[2000] TASSC 185

PARTIES: SHAW EXCAVATIONS PTY LTD (ACN 009 515 940)

Conveyancing - Land titles under the Torrens System - Caveats against dealings - Form - Caveator showing cause against removal - Sufficiency of the estate or interest claimed.

Land Titles Act 1980 (Tas), s133.

Woodberrt v Gilbert (1907) 3 Tas LR 7; Re an Application by Haupiri Courts Limited (No 2) [1969] NZLR 353; Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870; Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] VicRp 47; [1994] 1 VR 672, followed.

Judgment Number: [2000] TASSC 185

SHAW EXCAVATIONS PTY LTD (ACN 009 515 940) v

PORTFOLIO INVESTMENTS PTY LTD (ACN 009 498 202)

1 The applicant seeks an order for the removal of a caveat forbidding registration of a dealing with land registered in the name of the respondent describing the estate to be one of fee simple. On 22 September 1995, the parties executed a mortgage in respect of the land which secured moneys payable to the applicant for works performed in the development of property which included land the subject of the mortgage. On 21 September, the parties had entered into an agreement "the loan agreement" whereby the respondent agreed to repay to the applicant the sum of $229,834.09, being the agreed cost of development works. The loan agreement provided that the applicant was not entitled to demand repayment of any amount of claims outstanding until two years after completion of the works.

2 On 18 February 1997, the agreement was varied to provide for the part-payment of the sum of $30,000 before the original date of repayment. As consideration for the variation, the respondent was afforded rights to require a partial discharge of the mortgage:

" ... in respect of certain parts of the subdivided property when the balance of the Construction Price fell below $150,000.00, and in respect of certain other parts of the subdivided property when that balance fell below $100,000.00."

3 The scheme was designed so that as certain construction works associated with the sub-division were completed, particular blocks could be made available for sale and moneys used from sale allocated to the partial discharge of the mortgage. The scheme was identified by reference to stages of development. The variation or release agreement for $215,738 relevantly provided:

"THIS AGREEMENT made the 18th day of FEBRUARY 1997

BETWEEN PORTFOLIO INVESTMENTS PTY LTD ACN 009 479 202 of Collins Street, Hobart in Tasmania ('Portfolio') of the one part

AND SHAW EXCAVATIONS PTY LTD ACN 009 514 940 of Cambridge Airport, Cambridge in Tasmania ('Shaw') of the other part

A By Agreement between the same parties hereto ('the Construction Agreement') Shaw agreed with Portfolio to construct development works ('the Works') for a residential subdivision off Cambridge Road, Mornington in Tasmania.

B By Agreement of 21 September 1995 ('the Payment Agreement') Portfolio and Shaw agreed that the cost of the works ('the Construction Price') would be paid in accordance with the terms and conditions of the Payment Agreement.

C By clause 5 of the Payment Agreement Portfolio agreed inter alia to grant a mortgage ('the Mortgage') to Shaw over the land situate at Cambridge Road, Mornington as more particularly described in Folio of the Register Volume 117872 Folio 1 ('the Land') as security for the Construction Price.

D It was acknowledged by Shaw that Portfolio was to proceed with a subdivision ('the Subdivision') of the Land in various stages.

E Portfolio has completed Stage 1 of the Subdivision of the Land as shown on the plan annexed hereto and marked with the letter 'A'.

F The Title references to the lots of the Subdivision which remain registered with Portfolio and subject to the Mortgage are more fully described in the Schedule hereto.

G Portfolio has developed Stage 2 of the Subdivision as more particularly shown on the plan annexed hereto and marked with the letter 'B' and proposes to obtain titles to the various lots shown within that Stage 2.

H Portfolio may further develop the Land by subdividing the same into Stages 3 and 4 as more particularly shown on the plan hereto and marked with the letter 'C'.

I Shaw has requested part payment for the Works from Portfolio of an amount of Thirty thousand dollars ($30,000.00) which notwithstanding the terms of the Payment Agreement Portfolio has agreed to do on the following terms and conditions.

