MATTER : Section 138 of the Transfer of Land Act 1893

Real property - Caveats - Plaintiff developer and registered proprietor summons defendant caveator to show cause why caveat should remain - Plaintiff trustee of unit trust - Two corporate trustees hold the units in the unit trust - Mother and two sons the alter egos of the plaintiff and the unit holders - Defendant's allegation of breaches of trusts involving unauthorised liabilities and use of funds - Underlying dispute over defendant being successor in title to one of the unit holders - No dispute serious question to be tried - Whether sufficient interest in land by holding unit in unit trust - Whether balance of convenience applicable - Caveat already lifted to allow sales of newly created lots in plaintiff's trading stock - Caveat remaining over rest of development even if removed for sales of trading stock - Whether balance of convenience favours plaintiff - Defendant seeking order that summons be dismissed on receipt of the accounts it seeks as a unit holder - Whether abuse of process

Transfer of Land Act 1893 (WA), s 138(2)

Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14

Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 207

Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352

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

Hughan v Gray [2002] WASC 164

Interview Holdings Pty Ltd v Registrar of Titles [2008] WASC 144

Jandric v Jandric [1999] WASC 22

Midland Brick Company Pty Ltd v Welsh [2002] WASC 248

Porter v McDonald [1984] WAR 271

1 TEMPLEMAN J: This is an application under s 138(2) of the Transfer of Land Act 1893 (WA), requiring a caveator to show cause why its caveat should not be removed.

2 The application came before me on 4 March 2009. I then came to the conclusion that the caveator had shown cause, and that the application should therefore be dismissed. I gave a brief outline of my reasons for reaching that conclusion and said that I would publish my full reasons in due course. I now set out those reasons.

3 The plaintiff, Navarac Pty Ltd (Navarac) is the trustee of the Car Child Unit Trust (the Trust). There are two units. One unit has been held since the inception of the Trust by Venetian Nominees Pty Ltd (Venetian), as trustee for the JMC Child Trust (the JMC Trust). This is a trust for the children of John Michael Caratti.

4 When the Trust was established, the other unit holder was Tosman Pty Ltd (Tosman). Tosman was the trustee of the ABC Child Trust (the ABC Trust). The beneficiaries of the ABC Trust are the children of Allen Bruce Caratti.

5 The first defendant, Moondancer Holdings Pty Ltd (Moondancer) claims to be the successor in title to Tosman, as a unit holder in the Trust, and as trustee of the ABC Trust. This is denied by Navarac.

6 The sole director of Moondancer is Allen Bruce Caratti.

7 The second defendant, the Registrar of Titles, has taken no part in the proceedings.

8 The dispute is essentially between Allen Caratti, his brother John Caratti and their mother Maddeleine Caratti. John and Maddeleine Caratti are directors of Navarac. Allen Caratti asserts that he is also a director of Navarac. This is denied by the defendants, who contend that he was removed as a director in May 2002.

9 On 18 January 2008, Moondancer commenced proceedings by writ in action CIV 1061 of 2008 against Navarac and Venetian and three of their common directors, being Aaron, Maddeleine and Allen Caratti. Having regard to the fact that Allen Caratti is, in effect, the alter ego of Moondancer, it is not clear why he should be a defendant. Not surprisingly, no relief is sought against him. However, nothing turns on that for present purposes.

10 Moondancer claims that with effect from 18 July 2007, Tosman retired as trustee of the ABC Trust and that Moondancer was appointed in its place.

11 Moondancer then claims that Navarac has committed various breaches of the Trust. These breaches are said to include the making of substantial unsecured, interest-free loans to various third parties.

12 The relief sought by Moondancer includes an order for an enquiry by a master as to the loss suffered by the Trust by reason of the alleged breaches of trust; an order that the Trust vest; and that a receiver be appointed to get in the assets of the Trust and distribute them to the beneficiaries.

13 The Trust's assets include a number of parcels of land; in particular, land at Bertram in suburban Perth.

14 In their defence, Navarac and its directors deny that Moondancer was properly appointed as trustee of the ABC Trust and denies that there have been any breaches of trust.

