SLAN v EDGERLY & 3 ORS

CASES CITED : Black v Garnock (2007) 230 CLR 438Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226Ex Parte Lord [1985] 2 Qd R 198Heid v Reliance Finance Corporation Pty Limited (1983) 154 CLR 326Hewett v Court (1983) 149 CLR 639Rose v Watson (1864) 10 HL Cas 672Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315

PARTIES : Milad Slan (Plaintiff)Stuart Edgerly (First Defendant)Business Australia Capital Finance Pty Limited (Second Defendant)Les Jones (Third Defendant)Salauta Pty Limited (Fourth Defendant)

COUNSEL : J Wilson SC (Plaintiff) G Underwood (Second Defendant)

SOLICITORS : Slattery Thomson Solicitors (Plaintiff) MD Nikolaidis (Second Defendant/Cross Claimant)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5548/2004 MILAD SLAN v STUART EDGERLY & 3 ORS JUDGMENT 1 HIS HONOUR: The issues contested at the hearing of these proceedings were issues between the plaintiff Mr Slan and the second defendant Business Australia Capital Finance Pty Limited (BACF). Issues relating to the first defendant Mr Edgerly were disposed of at an earlier stage, and the third defendant Mr Jones has died and is not involved in the present issues. The fourth defendant Salauta Pty Limited recently came to an agreement with the plaintiff to transfer title in the Merrylands home unit to the plaintiff, and did not appear at the hearing. 2 Mr Slan and BACF each claim to have interests including equitable interests in Unit 10, 494-496 Merrylands Road Merrylands, the property in Folio Identifier 10/SP22976, a small home unit said to be worth $190,000, with a competing estimate in the order of $210,000. 3 The registered proprietor Salauta Pty Limited has now agreed to give a transfer of the land to Mr Slan. However the transfer could not be registered without overcoming several intermediate problems. Salauta's title is subject to Mortgage 6907886, to National Australia Bank Ltd. Mr Slan has bought the mortgage from the bank and is now the registered transferee of the mortgage. He paid out the bank loan and obtained a transfer of the bank mortgage. So he is in the strong position of a registered first mortgagee. The disputed equitable interests are subsequent to that strong position. The amount owing under the mortgage is about $59,000 plus interest, said to be in total at least $78,000, probably more with interest. Mr. Slan is in possession and could not be dislodged except under some arrangement which involves paying him the secured debt. 4 Then there is a caveat lodged by Mr Edgerly (and the Court has ordered its removal), a caveat lodged by Mr Jones (and its removal remains a problem for Mr Slan) and one by Mr Slan himself. 5 Presently significant however are caveat 9128991 lodged by the second defendant BACF and caveat AE361713 lodged by Business Australia Capital Mortgage Pty Ltd. Mr Slan claims to have a purchaser's lien under a contract he made with Salauta Pty Limited as vendor to purchase the home unit for $180,000. The contract was made on 14 November 2002. The provisions on the first page of the contract state that the price is $180,000, and do not provide for a deposit. Special Condition 35 is as follows: The vendor acknowledges that he has received $138,000 towards the purchase price from the purchaser in full satisfaction of the judgment obtained by the purchaser against the vendor in proceedings Number 5827/01 issued out of the District Court in Sydney. 6 In 2001 Mr Slan sued Mr Richard Mitry in the District Court 5827 of 2001 for money lent and money had and received. Those proceedings were settled by written Terms of Settlement dated 5 July 2002 under which Mr Mitry was to pay $130,000 in satisfaction of the claim in three payments, the last of which was to follow vacation by Mr Slan of the home unit, which he then occupied. (He has never vacated it). 7 Clause 2(a) of the Terms of Settlement required Mr Mitry to provide Mr Slan security for payment of $115,000 the last of three instalments, by causing Salauta Pty Limited to execute an unregistered mortgage over the premises and to deliver the executed mortgage. By cl 2(b) of the Terms of Settlement Mr Mitry, expressedly for himself, the shareholders and directors of Salauta and for Salauta warranted that Salauta would comply with this provision. By cl 3 Mr Mitry again for himself, the shareholders and directors and Salauta acknowledged and agreed that Mr Slan would be at liberty to continue to occupy the premises without charge until payment was made. By cl 4 Mr Slan was entitled to enter judgment for failure to comply, referring of course, to judgment against Mr. Mitry. 8 Mr Mitry did not comply in any way or make any of the payments and did not furnish a mortgage when one was demanded. 9 The arrangements in the Terms of Settlement were as it were overtaken by Special Condition 35 which provided for payment of the amount payable under the Terms of Settlement, and an extra $8,000 attributable to interest. 10 Special Condition 35 is ungrammatical, and is incorrect in that the judgment was not obtained by Mr Slan against Salauta, but against Mr. Mitry. Salauta's involvement included that Mr Mitry who was one of its two directors had given or purportedly given a warranty on its behalf that security would be provided. At the time, indeed at all relevant times Mr Mitry and his wife were the only directors of Salauta, Mrs Mitry was the Secretary and its only issued share was a $1 share issued to her. Its affairs were closely related to Mr Mitry's affairs. The plaintiff's counsel submitted and in my view correctly that Special Condition 35 created an estoppel by convention between Mr Slan and Salauta under which their affairs under the contract are to proceed on the basis that Salauta did owe $138,000 as a judgment debt, had received satisfaction and would allow credit towards the purchase price. This view of Special Condition 35 as a binding estoppel by convention is supported by the exposition by the unanimous High Court in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 at 244. 11 Counsel for BACF contended that on the authorities a vendor's lien can only arise where money is actually paid on account of the purchase of land. Counsel further contended that the lien only exists in respect of money which is repayable to the purchaser. 