1 In consideration for the payment of Thirty thousand dollars ($30,000.00) by Portfolio to Shaw the receipt of which amount is hereby acknowledged Shaw shall upon demand of Portfolio:

a) if and only if at the time of Council Planning and Development approval of Stage 3 or at such later time the balance of the Construction Price payable at the time of demand is less than One hundred and fifty thousand dollars ($150,000.00), provide to Portfolio a properly sealed and executed Partial Discharge of Mortgage for that part of the Land as comprised and shown as Stage 3 of the subdivision the approximate position of which is shown on the plan annexed hereto and marked with the letter 'C'; and

b) if and only if at the time of Council Planning and Development approval of Stage 4 or at such later time the balance of the construction Price payable at the time of demand is less than One hundred thousand dollars ($100,000.00), provide to Portfolio a properly sealed and executed Partial Discharge of Mortgage for that part of the land comprised within Stage 4 of the subdivision the approximate position of which is shown on the plan annexed hereto and marked with the letter 'C'.

2 In all other respects the parties hereto hereby confirm the terms of the Payment Agreement.

IN WITNESS whereof the parties hereto have hereunto set their hands and seals the day and year first hereinbefore written.

TITLES OF LAND REGISTERED TO PORTFOLIO SUBJECT TO THE MORTGAGE

Certificate of Title Volume 122741 Folios 1, 2, 3, 5, 6, 27-31

4 This application relates to land described in Certificate of Title Volume 122742, Folio 1, and is the land forming stages 3 and 4 as referred to in the variation agreement cl 7, 8.

5 The works were completed on 7 April 1997. On 14 May 1999, the applicant served on the respondent a notice of demand for the sum of $215,738.44 and, when the amount remained unpaid on 26 May, served a notice of sale. It would appear that some payments referable to land, not the subject of this application were made since the affidavit of a director of the applicant states:

"The respondent has paid nothing in reduction of the amount owing to the applicant since on or about the 23rd day of August 1999 and remains in default under the Mortgage."

A further notice of demand claiming payment in the sum of $133,451.47 was served on the respondent on 28 October 1999, and on 8 November a notice of sale affixed to the registered office of the respondent.

6 On 26 April 2000, the solicitors for the respondent advised of the intended sale of some of the completed blocks of land and advised of an anticipated payment from the proceeds of sale of approximately $41,000. In addition, they advised:

"We also note that in accordance with the Agreement of 18 February 1997, if the balance of the construction price is less than $100,000.00 both stages 3 and 4 (as currently comprised in Certificate of Title 129848/1) may be released from the mortgage.

As the amount of the construction price will be less than $100,000.00 we will require a partial discharge of the mortgage to your client over that title (129848/1). Please confirm that the discharge for that property will be available on settlement.

We note that Shaw Excavation Pty Ltd have engaged Roberts Limited in relation to a mortgagee sale of our client's property including the above blocks (lots 3, 28 and stages 3 and 4). As indicated, Lots 3 and 28 have been sold, and the property within stages 3 and 4 must be released to our client upon the construction price being less than $100,000.00. Accordingly, those properties must not be sold by way of mortgagee sale."

7 On the same day, the solicitors for the applicant replied:

"I acknowledge your letter of 26th April in connection with the above and note that your client intends to make a repayment relating to lots 3 and 28 (as you previously indicated on 11th November last, on 16th November last and on a number of subsequent occasions up to and including 3rd April).

Perhaps I should make the point that the debt owing to Shaw Excavations Pty Ltd by Portfolio Investments Pty Ltd is long overdue for payment and is repayable in full. The whole of the debt is secured by the mortgage and the mortgagee is now entitled to payment in full and is not obliged to accept partial payments. To the extent (if any) that the mortgagee is prepared to accept partial repayments in lieu of payment in full, it will be on terms fixed by the mortgagee. The mortgagor is no longer entitled to the benefit of the provisions of the agreement of 21st September 1995 or the agreement of 18th February 1997, both of which have been breached for a considerable time.

The mortgagee requires immediate payment in full if the sale of the security property is to be deferred."

The respondent caused a caveat to be lodged on 2 May 2000 with respect to the land remaining subject to mortgage.

8 The respondent claims that since the proceeds of the sale of the land referred to in the letter of 26 April would have reduced the amount repayable below $100,000, it was entitled to the partial discharge of the mortgage over the land comprised in stage 4 of the variation agreement. Following the exchange of letters on 26 April 2000, the applicant's solicitors had advised by facsimile transmission dated 27 April:

"Further to your second communication of 26th April, I advise that Shaw Excavation Pty Ltd is prepared to provide partial discharges of mortgage over Lots 3 and 28 in exchange for $41,000.00 net in reduction of the mortgage principal thereby avoiding incurring auction costs in respect of those two allotments. Repayment must be made before 11.00am on 28th April 2000 otherwise Lots 3 and 28 will be included in the auction to commence at midday on 28th April. The auction will proceed in respect of the other land subject to the mortgage."

