BETWEEN : NATIONAL AUSTRALIA BANK LTD (ACN 004 044 937)

Removal of caveat - Registered mortgagee applicant - Priority with equitable mortgagee - Onus - Notice of equitable mortgage - Constructive notice - Balance of convenience - Turns on own facts

Transfer of Land Act 1893, s 138

Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd (1984) 2 NSWLR 128

Custom Credit Corporation Ltd v Chellaston Pty Ltd & Anor, unreported; SCt of WA (Anderson J); Library No 930340;10 June 1993

Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

Dunecar Pty Ltd v Colbron [2001] NSWSC 1181; (2001) 40 ACSR 342

Eng Mee Yong & Ors v Letchumanan s/o Velayutham [1980] AC 331

His Grace Metropolitan Petar & Ors v Macedonian United Society of Western Australia Incorporated & Ors [2003] WASC 15

J & H Just (Holdings) Pty Ltd v The Bank of New South Wales & Ors [1971] HCA 57; (1971) 125 CLR 546

Loan Investments Corporation of Australasia v Bonner [1970] NZLR 724

Optel Pty Ltd v National Companies and Securities Commission & Ors (1990) 2 ACSR 493

Pindan Pty Ltd v Sunny's Redevelopment Pty Ltd & Anor [2001] WASC 104

Porter v McDonald & Anor [1984] WAR 271

R & I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd (1993) 11 WAR 536

Bomford v Barrett [2002] WASC 304

Butler v Fairclough [1917] HCA 9; (1917) 23 CLR 78

Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298

Police and Nurses Credit Society v Weber & Anor [2003] WASC 45

Starkey v Barton [1909] 1 Ch 284

1 COMMISSIONER MCKERRACHER QC: This is the plaintiff's application by summons requiring the first defendant to show cause why its caveat should not be removed from land in Redfern Street, North Perth ("the property").

2 The plaintiff is a mortgagee pursuant to a mortgage registered against the property on 4 June 1998. The first defendant is the caveator in respect to the caveat numbered H299941 ("the caveat") lodged against the property in early December 1999.

3 The application proceeds pursuant to s 138 of the Transfer of Land Act 1893. Section 138 relevantly provides:

(2) Any such applicant, proprietor or judgment creditor, or any person claiming under any transfer or other instrument signed by the proprietor may if he think fit summon the caveator to attend before the Supreme Court or a Judge in chambers to show cause why such caveat should not be removed; and such court or Judge may upon proof that such caveator has been summoned make such order in the premises either ex parte or otherwise as to such court or Judge may seem fit."

4 There was no dispute that the plaintiff was entitled as a registered mortgagee over the property to apply for the removal of a caveat under s 138 of the Act. Reliance was placed on Custom Credit Corporation Ltd v Chellaston Pty Ltd & Anor, unreported; SCt of WA (Anderson J); Library No 930340; 10 June 1993. In that case his Honour said:

"I am told that the plaintiff, Custom Credit Corporation Limited is in the process of selling the separate lots comprising the strata plan covering the land the subject of the mortgage. Some lots have been sold, contracts of sale have been entered into in respect to other lots and the caveat lodged and dated on 16 April 1993 or thereabouts is preventing completion of those agreements and hence this application which is an application by Custom Credit Corporation Limited calling upon the defendants to show cause why the caveats ought not to be removed.

There are a number of reasons advanced as to why the caveat ought to be removed and in my opinion the reasons that have been advanced have substantial merit. Generally speaking an application under s 138 of the Transfer of Land Act will not result in the removal of caveats or a caveat (unless the court is clearly of the opinion that there is no caveatable interest disclosed) without giving to the caveator a reasonable opportunity to maintain or to establish the interest which is asserted in support of the caveat."

5 I also refer to the analysis by Barker J in His Grace Metropolitan Petar & Ors v Macedonian United Society of Western Australia Incorporated & Ors [2003] WASC 15 where his Honour said:

"[32] The expression 'proprietor' is defined by s 4 of the Act in relevant terms to mean -

'(a) In relation to freehold land, the owner, whether in possession, remainder, reversion or otherwise, of land or of a lease, mortgage or charge over land.'

