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[2009] NSWSC 188
procedural. The plaintiff was ordered to take steps by 4.00 pm on 25 March 2009 to withdraw Caveats AE77997 and AE77998. The orders made on 6 March 2009 were vacated, the notice of motion was otherwise...
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The lender showed a serious claim for the unpaid loan, but that did not by itself justify freezing the guarantor's separate land. The evidence did not show that he was planning to move or otherwise deal with that land to frustrate a judgment. The mortgage also did not give the lender an interest in that separate land: its relevant clauses concerned protecting the mortgage over the property actually given as security. The Court refused the requested orders and required the lender to withdraw its caveats.
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Perpetual Nominees Limited lent Springfield Retail Pty Limited $3,612,500 under a deed of loan executed on 19 March 2007. The first defendant granted a mortgage over a property at 2 Springfield Avenue, Potts Point. There was also a registered company charge and a deed of assignment of rentals. Kenneth Francis McCourt, the second defendant and the first defendant's sole director and shareholder, signed a guarantee and indemnity [4]-[5].
The lender alleged that Springfield Retail defaulted on interest payments. It issued default notices under s 57(2)(b) of the Real Property Act 1900 on 15 July 2008 [9]. The lender's claim included possession of the Potts Point security property and judgment for the debt against both Springfield Retail and McCourt as guarantor [3]. It said that $4,117,239.94 was due as at 28 February 2009 and anticipated that sale of the security property would leave a shortfall of about $3.1 million [11].
The lender therefore sought interim protection over McCourt's separate Avalon land. McCourt was its registered proprietor, lived there, and had a first mortgage to St George Bank. He had conditional development approval to subdivide, and was considering selling a rear block to reduce his debt to St George. He had not made a final decision to proceed with subdivision [9]. The lender had lodged two caveats over the Avalon lots. After McCourt took steps to have them lapse, the lender applied for a freezing order or, alternatively, an extension of the caveats [1], [9]-[10].
The application was initially heard by consent on 6 March 2009, with the caveats temporarily extended until further order. The judge was told there had been no hearing on the merits at that stage [2]. Hulme J heard the contested motion on 13 March and delivered judgment on 24 March 2009. He refused both forms of relief, ordered the lender to take steps to withdraw both caveats, vacated the temporary orders, and awarded McCourt costs [39].
The judgment also discussed questions about leases of the Potts Point property that had been provided to the lender. The lender's evidence was that the expected rental income was relevant to its decision to lend. McCourt said one proposed lease had not proceeded after the owner's corporation would not approve the intended use. The proposed tenant said he had not seen the lease and did not recognise the signature on it [6]. The Court did not decide whether the leases were genuine. It proceeded on McCourt's account because the lender did not press for a finding of dishonesty [8].
The Court approached the freezing order and caveats as separate questions, each with its own legal threshold.
For a freezing order, r 25.11(1) of the Uniform Civil Procedure Rules 2005 provides for an order aimed at preventing frustration or inhibition of the court's process by meeting a danger that a judgment or prospective judgment will be wholly or partly unsatisfied [13]. The plaintiff's case on the underlying debt and guarantee was not the main difficulty. Hulme J accepted that the first aspect of the freezing-order test, described by reference to a prima facie case, a serious question to be tried, or a good arguable case, was established [16].
The decisive issue was whether the evidence showed a sufficient danger of non-satisfaction. The judgment referred to authorities requiring more than an assertion that assets might be dissipated. The quoted principles describe a need for evidence of a real danger that the defendant will abscond, remove assets, or otherwise deal with them so that a successful plaintiff cannot enforce judgment [19]-[21]. The jurisdiction is not simply a way for a claimant to obtain security before execution. The judgment also noted that impending insolvency, without more, does not itself demonstrate abuse of process [21].
The plaintiff relied on the dispute about the leases. But it expressly disavowed an allegation that McCourt had acted dishonestly in that respect. It relied on no other conduct by him relevant to the proposed freezing order [22]. Hulme J distinguished the cited example in Patterson v BTR Engineering by observing that the present case involved one past event, not a course of conduct supporting an inference that McCourt would fail to preserve assets for a judgment creditor. There was no suggestion that he had done, or proposed to do, anything to dispose of, deal with, or diminish the value of the Avalon land [22]. The freezing order was therefore refused [23].