The auction referred to was unsuccessful and following further exchange of correspondence the applicant's solicitors advised on 17 May 2000:

"I acknowledge your letter of 11th May in connection with the above matter and advise that no bids were received at the auction for any of the lots offered.

The mortgagee is prepared to release lots 3 and 28 upon receipt of $41,000.00 in reduction of the mortgage. The balance of the security will remain on the market by the mortgagee. We are ready to settle the matter (and have been since last November when you first indicated that payment was imminent). Until payment is received, all blocks will remain on the market by the mortgagee."

9 The moneys were placed on trust by the respondent's solicitors and remained unpaid. At the commencement of this hearing, the parties reached an agreement and the caveat was removed in so far as it related to two of the titles which were subject to the original application.

10 Mr Robert Martin, a director of the respondent company, was cross-examined on his affidavit sworn in these proceedings. He agreed that the company had no assets other than the land which was subject to development, and that the discharge of the mortgage would leave the applicant as an unsecured creditor. He stated that he is a director of associated companies which are involved in the overall development of the project. The cross-examination touched on issues of wider import and for the purpose of this decision it is not necessary to consider them since the application is one dependent upon the terms of the agreement and questions of law pertaining to caveats and property rights.

11 The agreement of 21 September 1995 provides for the terms of construction works referable to tender and contract documents and relevantly provides:

(i) Shaw shall upon the request of Portfolio give an executed Discharge of Mortgage in exchange for the payment of the construction price (as may be varied in accordance with the terms of this Agreement, the Tender and the Contract) together with all interest payable under this Agreement;

(j) Upon completion of the sale of any lot or block of the Development Shaw shall be entitled to receive the net proceeds of sale (being the sale price of the respective lot or block less the payment of any prior mortgage funds, advertising costs, Real Estate Agent's commission and the costs and expenses of and in connection with the sale of the lot or block) in exchange for a partial or full discharge (as the case may require) of the Mortgage;

(k) Portfolio shall not without the approval of Shaw:

(i) offer lots 1 and 2 of the Development for sale at a price exceeding Fifty thousand dollars ($50,000.00); and

(ii) offer any of the remaining lots or blocks of the Development for sale at a price exceeding Thirty thousand dollars ($30,000.00);

(l) Portfolio may transfer a lot or block of the Development to another entity or person (whether or not the entity is a related company of Portfolio) subject to the terms of the Mortgage PROVIDED THAT the terms of this Agreement shall apply mutatis mutandis to the transferee and the respective lot or block of the Development transferred;

(m) Shaw shall not demand payment of the amount of claims outstanding from time to time together with interest thereon until the expiration of two years after completion of the Works."

12 Clause (j) permits the payment of moneys from the proceeds of sale during the course of development (subject to some price restrictions governed by cl 5(k)) but cl 5(m) predicates payment within two years of an event defined, not by reference to the sale of land, but one within the control or capacity of the applicant. It determines the time frame of the agreement. The "loan agreement" (cl 6(c)) governs the terms of the mortgage agreement in that cl 6(b) provides:

"To the extent of any inconsistency between the terms of the Mortgage and the terms of this Agreement the terms of this Agreement shall prevail."

As such, it governs the operation of the covenants to pay as stated in the mortgage, cl 3.1(a) and (b). The mortgagee might appropriate money towards the satisfaction of moneys secured but the mortgagee is not entitled to make demand until the requirement of the loan agreement, cl 5(m) has been met.

"H Portfolio may further develop the Land by subdividing the same into stages 3 and 4 as more particularly shown on the plan hereto and marked with the letter 'C'".