This plainly includes a holder of a mortgage, such as the Bank in this case. Thus, s 138B might be taken advantage of by a person such as the Bank to cause a caveat to be removed without immediately having to incur the expense that would normally be associated with summonsing the caveator under s 138.

[33] However, apart from that obvious difference, and the fact that s 138C prescribes the power of the Court to extend the operation of a caveat, the principles underlying s 138 and ss 138B and 138C would appear not to be dissimilar. For that reason, I consider that, while s 138C(2)(a) sets out the test by which a caveat may be extended, that particular provision does not require the Court to extend a caveat in circumstances where the balance of convenience plainly militates against the making of such an order. I note that, in Pindan Pty Ltd v Sunny's Redevelopment Pty Ltd [2001] WASC 104; [2002] ANZ Conv R 51, Murray J at pars [1] - [9] formed a similar view, for reasons with which I also agree. This approach was also adopted in Perpetual Pty Ltd v National Australia Bank Ltd [2002] WASC 13."

7 On 2 June 1998 the mortgage was given by the Sagginis over the property and registered on 4 June 1998. On Wednesday 6 October 1999 the Sagginis entered into an agreement to purchase a business. The agreement included an "Annexure A" which it is accepted set out the terms of vendor finance from the first defendant, including the fact that it was to be secured by way of second mortgage over the property.

8 On 18 October 1999 Mr Richard Symes, a finance broker employed by the Sagginis, faxed to Mr Feroze Sukh of the plaintiff stating that the vendor finance was available and was unsecured. He co-faxed the contract for the sale of the business and possibly Annexure A to that contract, but the latter fact is in dispute. Around the end of October Mr Symes gave to Mr Sukh a formal finance application of many pages. He is confident that it would have included the whole of the contract, including Annexure A. Mr Sukh does not recall receiving the application and is equally adamant that he did not receive any information to the effect that vendor finance was to be secured. Such information would have been contrary to the original contents of the fax sent by Mr Symes to Mr Sukh.

9 On 17 November 1999 Saggini Pty Ltd was incorporated and a week later the plaintiff approved finance to Saggini Pty Ltd of $315,000 and Mr Sukh faxed advice of that fact to Mr Symes and copied the first defendant.

10 A week after this settlement proceeded with the Sagginis executing the second mortgage held by the first defendant and signing a guarantee to the plaintiff for the advance of $315,000 to Saggini Pty Ltd.

11 At that time the caveat was lodged, together with a copy of the deed of loan. It was stamped 2 December 1999. The plaintiff knew nothing of this caveat until 2002, long after further advances it made.

12 On 9 December 1999 the mortgage was upstamped to secure $315,000 and on 13 October 2000 the plaintiff made a further advance to Saggini Pty Ltd with a fresh guarantee being signed by the Sagginis. The mortgage was upstamped again on Wednesday 6 December 2000 with the plaintiff making a further advance to the company supported by the guarantee from the Sagginis.

13 On 2 April 2002 Saggini Pty Ltd was placed into administration and on 7 February 2003 there was a deed of variation to the deed of loan with the first defendant giving Mr and Mrs Saggini an extension of time to pay. On 25 June 2003, however, they became bankrupt.

14 The plaintiff says it had no actual knowledge of the mortgage and no knowledge of the caveat lodged in respect of the mortgage. It says that advances which it made subsequent to the lodging of the caveat are secured by its original mortgage and stand in priority to any entitlement of the first defendant under its equitable mortgage.

15 It is clear that the first defendant had actual knowledge of the mortgage before it took security over the property and lodged the caveat against the title on 3 December 1999. At no time did the plaintiff expressly consent to the first defendant taking any security over the property. The Sagginis were allegedly in default under the mortgage if they failed to seek and obtain such consent and the plaintiff has commenced a mortgagee action against them. That action has not been pursued partly because the Sagginis received an offer to purchase the property and sought the plaintiff's consent to sell the property for the sum contained in the offer. The plaintiff consented to the sale of the property at that price and the Sagginis have accepted the offer. The plaintiff has not pursued its proceedings against the Sagginis pending sale of the property. The sale of the property is unable to proceed to settlement, however, because the first defendant has refused to withdraw the caveat.

