Spencer v Bamber

Judgment 1HIS HONOUR : This is an application for the extension of a caveat until 25 March 2011 or further order. The plaintiff was formerly the registered proprietor of real property known as "Saarahnlee", being rural property used as a farm. The property is near Shannons Flat in New South Wales. 2On or about 16 October 2003 the plaintiff entered into an agreement with the first and second defendants, who are respectively the plaintiff's brother-in-law and sister, under which they agreed to lend the plaintiff the sum of $1,000,000 on security of a number of blocks of land that comprised the substantial part of the "Saarahnlee" property. The agreement provided that the loan was to be paid in full by 31 March 2007. To secure the loan, the first and second defendants took a registered mortgage over specified lots. The loan was not repaid. 3In December 2007 the first and second defendants brought proceedings in the Common Law Division of the court for possession. On 20 July 2009 orders were made by consent giving judgment for the first and second defendants against the plaintiff in the sum of $1,510,943. A writ for possession was obtained in November 2009. The first and second defendants obtained possession of the property in about February 2010. 4The first and second defendants, in exercise of their powers as mortgagee, listed the mortgaged property for sale by auction. The auction was held on 23 April 2010. There was only one bid, being a bid for $1,000,000. The property was passed in. 5The first and second defendants then took steps to obtain from the Registrar General an order for foreclosure pursuant to s 61 of the Real Property Act 1900 on the ground that there had been default in the payment of interest and principal secured by the mortgage which was outstanding for more than six months and notice had been given under s 57 of the Real Property Act that the land had been offered for sale at a public auction, but the highest bid was insufficient to satisfy the mortgage debt. 6Section 61(2)(d) of the Real Property Act provides that an application under the section to the Registrar General for an order for foreclosure is required to state that notice in writing of the intention of the mortgagee to make the application has been served on, inter alia , the mortgagor. It is the first and second defendants' case that they were not aware of the whereabouts of the plaintiff and were unable to effect personal service of notice of their intention to apply for the order for foreclosure. 7On or about 22 May 2010 the first and second defendants filed a notice of motion in the common law possession proceedings seeking an order pursuant to s 170(1)(d) of the Conveyancing Act 1919 that in lieu of personal service, service on the plaintiff of a Notice of Intention to Apply for Foreclosure be effected by delivering a copy of that notice to the office of Mr Peter McKell, solicitor, of Macquarie Street. Mr McKell had acted as the plaintiff's solicitor in earlier proceedings and had purportedly signed at least one document as attorney for the plaintiff in connection with the unsuccessful mortgagee sale. 8The notice of motion for the order under s 170(1)(d) of the Conveyancing Act was made ex parte. That is to say, it was expressed to be a motion to be dealt with in the absence of the parties. The Registrar dealt with the notice of motion on that basis. That notice of motion was not personally served on the plaintiff. Nor was an order for substituted service of the notice of motion sought or made. 9On 31 May 2010 the solicitors for the first and second defendants wrote to Mr McKell noting that he was the plaintiff's attorney, as evidenced by a power of attorney with which they had been provided. The first and second defendants' solicitors enclosed, purportedly by way of service, the Notice of Intention to Apply for Foreclosure. 10On 3 June 2010 Mr McKell responded to the first and second defendants' solicitors by saying that the plaintiff had not instructed him to act in relation to any foreclosure matters or, indeed, generally. Mr McKell said that the defendants' solicitors should advise the Registrar General accordingly. 11On or about 7 June 2010 the first and second defendants' solicitors received communications from the registry to the effect that the Registrar would make orders, substantially as sought in the notice of motion, in chambers. At the Registrar's request the first and second defendants' solicitors sent, on 7 June 2010, a minute of the order to be made. Although the application for the order was made ex parte , the solicitors did not provide to the court a copy of Mr McKell's letter of 3 June 2010 stating he had no instructions to act in relation to any foreclosure matter. 12On 11 June 2010 the Registrar made the order purportedly pursuant to s 170(1) (d) of the Conveyancing Act as sought. On 16 June 2010 the first and second defendants' solicitors served on Mr McKell that order and the Notice of Intention to Apply for Foreclosure. This was in apparent compliance with the order authorising service on the plaintiff of that Notice of Intention to Apply for Foreclosure by service on Mr McKell. 13On 22 June 2010 the application was made to the Registrar General for foreclosure pursuant to s 61. On 16 July 2010 the Registrar General made the foreclosure order. 14In the meantime, the plaintiff had instructed Messrs Horowitz & Bilinsky, solicitors, to represent him in relation to what they called " certain Supreme Court/foreclosure proceedings ". On 30 June 2010 Horowitz & Bilinsky wrote to Marriott Oliver, the first and second defendants' solicitors, asking to be advised of the stage the proceedings had reached. That request provoked a reply that no proceedings were on foot. It was not until 21 July 2010, after the foreclosure order had been, made that Marriott Oliver advised Horowitz & Bilinsky that in the 2007 possession proceedings a notice of motion had been filed to obtain an order for substituted service of the Notice of Intention to Apply for Foreclosure. 