The caveat application turned on whether the lender had a caveatable interest in the Avalon land. Section 74F allows a caveat by a person claiming a legal or equitable estate or interest in land, while s 74K empowers the Supreme Court to extend a caveat if the caveator's claim has or may have substance [25], [27]-[28]. The lender's caveats referred to an equitable interest pursuant to the loan agreement, but at the hearing it relied instead on the mortgage [26].
The lender argued that clauses 32 and 37 of the mortgage, read together, created an interest in McCourt's other property. Clause 32 required the mortgagor, at the mortgagee's written request, to execute instruments and do other acts for the purpose of preserving or protecting the mortgage. Clause 37 made the guarantor jointly and severally liable for the mortgagor's covenants in the mortgage [34]-[35]. Applying objective contractual construction, Hulme J read the language as confined to preservation and protection of the mortgage over the security property. It did not create an estate or interest over other property that the guarantor might own. If that wider result had been intended, the document would need a clear statement to that effect, which the judge did not find [36]-[37]. Without a caveatable interest, the extension application could not succeed.
The judgment did not purport to reformulate the general law of freezing orders or caveats. Instead, it applied rules and principles drawn from the cited sources to the evidence and instruments before it.
On freezing orders, r 25.11(1) supplied the procedural power and purpose: preventing frustration or inhibition of the court's process where there is a danger that a prospective judgment will be unsatisfied [13]. The judgment referred to Newcastle City Council v Caverstock Group Pty Ltd for the proposition that the rule reflects the Mareva injunction jurisdiction and should not be approached narrowly or technically [14]. It also set out the commonly cited Patterson formulation, requiring both a prima facie cause of action and a danger that judgment would not be satisfied [15]. The judgment's application emphasises the distinction between having a strong claim and proving a risk of asset dissipation: the former did not substitute for the latter [16], [22]-[23].
The discussion of evidence of dissipation drew on the authorities cited in the reasons, including Print Management Australia Pty Ltd v Pasupati, Vaughan v Duncan, and Finn v Carelli [19]-[21]. The judgment treated evidence, rather than assertion, as essential. It also recorded that the jurisdiction is directed to preventing frustration of court process, not providing advance security merely because a defendant may be in financial difficulty [21]. Those propositions were applied to the evidence about McCourt, rather than announced as a new test.
For caveats, ss 74F and 74K of the Real Property Act supplied the statutory framework. The judgment stated that the Court's power to extend a caveat depended on being satisfied that the caveator's claim had or might have substance [25]-[28]. It cited Sutherland v Vale for the substantially similar interlocutory-injunction approach, including the threshold of a seriously arguable case and consideration of convenience, prejudice, and other discretionary matters [29]. Here, the application failed at the anterior question of whether the lender had a caveatable interest in the Avalon land. The judgment did not need to decide the remaining objections to the caveats' descriptions [38].
The contract interpretation issue was addressed by reference to Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd and Equuscorp Pty Ltd v Glengallan Investments [36]. The Court construed the actual language of clauses 32 and 37, and concluded that it did not clearly create an interest in property outside the mortgage security [37]. The judgment's effect is therefore a fact-specific application of the statutory caveat framework and ordinary construction of the documents, not a statement that a guarantee can never support a caveat in another case.
At [14], the judgment cites the Court of Appeal's description of r 25.11 as a rule concerned with interim preservation, intended to prevent court processes and judgments from being frustrated. In plain English, a freezing order protects the usefulness of the court's process, rather than acting as automatic security for anyone who has sued.
At [19], the judgment quotes a passage from Print Management Australia Pty Ltd v Pasupati. It describes conduct that may justify a freezing order, including conduct capable of frustrating ordinary court processes or indicating that assets have been or may be dealt with irregularly. This is a quotation from another decision reproduced in Hulme J's reasons, not a passage originally written by Hulme J.
At [22], Hulme J explains why the lease dispute did not demonstrate the necessary danger in this case. The plaintiff did not allege dishonesty and pointed to no conduct concerning the Avalon land. The practical point is that a contentious past transaction, without evidence connecting it to a risk of frustrating enforcement, was not enough on the record before the Court.
At [37], the judge explains the limits of clauses 32 and 37. Clause 32 was directed to preserving or protecting the mortgage, while clause 37 made the guarantor answerable for the mortgagor's relevant covenants. Read together, they did not create an interest over McCourt's separate property. In plain English, a promise to help preserve a particular mortgage did not, on this wording, give the lender a property interest in all other land owned by the guarantor.