16 At the time when the plaintiff was being approached to provide further finance for the proposed purchase of the business, Mr Symes for the Sagginis informed the plaintiff that there was to be vendor finance for the acquisition in the following terms:

"Vendor finance $80,000 at 9% flat over 5 yrs

No early pay out penalty

No security."

17 In the fax from Mr Symes to Feroze Sukh on 18 October 1999, Mr Symes asked Mr Sukh whether the deal (the acquisition of the business) was worth pursuing. The purchase price of the business was $380,000 and in addition to the vendor finance to which I have referred, the Sagginis required a loan of $300,000 plus a $30,000 overdraft to acquire the business. For that loan they were offering security of 86 Redfern Street, North Perth (their home) which they said was valued at $450,000.

18 With the covering handwritten fax of 18 October were certain documents, including a copy of the actual agreement to purchase the business. Condition No 4 to the offer, as a special condition to the purchase provided "see Annexure A".

19 Mr Symes, is confident that he would have forwarded Annexure A with this facsimile and explains why that would be so. Mr Sukh is equally confident that Annexure A would not have been received if it referred to the Sagginis giving the equitable mortgage to secure the vendor finance. He gives detail as to the practice and procedure of the plaintiff in that circumstance and the fact that even if he had overlooked the reference to the equitable mortgage, it would have been noticed by his superior. The Plaintiff has searched its records and cannot locate, amongst other things, Annexure A.

20 Mr Symes also deposes to the fact that he provided to Mr Sukh a very detailed application amounting to some 100 pages which he is confident would have included Annexure A and/or reference to the fact that the first defendant was intending to secure the vendor finance by way of an equitable mortgage. Mr Sukh is equally adamant that he did not ever receive notification in such documentation or otherwise about the intention of the first defendant to take an equitable mortgage to secure their vendor finance. Nor did the plaintiff have any knowledge of the intention of the first defendant to lodge a caveat to secure the interest reflected in the equitable mortgage.

21 I cannot in an application of this nature and at this stage resolve those contested facts on the affidavits. Realistically, the evidence falls into the category in each instance of people speculating as to the steps that they took based on their usual practice. Although the evidence has been cast in stronger terms than that, I infer that in the absence of documents to confirm the position that with some years having passed since the transactions, no-one is able to say with complete confidence precisely what written information on this topic was imparted to the plaintiff by the first defendant.

22 The first defendant took objection to an affidavit of Kylie Shay Allan sworn 6 May 2005, annexing the guarantees and indemnities given by the Sagginis to the plaintiff, together with statutory declarations of Antonio Saggini. That affidavit was filed less than 48 business hours prior to the hearing of this application. The documents which it annexes purport to establish the plaintiff's entitlement to rely upon the guarantees annexed to the affidavit together with the upstamped mortgage to bring all of the indebtedness to the plaintiff under the umbrella of the one mortgage. This of course falls to the question of priorities.

23 Counsel for the first defendant made the point that the absence of these security documents was the subject of written complaint in submissions some months ago. This observation is undoubtedly correct and reasonably made. Counsel also observed that the late service of this affidavit material made it extremely difficult for the first defendant to formulate arguments in response to the affidavit. Many of its earlier arguments had been wasted and were not pursued in the course of the oral submissions.

24 I indicated that I would take the affidavit into evidence provisionally and would rule on its admissibility when I had heard the entirety of the argument and would, in any event, permit any further application for supplementary written submissions and hear argument on costs.

25 Counsel specifically said that the first defendant did not seek an adjournment of the hearing and accordingly the matter proceeded.