15By his summons the plaintiff seeks, as final relief, a declaration that the order for foreclosure made by the Registrar General at the request of the first and second defendants is void and of no effect, or should be set aside. He seeks an order that the foreclosure of his interest in the land be reopened. He seeks a declaration that the order made by the Registrar on 11 June 2010 is void and of no effect. Other relief is sought, including orders to restrain the first and second defendants from dealing with the land. 16After some delay involving, it seems, objections raised by the Land Titles Office to the form of the caveat that the plaintiff proposed to lodge, and delays in stamping the caveat, a caveat was recorded on the title to the lands which had been the subject of the mortgage. In the caveat the plaintiff claims an estate as being " the mortgagors [sic] equity of redemption ". 17That caveat came to the attention of the first and second defendants in January of this year. In the meantime on 13 December 2010 they had exchanged contracts, as the registered proprietors of the land, for the sale of certain of the lots which had formerly been subject to the mortgage to a Mr Peter Luton. Not all of the lots which had been the subject of the mortgage are the subject of that contract for sale. 18In mid-January 2011 the first and second defendants caused a lapsing notice to be lodged with the Land Titles Office. 19These proceedings were commenced on 8 February 2011. On that day the Chief Judge in Equity extended the operation of the caveat up to 11 February 2011 on the plaintiff giving the usual undertaking as to damages. On the following day the operation of the caveat was further extended up to 18 February 2011. On 18 February orders were made by consent for the further extension of the operation of the caveat up to 5 pm today. Orders had previously been made for the service by the plaintiff of points of claim. Orders were made on 18 February for service of the parties' evidence. 20Today counsel for the plaintiff sought an adjournment of the present application for further extension of the caveat up to 25 March 2011 and sought to adjourn the substantive interlocutory hearing to that date. However, the first and second defendants did not consent to the extension of the caveat and accordingly the matter proceeded before me today on a contested basis. 21It is only fair to say that the plaintiff maintains that he is entitled to further time to respond to affidavits of the first and second defendants that were served slightly late. However, the issues to which those affidavits go do not appear to be of such a moment as to warrant a further contested substantial interlocutory hearing such as has occurred today. The affidavits served late go substantially either to updating the defendants' financial position, or, more particularly, to setting out the first and second defendants' position in relation to claims by the plaintiff that silos and a plough which are included in the contract for sale to Mr Luton are the plaintiff's property. On an interlocutory application the question will be whether there is a serious question to be tried about that matter and it is clear that there is such a question. It could be no part of the court's function on an adjourned hearing to decide that issue. 22The first question is whether the plaintiff has an arguable claim to the caveatable interest asserted in the caveat. In turn, that depends upon whether there is a serious question to be tried that the plaintiff is entitled to set aside, either retrospectively or prospectively, the order for foreclosure. If so, the question is whether the balance of convenience favours extending the caveat. Relevant to that is the adequacy of the plaintiff's undertaking as to damages. The question is to be considered as if the application were for an interlocutory injunction to protect the interest claimed by the plaintiff in the caveat (see the cases considered in Lew v Bluescope Distribution Pty Limited [2010] NSWSC 794 at [5] and cases there cited). 23I am satisfied that there is a serious question to be tried as to whether the foreclosure order made by the Registrar General was validly made. There is a serious question of law as to whether an order properly made under s 170(1)(d) of the Conveyancing Act authorising substituted service would satisfy the requirement of s 61(2)(d) of the Real Property Act . Counsel for the plaintiff contended that s 170 did not apply to notices required to be given under the Real Property Act unless subs (2A) was satisfied. Counsel submitted that the notice in question was not one required to be served by an instrument affecting property, nor was it a dealing itself under the Real Property Act . 