The decision is most directly relevant to applications for freezing orders where the applicant has established a serious underlying claim but has little or no evidence that the respondent is likely to frustrate enforcement. It highlights the difference between the risk that a defendant cannot pay and a risk that the defendant will deal with assets in a way that defeats the court's process [20]-[23]. It also illustrates that a court may assess the alleged conduct in context: the plaintiff's reliance on one past event, without an allegation of dishonesty or evidence of proposed dealing with the assets, did not establish the necessary danger [22].
The decision is also relevant where a caveat is lodged over property that was not itself mortgaged, based on a guarantee or mortgage wording said to reach the guarantor's other land. In this case, the registered proprietor was the guarantor, but the security property was owned by the borrower. The Court focused on whether the documents clearly created a legal or equitable interest in the separate land, and found that clauses concerning protection of the mortgage did not do so [32]-[37].
The limits are important. The Court did not decide that the leases were genuine or false [8]. It did not decide the lender's remaining objections to the form or description of the caveats [38]. Nor does it establish that different mortgage or guarantee language, or different evidence of proposed asset dealings, would produce the same result. The judgment's reasoning concerns the specific evidence, clauses, and land interests before Hulme J.
The supplied judgment does not contain any discussion of later decisions that applied, followed, distinguished, or otherwise treated Perpetual Nominees Limited v Springfield Retail Pty Limited & Anor. Its cited authorities are decisions available to and discussed by Hulme J in 2009; they are not evidence of how subsequent courts treated this judgment.
Accordingly, no claim about the case's later precedential treatment can be grounded in this text alone. The judgment itself identifies no later case applying its construction of clauses 32 and 37, and provides no later history of the freezing-order or caveat principles it applied. A later-treatment analysis would require additional legal sources beyond the judgment provided here.
Within this judgment, the treatment of earlier cases is apparent from the reasons. The Court cites Newcastle City Council v Caverstock Group Pty Ltd on the purpose and approach to r 25.11 [14], Patterson v BTR Engineering on the general freezing-order test [15], and authorities including Print Management Australia Pty Ltd v Pasupati and Finn v Carelli on evidence of dissipation [19]-[21]. It cites Sutherland v Vale on the test for extending a caveat [28]-[29], and Toll and Equuscorp on objective contractual construction [36]. Those authorities inform the reasoning, but the decision's own outcome rests on the absence of evidence of a relevant danger and the lack of a clear contractual interest in the separate land.
Several matters were expressly left unresolved. The Court made no definitive finding about whether the leases were genuine [8]. It also did not decide whether the caveats' description of the claimed interest was defective, because the absence of a caveatable interest under the mortgage disposed of the application [30], [38].
The judgment does not resolve what evidence, in another factual setting, would be sufficient to establish a real danger that a prospective judgment will be unsatisfied. It refers to principles requiring evidence rather than assertion, but the outcome turned on the particular absence of evidence about actual or proposed dealings with the Avalon land [20]-[23]. Different facts would require assessment under the same cited framework, not an assumed answer derived from this case.
It also leaves open how other contractual wording might affect a caveat claim. The Court's conclusion depended on the language of clauses 32 and 37 and the absence of a clear statement creating an interest in the guarantor's separate property [34]-[37]. The judgment does not decide the effect of a different instrument expressly addressing other assets or granting a security interest in separate land.
Finally, the judgment gives no later history of its own treatment and does not address subsequent amendments to the cited statutory or procedural provisions. Those questions cannot be answered from this judgment alone.
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CITATION : Perpetual Nominees Limited v Springfield Retail Pty Limited & Anor [2009] NSWSC 188
DECISION : Application for freezing order and extension of caveats refused.
