Plaintiff v First Defendant

Supreme Court of Victoria|2005-09-21|Before: GILLARD J

APPLICATION FOR REMOVAL OF CAVEAT - Section 90(3) Transfer of Land Act 1958 - Loan agreement between parties - Default by plaintiff - Caveat lodged by first defendant - Whether loan agreement constituted equitable charge amounting to caveatable interest - Intention to constitute security could be inferred from instrument - First defendant entitled to maintain caveat - Proceeding dismissed.

"(7) Security: Deed of charge over the land situated at Lot 35 on Plan of Subdivision 001763, Certificate of Title Volume 06916 Folio 019: Guarantee of the Debt by Gregory Alan Nichols."

9 It is fairly obvious from those few facts that the question was considered and discussed by the parties as to Ms McMillan providing some security and it would appear that she must have given Mr Dunoon the description of her Certificate of Title and the interest she had in the property. In fact no such deed was entered into. Clause 6 of the Agreement is to be compared with Clause 4 which provides:

"(4) The Borrower shall at any time when called upon in writing by the Lender to make and execute to the Lender a legal mortgage in fee simple (to contain all such usual and proper covenant clauses and provisions as the lender's solicitor may require) on the land being Certificate of Title Volume 6916 Folio 019 to better this debt." (sic)

10 Again one compares that particular clause with Clause 6. This clause does require the lender to take a step, namely to call upon the borrower in writing to execute a mortgage. On the other hand Clause 6 is not subject to such an obligation.

11 Mr Dunoon's counsel, Mr Nettlefold, submitted that the loan agreement constituted an equitable charge. It was common ground between the parties that an equitable charge over real estate gives a caveatable interest in the real estate. Mr Dunoon brought a proceeding in the County Court and obtained judgment against Ms McMillan and her partner, Mr Nichols, for the debt and interest.

12 Mr A.P. Dickenson of counsel for Ms McMillan submitted that Mr Dunoon could not prove that he had a charge. He relied upon two general grounds. First, that the terms of the loan agreement did not constitute a charge. He submitted that the agreement contemplated that a further step would be taken before the charge would come into existence, namely that a Deed would be executed. Secondly, that by bringing a proceeding in the County Court and obtaining judgment for the debt and interest, this amounted to an election which exhausted all other remedies under the loan agreement and the obtaining of a judgment or rights under the agreement merged into the judgment. Mr Nettlefold submitted it was plain that the loan agreement was an equitable charge.

13 It is necessary to set out the circumstances of the proceeding brought by Mr Dunoon against Ms McMillan and the guarantor. On 28 May 2004 Mr Dunoon instituted a proceeding in the County Court seeking the amount of the principal together with interest. The claim was in the sum of $80,600. The size of the claim no doubt is referable to the very demanding interest provisions. He made application for summary judgment by summons dated 2 August 2004. The application and also the proceeding was compromised on the basis that the defendants, that is Ms McMillan and her partner, would pay Mr Dunoon the sum of $26,000 together with interest pursuant to the Supreme Court Act and costs which were agreed at $1750.

14 The terms of the settlement went on to provide that in the event of default Mr Dunoon was entitled to enter judgment. As things turned out there was default. On 2 March 2005 the County Court entered judgment against Ms McMillan and her partner, Mr Nichols, in the sum of $35,161.36. Despite this judgment neither Ms McMillan or Mr Nichols have paid the amount of the judgment debt.

15 Mr Dickenson submitted that when Mr Dunoon entered judgment in the County Court any rights under the agreement, including any right to compel the plaintiff to provide a charge over the land or indeed to enforce a charge, merged in the judgment. He made reference to the Port of Melbourne Authority v Anshun Proprietary Limited.[2] Another way of putting the argument would be that Mr Dunoon had a choice of remedies available to him and by seeking to recover the debt and interest and entering judgment he elected to obtain that remedy and abandon any other claims.

16 I accept as a matter of principle that Mr Dunoon by the steps that he took elected to pursue a certain course. In my opinion, if the agreement constitutes a charge in equity the steps taken by Mr Dunoon do not amount to an election of competing remedies, nor does the obtaining of the judgment mean that the charge, if there is one, has merged into the judgment. In my opinion the rights are distinct and separate. Mr Dunoon is not seeking in this proceeding to enforce any charge, nor does the maintenance of the caveat amount to seeking to enforce a charge. What Mr Dunoon contends is that he has an equitable charge over Ms McMillan's property and this amounts to a caveatable interest in her property. He is not seeking to enforce the charge.

