facts, the settlement agreement and the relief sought. It would therefore be unsafe to treat this judgment alone as a comprehensive statement of Australian caveat or mortgage-priority law.
The proposition directly stated is narrower: where a fourth mortgagee has a caveatable interest securing a debt, and no appropriate alternative security is offered, the Court saw no basis on the plaintiffs' argument for removing the caveat to permit a refinancing that increased the amounts secured ahead of it (2, 21). The Court also rejected the asserted agreement and implied term on the wording and circumstances before it (19-20).
The judgment does not announce that a junior mortgagee can never be required to cooperate with refinancing. It states that there was no obligation on this defendant to agree to the particular increase in prior-ranking secured amounts proposed in this case (21). The agreement's clause concerning assistance with take-out finance was considered, but the Court did not read it as requiring the defendant to accept the proposed alteration to priority (20).
Nor does the judgment establish a general rule for calculating the effect of refinancing by averaging mortgage balances across lots. The 14/17 calculation was the Court's way of addressing the evidence that security would cover fewer lots after refinancing (18). Its significance depends on the transaction and evidence described in the judgment.
The decision's comments on sale-contract drafting are also distinct from its dispositive reasoning. Windeyer J criticised a contract that stated a purchase price on the front page while providing for a rebate that would reduce the settlement payment (14-15). He also discussed different stated and schedule prices for Lots 4 and 6 (16). These observations may be important to understanding the Court's concerns, but they were not the basis for dismissing the caveat application.
The judgment itself provides no account of how later courts treated it. Any claim about subsequent judicial application, approval or limitation would require later sources not included in this judgment.
At paragraph 2, the judge said that, because the defendant had a caveatable interest securing $550,000, removal was difficult to justify without other appropriate security. In plain English, the caveat protected an acknowledged mortgage interest, and the plaintiffs had not proposed substitute protection for that interest.
At paragraph 19, the judge rejected the asserted agreement and implied term: “There is no such agreement and there could be no such implied term.” In plain English, the Court did not accept that the settlement terms required the trustee to approve the proposed refinancing merely because the secured amounts were said to remain within a stated ceiling.
Paragraph 21 is the central statement about priority: there was “no obligation on the defendant as fourth mortgagee to agree to increases in the amounts secured in front of it”. In plain English, the fourth mortgagee did not have to accept a change that increased the secured amounts ranking ahead of its mortgage. The Court tied that proposition to what the plaintiffs were proposing, rather than expressing it as an unlimited rule for all mortgage arrangements.
Paragraph 15 contains the judge's sharpest comments about the sale contracts. He said a clause combining a stated sale price with a substantial rebate was “quite improper” and that solicitors who purposely prepared contradictory clauses might be guilty of professional misconduct. In plain English, the judge considered that inconsistent contract terms could mislead people who relied on the stated price. The passage is a judicial criticism in the course of discussing the contracts, not the ground on which the caveat application was decided.
Paragraph 23 explains the costs outcome. Although some initial claims were considered bound to fail, the Court did not regard the refinancing arguments as an abuse of process. The plaintiffs nevertheless had to pay the defendant's ordinary costs.
The decision is most directly relevant to a dispute with features matching those identified in the judgment: a junior mortgagee has lodged a caveat to protect an acknowledged mortgage interest; the registered mortgage has not yet been completed; the landowner seeks to remove the caveat to facilitate refinancing; and the proposed arrangement changes the amounts or security ranking ahead of the caveator.
The reasoning may also be relevant where a party relies on a joint venture or settlement agreement said to require a successor trustee or mortgagee to consent to refinancing. In this case, the Court examined the particular provision requiring assistance with take-out finance and rejected the broader asserted obligation to accept the proposed priority changes (19-21).
The effect of a changed security pool is another fact feature. Here, the refinancing would relate to 14 units instead of 17, and the Court considered the resulting priority burden rather than relying only on the aggregate mortgage totals (17-18). A dispute involving a different number of properties, different mortgage balances or different contractual terms may require a different analysis.
The judgment is less directly informative where no caveatable mortgage interest is admitted, where substitute security is offered, or where the relevant agreement expressly provides for the precise priority change proposed. It does not decide those scenarios. Its reasoning also does not supply a general rule about the validity of caveats outside the facts presented.