15 The pleadings in the action closed on 27 August 2008, with the service of a reply. However, I was informed at the hearing on 4 March 2009 that Moondancer wishes to amend its reply.

16 There is an issue between the parties as to whether Navarac's accounts are discoverable in the action. No application has been made by Moondancer for specific discovery. However, on 6 June 2008, Moondancer made an application against Navarac and various other Caratti companies for production of their various financial statements. That application was brought under s 290 of the Corporations Act 2001 (Cth) in COR 71 of 2008. It remains pending.

17 On 4 October 2007, Moondancer lodged a caveat with the Registrar of Titles in relation to 19 parcels of land held by Navarac. The caveat forbade the registration of any instrument affecting the estate or interest in the subject land until after notice of the intended registration or dealing had been given to Moondancer.

18 The basis on which Moondancer claimed an interest in the land was:

Being a beneficiary under the terms of the CarChild [sic] Unit Trust Deed dated 30 October 1995 made between Johnathan Adam Davies as settlor and Navarac Pty Ltd as trustee, the Deed of Retirement and Appointment of New Trustee concerning the ABC Child Trust dated 18th July 2007, the Form of Transfer concerning the CarChild [sic] Unit Trust dated 26 September 2007 and the Car Child Unit Trust Certificate ...

These are the documents by which Moondancer claims to derive its title.

19 The land the subject of the caveat includes the land at Bertram, referred to above.

20 The application is brought under s 138(2) of the Transfer of Land Act, which entitles a registered proprietor of the caveated land to summon the caveator to attend before the Supreme Court or a judge in chambers to show cause why such caveat should not be removed. On proof that the caveator has been summoned, the court or judge may

make such order in the premises either ex parte or otherwise as to such court or judge may seem fit.

21 The issue which usually arises in an application such as this is whether the caveator has the estate or interest he claims, in the land he has caveated.

22 In the present case, counsel for Navarac submits that because Moondancer's status as a beneficiary of the Trust is in issue in action CIV 1061 of 2008, it is not necessary to determine that issue in the present application. That is tantamount to a concession, that for the purposes of this application, Moondancer may be taken to have a caveatable interest.

23 However, counsel submits that even if Moondancer has an interest sufficient to maintain a notice caveat, it does not have a proprietary interest in the land, having regard to cl 3.3 of the Trust Deed.

Each Unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as and entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and no Unit Holder shall be entitled to the transfer to him of any property comprised in the Trust Fund.

25 In my view, that submission is contrary to the decision of Malcolm CJ in Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352, 374, that although a unit holder does not have a specific title to any individual trust asset, and cannot claim to have any particular asset appropriated to his share or transferred to him, he nevertheless has 'a special and non-specific equitable interest, [which] is nonetheless a proprietary interest'. His Honour went on to say that it followed, necessarily, that the holder of that interest had a caveatable interest in the land in question.

26 That decision was adopted by Pullin J in Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14 [26], which was followed by Simmonds J in Interview Holdings Pty Ltd v Registrar of Titles [2008] WASC 144.

27 In my view, cl 3.3 of the Trust Deed does no more than state the position under the general law, as set out above.

28 In seeking to show cause why its caveat should not be removed, Moondancer relies not only on its claimed status as a unit holder in the Trust, but on a number of matters referred to in affidavit evidence filed in this application and in proceedings CIV 2102 of 2007, a previous application for removal of the caveat relating to other land.