CATCHWORDS : INJUNCTIONS - Freezing orders - whether danger that a prospective judgment will be wholly or partly unsatisfied - REAL PROPERTY - Application to extend caveats - Second Defendant guarantor in respect of loan by Plaintiff to First Defendant - Question of whether mortgage created an equitable interest of Plaintiff in land owned by Second Defendant not the subject of the mortgage
LEGISLATION CITED : Real Property Act 1900 Uniform Civil Procedure Rules 2005
Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249; (2008) 163 LGERA 83 Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 American Cyanamid Co v Ethicon Ltd [1975] AC 396 Earthline Constructions Pty Limited v State Rail Authority of New South Wales, NSWCA 26 February 1992, unreported Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 Print Management Australia Pty Ltd v Pasupati [2008] NSWSC 342 CASES CITED : Acquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146 Vaughan v Duncan [2007] NSWCS 811 Finn & Ors v Carelli [2007] NSWSC 261 Sutherland v Vale [2008] NSWSC 759 Nguyen v Kaha [2008] NSWSC 794 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Equuscorp Pty Ltd v Glengallan Investments [2004] HCA 55; 218 CLR 471
Perpetual Nominees Limited (Plaintiff) PARTIES : Springfield Retail Pty Limited (First Defendant) Kenneth Francis McCourt (Second Defendant)
COUNSEL : Mr M Sneddon for the Plaintiff Mr M Dicker for the Second Defendant
IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION
16723/08 Perpetual Nominees Limited v Springfield Retail Pty Limited & Anor
JUDGMENT 1 HIS HONOUR: By notice of motion filed on 4 March 2009 the plaintiff seeks orders restraining the second defendant from selling, transferring, encumbering or otherwise dealing with land, or alternatively, extending the operation of two caveats in respect of that land until further order, or until the determination of the substantive proceedings. The usual undertaking with respect to damages has been given.
2 On 6 March 2009, Harrison J ordered the extension of the operation of the caveats until further order and stood the matter over for hearing to 13 March 2009. The matter came before me in the duty judge list on that day. I was informed that there was no hearing on the merits before Harrison J and that his orders were made by consent so as to preserve the situation until there could be such a hearing. The proceedings
3 By statement of claim filed on 22 December 2008 the plaintiff seeks relief by way of possession of land, judgment for a debt in the sum of about $3.8 million owed by the first defendant for having defaulted in repayment of a loan, and ancillary orders. It also seeks judgment against the second defendant in the same sum on the basis that he was a guarantor for the loan.
4 The second defendant is the sole director and shareholder of the first defendant. He described himself in his evidence before me as a property developer.
5 A deed of loan between the plaintiff and the defendants was executed on 19 March 2007. The principal sum was $3,612,500. The first defendant gave a mortgage over property at 2 Springfield Avenue, Potts Point ("the security property") as security. A registered company charge between the plaintiff and the first defendant and a deed of assignment of rentals between the plaintiff and both defendants were also provided by way of security. The second defendant executed a deed of guarantee and indemnity.
6 The first defendant provided to the plaintiff at, or prior to, the execution of the above deeds two leases in respect of the security property. Part of the security property was purportedly leased to one Denise Withers and another part was purportedly leased to a Sameer Al-Ameyreh trading as Springfield Grocery. There is evidence from the national lending manager for the plaintiff to the effect that funds were advanced to the first defendant on the basis of the rental income which the first defendant would receive as lessor in those two leases and that if the plaintiff had thought that the leases were not valid and in place it would not have entered into the agreement and provided the loan. Questions have now been raised in respect of the leases. Mr McCourt, the second defendant, said in his evidence that the lease to Mr Al-Ameyreh was executed and stamp duty was paid but this was only a preliminary step because approvals were needed by the owner's corporation and the relevant council for the intended use of the premises as a grocery store. It then became apparent that the owner's corporation would not approve the intended use and so the lease did not proceed. He conceded in cross-examination that he did not tell the plaintiff that. The plaintiff has put on evidence of a private investigator who had made inquiries of Mr Al-Ameyreh. Mr Al-Ameyreh agreed that he had made inquiries about leasing the premises but said that nothing became of it. He was shown the lease document and said he had never seen it before and the signature on the document purporting to be his was nothing like his signature.
7 Questions have also been raised in respect of the lease to Ms Withers. However, the evidence is not entirely clear about it and it was not really explored at the hearing before me.
8 It is not appropriate, nor necessary, that I make a definitive finding on this issue of whether the leases were genuine. I will proceed on the basis of what Mr McCourt said about them in his evidence because counsel for the plaintiff did not press for any finding of dishonesty to be made.