The sale-contract comments may be relevant to fact patterns involving inconsistent stated prices, rebates, deposits or side arrangements. The judgment illustrates the Court's concern that such provisions could mislead persons relying on the contract's stated price (14-16). It does not, however, decide a separate cause of action concerning those contracts.
The supplied judgment contains no later judicial decisions and no discussion of subsequent treatment. It would therefore be unsupported to state that later courts followed, applied, distinguished, approved or limited Miro v Fu Pty Limited.
The judgment does refer to decisions raised in argument about the liquidator's claimed indemnity and lien. Windeyer J said that the matters underlying those decisions had no relevance to the facts in contention (22). The judgment does not identify those decisions by citation in the supplied text, so their names or the precise propositions for which they were cited cannot be extracted here.
For research purposes, the judgment's own stated reasoning can be separated from any later treatment: it rejected an asserted obligation to accept an increase in prior-ranking secured amounts, declined caveat removal without appropriate substitute security, and determined the application according to the strict legal rights it identified (2, 19-21). Whether later courts have treated those propositions as persuasive, limited or fact-specific cannot be determined from this source alone.
The judgment does not set out the complete terms of the proposed new financing or explain every detail of how the 14-lot security pool was allocated. It records the mortgage totals and the unit-based comparison that produced the $613,942 increase (17-18). The reasoning therefore leaves questions about how the evidence was developed and how different allocation methods might apply to other property portfolios.
The decision also does not address what result might follow if a caveator were offered alternative security of an appropriate kind. Paragraph 2 identifies the absence of such security as significant, but the judgment does not define what security would qualify or how its adequacy would be assessed.
A further question is how an express contractual promise to consent to specified refinancing would affect the analysis. The Court dealt with the agreement before it, rejected the asserted agreement and implied term, and considered the take-out finance provision (19-20). It did not decide the effect of a differently worded express obligation.
The judgment's comments on the sale contracts raise questions that it did not resolve. It criticised clauses that appeared to present contradictory prices, rebates or deposit arrangements, and referred to possible misleading effects and professional misconduct (15-16). But it did not determine professional discipline, stamp duty liability, fraud, or the rights of purchasers or lenders under those contracts. Those comments should be read within the limits of the issues and findings actually addressed.
Finally, the judgment does not state whether any receiver was ultimately appointed. It says only that the refusal to remove the caveat might result in the first mortgagee appointing a receiver (21). Nor does the supplied source disclose any appeal or later judicial consideration.
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CITATION : Miro v Fu Pty Limited [2003] NSWSC 1009 HEARING DATE(S) : 25 and 26 September 2003 JUDGMENT DATE : 26 September 2003 JURISDICTION: 4882/03 JUDGMENT OF : Windeyer J at 1 DECISION : Summons dismissed
CATCHWORDS : REAL PROPERTY - caveats - whether caveator fourth mortgagee bound to consent to refinancing of mortgages taking priority when total amounts secured in priority are probably increased - SOLICITORS - contracts for sale of land - clauses with conflicting purchase prices - no consideration for reduction in price - duty of solicitors not to mislead Laurence Raymond Miro (First Plaintiff) PARTIES : Greenwood Management Pty Limited (Second Plaintiff) Fu Pty Limited (Defendant) FILE NUMBER(S) : SC 4882 of 2003 COUNSEL : Mr M Broun QC with him Mr Loxton (Plaintiffs) Mr DE Grieve QC (Defendant) SOLICITORS : L R Miro & Co (Plaintiffs) Miltons (Defendant)
4882/03 L R MIRO & ORS V FU PTY LTD JUDGMENT 1 HIS HONOUR: By summons filed on 18 September 2003 the plaintiff seeks: (1) a declaration that a trust called the Deemain Family Trust does not exist; (2) in the alternative a declaration that if it does exist the defendant Fu Pty Ltd is not a trustee of the trust; (3) a declaration that the defendant has no caveatable interest in the land described in the schedule, and (4) an order that a caveat 9952746 affecting that land, lodged by the defendant be removed. 2 It is now acknowledged by the plaintiff that the trust exists, that Fu Pty Ltd is trustee of the trust and as trustee is entitled to a fourth mortgage over the land in question. It is also acknowledged that in those circumstances it has a caveatable interest in the property. As it has a caveatable interest to secure the amount due under the fourth mortgage, namely, $550,000, it is difficult to see any basis upon which the order for removal would be made unless some other security of an appropriate kind were offered, which it has not been.