29 The evidence, which has not been challenged in this application by Navarac, includes the following:

1. Navarac has received more than $50 million from the sale of property but has made no distribution to Moondancer from those funds.
2. Navarac's accounts for the year ended 30 June 2005 show a distribution of some $1.9 million, although that distribution was not received by Moondancer.
3. Navarac's accounts for the year ended 30 June 2006 show distributions to Moondancer of some $2.2 million, but these distributions have not been received by Moondancer.
4. Although Allen Caratti is a director of Navarac, he has not signed any resolution making loans of some $17 million to companies controlled by John or Maddeleine Caratti. These include interest-free loans in excess of $11 million to companies related to John Caratti.
5. It appears from Navarac's accounts for the year ended 30 June 2006, that Navarac was then indebted to the National Australia Bank (NAB) in an amount of some $7.4 million. However, following the lifting of a caveat the subject of earlier proceedings in CIV 2102 of 2007, Navarac received some $26 million from the sale of land. It appears likely that these monies were paid to NAB to reduce Navarac's indebtedness. Thus, amounts were paid far in excess of the $7.4 million shown in the 30 June 2006 accounts.
6. Navarac is a party to an interlocking company guarantee and indemnity granted on 15 September 2005, and a subsequent interlocking company guarantee and indemnity. Navarac has mortgaged its property to NAB as security for the interlocking guarantees. The loans the subject of the guarantees were made to parties other than Navarac and amounted to some $47.4 million, all secured against Navarac's assets.
7. Neither Navarac nor NAB has provided details of Navarac's present indebtedness to the bank.

30 Navarac is in the process of developing the land at Bertram by subdivision and sale. Because the land is subject to the NAB mortgage, the proceeds of sale of each lot is paid to NAB, in reduction of Navarac's indebtedness.

31 Moondancer is therefore concerned that the Trust assets are being used, in breach of trust, to reduce third party indebtedness arising under the interlocking guarantees.

32 Navarac does not dispute that Moondancer's contentions raise a serious question to be tried. However, it contends that the balance of convenience favours the discharge of the caveat.

33 Navarac's position is based on the judgment of Master Sanderson in Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 207. There, as in this case, Master Sanderson was dealing with an application to a caveator to show cause why a notice caveat should not be removed.

34 In his judgment, Master Sanderson referred to the Land Titles Registration Practice Manual, par 4.1.8. In relation to notice caveats, the manual said:

Caveats in this form are useful for those caveators whose claim will not be defeated by the registration of any change of interest in the land, and who merely wish to be informed of any change in interest occurring on the title. If the change in interest is detrimental to the caveator the caveator may choose to negotiate with the parties or obtain an injunction to prevent the registration of the instrument.

35 I have been provided with a copy of an extract from the January 2007 manual, which is in the same terms as above.

36 No doubt because of the reference to obtaining an injunction to prevent registration, the learned master said that when the caveator applied for an order extending the registration of its caveat:

... it had to put before the Court material which indicated both that there was a serious question to be tried and the balance of convenience favoured the extension of the caveat. In other words, it had to do in those proceedings precisely what it needed to do in these proceedings [26].

The reference to 'these proceedings' is to the show cause application.

37 With all respect to the learned master, I do not think that the balance of convenience test applies in these circumstances: at least, not on the basis that it is determinative of the question whether a caveat should be removed. That is because the court has a wide discretion under s 138(2) of the Transfer of Land Act. Although this will require a consideration of all the factors on which the parties rely - including the balance of convenience, if appropriate - there may be other considerations.

38 In Porter v McDonald [1984] WAR 271, the respondent caveators were owed $25,000 in respect of the purchase of certain shares. The caveators had the benefit of an equitable charge over land to secure the payment of those monies. They lodged a caveat against land owned by the appellants which was worth some $494,000.

39 The appellants owned other land having a value greater than $25,000. They sought to have the caveat removed on grounds which included the fact that they had a claim in another action which, if successful, would be sufficient to extinguish the $25,000 debt.

40 Burt CJ referred to the appellants' argument that because it was uncertain whether the debt the payment of which is protected by the charge existed, the decision to remove the caveat or to allow it to remain should be made by the court in the exercise of a discretionary judgment, the discretion to be exercised on the balance of convenience (272).

41 His Honour dismissed that argument in the following way:

Counsel could cite to us no authority to sustain that ingenious argument. I am not surprised. The answer to it, I think, is that once it be conceded, as it has been conceded, that the respondents have an equitable charge to secure 'the repayment of any monies due under this agreement' it follows that they could protect that interest by caveat until such time as the monies due under the agreement are paid (272).

