Summit Acceptance Pty Ltd v Wild

Judgment 1HIS HONOUR: The first and second defendants are the registered proprietors as joint tenants of land in Springvale Road, Elderslie. On or about 21 August 2009 the plaintiff lodged a caveat in respect of that land claiming an interest as chargee pursuant to a lease agreement and guarantee dated 5 November 2008 between the plaintiff, the first defendant (Mr Brett Wild) and Boltak Interstate Hauliers Pty Ltd. 2On or about 5 April 2011 the plaintiff received a lapsing notice in respect of that caveat. The plaintiff filed a summons on 20 April 2011. The only relief sought in the summons other than costs was an order that the caveat be extended until further order. On 27 April 2011 the plaintiff filed an amended summons. Instead of seeking an order for extension of a caveat, it now seeks an order pursuant to s 74O(2) of the Real Property Act 1900 that it be given leave to lodge a fresh caveat. 3The caveat the plaintiff now seeks to lodge claims an interest as chargee over the interest in the land of Mr Wild only, by virtue of the same instrument as was referred to in the previous caveat. The interest is said to arise by virtue of clause 12 of that instrument whereby Brett Wild as guarantor charged all his rights, title and interest in the property with the payment of all moneys payable by him to the caveator pursuant to the provisions of the instrument. The amount due is approximately $14,156.29 plus interest and costs. 4The lease agreement of 5 November 2008 was between the plaintiff as lessor, Boltak Interstate Hauliers Pty Ltd as lessee and Mr Wild as guarantor. The plaintiff leased a truck to Boltak Interstate Hauliers Pty Ltd for a term of 24 months from 5 November 2008 to 5 November 2010 for a total rent including GST of $33,213.60. The agreement provided for the total rent, stamp duty and GST to be paid by monthly instalments of $1,383.90. 5The lease also provided for a " residual value ", including GST $1,320, and provided for a payment of a document fee of $110 on the date of the agreement. 6Clause 7.7 provided that: " Upon the termination of the lease by effusion [sic] of time or pursuant to this agreement or otherwise the Lessee shall be liable to pay to the Lessor upon demand the amount (if any) by which the aggregate of the unpaid balance of the total rent ... and the residual value ... and all other money owing by the Lessee to the Lessor hereunder exceeds the aggregate of the net sale proceeds of the goods ... ". 7The clause provided that if goods were not returned to or recovered by the lessor, and the lessor was of the opinion that it was impossible, impracticable or uneconomic to take possession of the goods, the net sales proceeds should be deemed to be nil. Clauses 10 and 12 provided as follows: " 10. GUARANTEE 10.1 The Guarantor hereby guarantees to the Lessor the due and punctual payments by the Lessee of the rent and all other sums payable by the Lessee pursuant to this Lease and due observance and performance by the Lessee of the terms and conditions in the Lease indemnifies the lessor against any default by the Lessee. 10.2 The Guarantor confirms that:- (a) the guarantee and indemnity referred to in the proceeding clause shall be a continuing guarantee and shall not be affected by:- (i) any legal disability on the part of the Lessee (ii) the granting of any time or indulgence by the Lessor (iii) the waiver by the Lessor of any default by the Lessee (b) any payment made to the Lessor which may be later avoided by any statutory provision of which is later refunded by the Lessor shall not discharge the Guarantor's liability in respect of such payment. (c) the guarantee shall remain effective until the Lessor has received one hundred cents (100c) in the dollar on the amount of all payments due to it from the Lessee pursuant to the terms of this Lease. ... 12. CHARGE AND CAVEAT 12.1 The Lessee and the Guarantor hereby charge all their right, title and interest in all personal or real property owned by them, either alone or with others, with the payment of all monies payable by the Lessee and the Guarantor to the Lessor pursuant to the provisions of this Agreement and the performance by the Lessee and the Guarantor of their obligations and hereby consent to the Lessor registering a Caveat against the said property or properties as security for the payment of all monies payable by the Lessee and the Guarantor pursuant to the provisions of this Agreement and the performance by the Lessee and the Guarantor of their obligations. " 8On or about 19 November 2009 the plaintiff served a notice on Boltak Interstate Hauliers that stated: " ... in accordance with clause 7.(2) of the Lease Agreement dated the 5 th November 2008 we the Lessor do hereby TERMINATE the said Lease Agreement for reason of the Lessee's non-compliance to [sic] the provisions of clause 7.(2) (a) of the agreement, namely:- 'The Lessee, failing, duly or punctually, to pay any instalments of rent or rent and stamp duty or to pay any other sum of money payable by the Lessee to the Lessor.' " 9Clause 7.2 provided relevantly: " 7.2 The Lessor, without prejudice to any other remedy, shall be entitled to terminate the lease by notice in writing to the Lessee forthwith upon the happening of any of the following events - (a) the Lessee, failing duly or punctually, to pay an instalment of rent or rent and stamp duty or to pay any other sum of money payable by the Lessee to the Lessor hereunder. ... (d) The Lessee being a company, passing of a resolution for its winding up or making of any order by any court for its winding up or the appointment of an official manager, provisional liquidator or receiver in respect of it or in respect of the whole or any part of its assets. " 10The plaintiff brought proceedings against Mr Wild in the Local Court claiming moneys owing under the guarantee. On 14 September 2010 an award was made by an arbitrator, Mr Glissan, in favour of the plaintiff that resulted in an order being made on that day by the Local Court against Mr Wild in favour of the plaintiff in the sum of $14,156.29. Mr Wild was ordered to pay the plaintiff's costs of the action as agreed or assessed. 