12 The case law speaks, as far as I have observed uniformly, in terms of a lien relating to payment of money on account of a purchase. However there is in my view no reason in principle why there should not be the lien if the parties had agreed to treat some transaction other than the payment of money as standing in the place of a payment of money and if the vendor acknowledges receipt of it; no reason, in any event, if that transaction is a transaction for value. Special Condition 35 is undoubtedly one of the conditions of a transaction for value between Salauta and Mr Slan; Salauta was still entitled to payment of $42,000 and title was to pass hands. Salauta's involvement was not gratuitous and it received value for its commitment to treat the arrangement in Special Condition 35 as worth $138,000 of money. The advantages it received included establishing as between it and Mr. Slan that the District Court judgment debt was satisfied, a significant matter for the company because Mr. Mitry had, at least purportedly, bound the company by the terms of settlement. For all that appears he may have been acting within authority conferred by the company in doing so. Whether or not he was, the company was exposed to involvement and risk of liability and had an interest in achieving an agreement with Mr. Slan to the effect that the District Court judgment was satisfied. 13 In explicit terms, Special Condition 35 makes an acknowledgement of a receipt of $138, 000. It does not speak of what is to happen at settlement. It speaks of what is being treated as happening at the time of exchange. In my opinion, the parties are in the same position in the relationship with each other as they would have been in if a carpet bag of $138,000 in notes had been handed over on exchange. The defendant's counsel took me through provisions of the contract relating to payment of the price. These included the statement on the first sheet of the contract, which is not in the ordinary printed form but was modified. The statement says, in words and figures, that the price was $180,000. The reference to deposit is struck out and the balance is said to be $180, 000. Printed clause 16.7 says, in the standard form, that the price is to be paid on completion by cash or settlement cheque. The standard form is not modified in any express way by reference to the provisions dealing with $138,000. Special Condition 35 is in the terms I set out earlier. When all these provisions are taken together, I see no difficulty in understanding that it was the parties' agreement that they were to act on the basis that $138,000 in value had been or was to be treated as received at the time of exchange, leaving $42,000 to be paid on completion. 14 In my opinion Special Condition 35 has the same effect as an agreement to accept a delivery of goods either delivered to Salauta or delivered to someone else who Salauta wished to receive them and to treat the value as $138,000. That agreement would have the same relevance as if $138,000 in money had been paid. 15 The law relating to purchaser's liens has been expounded several times with high authority. For the purpose of Australian law the significant authority is Hewett v Court (1983) 149 CLR 639 where there are significant statements in the judgments of Gibbs CJ at 645-646 and in the judgment of Wilson and Dawson JJ at 653-654 and Deane J at 667 and following. Earlier the principal authority was the decision of the House of Lords in Rose v Watson (1864) 10 HL Cas 672. 16 The expositions of the law in Rose v Watson were very strongly influenced by a view of vendor and purchaser contracts in which the vendor becomes a trustee in some sense for the purchaser while completion is pending. There is little left of that view in Australian authority having regard to its treatment by the High Court in Black v Garnock (2007) 230 CLR 438 and Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315. However, the law does not depend solely on that view and Gibbs J in his judgment gave several other bases. 17 BACF's counsel referred to and relied on a sentence in the judgment of Williams J in the Supreme Court of Queensland in Ex Parte Lord [1985] 2 Qd R 198 at 201. His Honour there said: "It is clear that the purchaser must be entitled to recover money from the vendor before a lien on the land is created." In that case there were rival claims that the contract had been rescinded or terminated and the dispute about removal of the caveat related to an underlying entitlement to return of the deposit. After extensive citations from Hewett v Court and Rose v Watson and other authorities Williams J made the statement I have set out at page 201. 18 On this the defendant's counsel took the position that unless and until the purchaser is entitled to a refund of $138,000 there is no lien. I do not think that this is what Williams J can have intended overall as it is to a different effect to two passages he had just cited, particularly the passage from the judgment of Deane J in Hewett v Court which included a statement that: "If the property has not passed to the purchaser and the purchaser has paid the whole or part of the purchase price the purchaser will... enjoy the benefit of an equitable lien over the subject land to secure the repayment to him of any part of the purchase price which may become repayable to him on default by the vendor in performance of the contract." It would also be inconsistent with the passage which Williams J had cited from the speech of Lord Cranworth in Rose v Watson at 683-684 which included this expression. "When, instead of paying the whole of his purchase-money he pays part of it, it would seem to follow as a necessary corollary that, to the extent to which he has paid his purchase money, to that extent the vendor is a trustee for him; in other words, that he acquires a lien exactly in the same way as if upon the payment of part of the purchase money the vendor had executed a mortgage to him of the estate to that extent." Indeed, Williams J's later expressions, in the same paragraph at the top of page 202, do not support the view for which the defendant's counsel contends, that from the time when the deposit was paid over to the vendor or the purchaser entered into possession and thereafter: " From that moment of time onwards the vendor held the money by way of deposit and in part payment of the purchase price and in appropriate circumstances the purchaser could recover from the vendor...."