9 The statement of claim alleges that the first defendant defaulted by failing to make payments of interest as and when they fell due. Default notices pursuant to section 57(2)(b) of the Real Property Act 1900 were issued on 15 July 2008. At around the same time the plaintiff lodged caveats in respect of adjoining lots of land at Avalon. Mr McCourt is the registered proprietor in respect of that land and he lives there. It is subject to a first mortgage to St George Bank Limited. Mr McCourt has secured conditional development approval from Pittwater Council to subdivide this land. He has contemplated the possibility of continuing to live in the house and selling a rear block. In doing this he is hopeful of being able to reduce his debt to St George, which presently stands at around $5.5 million. Mr McCourt said in his affidavit that his relationship with St George at the moment is tenuous but thus far he has persuaded it not to proceed with a mortgagee sale. However, he fears that he may not be able to prevent this if he is unable to reduce his debt by selling the rear block. In cross-examination he said that he has not as yet made a final decision about proceeding with the sub-division.
10 The second defendant gave notice last month to the plaintiff in relation to proposed lapsing of the caveats. That is what prompted the proceedings by way of notice of motion for their extension.
11 The amount due under the deed of loan as at 28 February 2009 is said to be $4,117,239.94. Offers have been made for the purchase of the security property, or part of it, in the past 7 months for $1 million but they have been rejected. The plaintiff anticipates a shortfall of about $3.1 million if the property is sold. That explains its interest in the second defendant's Avalon property.
12 The order the plaintiff first seeks is a freezing order and reliance is placed on r 25.11 of the Uniform Civil Procedure Rules 2005 ("UCPR").
13 Rule 25.11 is in the following terms: 25.11 Freezing order (cf Federal Court Rules Order 25A, rule 2) (1) The court may make an order (a freezing order ), upon or without notice to a respondent, for the purpose of preventing the frustration or inhibition of the court's process by seeking to meet a danger that a judgment or prospective judgment of the court will be wholly or partly unsatisfied. (2) A freezing order may be an order restraining a respondent from removing any assets located in or outside Australia or from disposing of, dealing with, or diminishing the value of, those assets
14 Generally as to r 25.11, Spigelman CJ said in Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249; (2008) 163 LGERA 83: 43 The context of r 25.11 is, as indicated above, in a Part of the Rules concerned with interim preservation. The rule is a formulation of the Mareva injunction jurisprudence, which is a comparatively recent development of the common law, based upon the power of a court to prevent the frustration of its process and to ensure that its judgments are not without value. I accept that a narrow or technical approach to such a power is not appropriate.
15 There is reference in jurisprudence on the general topic of making orders of this nature to criteria that should be established by the applicant. The most commonly cited authority is the dictum of Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321-322: "The remedy is discretionary, but it has been held that, in addition to any other considerations that may be relevant in the circumstances of a particular case, as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant's absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied."
16 Whether the first matter be referred to as a "prima facie case" test, or that there be demonstrated a "serious question to be tried" (American Cyanamid Co v Ethicon Ltd [1975] AC 396 at 407; Earthline Constructions Pty Limited v State Rail Authority of New South Wales, NSWCA 26 February 1992, unreported, per Kirby P) or that the formulation in r 25.14 UCPR of "a good arguable case" be applied, there was really little issue about this in the present proceedings. Whilst counsel for the second defendant asserted in written submissions that there was no evidence on this issue, it was not something really pursued in oral submissions. Indeed, counsel conceded that there was no issue in relation to the second defendant's guarantee and nothing was said in dispute of the default the plaintiff claims in relation to the first defendant's obligations under the mortgage. No defence has been filed and the time for doing so, I was informed by counsel for the Plaintiff, has now expired. I am satisfied upon the material filed on behalf of the plaintiff that this first aspect is well established.
17 Another matter that must be considered is whether the making of the order sought would entail any risk of detriment to either the opposing party or to a third party. The making of the order would have the obvious detriment to the second defendant in inhibiting him dealing with his own property but the evidence does not indicate that the detriment to him extends beyond that. I have earlier referred to his evidence as to contemplation of subdividing the Avalon land but at present it is no more than a matter of contemplation. I have also referred to the mortgage held by the St George Bank Limited in respect of the Avalon land but any order made would not affect its rights as the order would only operate in personam and would not confer any property interest in the plaintiff: Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at [50]. I also note in relation to this subject that the plaintiff has given the usual undertaking as to damages.
18 The next matter that must be considered is the "danger that a ... prospective judgment of the court will be wholly or partly unsatisfied" (r25.11 (1) UCPR). Whilst not concerned specifically with r25.11, the following statements of principle are apposite in my view:
19 In Print Management Australia Pty Ltd v Pasupati [2008] NSWSC 342, Barrett J said: 14 A freezing order is warranted only if, in the words of Bryson J in Acquasun Pty Ltd v Coverdale Ram Pty Ltd [2000] NSWSC 1146, there has been "conduct on the part of the defendants which can reasonably be interpreted as potentially having the effect of frustrating the ordinary processes of the court and the enforcement of its judgments or of being intended to do so or of being in any way evasive indicating dishonesty or otherwise indicating actually or potentially that the assets of the company have been or will be dealt with in an irregular way".
