Avco Financial Services Ltd v White [1977] VicRp 62; [1977] VR 561

Bridge Wholesale Acceptance Corp (Aust) Ltd v Burnard (1992) 27 NSWLR 415

Composite Buyers Ltd v Soong [1996] NSWSC 3; (1995) 38 NSWLR 286

Corozo Pty Ltd v Total Australia Ltd [1987] 2 Qd R 11

Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42

J & H Just (Holdings) Pty Ltd v Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546

Re Charge Card Services Ltd [1987] Ch 150

Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (1999) 9 BPR 17,533

Bonini & Anor v Western Australian Real Estate Custodian Ltd & Anor [2001] WASC 258

Cradock v Scottish Provident Institution (1893) 69 LT 380

First Industry Corp v Goh & Anor [2003] WASC 216

Jandric v Jandric (1999) ANZ ConvR 614

Midland Brick Company Pty Ltd v Welsh & Anor [2002] WASC 248

1 JENKINS J: Pursuant to the Transfer of Land Act 1893 ("the Act") s 138C, the plaintiff applies, by motion dated 9 February 2005, for the extension of two caveats.

2 On 26 July 2002, the plaintiff lodged caveat no I186053 over the first defendant's land. The land is situated at 169 Hazelmere Circus, Hazelmere. It is described as lot 126 on plan 4553 and being the whole of the land comprised in certificate of title, vol 1048, folio 795 ("the Hazelmere land"). On the same date it lodged caveat no I186052 over another parcel of the first defendant's land. That land is situated at 86 Grosvenor Road, Mount Lawley. It is described as lot 228 on deposited plan 32583 and being the whole of the land comprised in certificate of title, vol 1696, folio 880 ("the Mount Lawley land"). I will refer to these two parcels of land as "the caveated land".

3 The caveatable interests or estates claimed by the plaintiff in both caveats are "in fee simple as holder of an unregistered instrument and claiming as equitable chargee" which interests or estates are stated to arise out of "[a] deed for Maurice and Cheryl Law, Directors of Spunter Pty Ltd, from Nancy Cloonan Hall, dated 1 November 200, including dates for fund dispersals".

4 The first defendant denies that the plaintiff has a caveatable interest in the caveated land. The first defendant required the second defendant to serve a notice on the plaintiff pursuant to the Act, s 138B. These notices were received by the plaintiff in January 2005. The plaintiff then commenced these proceedings. The second defendant abides the decision of the court.

5 Interim orders of the court have been made extending the caveats pending the determination of the plaintiff's application for an extension of the caveats. Confusingly, in March 2005 the first defendant applied by chamber summons for orders to set aside one of the interim orders. An amended chamber summons, seeking the same relief, was filed on 5 July 2005. The chamber summons purports to address the issues in this application. The first defendant's application, in its original or amended form, has not been heard. At the commencement of the hearing of this application I confirmed with the parties that the plaintiff's application for extension of the caveats had not been heard on its merits and that that was the application that was listed for hearing before me. Consequently the first defendant's "Chamber Summons to set aside the order extending the operation of caveat before Master Newnes dated the 28th day of February 2005", in its original and amended form, is irrelevant and ought to be dismissed.

6 By affidavit sworn 14 February 2005 Maurice Frederick Law ("Mr Law") deposes that he is a director of the plaintiff and that on 5 October 2000 he, his wife Cheryl Diane Law ("Mrs Law"), the plaintiff and the first defendant executed a deed whereby the plaintiff agreed to lend money to the first defendant and Mr and Mrs Law agreed to guarantee the loan that the plaintiff would take out in order to meet its obligations under the deed ("the first deed").

7 The first deed recites that the plaintiff and Mr and Mrs Law agreed to advance $24,000 to the first defendant to enable her to repay a debt to a third party. Further that the plaintiff and Mr and Mrs Law agreed to assist the first defendant to fund litigation seeking compensation for losses occasioned by a fire at the first defendant's former premises. In order to perform its promises recited in the deed the plaintiff borrowed funds from a bank. Mr and Mrs Law guaranteed that loan. In consideration of the plaintiff and the Laws carrying out their promises the first defendant agreed to:

"... indemnify and repay to the [plaintiff] and [Mr and Mrs Law]:

(i) All costs and expenses incurred by the [plaintiff] and [Mr and Mrs Law] in obtaining the loan from [the bank].

(ii) All costs and expenses incurred by the [plaintiff] and [Mr and Mrs Law] in effecting settlement of the said loan from [the bank].