19 In my opinion, in conformity with observations about the purchaser's lien in the judgments I have mentioned in Hewett v Court, the purchaser's lien exists throughout the transaction from the time when any part of the purchase money is paid to the vendor and the lien is usually brought to an end by completion of the sale, which as it were perfects the vendor's entitlement to the money. It is only when something interrupts completion that a purchaser's lien claims much attention or anyone seeks to enforce it, but in my opinion it exists throughout nonetheless. 20 In Hewett v Court and indeed in Rose v Watson there are expressions which equate the purchaser with a secured creditor with respect to his lien. It does seem to me that that equation with a secured creditor would not be reliable in all circumstances where competition with an equitable interest of some other person intervenes. What would be appropriate would be appraisal of all facts in evidence about the times and other relevant circumstances of creation of the competing interests and the behaviour of their owners which might have affected priorities; it could well be important to examine knowledge of or notice to the competitor of the existence of the purchaser's lien when the competitor acquired an interest. That would open up consideration of information which may have been available to a competitor by searching the Torrens register and seeing what was asserted in caveats. It might also open up the question of the purchaser's knowledge and constructive knowledge of the existence of the purchase contract. 21 In Rose v Watson the mortgagee was treated by Lord Westbury as no more than an assignee of the vendor, and in that case on the facts the mortgagee was very fully appraised of all the circumstances of the purchaser's instalment contract which could be relevant. The plaintiff's counsel pointed out a reference in Heid v Reliance Finance Corporation Pty Limited (1983) 154 CLR 326 to a vendor's lien which accorded it a high position in the competition of equities. The facts of the present case do not require a final conclusion on whether a purchaser's lien is an equitable interest which might enter into a competition among equities or whether on the other hand it is a mere equity which, in my view, cannot affect a person other than the immediate parties to the transaction 22 Proceedings under Mr Slan's contract of purchase were very eventful. Salauta did nothing to comply with its obligations. Mr Slan gave notice to complete but Salauta did not complete on the appointed day. Later Salauta gave what was purportedly a notice of rescission claiming misrepresentation but not specifying any misrepresentation. Mr Slan did not treat the notice of rescission as effective. At some point he applied for and obtained a refund of stamp duty. However, he then sued for specific performance and obtained such an order in October 2004. The order was not complied with for some years but the events a few days before the hearing before me included Salauta agreeing to terms under which it was to provide a registrable transfer. If it ever does so I suppose it might be said that it has at length set about complying with the order for specific performance. 23 The contract of purchase was never brought to a definitive end or effectively rescinded or terminated. Quite otherwise, the order of the court establishes that it was enforceable. In my opinion, at the time of the events most significant for the present competition of equities, the events in and around November 2002, Mr Slan was entitled as against Salauta to a purchaser's lien of $138,000 over the property and he has never lost this entitlement. 24 Mr Slan's caveat is dated 14 August 2002. It is not based on the contract of sale which came later but it is based on the terms of settlement of 5 July 2002 and asserts that the terms of settlement charge the land with payment of $115,000. In these proceedings the interests expressed in the caveat have not been advocated on Mr Slan's behalf and the caveat does not help his case which rests on the matters I have already mentioned. 25 A number of documents and events were put forward in support of the claim of BACF to have a competing equitable interest and a better equity than Mr Slan. The first is a loan agreement dated 12 November 2002, two days before the contract of sale and the agreement in Special Condition 35. This loan agreement relates to a loan by BACF to Salauta. There is no other borrower. The amount referred to is $40,100. There are references to a mortgage in the loan agreement which show that it was contemplated that the home unit at Merrylands would be mortgaged to secure the loan. However, there are no promises in the loan agreement to grant a mortgage and nothing in the loan agreement created a security over the home unit. What the loan agreement provides for is clause 2.3 Conditions Precedent which opens: "The lender is only obliged to provide the advance of the borrower if:

(a) the lender has received in form and substance satisfactory to it: (i) the mortgage "

and there are a number of other requirements which form part of the condition precedent to being obliged to make the loan.

26 No mortgage relating to this transaction has been put in evidence and I infer that no mortgage was received. Indeed, none of the body of evidence tendered relates to an advance of $40,100 to Salauta or to anybody else. The terms of the loan agreement of 12 November 2002 show that it was not intended to secure an earlier advance but it was specific to the proposed advance of $40,100 which, so far as the evidence shows, has never been made. The form of clause 2.3 is not that there is a promise to give security but that there is a provision that there is no obligation to make the advance unless the vendor has first received the mortgage. Unless the mortgage was received no provision of the loan agreement creates any kind of security interest. It is only if the advance were made, of which there is no evidence, that any security interest could arise and it is only if the mortgage referred to in clause 2.3 were actually executed and handed over that there could be written evidence of any arrangement for security. It is not possible to overcome this difficulty by construing clause 2.3 as a present agreement to give security. That would be inconsistent with its terms. Clause 2.3 is not capable of yielding the favourable reading for which BACF's counsel contended. 27 The loan agreement contains a curious reference to Mr Mitry as if he was the borrower in clause 9.3. Nothing in the document makes him a borrower and the context shows that what was intended was that notices directed to the borrower should be sent to Mr Mitry. He executed the document only as part of the execution by Salauta Pty Limited of which he was a director and did not execute it himself. 28 By the time of the contract of sale on 14 November 2002 no event had happened which gave BACF security. This of itself gives Mr Slan and his purchaser's lien a strong prima facie claim to be adjudged the better equity simply on the time of the event. However, time does not necessarily establish which is the better equity. There may be later conduct or indeed earlier conduct which affects that judgment. BACF also put in evidence a loan agreement which does not bear date although someone has written 7 February 2003 on the front cover. That does not establish the date of the agreement. The parties are Salauta and Mr Mitry as borrowers and BACF as lender and the contemplated advance is $140,000 plus $40,000 interest. This document contains the same clause 2.3 which raises the same difficulties. In the context of proposed security it refers to the home unit at Merrylands and also to a property at St Ives. This document does not assist BACF's case. 29 A further loan agreement, which again does not bear a date, although someone has written 15 January 2003 on the front cover, relates to a loan advance of $155,000 to Richard Mitry by BACF, again containing clause 2.3 and referring in the context of security to the same properties at St Ives and Merrylands. This document was executed by BACF and by Mr Mitry on his own behalf but was not executed by Salauta, which was not a party, although its land was referred to. This document does not assist BACF's case. 30 A further loan agreement bears date 2 April 2003. It provides for Salauta and Richard Mitry to be borrowers and for BACF to be the lender, and for a loan of $172,000 with security in relation to the properties at St Ives and Merrylands and a clause 2.3. This document was executed by BACF and by Mr Mitry on behalf of Salauta but curiously was not executed by him for himself. 31 BACF then produced a form of unregistered mortgage bearing date 7 February 2003 which says in one place that the mortgagor is Salauta and in another place that Salauta and Richard Mitry are mortgagors and the mortgagee is Business Australia Capital Mortgage Pty Limited. The amount, if any, which this document was intended to secure does not appear by its terms. Whatever it does, it does not confer an equitable interest on BACF, which was not a party to it. 32 BACF has also produced an unregistered mortgage bearing date 15 January 2003 in similar terms. In this document Richard Mitry is named as mortgagor and Business Australia Capital Mortgage Pty Limited is named as mortgagee. This document has still less to do with the present case than the one I last mentioned. It appears to relate only to the St Ives property. BACF then produced in evidence an unregistered mortgage also granted by Richard Mitry as mortgagor to Business Australia Capital Finance Pty Limited dated 15 January 2002. This purports to relate to the home unit at Merrylands. It has no relation to the rights of the present parties. 