20 Hamilton J stated in Vaughan v Duncan [2007] NSWSC 811: 5 The real question in this case is whether there is a sufficient apprehension of dissipation of the cross defendant's assets in a fashion which would lead to the cross claimant not being able to have his orders for costs satisfied. The usual first part of the test laid down by Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319 at 321 - 322 is irrelevant in this case ... . The only matter, therefore, that the applicant for the injunction needs to establish is a sufficient apprehension of dissipation of the assets. 6 One familiar statement of what is necessary to establish this apprehension was made by Mustill J in Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398 at 402 - 3. There his Lordship said: "It is not enough for the plaintiff to assert a risk that the assets will be dissipated. He must demonstrate this by solid evidence. This evidence may take a number of different forms. It may consist of direct evidence that the defendant has previously acted in a way which shows that his probity is not to be relied on. Or the plaintiff may show what type of company the defendant is (where it is incorporated, what are its corporate structure and assets, and so on) so as to raise an inference that the company is not to be relied on. Or, again, the plaintiff may be able to found his case on the fact that inquiries about the characteristics of the defendant have led to a blank wall. Precisely what form the evidence may take will depend on the particular circumstances of the case. But the evidence must always be there. Mere proof that the company is incorporated abroad, accompanied by the allegation that there are no reachable assets in the United Kingdom apart from those which it is sought to enjoin, will not be enough." The matter was revisited more recently by the NSW Court of Appeal in Frigo v Culhaci NSWCA 17 July 1998 unreported. There their Honours said: "A plaintiff must establish, by evidence and not assertion, that there is a real danger that, by reason of the defendant absconding or removing assets out of the jurisdiction or disposing of assets within the jurisdiction, the plaintiff will not be able to have the judgment satisfied if successful in the proceedings. There has been much debate as to the precise degree of risk which must be shown: see generally Patterson . What is clear is that mere assertions that the defendant is likely to put assets beyond the plaintiffs reach will not be enough: Ninemia Maritime Corp v Trave Schiffahrtsgesellschaft mbH & Co KG [1984] 1 All ER 398; Patterson . The evidence relied upon at the contested hearing fell far short. The admissions in the 'without prejudice' correspondence should have been ignored. The sale of an encumbered home unit at a figure above market value does not, standing alone, imply disposal of assets in order to defeat a prospective judgment, even where the purchaser is a close relative. Even if, which is doubtful, the appellant's suspension of work in the building contract could have been regarded as evidence of financial difficulties, it was not argued below that it had such effect. More importantly, that alone is not enough. A Mareva injunction is not designed to stop a person from sliding into insolvency."
21 In Finn & Ors v Carelli [2007] NSWSC 261 Brereton J said: 4 It is not necessary for an applicant to show that the respondent has a positive intention of evading a judgment, and it is sufficient to show that the course on which the respondent proposes to embark is, objectively speaking, calculated to have that effect. But as the Court of Appeal made clear in Frigo v Culhaci , an applicant must establish, by evidence and not mere assertion, that there is a real danger that by reason of the respondent absconding or otherwise dealing with assets, the applicant will not be able to have its judgment satisfied. While acknowledging that there has been much debate as to the precise degree to which that has to be shown, the Court emphasised that mere assertion that the defendant was likely to put assets beyond the plaintiff's reach was inadequate, for which the Court cited Ninemia Maritime Corp v Trave GmbH & Co Kg (The Niedersachsen) [1984] 1 All ER 398, as well as Patterson v BTR Engineering . 5 It is important to bear in mind that the jurisdiction to make orders of this type was never intended simply to enable a plaintiff or judgment debtor to obtain security for its judgment in advance of execution, but was firmly founded on the jurisdiction of the Court to prevent abuses of its process by preventing a defendant or judgment debtor from embarking on a course of conduct which would have the effect of defeating the Court's jurisdiction. It also needs to be borne in mind that the mere fact that a judgment may not be satisfied for reasons of impecuniosity does not mean that there is an abuse of process. Indeed, it has been pointed out on several occasions that the prospect of impending insolvency is not a reason to grant a Mareva injunction [ Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545, 558].