(iii) All interest, costs and charges imposed by [the bank] during the term of the loan on all monies advanced to the [first defendant] by the [plaintiff] and [Mr and Mrs Law] such interest to be calculated on a daily rate.

(iv) All costs and expenses incurred by the [plaintiff] and [Mr and Mrs Law] in effecting discharge of the said loan from [the bank].

(iv) All costs and expenses incurred by the [plaintiff] and [Mr and Mrs Law] in the preparation, stamping and lodging of this Agreement."

8 Clause 2 of the first deed provides that the first defendant would authorise the plaintiff and Mr and Mrs Law to pay accounts incurred by her in pursuing her claim for compensation for losses occasioned by the fire. Upon receipt of such authorisation the plaintiff and Mr and Mrs Law were to make such payments from the bank loan.

9 Mr Law deposes that on 4 November 2000 the plaintiff, he, Mrs Law and the first defendant executed another deed which modified the terms and conditions of the first deed ("the second deed"). The terms of the second deed are short and so can be quoted in full as follows:

"1. I NANCY CLOONAN HALL OF LOTS 126 AND 127A HAZELMERE CIRCUS HAZELMERE IN THE SAID STATE OF WESTERN AUSTRALIA 6055 HEREBY UNDERTAKE TO PAY TO SPUNTER PTY LTD ACN 002 179 375 [MAURICE AND CHERYL LAW GUARANTORS] THE WHOLE OF THE MONEY BORROWED FROM SPUNTER PTY LTD ACN 002 179 375 [MAURICE AND CHERYL LAW GUARANTORS] PLUS INTEREST AT TEN PERCENTUM PER ANNUM AND/OR ACCORDING TO ANY VARIATION WITHIN THE PRIMARY 'LAW' LOAN ARRANGEMENTS. PLUS ALL OUTGOINGS, AND EXPENSES AND A REMUNERATION TO BE AGREED IN RELATION TO THE SETTING UP AND ONGOING MAINTENANCE OF THE SAID FUNDINGS.

2. I NANCY CLOONAN HALL AUTHORIZE THAT THE 'LAW' LOAN ARRANGEMENT BE REPAID ALL MONEY OWED TO IT BY MYSELF [NANCY CLOONAN HALL] INCLUDING FUNDS ALREADY PAID TO MR GRAEME HARRIS AND EXPENSES [25,359.06] FROM THE FIRST AND IF NECESSARY FURTHER MONEY ASSIGNED TO ME FROM WHATEVER SOURCE TO COMPLETE TOTAL REPAYMENT OF ALL FUNDS OWED TO THE 'LAW' LOAN ARRANGEMENT AS SOON AS PRACTICAL.

3. SPUNTER PTY LTD ACN 002 179 375 [MAURICE AND CHERYL LAW, GUARANTORS] SHALL HAVE FIRST CALL ON MY ESTATE."

10 There follows the parties' signatures. Mrs Law signed the second deed on behalf of the plaintiff. Underneath the execution clause is a written request by the plaintiff for funds to be drawn down from the loan from the plaintiff and Mr and Mrs Law. I assume that this was done pursuant to cl 2 of the first deed.

11 The caveats refer to a deed dated 1 November 2000. The second deed has that date typed on it in the top left hand corner, although the date 4 November 2000 is handwritten next to each signature on the second deed. The plaintiff relies upon the second deed to create its caveatable interest. It says that at the office of the second defendant it lodged the caveats, a copy of the second deed and copies of four subsequent deeds in the same terms but containing different requests for different payments by the first defendant underneath the execution clause. The caveats state that five deeds were lodged with the caveats. However the second defendant has been unable to produce the deeds for inspection by the first defendant. I accept for the purposes of this application that the deeds were lodged with the caveats but that for an unknown reason they are not now available for inspection at the office of the second defendant. It does not seem to me that the plaintiff is responsible for this situation.

12 Mr Law deposes that monies were advanced to the first defendant pursuant to the deeds and that the first defendant has not repaid any of the outstanding money. The exact amount of money advanced is not in evidence before me. What is in evidence is that on 10 October 2002, the plaintiff and Mr and Mrs Law obtained default judgment in the District Court against the first defendant in respect to outstanding amounts owed to the plaintiff. The default judgment is for $144,871.47 plus interest and costs. The first defendant has made a number of unsuccessful applications to set aside the default judgment. In a letter sent to the Court by the first defendant on 2 March 2005 she acknowledges that she received several sums of money from the plaintiff and Mr and Mrs Law. Her counsel told me that the amount owed by the first defendant was in dispute.