26 In my view, subject to hearing the first defendant on the question of costs and having permitted the first defendant the opportunity to file additional written submissions if it sought to do so, the affidavit should form part of the material before the court as it gives an accurate picture of the true state of affairs on the financial transactions.

27 A preliminary question which was ventilated was whether in an application under s 138 of the Act brought by a mortgagee rather than by the registered proprietor, the onus still lies on the caveator to demonstrate that there is a serious question to be tried. That is undoubtedly the normal position: Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42.

28 For the first defendant, it was submitted that the position was different in the context of an application which is not made by the registered proprietor. Reliance was placed on the Privy Council decision of Eng Mee Yong & Ors v Letchumanan s/o Velayutham [1980] AC 331 and Optel Pty Ltd v National Companies and Securities Commission & Ors (1990) 2 ACSR 493 at 495.

29 In Eng Mee Yong Lord Diplock delivering the advice of their Lordships, held that where the applicant had no registered title to rely upon as prima facie evidence of the interest in the land such as in the case of a proposed transferee, it was for an applicant to begin by satisfying the court that there were sufficient grounds in fact and in law for treating him as a person claiming such an interest in the land as would, if it were established, make him aggrieved by the existence of the caveat. His Lordship continued at 337 dealing there with the caveator:

" This is the nature of the onus that lies upon the caveator in an application by the caveatee under section 327 for removal of a caveat: he must first satisfy the court that on the evidence presented to it his claim to an interest in the property does raise a serious question to be tried; and, having done so, he must go on to show that on the balance of convenience it would be better to maintain the status quo until the trial of the action, by preventing the caveatee from disposing of his land to some third party."

30 Optel Pty Ltd was also an application under s 138 of the Act (as it was prior to the 1996 amendments) and was an application to extend a caveat.

31 Referring to Eng Mee Yong, Murray J observed at 495:

"I think the Australian cases on the point are consistent with that view of the law because each of them was a case where the applicant for the removal of a caveat derived their right directly through the registered proprietor as mortgagee, as distinct from the situation in this case where the applicant before me for the discharge of the injunctions, is a party who wishes to take a transfer of the land, but otherwise has no present interest in or title to it: Lewenberg and Pryles v Direct Acceptance Corp Ltd [1981] VicRp 36; [1981] VR 344; Re Jorss' Caveat [1982] Qd R 458."

32 Adopting that approach the registered mortgagee is entitled to rely upon its prima facie evidence of its interest in the land. In my view the onus then shifts to the caveator in the way outlined by Lord Diplock.

33 The main debate in these proceedings has been whether the plaintiff received notice of the first defendant's intention to take an equitable mortgage. There was also a debate as to the timing of such notice (if any) and whether the notice has to be actual or whether it may be constructive or imputed notice.

34 The first defendant alleges that the plaintiff was given the notification of its intention to take a mortgage on the two occasions when Annexure A to the contract was provided to it. It seems to be common ground that Annexure A referred to the first defendant's intention to take an equitable mortgage.

35 The first defendant takes the further point that the plaintiff is the author of its own misfortune if it received notification of an intended special condition referred to by reference to Annexure A, but took no steps to ascertain what was in Annexure A.

36 From the plaintiff's point of view it says that it was given no information which would put it on any form of alertedness to the fact that Annexure A may contain reference to a security to be given back to the vendors. In particular, the covering communication from Mr Symes was quite specific in saying that there was to be no security.

37 The plaintiff makes the further technical distinction that, at best, the first defendant's allegations could only amount to an assertion that it advised the plaintiff of an intention to take a security at a future time. It says the first defendant however, on its own evidence, failed to advise the plaintiff at any time that it had already actually taken an equitable mortgage in relation to the relevant property and failed to advise the plaintiff that it had lodged the caveat. All of the advances made by the plaintiff were made before it discovered the existence of the caveat. There may be some merit in this argument but again I do not consider an application of this sort gives rise to the occasion for determination of whether that argument will ultimately succeed. That prospect may very well depend not only on the facts presently in dispute but on others yet unknown.