22 Counsel for the plaintiff relied upon the evidence in relation to the leases that his client was given to understand were valid and in place before agreeing to advance money to the first defendant under the loan agreement. Counsel specifically disavowed a submission that there had been dishonesty on the second defendant's part in this respect. He did, however, liken the conduct of the second defendant to that of the defendant in Patterson v BTR Engineering (Aust) Ltd, supra. Gleeson CJ, at 325-326, referred to the primary judge's finding that "the nature of the scheme in which, on the evidence to date, the appellant appears to have engaged, is such that it is reasonable to infer that he is not the sort of person who would, unless restrained, preserve his assets in tact so that they might be available to his judgment creditor". In the present case the plaintiff relies upon nothing else apart from the issue in relation to the leases. In my view, without any contention that the second defendant had acted dishonestly, it cannot be said that he is that "sort of person". It is significant that the only actions of the second defendant relied upon concern a single event in the past and not to any actions carried out or proposed by him in relation to the land sought to be the subject of the freezing order. In other words, there is no suggestion of him having done anything, or proposing to do anything, to dispose of it, to deal with it, or to diminish its value.
23 In these circumstances I am of the view that the freezing order sought by the plaintiff should not be made.
24 The alternative relief sought in the notice of motion is for the operation of two specified caveats to be extended until further order of the Court, or alternatively, the determination of these proceedings.
25 The lodgement of caveats is provided for by s.74F of the Real Property Act 1900 ("RP Act"), which, relevantly, is in the following terms. 74F Lodgment of caveats against dealings, possessory applications, plans and applications for cancellation of easements or extinguishment of restrictive covenants (1) Any person who, by virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled. ... (5) A caveat lodged under this section must: (a) be in the approved form, (b) specify: ... (v) the prescribed particulars of the legal or equitable estate or interest, or the right arising out of a restrictive covenant, to which the caveator claims to be entitled, ...
26 Each of the caveats lodged by the plaintiff assert an "equitable interest pursuant to Loan Agreement dated 19 March 2007". Some further particulars of the agreement and the amount outstanding under it are recited as well. In the course of the hearing before me it became clear that the plaintiff was not relying upon an assertion of an interest arising under the loan agreement but rather under the mortgage. I will return to this.
27 S.74J of the RP Act provides for the lapse of caveats upon application being made to the Registrar-General by the registered proprietor. S. 74K of the RP Act then provides for the extension of caveats lodged under s. 74F. It provides in part: 74K Power of Supreme Court to extend operation of a caveat lodged under section 74F (1) Where a caveator is served with a notice prepared under section 74I (1) or (2), 74J (1) or 74JA (3), the caveator may prepare, in the manner prescribed by rules of Court, an application to the Supreme Court for an order extending the operation of the caveat. (2) Subject to subsection (3), on the hearing of an application made under subsection (1), the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application.
28 Accordingly, if I am satisfied that the plaintiff's claim has, or may have, substance, I have a discretion as to granting the extension of the operation of the caveats lodged in respect of the Avalon land. If I am not so satisfied, then I am compelled to dismiss the application: Sutherland v Vale [2008] NSWSC 759 at [10].
29 Brereton J went on to say in Sutherland v Vale: 11 It is well established that on an application for an order extending the operation of a caveat, a test substantially the same as that for an interlocutory injunction applies. First , the applicant must demonstrate that the caveat has or may have substance, the phrase "may have substance" encompassing the concept of a seriously arguable case; secondly , the Court will have regard to considerations of the balance of convenience and prejudice; and finally , to other discretionary considerations.
30 The second defendant opposed the extension of the operation of the caveats on three bases. First, that the description in Schedule 1 of the caveats of the interest claimed does not amount to a caveatable interest because the description refers to the loan agreement and the plaintiff is now contending that it is the deed of mortgage, not the loan agreement, which gives rise to the interest. Secondly, the deed of mortgage does not confer upon the plaintiff a caveatable interest in the Avalon land. Thirdly, that the description of the claimed estate or interest in Schedule 1 of the caveats is in each case deficient. A caveatable interest?
