Perpetual Nominees Limited v Karamakis and Ors

Supreme Court of NSW|2010-09-02|Before: Schmidt J

CITATION : Perpetual Nominees Limited v Karamakis and Ors [2010] NSWSC 1041

DECISION : TAK's motion is dismissed. TAK is ordered to withdraw its caveat within 7 days of the date of this judgment and to pay the plaintiff's costs of the motions, as agreed or assessed.

CATCHWORDS : PROCEDURE - Supreme Court procedure - joinder application - joinder refused - order staying eviction refused - REAL PROPERTY - torrens title - caveats against dealings - application for extension of caveat - no equitable interest established - no basis for an extension - whether caveat should be removed - section 74MA of the Real Property Act 1900 - order for caveat to be withdrawn - COSTS - whether there should be a departure from general rule - indemnity costs order sought - no basis for any departure from usual order - costs as agreed or assessed

Conveyancing Act 1919 LEGISLATION CITED : Real Property Act 1900 Retail Leases Act 1994 Uniform Civil Procedure Rules 2005

Alliance Acceptance Co Ltd v Ellison (1986) 5 NSWLR 102 Chetcuti v Scarf [2000] NSWSC 637 Dolroy Pty Ltd v Civilco Constructions Pty Ltd [2007] NSWSC 1263 CASES CITED : Grey v Zaratell Pty Ltd [2004] WASC 129 Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 73 Piazza Grande Pty Ltd v Portis Pty Ltd (1993) V ConvR 54-460 Sutherland v Vale [2008] NSWSC 759

TEXTS CITED : Equity Doctrine & Remedies 4th Edition at [17-100] - [17-105])

Perpetual Nominees Limited - Plaintiff PARTIES : Steve Karamakis - First Defendant Arris Karamakis (also known as Iris Karamakis) - Second Defendant Karamakis Pty Ltd - Third Defendant

COUNSEL : Ms L Young - Plaintiff Mr R Licardy, solicitor - TAK Australia Pty Limited

SOLICITORS : Gadens Lawyers - Plaintiff Licardy & Co - TAK Australia Pty Limited

9 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION SCHMIDT J

2010/152356 PERPETUAL NOMINEES LIMITED v KARAMAKIS AND ORS

JUDGMENT 1 HER HONOUR: By statement of claim filed in June 2010 the plaintiff sought possession of property situated at Marrickville and judgment in the sum of $893,236.99 plus interest, for mortgage default. The claim was not defended and on 2 September default judgment was entered, granting the plaintiff possession and entering judgment for the sum of $924,655.07. 2 By motion filed on 19 August, TAK Australia Pty Ltd ('TAK'), sought orders joining it as fourth defendant in the proceedings; that it be granted a stay of any eviction orders granted by the Court; and that a caveat which it had lodged over the land be extended for a period of two months. A lapsing notice had been issued at the plaintiff's request under the Real Property Act 1900, in respect of the caveat. By motion filed on 27 August 2010, the plaintiff sought orders that the caveat cease to operate and lapse forthwith. 3 The interest in the land claimed by TAK in its caveat was an equitable interest pursuant to the lease granted by the defendants. 4 TAK's motion was supported by an affidavit sworn by Mr Giurla, TAK's sole director and shareholder. There it was revealed that TAK had purchased a take away food business from the first defendant, Steve Karamakis, and had taken a lease over the property in April 2010 for a period of 2 years, with a further option period of 5 years. TAK is in occupation of the premises and has spent some $65,000 on improvements to the property. 5 Mr Giurla deposed that Mr Karamakis had not revealed that he was in default of the mortgage, or that the plaintiff was seeking possession. He only became aware that the lease had not been registered on 31 July 2010, when a search was conducted by his current solicitor. Whether he had been advised by a solicitor in respect of the lease earlier entered, was not apparent on the evidence. 6 The plaintiff's motion was supported by an affidavit sworn by Mr Zuckerman, senior lending manager of Australian Unity Funds Management Limited, responsible for the Australian Unity High Yield Mortgage Trust, of which the plaintiff is custodian. He deposed that the plaintiff had provided the first and second defendants with a commercial loan facility; that they were the registered proprietors of the land; that the facility was secured by a first registered mortgage; and that the third defendant had provided a guarantee and indemnity in favour of the plaintiff. 7 In late March 2010, Mr Zuckerman was advised that a tenant had been found for the property. He wrote to the defendants advising that prior to finalisation of any lease, consent had to be obtained. In early April 2010, the plaintiff issued notices of demand to the defendants under s 57(2)(b) of the Real Property Act. The plaintiff's solicitors later advised the defendant's solicitors that the plaintiff might consider a written application for consent to the lease, in accordance with the terms of the mortgage. Consent was sought by the defendants' solicitors on 19 April. The defendants, however persisted in their defaults under the loan, a matter which was the subject of ongoing discussion. 8 When informed in May that tenants had been given occupation, Mr Zuckerman reminded the defendants that consent to the lease had not been given and that the tenants ought not to have been allowed in. In June the plaintiff's solicitor advised that consent to the lease would not be given, in view of the default. The lease has not been registered. 9 The plaintiff's registered mortgage contains an express term in clause 13, in which the defendants covenanted that they would not lease the property without the plaintiff's prior written consent and that any lease or possession or occupation of the property in breach of the covenant, was to have no validity against the plaintiff and was not to bind it. 10 TAK's application was pressed on the basis of the lease, its occupation of the property and what it has spent on improvements. Thereby it claims to have an equitable interest in the land which binds the plaintiff, with the result that an extension of its caveat, as well as a stay of any writ of eviction would be granted.