17 Mr Nettlefold referred to a number of authorities supporting that conclusion. He referred to Halsbury's Laws of England, Volume 9(1) Paragraph 1063. The learned authors wrote:

"When a former action is being pursued to judgment in a court of record, the original cause of action is merged in the judgment, so that a second action cannot be brought in respect to the same cause of action."

"So long as the judgment remains unsatisfied, however, it does not extinguish any remedy except the particular cause of action in respect of which it was recovered and the creditor is not precluded by it from enforcing any collateral security which he may have taken."

19 I emphasise the phrase, "from enforcing any collateral security which he may have taken." In Ealing L.B.C. v El Isaac & Anor,[3] Templeman LJ said:

"Merger does not apply where there is an independent covenant, nor does it apply to a security as distinct from a contract."

20 His Lordship then went on to observe on the same page:

"It appears therefore that Merger has a very restricted operation if it does not, as appears from the 1902 case which I have just cited, apply to a security. It does not apply to what is said to be an independent covenant and in most mortgages and deeds of borrowings these days care is taken to make a covenant an independent covenant."

21 In my opinion, Mr Dunoon entering judgment against Ms McMillan and the guarantor for the amount of the debt including interest, does not preclude him from seeking to rely upon a charge over the land as supporting a caveatable interest. He has not exhausted his remedies, he has not elected not to rely upon the charge, if it is a charge, and the right to rely upon it as a charge is not merged in the judgment.

22 Mr Dickenson, as I have stated, referred to what was said in the Anshun case.[4] What Their Honours said there was:

"That where an action has been brought to judgment, no other proceeding can then be maintained thereafter on the same cause of action."

"That the rule as to res judicata comes into operation whenever a party attempts in a second proceeding to litigate a cause of action which is merged into judgment in a prior proceeding."

24 That is not what Mr Dunoon is seeking to do by opposing this application. What he seeks to do is to prove that he has a security, which is an equitable charge which supports the caveat that he has lodged over the property.

25 The real question in my view turns on whether or not the loan agreement amounts to an equitable charge. The deed contemplated by the agreement was not executed. However, Mr Nettlefold submits that the terms of the agreement establish that it was the common intention of the parties that the property would be charged as security for repayment of the loan. Mr Nettlefold relies upon the wording and in particular the phrase, "a pre-condition of the loan advanced." The word, "pre-condition" means inter alia, "a condition necessary to a subsequent result." It is also very apparent from the wording of the agreement itself that there was a discussion about providing security and that Ms McMillan did provide the necessary particulars of the title to enable this to be inserted in the agreement.

26 Mr Nettlefold submits that it was the common intention of the parties to create a charge over the property as security for repayment. He relied upon the equitable principle that equity looks on that as done which ought to be done.

27 In AVCO Financial Services Ltd v White[5] Gillard J discussed the principles concerning an equitable charge. His Honour said:

"An equitable charge for a debt is a security whereby only a right to payment of the debt out of the property is conferred by the owner of the property to the holder of the security. The remedy of the holder of the security on default in payment of the debt was to apply to a court of equity to have the property sold and the proceeds paid into court."

28 His Honour referred to a number of cases. I interpolate here to observe that Mr Dunoon has not applied to this court to have the property sold and the proceeds paid into court. That underlines what I said earlier that that is not what Mr Dunoon is seeking to do in this application. He is opposing this application to remove the caveat.

29 His Honour then went on to say, quoting what an English judge said in a case, as follows:

"As was pointed out by Romer J in Cradock v. Scottish Provident Institution (1893) 69 L.T. 380 at p.382: 'To constitute a charge in equity by deed or writing it is not necessary that any general words of charge should be used. It is sufficient if the court can fairly gather from the instrument an intention by the parties that the property therein referred to should constitute a security.' The learned judge's decision was subsequently affirmed in the Court of Appeal."