Principles Governing the Extension of Caveats and their Application to the Facts

13 The Act, s 137 provides that a person claiming any estate or interest in land may lodge a caveat forbidding the registration of any dealing affecting the claimed estate or interest. The purpose of a caveat is to act as a statutory injunction to the Registrar of Titles to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he or she may have against any person lodging a dealing for registration: J & H Just (Holdings) Pty Ltd v Bank of New South Wales [1971] HCA 57; (1971) 125 CLR 546 at 552 per Barwick CJ.

14 The Act, s 138B provides that the proprietor of land in respect of which a caveat has been lodge may apply for the caveator to be served with a notice to the effect that unless the caveator applies to extend the operation of the caveat it will lapse within 21 days. The Act, s 138C provides that on the hearing of an application for the extension of a caveat this Court, if satisfied that the caveator's claim has or may have substance, may, amongst other things, make an order extending the operation of the caveat.

15 The onus is on the caveator to satisfy the court at the hearing of an application for an extension of a caveat that the caveator's claim has or may have substance. This has been interpreted as an onus to satisfy the court that there is a serious question to be tried as to whether a caveatable interest exists. The caveator must also satisfy the court that the balance of convenience favours the retention of the caveat. However, if there is a serious question to be tried it will be an unusual case where the balance of convenience favours removal of the caveat: Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 at 50.

16 In respect to this case a further issue arises as to whether cl 3 in the second deed which states that the plaintiff shall have "first call" on the first defendant's "estate" created an equitable interest in favour of the plaintiff in the caveated land?

17 The plaintiff submits that these words made the first defendant's assets, including the caveated land, answerable for the payment of the debt owed by the first defendant to the plaintiff. It submits that it gave it first resort to the property for the purposes of having it realised to pay the debt and has the effect of giving the plaintiff a proprietary interest by way of security in the first defendant's assets, including the caveated land.

18 The first defendant submits that the words only mean that the plaintiff has a claim against the first defendant's estate should the debt remain outstanding at her death.

19 It is not appropriate for me to determine factual conflicts in an application for an extension of a caveat. They should be resolved at trial. However, before I extend the caveat it is necessary for me to be satisfied that the plaintiff's claim to an equitable interest in the caveated land is arguable.

20 An equitable charge is created where property stands charged with the payment of a debt. It is distinguishable from an equitable mortgage because no estate or interest is conveyed or agreed to be conveyed, at law or in equity: Baker, P and Langan, P Snell's Equity 29th ed Sweet & Maxwell, London, 1990 at 443.

21 There is no doubt that an equitable charge creates a proprietary interest which is able to be protected by a caveat: Re Charge Card Services Ltd [1987] Ch 150; Avco Financial Services Ltd v White [1977] VicRp 62; [1977] VR 561; Composite Buyers Ltd v Soong [1996] NSWSC 3; (1995) 38 NSWLR 286. However, a contractual right does not confer an equitable interest. The question in this case is whether the words of cl 3 of the second deed are capable of creating an equitable charge and if so, whether they are specific enough for equity to enforce them.

22 The plaintiff submits that the law does not require that a charge be in any particular form. It relies upon the commentary by the learned authors of Sykes, E and Walker, S The Law of Securities The Law Book Company Ltd, 1993 at 196 where they say:

"The only actual requirements of the equitable charge seem to be, first, intention; secondly, if over land, the presence of writing; thirdly, the existence of definite ascertainable property, even though future, over which it is contemplated that the charge shall exist; and lastly, in a few exceptional cases the presence of consideration; consideration would not save a purely oral agreement."

23 The first defendant submits that the parties did not intend to create an equitable charge and that the words of the second deed should not be construed as creating an equitable charge. It seems to me that these matters must be determined at trial. There remains the question as to whether cl 3 of the second deed could ever be construed as creating an equitable charge.

