2 November 2001 - Execution of agreement between the Smiths and Sunfix referring to "Lot 129, 81-83 Derby Street Silverwater 2128".
25 It is, to my mind, clear that there was never any doubt, so far as the parties to the various documents are concerned, as to the identity of the property with respect to which they contracted. To the extent that the contract for sale dated 22 November 2000 and the Sunfix-Watson documents of 26 March 2001 referred to "Lot 222", the parties in each case had clearly in contemplation the parcel of land identified as lot 222 in a plan to which they had specific regard when they contracted, which parcel in due course became lot 129 in deposited plan 1019075. The area, dimensions and location (by reference to both Derby Street frontage and juxtaposition with lot 52 in deposited plan 652045) of "Lot 22" and lot 129 in deposited plan 1019075 were exactly the same. The reference in the agreement of 2 November 2001 between the Smiths and Sunfix to "Lot 129", plus the street address, was unquestionably a reference to lot 129 in deposited plan 1019075. In short, all the documents to which I have referred related to, and were understood by the parties to relate to, the single parcel of land that is now lot 129 in deposited plan 1019075.
26 While the position as among the parties was in this respect entirely clear, the form of mortgage given by Sunfix to the Watsons and the form of caveat executed by them did not identify the property in a way that would have enabled the Registrar General to register the mortgage or record the caveat upon presentation at the Land Titles Office. Under s.36(1D) of the Real Property Act, the Registrar General may refuse to accept a dealing or caveat unless it recites the distinctive reference allotted to the folio of the register or to the registered dealing which it intends to affect. Having regard to the content of deposited plan 1005561, the reference in the mortgage and the caveat to "Lot 129 (222)" in that deposited plan would have left the Registrar General with no option but to exercise the s.36(1D) power of rejection. This is because there is no lot 129 or lot 222 in that deposited plan, so that the reference, viewed alone and in isolation (as it necessarily would have been, had the mortgage or caveat been presented at the Land Titles Office), has always been incapable of identifying any part of the land in deposited plan 1005561.
27 This is not a matter of any particular significance in relation to the caveat. The Watsons could at any time have executed and lodged a new caveat document referring to the correct title reference. But it is a matter of significance in relation to the mortgage document dated 26 March 2001 given by Sunfix to the Watsons. It means that that mortgage was never a mortgage in registrable form. Nor did it attain that status when the mortgagor became registered proprietor, as it did on 21 August 2001: cf Courtenay v Austin (1961) 78 WN (NSW) 1082, affirmed (1964) 110 CLR 550.
Assessment of Pelenoy's claim
28 Pelenoy's claim depends entirely on clauses 28 and 17(f) of the building contract. Clause 28 is a standard clause in such contracts. A brief account of its development may be found in Mr Peter Merity's article, "Paradise Postponed: A History of Attempts to Ensure Payment in the Building and Construction Industry of New South Wales", (2002) 18 BCL 169. As the author points out, the effectiveness of the clause was established in Griffith v Hodge (1979) 2 BPR 9474. Waddell J there held that the clause was effective to confer upon the builder "a valid equitable charge on the land" capable of supporting a caveat. Ten years later, in Gibson v Co-ordinated Building Services Pty Ltd (1989) 4 BPR 9639, Young J was able to say:
"The authorities clearly show that where a building contract has in it a clause such as the present cl. 28, the builder has an interest in the land which will support a caveat, see eg Griffith v Hodge (1979) 2 BPR 9474."
29 I do not understand these conclusions to be challenged in this case. The building contract was effective to create an equitable charge over lot 129 in deposited plan 1019075 in favour of Pelenoy as security for the moneys referred to in the clause.
Assessment of the Watsons' claim
30 I have already said that the executed mortgage included in the documents received by the Watsons was not in registrable form. The Watsons were thus not armed with the means of creating a legal mortgage (by registration) at will and without assistance. The intentions of the parties are nevertheless clear. When the documents between Sunfix and the Watsons were executed on 26 March 2001, Sunfix was in the process of acquiring the Silverwater property. Contracts had been exchanged on 22 November 2000 (coincidentally the day on which deposited plan 1019075 was registered). Clause 7F of the deed of equity participation said that, pending completion of the purchase of the property, security for the Watsons was to be an unregistered second mortgage of the Asquith property; and that upon such completion Sunfix would grant to the Watsons "a registered joint second mortgage over the said development" - or, as the definition of "Security" clarified, "a joint registered second Mortgage over the Property", that is, "Lot 222 ____ 81-83 Derby Street Silverwater NSW" which, as I have already observed, is identical with lot 129 in deposited plan 1019075.
31 Clause 7F and the definition of "Security" defined the role played by the executed mortgage document. The stated intention was that a mortgage of the Silverwater property was to be enjoyed by the Watsons only from completion of the purchase by Sunfix. Until that point was reached, their security rights were restricted to the Asquith property. The agreement contained a promise by Sunfix to give a second mortgage of the Silverwater property if and when Sunfix completed its purchase of that property. The executed form of mortgage was given in an attempt to ensure the ability of the Watsons to attain the position of registered mortgagees should their right to that position come to fruition by reason of completion of the purchase by Sunfix or, at least, to show the form and terms of the mortgage they were to have. It would, in my view, be wrong to regard the executed form of mortgage as having any capacity, before that point was reached, to be the source of any security interest. The manifested intention was that the Watsons were to have no security interest in the subject matter of the executed form of mortgage until completion of Sunfix's purchase of the subject property. For this reason, I do not accept the submission advanced by Mr Ogborne on behalf of the Watsons that the form of mortgage operated before completion as a security over the equitable interest that Sunfix had in the Silverwater property as purchaser under the uncompleted contract. Rather, I accept the submission of Mr McNally on behalf of Pelenoy that the Watsons were to have no interest in Silverwater until the later time.