38 It is clear that the mortgage was registered against the property prior in time to the equitable mortgage. The plaintiff says accordingly that in applying general law principles in respect of priorities it is clear that the plaintiff has an interest in the property which is superior to and must prevail over the first defendant's interest.

39 The plaintiff submitted that even where a caveator has an interest in land, if the evidence shows that the interest in land is overridden by a superior interest, then the caveat should almost always be removed. For this proposition the plaintiff relied upon Dunecar Pty Ltd (in liq) v Colbron [2001] NSWSC 1181; (2001) 40 ACSR 342. In that case Young CJ in Eq held:

"[18] However, the treatise on caveats against dealing in Australia and New Zealand by Lindsay (Federation Press, Sydney, 1995) pp 193-7 seems to me to have more precisely and correctly analysed what Holland J did decide in Kerabee Park than the submissions made in the present case. If it is more probable than not that even though the caveator has an interest in the land, that interest in the land is overridden by a superior interest in the land, then the caveat should almost always be removed.

....

[20] The caveator has to show, in my view, that the balance of convenience favours leaving the caveat in place pending the hearing of the proceedings: see eg Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987. In many cases if the caveator will not accept a substitute security then it is a case where the caveator has not demonstrated the balance of convenience and the caveat will go."

40 It is also clear that a mortgagee to whom a property is mortgaged for advances already made will also have priority over any subsequent mortgagee for further advances made under the first mortgage unless the first mortgagee has actual notice of the subsequent mortgage. The emphasis is on the notice being actual. Until the first mortgagee has such actual notice it is entitled to assume that there is no change in the state of the title and entitled to act on the first mortgage to secure any future advances. This proposition relies on Central Mortgage Registry of Australia Ltd v Donemore Pty Ltd (1984) 2 NSWLR 128.

41 It follows that the onus is on the person or company acquiring the subsequent interest in the land by conveyance from the mortgagor to give express notice of that fact to the first mortgagee in order to intercept payments or advances thereafter made pursuant to the first mortgage (Central Mortgage).

42 It is common ground that lodging a caveat by a subsequent mortgagee does not of itself constitute actual notice nor even constructive notice to a first mortgagee who later makes further advances on the mortgage as the purpose of a caveat is protective rather than that of giving notice (J & H Just (Holdings) Pty Ltd v The Bank of New South Wales & Ors [1971] HCA 57; (1971) 125 CLR 546 at 552). In J & H Just (Holdings) Pty Ltd Barwick CJ said at 552:

" ... In practice however the caveat is given a number: and a note of its lodgment and of the estate or interest claimed, is made on the relevant certificate of title, but not necessarily at the time of the lodgment of the caveat. Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator's estate or interest though if noted on the certificate of title, it may operate to give such notice. ... "

43 It does not seem to be in dispute that Central Mortgage stands for the propositions referred to above but the first defendant contends that Central Mortgage does not represent the law in Western Australia since R & I Bank of Western Australia Ltd v Cash Resources Australia Pty Ltd (1993) 11 WAR 536 where, the first defendant says at 547, Anderson J rejected the proposition that only actual notice could ever suffice.

44 I am unable to accept that submission. As I understand R & I Bank, the remarks of Young CJ in Eq are qualified or expanded upon only in an extremely limited fashion. In the judgment of Anderson J the following passage appears at 547:

" Perhaps it is not truly a matter of categorising the notice as being actual or constructive. The basis of the rule in Hopkinson v Rolt [(1861) [1861] EngR 641; 9 HLC 514; 11 ER 829] is 'justice and fair dealing as between the mortgagor and the mortgagees, and as between the competing mortgagees' (Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293 at 300, per Holland J). The starting proposition is that the security of the first mortgage is not impaired or affected without notice of a second mortgage. The first mortgagee is entitled to act on the basis that his security continues in full effect until he has notice of something to the contrary. Knowing that a second mortgagee has acquired an interest in the property, it would be, in the language of equity, against conscience to allow the first mortgagee to make a further advance calculated to affect the rights of the second mortgagee. In the technical sense in which the word is used in equity, it would be a fraud on the second mortgagee. Therefore, any notice, to be operative, would have to sustain a charge of equitable fraud. The notice would have to be such as to affect the conscience. The general rule is that only actual notice will be sufficient to do that. Actual knowledge must generally be proved. However, there may be exceptions. There may be circumstances under which, although actual knowledge is not proved, the circumstances are so strongly against the first mortgagee that knowledge of a subsequent encumbrance should be imputed to him. One such circumstance may perhaps be where there has been deliberate conduct on the part of the first mortgagee designed to prevent receipt of actual notice of the later encumbrance."