3 These findings are really all that is necessary to dispose of the matter so far as the relief claimed is concerned. But what is really wanted is that the defendant consent to a new mortgage being put in place as a first mortgage and the existing first mortgage to Suncorp Metway Limited, which is in default, be discharged.
4 The previous trustee of the Deemain Family Trust was a company which is now in liquidation. Its liquidator was prepared to withdraw the caveat so as to allow the discharge and registration of a new first mortgage and, then, as liquidator, he would have entered a new caveat against the relevant titles. The defendant as new trustee is not prepared to take the same course. The only question is whether or not it is bound to do so. While this is rather removed from the relief sought, this was the argued claim and, therefore, I proceed to deal with it.
5 The plaintiffs and Deemain Development Pty Ltd were involved in a joint venture to develop and sell land at Gosford; that land is now subdivided into 17 strata lots. There was some dispute between the venturers and an agreement was reached and put in writing under which Deemain would quit the joint venture on payment of $850,000. That agreement is dated 17 June 2003. Of the sum of $850,000, $300,000 was to be paid, and was paid, on 17 June 2003. The balance of $550,000 was to be paid on 31 January 2004. This amount was to be secured by fourth mortgage on the land, namely, the 17 lots. The agreement provided for registration of the fourth mortgage, but that has not been effected and the caveat was lodged to protect the mortgage interest. The mortgage interest is not in dispute.
6 On 17 June 2003 there were three mortgages on the land. The first was to Suncorp Metway Corporation, the second to Mr Grace, who is connected with the second plaintiff, and the third was to Mr Renjan Keteri. There was a prior first mortgage to Deemain which was discharged pursuant to the settlement agreement. 7 There are some clauses in the settlement agreement which are relevant to this decision. Clause 3.2 made the provision for the mortgage and Clause 3.2 provided for the proceeds of sale of units to the applied towards repayment of the $550,000 after all current existing secured and unsecured mortgages had been paid out.
8 Clause 4.2 is as follows:- Greenwood and Laurence Miro covenant and agree that the existing registered and unregistered mortgages over the land will not exceed the sum of $7,500,000 which sum does not include the balance.
The balance meant the $550,000. 9 Clause 5.1 provided that at the time of delivery of the deed, Deemain Developments "will enter into a deed of priority with existing registered and unregistered mortgagees which will place Deemain as fourth mortgagee over the land." 10 Clause 6.1 provided that upon delivery of the deed: Deemain Developments and Mr Deemain jointly and severally (d) will assist with the settlement of the take out finance with Howard Finance and (e) generally cooperate with Greenwood and Laurence Miro, in relation to the completion of the joint venture business." 11 Clause 10.2(a) provided that the plaintiffs agreed not to accept an offer to purchase a unit more than 15 per cent below the prices set out in schedule A to the agreement without their prior consent of Deemain Developments. The deed had a schedule setting out what could be described as list prices, 15 per cent discount prices, and the amounts at which three units had been pre-sold or were said to have been pre-sold. 12 On 18 July 2002 Mr Deemain as appointor appointed a new trustee to the trust. That trustee resigned on 27 August 2003 and Mr Deemain appointed the present defendant as new trustee.
13 An order was made for the winding up of Deemain Developments Pty Ltd on 8 September 2003. Mr Hancock is the liquidator. Three of the units, being those described as pre-sold, have been sold. These are lots 3, 4, and 6. 14 The schedule price for Lot 3 was $400,000. The price for Lot 3 stated on the front page of the contract $450,000. Special condition 29 of the contract for sale provides as follows: The parties hereto agree that: (1) no deposit is payable herein, and (2) on settlement, the vendor will allow the purchaser a rebate of $100,000 off the sale price so that the balance moneys payable on settlement is $350,000. 15 I have said before and say again that this type of clause is quite improper. It can be inserted for no purpose other than to mislead persons such as lending authorities and purchasers of other units in that development. In my view it is likely that solicitors who purposely prepare contracts with contradictory clauses such as this may be guilty of professional misconduct. It is more serious when the solicitor is a party to the contract as vendor. Unreal stated consideration for reduction, although that is not the case here, does not improve the position. Instructions of clients cannot excuse such conduct.