31 I propose to deal with the second of those three contentions first.
32 As I understand the submissions of counsel for the plaintiff, it is claimed that the plaintiff does have a caveatable interest arising from the terms of the mortgage. Reference was made to clauses 32 and 37, which, it was submitted, when read together give, rise to the plaintiff's interest. 33 Counsel for the second defendant drew my attention to the judgment of Austin J in Nguyen v Kaha [2008] NSWSC 794 and the authorities cited therein in support of his submission that the answer to the present question depends upon the proper construction of the instruments before the court. There must be demonstrated a clear intention by the parties to have created a caveatable interest.
34 Clause 32 of the mortgage is in these terms: "32 Preserving Security The Mortgagor covenants with the Mortgagee that at the cost of the Mortgagor the Mortgagor shall at any time and from time to time at the written request of the Mortgagee execute any instrument including a dealing as defined in the Real Property Act 1900, as amended, which the Mortgagee shall in its absolute discretion require the Mortgagor to execute and do all such other acts matters and things as the Mortgagee shall consider reasonable for the purpose of preserving or protecting this Mortgage . " (My emphasis).
35 Clause 37 is, relevantly, in these terms: "37 Guarantee In consideration of the matters mentioned in this Mortgage and/or in consideration of the Mortgagee making advances, granting accommodation or providing financial facilities to for or at the request of the Mortgagor and/or the Debtor and at the request of the Guarantor (as testified by the Guarantor's execution of this Mortgage) and pursuant to the Guarantor's agreement so to do the Guarantor hereby covenants and agrees with the Mortgagee to be jointly with the Mortgagor and severally liable to the Mortgagee for the due and punctual observance and performance of the covenants, terms, conditions and provisions in this Mortgage contained or implied and on the part of the Mortgagor to be observed and performed (all such covenants, terms, conditions and provisions being hereinafter referred to as "the Mortgagor's Covenants") ..."
36 To determine the intention of the parties in the agreement within these clauses it was not suggested that it was necessary to go beyond a construction of the actual words used. So, the question is, what was the intention and the purpose of the parties reflected in the wording of the clauses viewed objectively and what would they be reasonably understood to convey? See generally Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; and Equuscorp Pty Ltd v Glengallan Investments [2004] HCA 55; 218 CLR 471.
37 Assuming for the moment that the obligations of the mortgagor in clause 32 can be regarded as things for which the guarantor can be held liable by clause 37, the words I have emphasised in the former are important. Clause 32 can only be construed, in my view, to provide a power in the mortgagee to require the mortgagor, and in turn the guarantor, to do things "for the purpose of preserving or protecting this Mortgage". This might include matters such as applying for a new certificate of title if the certificate of title for the land the subject of the mortgage might be lost, mislaid or destroyed (s. 111 RP Act). I do not regard the clauses as imposing any obligation upon the guarantor beyond things connected with the preservation or protection of the mortgage of the security property. They do not create in the mortgagee any "legal or equitable estate or interest" in any other property that the guarantee might happen to own or have an interest in. If the creation in the mortgage of such an estate or interest was intended there should be found somewhere in the document some clear statement of that intention. Such a statement is not in clauses 32 and 37 or anywhere else.
The description of the estate or interest in Schedule 1 of the caveats
38 In view of my conclusion of no caveatable interest arising under the deed of mortgage it is unnecessary to determine the other two contentions advanced on behalf of the second defendant. Orders
39 The orders of the Court will be: (1) The plaintiff by itself, its servants and agents, take all steps by 4.00pm on 25 March 2009 to withdraw from the Register Caveat No AE77997; (2) The Plaintiff by itself, its servants and agents, take all steps by 4.00pm on 25 March 2009 to withdraw from the Register Caveat No AE77998; (3) Orders 1, 2 and 3 made on 6 March 2009 be vacated; (4) The Notice of Motion filed by the Plaintiff on 4 March 2009 be otherwise dismissed; (5) The plaintiff pay the costs of the second defendant of the Notice of Motion filed on 4 March 2009 and relating to the application of the second defendant made on 13 March 2009; (6) These orders may be entered forthwith. **********
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Perpetual Nominees Limited
Springfield Retail Pty Limited & Anor
(2008) 163 LGERA 83
(1989) 18 NSWLR 319
(1999) 198 CLR 380
(1985) 1 NSWLR 545
[2004] HCA 52
The plaintiff was ordered to take steps by 4.00 pm on 25 March 2009 to withdraw Caveats AE77997 and AE77998. The orders made on 6 March 2009 were vacated, the notice of motion was otherwise dismissed, and the plaintiff was ordered to pay the second defendant's costs of the motion and his related application [39].