42 Both Rowland and Brinsden JJ held that the authorities establish that a caveat should not be set aside pursuant to s 138 of the Transfer of Land Act unless the claim to the estate appears to be without any validity; and that (per Rowland J, with whom Burt CJ agreed) the courts will not, except in the most exceptional case, decide the matter on summons. Rowland J went on to consider some earlier authorities. His Honour then said that in more recent cases, courts had indicated that in the exercise of discretion they would have regard to matters that would be relevant to an application for an interim injunction (276).

43 Porter v McDonald was applied in Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42. There, Owen J, with whom Malcolm CJ and Walsh J agreed, said:

... although considerations relevant to an interim injunction are applicable, they may not necessarily be used in the same way. In relation to a caveat the question has to be decided bearing in mind the peculiar statutory context.

In my opinion, the balance of convenience is a factor to be considered in an application under s 138. However, it seems to me that interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated, will be unusual (50).

44 Owen J went on the explain that because a caveatable interest must be a proprietary interest in land, the removal of the caveat, in many cases, would have the effect of destroying the benefit of that interest. His Honour said that his analysis was consistent with the approach taken by Rowland J in Porter v McDonald and that it would be wrong to confine Rowland J's approach to situations where the caveatee conceded that a caveatable interest existed (50).

45 Later in his reasons, Owen J held that the caveat should remain, until the issues which had been addressed in the case were resolved at trial 'unless the balance of convenience favours removal'. His Honour said he had already indicated his view that in the statutory context of a caveat, it would be an unusual case in which the balance of convenience favoured removal.

46 Having regard to the way in which his Honour dealt with the balance of convenience issue in the earlier part of his judgment referred to above, I do not understand him to be departing from the proposition that balance of convenience considerations are not necessarily to be used in the same way in an application to remove a caveat as they would be in relation to an application for an interim injunction.

47 In the present application, Moondancer relies on a decision of Commissioner Buss QC (as his Honour then was) in Jandric v Jandric [1999] WASC 22 where his Honour applied Porter v McDonald.

48 Jandric v Jandric was followed in Midland Brick Company Pty Ltd v Welsh [2002] WASC 248 [30], Hughan v Gray [2002] WASC 164 [13], and Interview Holdings.

49 Navarac's submission is that the caveat should be removed, on two broad grounds: the balance of convenience and alleged abuse of process.

50 In relation to the balance of convenience, Navarac points to the fact that as a result of interim orders made by Newnes J on this application, and as a result of certain consents on the part of Moondancer, the caveat has been lifted to enable the purchasers of a number of the newly created lots in the Bertram subdivision to obtain a clear title on settlement. That being so, Navarac now seeks the removal of the caveat in relation to only 11 lots which are the subject of conditional contracts for sale and 63 lots, as yet unsold, which, it is said, are being 'actively marketed'.

51 Maddeleine Caratti has exhibited to her affidavit a schedule of conditional contracts showing the expected settlement dates, subject to finance approval. However, I do not think I can properly have regard to those matters because there is no evidence that the contracts have been stamped: see s 27(2) of the Stamp Act 1921 (WA).

52 This is not a point that was raised in argument. However, counsel cannot waive stamp duty points. In any event, I am bound to give effect to the legislation.

53 Navarac submits further that Moondancer should not be permitted, by maintaining its caveat, to prevent the sale on commercial terms of what is, in substance, Navarac's trading stock. This is particularly so, it is submitted, when the proceeds of sale must be paid to the bank in any event, having regard to the existence of the mortgage.

54 Navarac relies on the decision in Interview Holdings where, as in this case, the caveat had been lodged after a first mortgage had been registered. (There was also a second mortgage, the priority of which was in issue.) The caveat was blocking the legitimate exercise of the mortgagee's power of sale under the first mortgage.

55 However, in my view, Interview Holdings is distinguishable. There, the application for the removal of the caveat was made by the mortgagee, not the mortgagor. But in this case, NAB is not seeking to exercise its power of sale. It is only seeking to exercise its rights not to release land from the mortgage unless it receives the proceeds of sale.

56 This highlights Moondancer's dilemma. I was told by counsel for Moondancer that it does not wish to impede sales. Indeed, as I have noted above, Moondancer has already consented to lift its caveat to the extent necessary to enable sale of some of the land at Bertram to take place.