24Questions were raised as to the effect of s 12D of the Real Property Act . These are substantial issues which it would be inappropriate to decide, or even on which to express a view, on the present application. Moreover, there is a serious question to be tried that the order purportedly made under s 170(1)(d) was not properly obtained. Prima facie there is much to be said for the plaintiff's contention that he was entitled to be served with an application for an order under s 170(1)(d) of the Conveyancing Act and that the application ought not to have proceeded unless he had been served, or an order for substituted service of that proceeding was made. 25In Cameron v Cole (1944) 68 CLR 571 Rich J said (at 589): " It is a fundamental principle of natural justice, applicable to all courts whether superior or inferior, that a person against whom a claim or charge is made must be given a reasonable opportunity of appearing and presenting his case. If this principle be not observed, the person affected is entitled, ex debito justitiae , to have any determination which affects him set aside, and a court which finds that it has been led to purport to determine a matter in which there has been a failure to observe the principle has inherent jurisdiction to set its determination aside. ... In such a case that has been no valid trial at all. " 26Moreover, the plaintiff argues that as the matter proceeded ex parte , (wrongly the plaintiff says), the first and second defendants were bound to bring to the attention of the court asked to make an ex parte order any matter that was material to the decision whether or not the order should be made, and that included the letter from Mr McKell of 3 June 2010. 27I accept that there is a serious question to be tried that the pre-conditions for the making of the foreclosure order were not satisfied and, accordingly, that the foreclosure order should be either declared void or set aside. 28The first and second defendants have become registered as proprietor, and it is not alleged that they have become registered by fraud within the meaning of s 42 of the Real Property Act. But there is a serious question as to whether or not in the circumstances there is a personal equity which the plaintiff can assert against the first and second defendants which entitles him to reverse the consequences of the foreclosure order to restore the position that the first and second defendants are mortgagees, and that he owes the mortgage debt. For so long as the foreclosure order stands, that debt is extinguished, but a consequence of setting aside the foreclosure order must be that the mortgage debt would be revived. 29The plaintiff also points to a further ground on which he claims to set aside the foreclosure order. He says that the first and second defendants have purported to sell the silos and a plough to Mr Luton which are his property. There is a question to be tried as to whether the silos are chattels or fixtures and there is a question to be tried as to whether the plaintiff has abandoned title to the plough. The plaintiff says that by, in effect, seeking to detain property of his, which the first and second defendants would only be entitled to do (if at all) if he still owed the mortgage debt, he is entitled to reopen the foreclosure. Given my conclusion that there is in any event a serious question to be tried in relation to the foreclosure order it is unnecessary to pursue this further matter. 30The question then is whether the balance of convenience favours the extension of the caveat. If the foreclosure order was set aside, the first and second defendants would be restored to their position as mortgagees. The mortgage debt would be revived and it would still be outstanding. 31The plaintiff has not offered to pay the debt that would then be payable. He does not offer to pay the amount which would then be payable into court. The outstanding principal plus interest is $1,706,892 as at 18 February 2011. Interest accrues at $436.17 per day. In addition, the first and second defendants say that there is another $136,007.88 which will be secured by the mortgage if the foreclosure was set aside, making a total debt of $1,842,899.88. 32As mortgagees, the first and second defendants would be entitled to exercise their power of sale. There is no evidence to impugn the sale price negotiated between the first and second defendants and Mr Luton, who has been joined to these proceedings as the fourth defendant. Moreover, if the first and second defendants were restored to their position as mortgagees, the plaintiff, as mortgagor, would not be entitled to maintain a caveat on the property that inhibited the mortgagees from exercising their powers, unless he could establish that a power of sale had not become exercisable, or unless he tendered and offered to pay into court the amount claimed by the mortgagees. In other words, if the plaintiff is correct in his claims made in his summons and if the court had today heard those claims and made the orders sought, it would still remain the position that the first and second defendants, as mortgagees, would not be restrained from exercising a power of sale as mortgagee to Mr Luton ( Solid Holdings v IMFML Finance [2008] NSWSC 573 at [28]-[34]; Maytom v Perpetual Trustees Victoria Ltd [2010] NSWSC 765 at [23]). 33The sale to Mr Luton was challenged on a different basis. Partly, it was challenged on the ground that the sale includes a plough to which the plaintiff claims title and silos to which he also claims title. If the plaintiff does have title to these assets, the first and second defendants, in selling them, will be liable in damages for conversion. The fourth defendant, Mr Luton, might also be liable in damages for conversion. However, that is not a reason to restrain the sale. Nor is the ground advanced by the argument that by purportedly selling those items, a further ground is opened up for setting aside the foreclosure order. 34The other ground upon which the sale to Mr Luton was challenged sought to impugn Mr Luton's conduct. The plaintiff pleads that he was aware of or ignored the plaintiff's claim to title to the land. However, it does not appear to me that that is relevant to the question whether the sale to him should be restrained by extending the caveat, so far as it affects the land the subject of that sale, because on the view I take, the first and second defendants should be entitled to sell the property, whether the foreclosure order was validly made or not. It was said that Mr Luton was acting in some way improperly by serving a notice to complete after having notice of the orders made by the Chief Judge in Equity extending the operation of the caveat. There is no substance to that contention. There is no reason that I can see that Mr Luton should not have issued the notice to complete. That notice expires in a week. 35If the caveat, so far as it affects the land the subject of the contract for sale, is extended to 25 March, the first and second defendants will not be able to complete the sale, notwithstanding that time has been made of the essence. They face a real risk that Mr Luton may terminate the contract. Given the very substantial debt they are owed and which has been outstanding for almost four years, it would be harsh to allow that risk to eventuate. I will not extend the caveat which will lapse today. 