33 BACF then produced in evidence an unregistered mortgage dated 7 February 2003 between Salauta as mortgagor and BACF as mortgagee expressed to charge the property at Merrylands. This too has no influence on the parties' rights. BACF then produced a copy of a bank cheque dated 14 November 2002 which appears to show that $30,000 was paid to Richard Mitry on that date accompanied by an accounting record of BACF which refers that cheque to "BACF loan to Richard Mitry". This does not relate to any loan to Salauta. A further accounting record relates to a loan also referred to as "BACF loan to Richard Mitry". This reference is to $40,000 together with "interest income $20,650", a total payment of $60, 650 to Richard Mitry on 8 November 2002. Further accounting records show funds transfer from BACF's bank account to the credit of Richard Mitry of $60,000 on 16 January 2003 and $35,000 on 20 January 2003. These have no impact on the rights of the present parties. 34 The documents produced by BACF in support of its case relating to transactions in 2002 and 2003 or copies of them were annexed to an affidavit of Mr Farah, solicitor. At 196-198 of his affidavit is a letter to Mr Mitry from BACF making an unconditional offer of short term funding of $140,000 on 7 February 2003 referring only to Mr Mitry and signed only by him as borrower. However, an accompanying letter apparently relating to the same transaction refers to Salauta and Mr Mitry as borrowers and refers to the properties at St Ives and Merrylands as security with a note, "Held by Business Australia Capital Mortgage." What this can mean is a mystery unexplained by evidence. There is no note or memorandum and no written record by which Salauta created or promised security in relation to this transaction. 35 Mr Farah also produced some curious documents at pages 119-204 which appear to show that one Natalie Louise Cook lent $140,000 to Richard Mitry on 7 February 2003 using money which was or most of which was advanced to her by BACF. There are anomalies in that her own bank account shows that she received $124,000 on 5 February and paid out sums totalling $140,000 to or for Mr Mitry on 7 February, while BACF's ledger sheet relating to dealings with her speaks of three payments out on 7 February 2003 to Mr Richard Mitry. These transactions cannot be understood, but whatever they mean, they do not mean that any money was advanced to Salauta Pty Limited by BACF or by anyone but Ms Cook and they do not mean that Salauta gave any security. 36 Mr Farah produced mortgages granted to Business Australia Capital Mortgage which are in their own terms manifestly irrelevant to the present case and led to some curious events. On the first day of the hearing BACF's counsel sought leave to file a cross claim, claiming rectification of one or perhaps both of those mortgages so as to show the mortgagee as BACF. The cross defendant named in the proposed document was Salauta. I regarded this application as procedurally impossible. The litigation has been pending for more than four years. An early echo of the suggestion that the Business Australia Capital Mortgage documents were relevant was their unexplained production in Mr Farah's affidavit of 25 October 2004. 37 Another precursor was the lodgement one or two days ago by Business Australia Capital Mortgage of a caveat against the Certificate of Title of the Merrylands home unit. Obviously enough, Salauta which was deregistered for a significant time from January 2006 until an order which I made yesterday and its directors had made their arrangements on the basis that they were not to participate actively in the litigation on the issues which were presented, except for conceding practically everything in the terms of settlement or consent order form which I was shown yesterday in which the company gave a commitment to produce a transfer. To confront Salauta with a new litigation on a new topic in the midst of a hearing was what I regarded as procedurally impossible. Underlying this, there appears to be some suggestion that BACF is entitled to seek rectification remedies under which the mortgages are to be treated after rectification of mortgages as if they were granted to BACF. I was not shown any admissible evidence or any relevant evidence at all tending to show that the form of the documents was a mistake or intending to show in any way how the mistake arose or what was in truth intended. That is to say the rescission claim had no substance which was shown to me. Even if the documents were rectified they are later in date than Mr Slan's claim and would not effectually compete with it. Indeed, it is my understanding of the law that a claim for rectification is not an equitable interest in land but is a mere equity which can bind only the party against which the claim is made. 38 The end result of all this consideration is that, in my opinion, on the evidence before me, BACF has no equitable interest or equity of any kind in the home unit at Merrylands which might be brought into competition with Mr Slan and his claim, which for practical purposes he has made good against Salauta. 39 I will dispose of the proceedings on this basis. 40 ORDERS: (1) I make an order in terms of the following claims in the further amended summons dated 4 December 2008 and noting that I have amended that document: Claim 1, claim 3, claim 3A and claim 4. (2) I order that the second defendant remove caveat number 9128991P on or before 8 December 2008. (3) I order that the second defendant pay the plaintiff's costs of the proceedings. **********

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