45 In the circumstances of this case the plaintiff did not have actual notice of a caveat until about September 2002 when the first defendant's solicitors wrote to it regarding the first defendant's intention to lodge a second mortgage over the title to the property. There is no suggestion on the evidence or submissions or if there is, I do not accept that the circumstances are so strongly against the plaintiff that knowledge of the subsequent encumbrance should somehow be imputed to it.

46 The first defendant also argued that it may well be entitled to an equitable interest which can be protected by caveat from the date of execution of the agreement for the purchase of the business, rather than a subsequent date and for this proposition relies upon the Privy Council decision of Loan Investments Corporation of Australasia v Bonner [1970] NZLR 724. In response to this submission the plaintiff observed that even if the submission could be made good it does not overcome the requirement that notice be given of the interest in order to overcome the priority which the plaintiff would have as a mortgagee. It seems to me this submission is correct.

47 It was also submitted for the first defendant that the proper construction of the guarantees was that interest on them in circumstances of default would only run for a period of 12 months. In my view, this argument was not compelling having regard to cl 8.2 of each of the guarantees which entitles the plaintiff to continue to charge interest. The relevance of this is, if it is correct, is that the indebtedness to the plaintiff would have increased so significantly that the debate about the value of the property becomes almost academic.

48 As against that, the first defendant reminds me and I accept that in Porter v McDonald & Anor [1984] WAR 271 Rowland J at 276 said:

"The practice with respect to the removal of caveats is one of long standing. The caveat will not be removed unless the claim to an estate or interest in the land appears to be without foundation. The courts will not, except in the most exceptional cases, decide the matter on summons. I believe that those of us who learned the Torrens system from Dr Kerr the Australian Lands Titles (Torrens) System (1900) will have no trouble with that statement (see pp 492 - 495). Brinsden J in Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129 collects many of the authorities."

49 Despite this, there are many cases in which a caveatee has been unable to establish the existence of a caveatable interest and for present purposes, while the caveatable interest is accepted the real issue is one of timing and priorities.

50 The first defendant points to the fact that the property has been offered for sale by the Sagginis to a family friend at a sale price of $471,000 which the first defendant says is well below what the property is currently worth. A recent valuation obtained by the first defendant suggests that the property is worth between $550,000 and $575,000. To this the plaintiff says that it believes it is bound by its agreement to permit the sale of the property to the family friend which would have proceeded at an earlier time had it not been for the existence of the caveat. The first defendant responds that the plaintiff only has itself to blame for failing to consult with the first defendant in relation to the sale and that the first defendant would have made its position clear had it done so.

51 Correctly, in my view, the plaintiff observes that a mortgagee has no obligation of consultation or obtaining approval in such a circumstance. The obligation on the part of the plaintiff was to act with bona fides in relation to the transaction and there is no evidence that it has acted otherwise.

52 Additionally, the plaintiff submits that even if $550,000 was obtained for the property (less commission and expenses), such a sale would not necessarily yield anything to the first defendant after the plaintiff had deducted its entitlement if its arguments are correct and the first defendant's arguments as to priority are not ultimately upheld. It is because of this state of uncertainty at this point that the plaintiff has, with my encouragement, modelled a compromise proposal.