16 The contract price for Lot 4 is $349,000. The schedule price is $450,000. This is said to be explained by making an allowance for an amount due to the purchaser who is or was the builder for the development. If that is so, the contract gives a false figure and is a fraud on the Chief Commissioner for Stamp Duties. The contract price for Lot 6 stated on the front page of the contract is $340,000 subject to some adjustments, which is proper to say are at least identified on that front page. Nevertheless while the contract on the front page provides for a deposit of $33,170 the special conditions appear to provide that the deposit was not to be paid. The contract price when one takes into account the extraordinary provisions of special conditions 32 and 33 ends up as being $276,830. People who enter into these contracts are asking for the problems that are sure to befall them when disputes arise.
17 The result of all of this is as follows: At the present time the amounts due under the three mortgages in front of the defendant's fourth mortgage are as follows: First mortgage $3,812,643; second mortgage combined figures $2,434,000, and the third mortgage $500,000. Total $6,746,643. If replaced with the Howard Mortgage Trust First Mortgage, which is proposed to be put in place of the Suncorp Metway Mortgage which is in default, the position on the evidence will be as follows: First mortgage $4,280,000; second mortgage $1,390,000, third mortgage $500,000. Total $6,170,000.
18 On its face, that would appear to be beneficial to the defendant. But it is not because the security after this refinancing will be over 14 units not 17, so that if a general average figure is spread across the units, fourteen seventeenths of the present mortgage would be $5,556,058. On that basis, the amount secured in priority to the defendant will be increased by $613,942. In other words, while the second mortgage figure will be decreased, the first mortgage will be increased. On that basis it is not suggested that the whole of the purchase prices are necessarily going towards discharge of the mortgages, albeit that the total amount of the purchase prices are relatively close to the amount by which the second mortgage will be reduced. 19 Senior counsel for the plaintiff argued that there was an agreement between the plaintiffs and the then trustee by which the new trustee would be bound to cooperate in the refinancing and, as I understood it, some implied term that it would consent to any mortgages being put in front of it as long as the amounts secured did not exceed the sum of $7,500,000. There is no such agreement and there could be no such implied term.
20 It was the responsibility of the parties to cooperate to complete the joint venture business. It was an obligation of the defendant under Clause 6.1(d) to assist with the settlement of the take out finance with Howard Finance, although, that seems to be the only place at which Howard Finance is mentioned in the agreement. Nevertheless, one can assume that the proposed refinancing was known and the parties were proceeding towards that.
21 The fact is that there was no obligation on the defendant as fourth mortgagee to agree to increases in the amounts secured in front of it and the effect of what is now proposed is that would happen. I am not to be thought as saying that the stance taken by the fourth defendant is necessarily a proper one, but, as the parties are obviously quite unable to come to any agreement, they are entitled to have the matter determined in accordance with the strict legal rights. As I have said, the court could not make an order for removal of the caveat, upon the basis argued, namely, that there should be an order for removal to allow the refinancing with a new caveat put back in place. That is an order to which the plaintiffs are not entitled, albeit that the result may be that the first mortgagee will appoint a receiver.
22 The final matter with which I must deal is the argument of Mr Broun QC that the liquidator of Deemain Developments was prepared to consent to the removal of the caveat to allow the new financial arrangements proposed to be put in place ahead of what was then the trust asset of which the company in liquidation was trustee and of which the defendant is now trustee. That in itself has no real bearing on the matter, as this is a trust asset not an asset available to the general creditors of the company. However, it was argued that the liquidator had a right of indemnity out of the assets of the trust and a lien over those assets to protect him for his own expenses incurred with the trading trust. First, there is no claim for any such indemnity by the liquidator or for any such lien. Secondly, the matters upon which the decisions to which I was referred were based have no relevance whatsoever to the facts in contention in these proceedings.
23 Application has been made that the costs be paid on an indemnity basis. In my view that order should not be made. Where the original relief was sought, at least the first three paragraphs were doomed to fail. The matter always proceeded so far as any hearing or mention before me was concerned on the arguments which I have dealt with in my judgment. It would be impossible to say it was an abuse of process to bring forward those arguments. The defendant has done everything possible to put difficulties in the way of the reasonable settlement of the sales taking place. On no basis is the defendant entitled to indemnity costs. The order is the plaintiff to pay the defendant's costs.
Last Modified: 11/06/2003 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.
Miro
Fu Pty Limited
Summons dismissed. The Court declined to order removal of the defendant's caveat to permit the proposed refinancing. The plaintiffs were ordered to pay the defendant's costs, not on an indemnity basis.