24 The cases in this area turn upon the wording of the clauses used in them. Cases based on differently worded clauses are of little assistance in construing cl 3. Counsel did not provide me with any case which employed the words used in cl 3 of the second deed. The closest I have come to finding such a case through my own endeavours is the case of Wilson v Graham (1997) 10 BPR 19,051. In that case an agreement for a loan contained a clause that, in the event of default, the registered proprietor authorised the lender (caveator) to "lay first claim to any other property" in the registered proprietor's name "to the value of the debt plus costs". Santow J of the Supreme Court of New South Wales, upon an application for an extension of the caveat found that the caveator had a prima facie case and extended the caveat. In the course of his reasons Santow J referred to some of the competing arguments. For example he said that the clause was open to the interpretation that it created a present proprietary right. Alternatively it could be argued that it did no more that create a mere right or entitlement equivalent to an option. He said that another view was that the clause operated as an ineffectual variation of the regime applicable upon bankruptcy (or, in terms of the first defendant's argument in this case, upon death) "since, it does not in its terms create a charge but rather identifies a consequence which would only follow if a charge were created".

25 After considering these different constructions Santow J found that the arguments did not deter him from extending the caveat having regard to the standard of proof on the caveator. He said:

"Clearly the hallmark of a charge is that it confers a prior claim to the relevant property over other creditors. Thus the language quoted [from the relevant clause] may be said to identify the core feature of a charge and thus be taken to create one pursuant to an intention in that behalf."

26 This conclusion is equally applicable to the facts of this case.

27 As to the issue of the breadth of the alleged charge, there are again arguments both for and against the view that the clause is void for uncertainty. The plaintiff relied upon other cases where either charges or mortgages said to be created over a caveatee's or mortgagor's estate had been held to be valid: ALH Australia v McGlinn (1996) 7 BPR 15,179; Corozo Pty Ltd v Total Australia Ltd [1987] 2 Qd R 11; Bridge Wholesale Acceptance Corp (Aust) Ltd v Burnard (1992) 27 NSWLR 415. The first defendant did not identify any cases to the contrary. This does not mean that plaintiff's case in respect to this issue must succeed. As the learned authors of The Law of Securities, (supra) at 195, state it has not yet been decided whether a covenant simply to charge the whole of a person's property creates a valid equitable charge. However, the authorities relied upon by the plaintiff do satisfy me that there is a serious issue to be tried between the parties on this issue also.

28 For these reasons I find that there is a serious issue to be tried between the parties as to whether the second deed created an equitable charge in respect to the caveated land.

29 The final issue is whether the balance of convenience favours the extensions of the caveats.

30 The first defendant says that the balance of convenience does not favour the extension of the caveats because the presence of the caveats is preventing her from obtaining funds to, amongst other things, enable her to instruct a lawyer to act for her in respect to her attempts to set aside the default judgment and other matters. When I pointed to the existence of earlier encumbrances on the titles which appear to have the same effect as the caveats the first defendant's counsel told me that those encumbrances had either been lifted or would not be enforced.

31 As to the first point, I gave the first defendant time to file up to date titles showing that the encumbrances had been lifted. She has filed an affidavit sworn 13 January 2006 annexing recent copies of the certificate of titles of the caveated land with the same encumbrances which were on the earlier copies of the titles.

32 As to the second point, her counsel eventually acknowledged that the mortgagee, who is the same for both the Hazelmere and Mount Lawley land, had commenced proceedings to enforce the mortgages over the caveated land but said that these proceedings were being defended. Whatever the first defendant believes is the strength of her defence to those proceedings, there is no evidence before me which would warrant me concluding that it is the caveats which are depriving the first defendant of the ability to obtain clear title to the caveated land.

33 The first defendant's affidavit of 13 January 2006 indicates that various other memorials on the titles could be removed if the funds from a loan or loans she has had approved through a finance broker were dispensed. She deposes that there would still be enough equity in the caveated land and another property she owns to meet the mortgagee's claim. I do not understand this statement or its relevance.

34 Further, it is apparent from the affidavit that the lender in respect to the proposed loan or loans intends to take a mortgage over at least the Hazelmere land as security for the loan or loans. I see no reason why the principal should receive priority of registration until the validity of the plaintiff's claim is determined.

35 The first defendant's counsel also made emotive submissions from the Bar table including, and to the effect, that if the caveats are not lifted the first defendant "will be condemned forever and she will live as a neglected person for the rest of her life". There is no evidence before me to support this submission.

36 In my view the balance of convenience favours the extension of the caveats pending a final determination as to whether the second deed gives rise to an equitable charge over the caveated properties. To date the plaintiff has not commenced proceedings to obtain such a determination. However it acknowledges that any order extending the caveat should be conditional on such proceedings. I agree and am only prepared to extend the caveats on condition that the plaintiff institutes such proceedings and prosecutes them in a timely manner.