The recital could not operate so as to defeat the terms of the mortgage, itself confined by the terms of the loan agreement, cl 5(m), by making repayment dependent on a discretionary exercise to proceed or defer on the part of the respondent. It provides for a contractual arrangement whereby at a time previous to two years before completion of the works the respondent can require a partial discharge of mortgage if certain financial conditions have been met. In one respect it can be seen as a variation of the original agreement in that it permits the respondent to require discharge on the occurrence of a different event. But, if it is an amendment, its terms do not obviate the terms of either the loan agreement or the mortgage. It permits a right of redemption but makes no provision for the need for repayment. On the approach contended for by the respondent, it would permit discharge without conferring any security or right to insist on payment of the proceeds of sale in exchange for the discharge. It affords contractual rights but does not create, in its own right, a separate interest in the land subject to the mortgage, other than that afforded the mortgagor in the original deed. Its terms do not derogate from the loan agreement except to permit earlier payment. If it is regarded as a transaction document as defined by the mortgage, cl 1.1, then by virtue of the mortgage, cl 1.3, the terms of the mortgage are to prevail, since that provides:

"To the extent of any inconsistency between the terms of this Mortgage and any Transaction Document, the terms of this Mortgage shall prevail unless the Transaction Document expressly provides otherwise."

14 It is only the loan agreement, cl 6(b), which provides otherwise. Its terms, in particular cl 5(m), govern the mortgage which, in turn, govern any inconsistency in the mortgage. In another respect it could be described as a separate agreement in that it affords contractual rights operating within the ambit of a wider agreement. The applicant can obtain an earlier or interim payment whilst the respondent is afforded flexibility in its disposition of land by partial redemption of title. If it be a separate agreement it would not constitute a "transaction" document as defined by the mortgage and would remain subject to the primary instrument. It would not operate to afford the respondent an interest in the land subject to mortgage beyond that afforded by the mortgage. The rights of the applicant mortgagee remain those afforded by the mortgage, cl 3.1, 3.5, 21.1.

15 The terms of the agreement dated 18 February 1997, do not in themselves create an interest in land which could give rise to a caveat. They create a contractual agreement enforceable between the parties.

16 The application requires the respondent to show cause why the caveat should not be removed. It is required to show on a prima facie basis that it has an estate or interest in land. The respondent claims an interest in fee simple. The Land Titles Act 1980 ("the Act"), Pt IX, provides for the registration and removal of caveats and confines the right to lodge a caveat:

(a) a settlor transfers registered land to be held by the transferee as trustee; or

(b) a person claims an estate or interest in registered land under an unregistered dealing, or by devolution in law or otherwise - ..."

The interest must be something more than that remaining with a registered proprietor in fee simple which is subject to a registered mortgage since those rights are preserved and identifiable by the terms of the original registered instruments. A judgment creditor is also entitled by the Act, s134, to lodge a caveat upon compliance with certain requirements. The respondent relies on the nature of the 'variation agreement' as an unregistered agreement creating an interest in land. An interest based on a contractual right is insufficient to create a caveatable interest in land (Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] VicRp 47; [1994] 1 VR 672, Australian Eagle Insurance Company Limited v Parry A110/1991). The respondent contends that a power of sale, improperly exercised, can create an interest in that such an exercise affects the right of redemption recognised in the terms of the mortgage. At this stage the applicant has purported to exercise its power of sale and has not attempted to execute a contract with a third party. The right of the respondent must be considered in relation to the purported exercise of power of sale.

17 The terms of the mortgage, cl 22, provide for the right of sale (as governed by the loan agreement, cl 5(m)) upon default of payment. The mortgagee was entitled to demand payment as and from 7 April 1999. The respondent had not sought to pay the moneys or portion thereof on or before the due date. It sought confirmation that upon acceptance of repayments of moneys as a consequence of the sale of two lots, that the applicant would provide an additional partial discharge over the land which is the subject of this application, on 26 April. Even if the terms of the "variation agreement" afforded a right of discharge, that right was, at best, a contingent one as of 7 April. That contingent right (accepted for the purpose of the argument only) did not defeat the right of the applicant. The moneys became due once a valid demand had been made. Once made, the applicant was required to comply with statute and the terms of the mortgage. Accepting, without deciding, that breach of statute might create an interest recognised by the Act, s133, it remains for the respondent to demonstrate a breach so as to entitle registration. The Act, s39(2), provides:

"(2) Except as otherwise provided in this Act, a folio of the Register is conclusive evidence that -

(a) the person named in the folio as registered proprietor of or as taking an estate or interest in the land described in the folio is entitled to that land for that estate or interest; and

(b) that land has been duly brought under this Act."