57 However, recognising, as it does, the rights of the bank as mortgagee, Moondancer cannot see any way of safeguarding the proceeds of sale, and ensuring that they are not applied in breach of trust, other than maintaining its caveat.

58 This, of course, is, or may be, a self-harming approach, since on its case, Moondancer stands to suffer half of any loss resulting from Navarac's inability to carry on its business.

59 Although this is an unsatisfactory situation, both parties have had ample opportunity to remedy it. It will be recalled that the caveat was lodged on 4 October 2007 and that action CIV 1061 of 2008 was commenced on 18 January 2008. The action was entered into the Commercial and Managed Cases List and could have been tried before now, had the parties pursued that course.

60 Navarac has a further balance of convenience argument, based on the fact that even if this application was successful, and the caveat removed insofar as it affects the Bertram land, it would remain over large tracts of land held by Navarac which were valued at some $11 million in 2003.

61 There is, however, no evidence as to the present value of that land, in which Moondancer asserts a half interest in any event.

62 As to the alleged abuse of process: Navarac relies on Moondancer's professed reluctance to impede sales of the Bertram land as evidence that it acted improperly in lodging the caveat. Navarac contends further, that Moondancer's conduct in seeking to show cause why the caveat should not be removed, is an abuse of process.

63 Navarac seeks to derive support for this proposition from the order proposed by Moondancer. In substance, it is an order that the show cause application be dismissed unless, within 21 days, Navarac provides Moondancer with the accounts that it claims should have been provided to it as a unit holder in the Trust, details of Navarac's indebtedness and/or facilities entered into with its bankers and details of how Navarac proposes to deal with the proceeds of sale of the land at Bertram.

64 As Navarac points out, an order in those terms would pre-empt the discovery issue in action CIV 1061 of 2008 and would amount to final relief, at least against Navarac, in COR 71 of 2008 to which I have referred above.

65 For that reason, I do not think it appropriate to make orders in terms proposed by Moondancer. However, in my view, having regard to the decision in Porter v McDonald, it does not follow that Moondancer's conduct is improper. I refer first to the judgment of Brinsden J:

Counsel for the appellants was unable to point to any authority which supported the view that a judge has jurisdiction to order the removal of a caveat protecting a caveatable interest, which interest as interest is not the subject of challenge, merely on the grounds that it was lodged for an ulterior purpose. If indeed a caveat was lodged, not to protect the caveatable interest but for ulterior purposes, that may give rise to a claim under s 140 [of the Transfer of Land Act] for compensation ... (274).

66 Similarly, Rowland J, with whom Burt CJ agreed, said that in his view the motives of the caveator were irrelevant: although the motive might prove relevant 'in other proceedings'. I take that to be a reference to an application under s 140.

67 As I have noted above, the approach which I am bound to take, having regard to the decision of the Full Court in Custom Credit, is that, because an arguable case as to the existence of Moondancer's caveatable interest has been demonstrated, the caveat must remain unless the circumstances are so unusual as to justify its removal.

68 Although I have had regard to all of the circumstances relied on by Navarac, I am not persuaded that they are sufficient to justify a departure from the normal rule.

69 I appreciate that if the caveat is to remain, the effect is to turn a notice caveat into an absolute caveat. But that, I think, must inevitably be the result where a caveator shows cause on an application under s 138 of the Transfer of Land Act.

70 Because the effect of the caveat is to injunct Navarac from selling the Bertram land which is subject to the mortgage, I have considered whether I should require Moondancer to provide an undertaking in damages. I have decided against that, for three reasons.

71 The first is that if Moondancer is correct in its contention that is it a unit holder in the Trust, then it will suffer half of any loss resulting from the existence of its caveat. Secondly, there is no evidence of any immediate urgency in the sale of the 76 lots which are the subject of this application. That being so, I consider that the parties' interest would be best served by ensuring that the underlying dispute is brought to trial as quickly as possible.

72 I therefore consider that Moondancer has shown cause why its caveat should not be removed and that Navarac's application should therefore be dismissed.