32 Given clause 7F of the deed of equity participation, the "Security" definition therein and the intention manifested by the inclusion of the executed form of mortgage in the package of documents given to them on 26 March 2001, the Watsons could have obtained from the court, immediately Sunfix completed the purchase, an order compelling Sunfix to execute a new form of mortgage in a form identical with that executed on 26 March 2001, save for correction of the property description to refer to folio identifier 129/1019075 so that the mortgage was in registrable form. There was a clear contractual promise by Sunfix to cause the Watsons to become, at that point, the holders of a registered second mortgage of lot 129 and a clear mutual intention that they should then have, and be able to obtain registration of, a mortgage in the form (as to all matters of substance) of the mortgage document executed on 26 March 2001. There is no apparent reason why the court would not have enforced the resultant rights by an order for specific performance against Sunfix at the suit of the Watsons.
33 The situation is thus one in which an equitable mortgage was created in favour of the Watsons. The documents executed on 26 March 2001, coupled with the giving of valuable consideration by the Watsons (who made the loan contemplated by those documents) and the subsequent but originally specified event of completion by Sunfix of its purchase of the land, caused the Watsons to be regarded in equity as mortgagees on the basis discussed by Mason CJ, Brennan J, Deane J and McHugh J in Chan v Cresdon (1989) 168 CLR 242 at 256-257 by reference to observations of Isaacs J in Barry v Heider (1914) 19 CLR 197 at 216 to the effect that a right to have a registrable instrument executed and registered is itself an estate or interest in the land. Equity regards as done that which ought to have been done in fulfilment of Sunfix's promise that the Watsons were to have a registered second mortgage of the Silverwater property upon completion of Sunfix's purchase of that property.
34 It was submitted by Mr McNally on behalf of Pelenoy that the Watsons never had in relation to the property more than a "mere equity" because the position they occupied was always one in which they were dependent on the assistance of the court to obtain relief in respect of the property. I do not consider that submission to be supportable: if it were correct, there could never be an equitable interest as such, since all such interests are, of their nature, the product of equity's willingness to provide relief in personam. This is not the occasion for a search for the precise dividing line between equitable interest as such and mere equity. It is true that, in some circumstances, a person who has a right to equitable relief in a property context does not thereby enjoy an equitable interest in the particular property. In Double Bay Newspapers Pty Ltd v A W Holdings Pty Ltd (1996) 42 NSWLR 409, for example, Bryson J held that a mortgage which did not comply with the Statute of Frauds but could be enforced by resort to the doctrine of part performance gave rise only to a mere equity which did not prevail against a subsequent equitable interest. But decisions of that kind and the classifications they employ cannot detract from clearly established principles under which a contractual promise to grant a mortgage which is given in return for moneys actually advanced causes the promisee to be regarded in equity as the holder of the mortgage contracted to be given. In such a case there is what Palmer J described in Mills v Ruthol Pty Ltd (2002) 10 BPR 19381 as "a nexus of sufficient propinquity between the right and the specific property to which the right relates" to create an equitable interest.
35 The Watsons must accordingly be regarded as having become equitable mortgagees of the Silverwater property when, on 10 August 2001, completion took place under the contract between Silverwater Estate Pty Ltd as vendor and Sunfix as purchaser.
Assessment of the Smiths' claim
36 The Smiths, like the Watsons, were the recipients of a promise by Sunfix to create in their favour a registered second mortgage of the Silverwater property upon completion of Sunfix's purchase of that property. The Smiths advanced the contracted sum upon the faith of that contractual promise and, although they did not receive an executed mortgage document of the kind given to the Watsons, the promise itself, coupled with their giving valuable consideration, means that the Smiths also became equitable mortgagees of the property.
37 In the Smiths' case, however, there is a difference. Although the contractual promise was that the mortgage would be given upon completion of Sunfix's purchase, the reality was that such completion had already occurred. The agreement between Sunfix and the Smiths was made on 2 November 2001. Completion of the purchase occurred on 10 August 2001 and Sunfix became the registered proprietor of the land on 21 August 2001. It follows that the Smiths' equitable mortgage arose immediately upon the giving by Sunfix of the relevant contractual promise by means of the agreement of 2 November 2001.
The competing interests
38 Each of Pelenoy, the Watsons and the Smiths thus attained an equitable interest in the Silverwater land, in the first case by way of equitable charge and in the second and third cases by way of equitable mortgage. The distinction between the two was described by Harper J in Crampton v French [1996] ANZ ConvR 156 as follows:
"An equitable charge over land is a creature with which the law of securities has a long familiarity. Where the land in question is under the Transfer of Land Act , an equitable charge is distinguished from an equitable mortgage in that the latter does, but the former does not, carry with it an entitlement to foreclose on default and (at lease if that were the intention of the parties) to registration on the appropriate Certificate of Title: where the relevant intention is present, and perhaps in other circumstance as well, an equitable mortgagee may compel the mortgagor to execute a legal mortgage which may then be registered pursuant to Division 9 of Pt 4 of the Act. An equitable charge, however, "is a security which does not create a legal estate, but only confers an equitable interest in the land upon the creditor": Halsbury's Laws of England (4th ed) volume 32, para406. It is not capable of giving rise to a registrable instrument. The legislation does not make provision for such registration."