53 To facilitate a compromise, counsel for the plaintiff made the following proposal:

" The position in respect of the instructions you asked me to seek are as follows. As you will recall, there is one loan among the four that predates any allegation of any notice at all, and that's the home loan, without penalty rates, so just at normal rates, for the sake of convenience and to make sure there is no argument, the amount owing on that loan as of today, and not including costs of these proceedings obviously, is $211,867.53.

What the bank proposes to undertake is this: if the caveat is removed, the bank considers itself bound to sell to the current contracted purchaser. If that purchaser wishes to complete, so be it. If that purchaser doesn't complete, the bank will of course go in and sell at today's rates, or today's value, what it can get at today. Either way, the bank proposes, as at the time of receipt of the proceeds of sale, it will pay itself in respect of the home loan. So there will be a small increment on 211, depending on what the date is, but that will be calculated at base rates, not penalty rates.

The remaining amount it will put into an interest-bearing account to the satisfaction of the court or both parties, whichever works, and it will abide by an order of the court in respect of any priority owed to the first defendant on the basis that the first defendant commence proceedings expeditiously, and the bank of course will do whatever it can to get those proceedings expedited.

I appreciate my friend's point that there is not a lot of benefit getting into very long and protracted proceedings, so we will do whatever we can to get those proceedings, for what I assume is declaratory relief, heard as quickly as possible."

54 I urged the parties to endeavour to reach an accommodation to that end but the first defendant was unwilling to do so. It was unwilling to accept what it saw as no more than "the opportunity to litigate" in lieu of its "entitlement to a caveat to protect its mortgage" and considered that the delay and costs which may be occasioned in litigation could, in any event, erode any entitlement it has under the equitable mortgage secured by the caveat.

55 It seems to me inevitable that the first defendant's claim for priority will have to be litigated. I can see no realistic possibility, absent a settlement between the parties, of litigation being avoided. That being so, in considering the balance of convenience, the fact that there will be litigation if the proposal advanced by the plaintiff is adopted, cannot be a particularly significant factor in this instance.

56 It appears to me that the plaintiff's proposal is one that affords the best possible protection to the first defendant in relation to its equitable interest which on the evidence at present, while undoubtedly existing, is by no means one with a strong case for priority. I say this principally because of the view I take on the R & I Bank case about the need for actual notice in the absence of any form of equitable fraud as there described. The first defendant will have the onus of showing that it gave actual notice in that sense. I am of the view that the evidence at this stage in support of the first defendant discharging that onus is fairly weak. As against this, the proposal put up by the plaintiff has merit and is a better means of protecting the position of both parties.

57 Given the weakness of the arguable case, it seems to me that the balance of convenience is an important factor and the balance of the convenience favours resolving the matter in the manner proposed by the plaintiff. Adopting this course appears to me to be entirely consistent with well established practices in such matters. I am mindful of the observations by Young CJ in Dunecar Pty Ltd (supra) at [20] and also those of Murray J in Pindan Pty Ltd v Sunny's Redevelopment Pty Ltd & Anor [2001] WASC 104 at [22] where his Honour said, having concluded that he was not prepared at that stage to hold that Pindan had no maintainable caveatable interest:

"22 It follows that I should make the orders sought unless I am persuaded that upon the balance of convenience the alternative course proposed by Sunny's should be taken. I think it may. It seems to me that the creation of the fund envisaged would provide perfectly adequate security as an alternative to reliance upon the charge under the building contract. At the same time, it would enable Sunny's to otherwise finalise the project, leaving it in a position to make appropriate arrangements with its bankers, to pursue its proposal for refinancing, and to otherwise conduct its affairs as it pleases. I see no circumstance of danger to the position of Pindan in what is proposed in that regard. I decline to make the order sought except to extend the operation of the caveat until the fund discussed above is established, whereupon, on the presentation of evidence to that effect to the second defendant, the caveat may be discharged in respect of the whole of the land presently covered."

58 Accordingly, I would order that, subject to the plaintiff providing a formal undertaking substantially in the terms which I have quoted and the resolution of the respective priorities being resolved by litigation being initiated without delay, the second defendant do remove the caveat. I will hear counsel on the form of the orders and on the question of costs.