TAK's application for extension of the caveat 11 TAK seeks orders extending its caveat under s 74K of the Real Property Act. That requires that it establish that its claim has substance. The case was pressed on the basis that the business had been purchased from the defendants, who granted the lease, making no declarations that they were the mortgagor. TAK had carried out renovations to the building and had spent $65,000 on the business. Mr Giurla could ill afford to walk out, as the plaintiffs sought. He sought compensation, but no offer had been made by either the defendants, or the plaintiff to reimburse TAK for what it had spent. 12 The application must be dealt with as if it were an application for an interlocutory injunction (see Brereton J's discussion in Sutherland v Vale [2008] NSWSC 759 at [10] - [12]). What must be considered is whether there is a seriously arguable case, the balance of convenience and prejudice and other discretionary considerations. 13 On the evidence, the onus which falls on TAK has not been met. 14 The plaintiff's registered mortgage provides that without the plaintiff's written consent, any lease granted by the defendants would not bind it and could not be registered. It was not Mr Giurla's evidence that TAK was unaware of the existence of the mortgage. There is no other evidence from which it might be concluded that TAK did not have notice of the mortgage. Certainly a search would have revealed the terms of the registered mortgage, enabling TAK to understand the necessity of obtaining the plaintiff's prior consent to the lease. 15 On the evidence TAK itself had no dealings with the plaintiff. It follows that it may not be concluded that it was anything which the plaintiff did which induced an understanding on TAK's part, that the plaintiff would consent to its lease 16 Even if TAK was made aware of the dealings between the plaintiff and the defendants, that can have led to no understanding on its part that the plaintiff would consent to the lease, given the position which the plaintiff took in relation to the defendant's continuing default under the mortgage. While the plaintiff was prepared to consider giving consent and there were ongoing discussions about the defendant's default, when the default was not rectified, the plaintiff advised in writing that it would not consent to the lease. 17 In breach of what the defendant had earlier agreed with the plaintiff under the mortgage, TAK was given possession. While this later came to the plaintiff's attention, the plaintiff protested that this involved a breach of the mortgage. There was no evidence from which it could be inferred that the plaintiff also became aware that TAK had spent considerable sums on affecting the improvements to the property on which it relies to support its claim that it has an equitable interest in the land. 18 The general rule is that spending money on another's property does not prima facie give rise to a proprietary interest in the property (see Dolroy Pty Ltd v Civilco Constructions Pty Ltd [2007] NSWSC 1263). More must be shown (see Piazza Grande Pty Ltd v Portis Pty Ltd (1993) V ConvR 54-460 and the discussion in Meagher Gummow and Lehane's Equity Doctrine & Remedies 4th Edition at [17-100] - [17-105]). On the evidence it is not open to conclude that the plaintiff encouraged TAK's expenditure, or was even aware of it. It follows that the evidence does not allow for the conclusion that TAK's expenditure gave it any interest in the property, as against the plaintiff. 19 The lease was entered without the plaintiff's consent and has not been registered. TAK is not entitled to have it registered. It has not established that it has any other rights against the plaintiff. TAK has not shown that its claim to an equitable interest in the property as against the plaintiff, has substance, relying as it does on the existence of the unregistered lease which the defendants granted in breach of their obligations under the mortgage (see Alliance Acceptance Co Ltd v Ellison (1986) 5 NSWLR 102 applied in Grey v Zaratell Pty Ltd [2004 WASC 129). 20 This conclusion is supported by s 53(4) of the Real Property Act, which provides relevantly that: 53 Land under the provisions of this Act - how leased (1) ... (2) ... (3) … (4) A lease of land which is subject to a mortgage, charge or covenant charge is not valid or binding on the mortgagee, charge or covenant charge unless the mortgagee, charge or covenant charge has consented to the lease before it is registered. (5) …