and the estate conferred is, subject to exceptions which have no application, indefeasible (s40). A bona fide purchaser for value, subject to fraud and equitable leases or easements, is not affected by the claim of a third party, and that protection extends to a mortgagee. A properly executed mortgage (s72) permits, upon default, power of sale (s78) provided certain procedures have been followed (s77), that it is done in good faith and that the sale is "at the best price" (s78(1)(b)). The effect of registration of sale by a mortgagee is governed by the Act, s81. The statute permitted the applicant to take the course which it did. Had the respondent wished to vary its operation it could have, with the approval of the mortgagee, varied the term, currency or covenants of the mortgage by registration of an instrument in accordance with the Act, s88. It did not. The power of sale had accrued, at least, as of 8 November 1999, if not earlier. Once that power had accrued, the respondent had a limited right of redemption only by the payment of the moneys due (Inglis & Anor v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161). As of 13 May 1999, the amount owing was $215,738.44 and, accepting the later date of 20 October, remained at $133,451. An offer to pay, subject to condition, did not constitute compliance with either the mortgage or bring into operation the terms of the "variation agreement". The remedy for claimed breach might give rise to an action in persona but not to the creation of an interest in land.

18 The respondent, in part, concedes that the power of sale has arisen, but contends that since it has not, in fact, been exercised, it co-exists with a right to discharge in accordance with the 1997 contract. Given the absence of a contract of sale entered into by the applicant with another, it is said that the existence of a caveat does not affect the interest of the applicant but merely warns another of the risk that at trial the respondent might establish a legitimate basis for contending entitlement to discharge. It claims that a registered proprietor, without more, has a caveatable interest.

19 There has been academic discussion as to whether the status of a registered proprietor, without more, affords the right to lodge a caveat (Francis, Torrens Title in Australasia, Vol 1, Butterworths, Sydney, 1972, at 315 - 324; Colbran, S and Jackson, S Caveats, 1st ed, FT Law & Tax, Melbourne, 1996, at 206 - 215, 220 - 225). Colbran and Jackson suggest, at 223, five circumstances in which a proprietor might have an interest sufficient to enable registration:

"1 in response to loss or theft of the duplicate certificate of title or other instruments of title;

2 to prevent improper dealings, fraudulent dealings, or forgery; or

(i) to restrain a mortgagee's improper exercise of the power of sale ...

(iii) a claim that the mortgage is void, voidable or otherwise unenforceable

20 It is accepted that a personal right does not permit registration since the interest claimed does not attach to the land (Woodberrt v Gilbert (1907) 3 Tas LR 7, Re Pile's Caveats [1981] Qd R 81, Martin v Official Trustee in Bankruptcy [1990] TASSC 20; [1990] Tas R 65). The registered proprietor has an interest in land, but that is recognised by the title document itself. I prefer to follow the line of reasoning applied by Richmond J in Re an Application by Haupiri Courts Limited (No 2) [1969] NZLR 353, an approach followed in Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870 and Swanston Mortgage Pty Ltd (supra), and determine that a registered proprietor must establish something over and above that status before it can be said that there exists a registrable interest.

21 The respondent claims two further interests which go beyond that status and permit the lodgement of a caveat within the meaning of the Act, s133. The first is that the applicant, by entering into the "variation agreement", agreed to forgo its right to have the mortgage debt repaid in full before it gave a discharge. There is merit in that approach if the matter is one of injunctive relief. But the principles associated with injunctive relief differ from those involving property law and a scheme for registration of interest. The second is that the existence of a right to obtain equitable relief itself provides a basis for registration by "devolution of law or otherwise" as provided by the Act, s133. The power of a court to prohibit the transfer of assets pending the resolution of an equitable claim does not create an interest in land in its own right. That power is in the nature of a remedy dependent on the existence of a right. It does not create a right to the property itself. Remedy neither creates a cause of action nor invests specific and identified property with a potential right of ownership by an opponent. This application involves a claim of right to the property itself, rather than a general preservation of sufficient property to meet liability. In some cases, specific property can be "frozen" pending identification or equitable distribution, but that is different from a claim to specific property which might be protected by the remedy of a caveat. The logic is circular in that the capacity to protect by caveat is itself sufficient to define the interest. I do not accept that reasoning. The difference might be procedural or evidentiary, but the effect is substantive.

22 The respondent has not shown that it has an estate or interest in the land which is the subject of mortgage within the meaning of the Act, s133.

23 That caveat number C225311 be removed from the title in respect of which it was lodged.