30 It is noted that the issue comes down to whether the Court can fairly gather from the words of the agreement an intention by the parties that the property referred to in the agreement was to be charged with payment of the debt. In other words, did it constitute a security?

31 Mr Nettlefold referred to the second edition of Equity Doctrines and Remedies by Meagher, Gummow and Lehane at paragraphs 339-40.

32 The learned authors were dealing with the maxim that, "Equity looks on that as done which ought to be done", and Mr Nettlefold relied upon the fifth instance stated by the learned authors. In that paragraph they set out a number of examples of when the maxim has been applied. With respect to the fifth instance they said:

"The fifth instance is equity's attitude to contracts where the maxim means that often equity treats a contract to do a thing as if the thing were already done. Thus often equity will treat a person who for valuable consideration has agreed to take a lease as if he were a lessee: this is the doctrine of Walsh v Lonsdale [1882] 21 Ch D9 discussed in the previous chapter. Thus also is the doctrine of an equitable mortgage explicable. Any contract to give a mortgage creates not a hyperfication but an equitable mortgage conferring a right to foreclose."

33 The learned authors then went on to observe, the following:[6]

"It is noted that the applicability of the maxim is limited to circumstances where that which ought to be done can be done; the maxim does not require one to believe that equity will regard as done that which no court of law or equity would ever order to be done. Therefore it can be availed of not by everybody but only by those who would have the right to seek in equity the enforcement of the contract. This is often expressed by saying with approximate accuracy that in cases of contract the maxim depends on a specific enforceability of the contract."

34 Applying that statement to the present case I have little doubt that it would have been open to Mr Dunoon, if he so thought fit, to seek specific performance of the obligation requiring the execution of a deed.

35 Finally, Mr Nettlefold referred to the case of Re Strand Music Hall Company.[7] In that case Lord Justice Turner said this:[8]

"There can I think, be no doubt that it was intended by these agreements to create a charge upon the property of the company but it was said on the part of the official liquidator that his intention was not well carried into effect. I apprehend, however, that where this court is satisfied that it was intended to create a charge that the parties who intended to create it have the power to do so it will give effect to the intention notwithstanding any mistake which may have occurred in the attempt to effect it. The case in this respect is, I think, governed by the passage cited from Lord Redesdale's treatise, and by the cases to which he refers, cases which, as I concede, rest on the analogous principle, universally prevailing in this court, that what is agreed to be done is to be considered as done."

36 In my opinion, the words in this contract do lead to the conclusion that it was the common intention of the parties that a charge would be given over Ms McMillan's land at Pascoe Vale. I think the phrase, "It is a precondition of the loan advance" makes that clear. In addition, there is a comparison between Clauses 4 and 6 and, finally, it is also clear from the wording of the agreement that there had been a discussion along the lines of providing a security, and Ms McMillan had, in fact, provided the details of her title.

37 In the end it is a question of whether or not the Court can infer from the instrument an intention to constitute a security. As was said in the Re Strand-Music Hall Company case, once a Court is satisfied that there was an intention to create a charge, although the parties did not through some reason or mistake actually effect it by the execution of some other document, nevertheless the Court will reach the conclusion that what was done, even though not according to the strict letter of the agreement, constituted what the parties intended. This, in my view is a common sense approach, and the Latin maxim, "equity looks on that as done which ought to be done", gives effect to the common sense approach. Accordingly in my opinion the caveator, Mr Dunoon, has established that he does have a caveatable interest in the property and is entitled to maintain the caveat in its present form. Accordingly I dismiss the plaintiff's application.

38 So the orders I make are that, since this is the proceeding, I will dismiss the proceeding.

39 I order:

1. That the proceeding be dismissed.

2. That the plaintiff pay the first defendant's costs of the proceeding including any reserved costs.

[1] [1981] VicRp 36; [1981] VR 344.

[2] (1981) 147 CLR 589-597.

[3] [1980] 1 WLR 932 at 937.

[4] at p.597.

[5] [1977] VicRp 62; [1977] VR 561 at 563-4.

[6] At [340].

[7] [1865] 3 Deg J and S 147; [1865] EngR 710; 46 ER 594.

[8] at p.598 of the ER:

At a glance

Court

Decision date

Before

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Judgment (29 paragraphs)

Parties

Cases Cited (1)