21 It must be concluded that TAK has not established a reasonably arguable case as to the matters it claims against the plaintiff. No basis for an extension of TAK's caveat has been shown. In those circumstances s 74K(2) of the Real Property Act requires that the application for extension of the caveat must be dismissed (see Chetcuti v Scarf [2000] NSWSC 637 at [11] - [12]).

The orders sought by the plaintiff 22 The plaintiff sought orders that the caveat cease to operate and lapse forthwith. In pursuit of its obligation to the defendants when exercising its power of sale under the mortgage, the plaintiff proposes to sell the property with vacant possession. 23 Section 74MA provides: 74MA Application to Court for withdrawal of caveat (1) Any person who is or claims to be entitled to an estate or interest in the land described in a caveat lodged under section 74B or 74F may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator or another person who by virtue of section 74M is authorised to withdraw the caveat. (2) After being satisfied that a copy of the application has been served on the person who would be required to withdraw the caveat if the order sought were made or after having made an order dispensing with service, the Supreme Court may: (a) order the caveator or another person, who by virtue of section 74M is authorised to withdraw the caveat to which the proceedings relate, to withdraw the caveat within a specified time, and (b) make such other or further orders as it thinks fit. (3) If an order for the withdrawal of a caveat is made under subsection (2) and a withdrawal of the caveat is not, within the time limited by the order, lodged with the Registrar-General, the caveat lapses when an office copy of the order is lodged with the Registrar-General after that time expires. 24 In the circumstances, I can see no basis for refusing to order the withdrawal of the caveat. The just order in the circumstances is that TAK withdraw the caveat within 7 days of the date of this judgment.

The other orders sought by TAK 25 In considering the other orders sought by TAK, it is necessary to consider the matters already discussed, as well as the Retail Leases Act 1994. Section 15 required that the lease be lodged for registration within 1 month of having been stamped and provided to the lessor and that a copy be provided to TAK within one month of registration. Section 16 provides that retail shop leases must have a term of not less than 5 years and if necessary, a lease with a term of less than 5 years is extended by such period as may be necessary to prevent the lease contravening the section. 26 The lease had a period of 2 years, together with two further option periods. It has never been lodged for registration. 27 Section 106 of the Conveyancing Act 1919 makes a lease with a term not exceeding 5 years enforceable against the plaintiff, unless a contrary intention appears from the terms of the mortgage (s 106(11)). Such an intention is apparent from clause 13 of the mortgage, which required the plaintiff's prior written consent to the lease. 28 It follows that the lease which TAK entered does not create the rights claimed against the plaintiff. There is no evidence that the plaintiff ever misrepresented its position to TAK, or even that it provided any information to TAK. Its title is paramount. TAK has not established any relevant interest in the proceedings which would permit its joinder as a defendant, or any order staying any eviction order which the plaintiff may pursue. TAK's lease is not enforceable against the plaintiff and does not give it the right to remain in possession of the property. In the circumstances, the plaintiff has an indefeasible legal interest in the land which entitles it, upon exercise of its power of sale under the mortgage, to sell and convey a good title to the purchaser of the whole of the estate or interest in the land as it existed at the time of the mortgage.

Costs 29 The plaintiff sought either an order that its indemnity costs be costs pursuant to the mortgage, or that TAK bear its costs. I take the view that if the former order were to be entertained, the defendants would have to be given an opportunity to be heard. 30 TAK opposed any order for costs being made against it in circumstances where the plaintiff served Mr Zuckerman's affidavit close to the hearing. If there had been more time to consider the affidavit, the motion might not have been pressed. I am not able to conclude that this is a basis for any departure from the usual order under the Uniform Civil Procedure Rules 2005 that costs should follow the event. What was relied on cannot amount to misconduct of the kind discussed in Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 73, particularly given the time at which the motion itself was brought, outside the time envisaged under the Uniform Civil procedure Rules for the bringing of such an application. Nor can it establish any other basis for departing from the usual order.

Orders 31 For the reasons given TAK's motion must be dismissed. TAK is ordered to withdraw its caveat within 7 days of the date of this judgment and to pay the plaintiff's costs of the motions, as agreed or assessed. **********

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