36However, the caveat extends to land other than the land which is the subject of the contract to Mr Luton. The question is whether I should permit the plaintiff to lodge a fresh caveat, again claiming an interest by way of an equity of redemption over the other land that was subject to the mortgage. Given that there is a serious question to be tried that the first and second defendants are not entitled to the benefit of being registered proprietors of the property, I think the status quo should be held so that if the plaintiff succeeds at a final hearing, his equity of redemption will be restored. However, preserving the status quo also means allowing the first and second defendants to exercise, as registered proprietors, the rights that they would be entitled to exercise if they were mortgagees. As mortgagees they would be entitled to sell the remainder of the land, or parts of the lots, to reduce the mortgage debt. They would be entitled to possession of the land and would be entitled to apply the profits from the land to the mortgage debt. If they were mortgagees, a caveat would not be permitted to remain on the title which prejudiced their exercise of their power of sale. 37However, to preserve the plaintiff's ability to be restored to his equity of redemption if he succeeds at a final hearing, the plaintiff should be permitted to lodge a fresh caveat over the titles which were subject to the first and second defendants' mortgage, other than those contracted to be sold to Mr Luton, unless the first and second defendants offer to the court an appropriate undertaking. I will give the plaintiff leave to lodge a fresh caveat unless the first and second defendants, by their counsel, offer the following undertaking to the court, namely, that: (a) if the plaintiff tenders the amount of the debt that the first and second defendants contend would be payable but for the foreclosure order made by the third defendant and tenders the cost of a transfer to him of the land that was subject to mortgage AA538523N, or so much thereof as has not been sold, then they will not thereafter contract to sell, dispose of or encumber such land otherwise than to complete a contract for sale entered into before the tender, pending the final determination of these proceedings or further order. (b) that if such land is sold, or part or parts of it is sold, and the net proceeds of sale after selling expenses exceed the amount of the debt that the first and second defendants contend would be payable but for the said foreclosure order then, pending final determination of these proceedings or further order, they: (i) will not deal with such surplus moneys, otherwise than as the court might direct; and (ii) will not sell or attempt to sell, dispose of or encumber any remaining parts of such land. 38I would only require that undertaking to be given as a condition of not giving the plaintiff leave to lodge a fresh caveat if the plaintiff, by his counsel, proffers the usual undertaking as to damages. In other words, there would be cross-undertakings. If the undertakings are given then I will not give the plaintiff leave to lodge a fresh caveat. [Short adjournment] 39Upon the plaintiff, through his solicitor, giving the usual undertaking as to damages I note the undertaking of the first and second defendants to the court that: (a) if the plaintiff tenders the amount of the debt that the first and second defendants contend would be payable but for the foreclosure order made by the third defendant and tenders the cost of a transfer to him of the land that was subject to mortgage AA538523N, or so much thereof as has not been sold, then they will not thereafter contract to sell, dispose of or encumber such land otherwise than to complete a contract for sale entered into before the tender, pending the final determination of these proceedings or further order. (b) that if such land is sold, or part or parts of it is sold, and the net proceeds of sale after selling expenses exceed the amount of the debt that the first and second defendants contend would be payable but for the said foreclosure order then, pending final determination of these proceedings or further order, they: (i) will not deal with such surplus moneys otherwise than as the court might direct; and (ii) will not sell or attempt to sell, dispose of or encumber any remaining parts of such land. 40I note those undertakings given by the plaintiff and the first and second defendants to the court. I refuse to further extend caveat number AF82253. I decline to grant leave to the plaintiff to lodge a further caveat in respect of the same estate or interest or right as claimed in caveat number AF82253. 41I order the costs of the plaintiff's notice of motion filed on 2 February 2011 be costs in the proceedings. 42The exhibits to the defendants' affidavits may be returned. 43I direct that by 11 March 2011 the plaintiff file and serve any remaining affidavits in chief. I direct that by 25 March 2011 the first and second defendants file and serve any further affidavits in chief. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 11 March 2011