11In the course of his reasons the arbitrator recorded that after service of the notice of 19 November 2009 a demand was made on behalf of the plaintiff for a sum of $4,088.77, and that on 24 and 30 November 2009 two payments totalling $4,138.90 were made bringing all arrears up-to-date. The arbitrator accepted the defendant's (that is, Mr Wild's) contention that the plaintiff had waived its " forfeiture of the lease agreement ". However, Boltak Interstate Hauliers had gone into liquidation, so the arbitrator recorded, on 3 December 2009. The arbitrator said that in his opinion, its going into liquidation terminated the lease agreement, even though instalment payments were then more than one month in advance, and this was so pursuant to the doctrine of frustration and clause 7.2(d) of the lease agreement. He said that: "[T] he Lease Agreement could not remain on foot without the Lessee remaining on foot and being able to pay instalments as they fell due. " 12The arbitrator concluded that the entire unpaid balance of instalments payable under the lease agreement plus the residual value of $1,320 fell due on 3 December 2009. He gave judgment against Mr Wild as guarantor for that outstanding debt, less credits for payments that had been made. He recorded that the plaintiff had not repossessed the truck. 13Following the entry of judgment in the Local Court Mr Wild filed a notice of motion seeking an order for payment of the judgment debt by instalments. On 28 February 2011 the Registrar made an order for the payment of the judgment debt by monthly instalments of $2,000 with the first payment to commence on 14 March 2011. 14The evidence before me is that those payments have been made, although this is a matter that the plaintiff says it disputes. 15Mr Wild contends that the plaintiff does not have a caveatable interest because, he says, the charge contained in clause 12 of the lease agreement was itself terminated by the termination of the lease agreement. He also says that in any event the debt he owed as guarantor under the lease agreement has been merged in the judgment of the Local Court and that the charge, if it still exists, is not a charge of moneys payable under the judgment. He says that there are no longer any moneys payable by him to the plaintiff pursuant to the provisions of the agreement because of the merger of the cause of action in the judgment. 16Mr Wild also contends that in any event leave should not be given under s 74O on discretionary grounds. He points to the fact that the caveat lodged by the plaintiff in August 2009 incorrectly claimed an interest as chargee in respect of the whole of the subject property whereas, on any view, it is only his interest in the property that is subject to the charge. He also says that the plaintiff has shown no intention of seeking to enforce the charge. Rather, it has pursued other avenues by obtaining judgment in the Local Court and, I am told, has commenced bankruptcy proceedings in either the Federal Court or the Federal Magistrates Court. He complains that the present application is an abuse of process. He complains that the plaintiff has instituted proceedings in three courts when it seeks to secure payment of a debt which is now less than $10,000. 17An application for an order for extension of a caveat is approached on the same principles as an application for an interlocutory injunction to protect an interest claimed by the caveator. The same principles apply where leave is sought under s 74O, although additional discretionary considerations then arise. The plaintiff must show that there is a serious question to be tried that it is presently entitled to an interest as chargee over Mr Wild's interests in the land and that there is a debt secured by the charge. It is not the court's function on this application to make a final determination as to the existence and enforceability of the charge. If the plaintiff establishes that there is a serious question to be tried as to the existence of its caveatable interest, the question is then whether the balance of convenience favours the grant of leave to lodge a fresh caveat and whether damages would be an adequate remedy. 18It has been said on a number of occasions that an application for extension of a caveat should include a claim for final relief to vindicate the interest claimed in the caveat. 19In Iaconis v Lazar [2007] NSWSC 1103, Young CJ in Eq (as his Honour then was) expressed general agreement with the submission of counsel in that case that the scheme of the Real Property Act is that caveats are temporary and it is an abuse of the processes of the Torrens system for people to enter into a contract in which there is a clause which claims to impose a charge on all of the borrowers' property and then to lodge a caveat never seeking to do anything else, at least until default. His Honour added (at [22]): " A caveat should only remain on the title pending the application by the person claiming the equitable or other interest to commence a suit for specific performance or otherwise to vindicate that equitable interest. Indeed, the standard order when a caveat was challenged was that the caveat be removed in any event unless within a month the caveator commenced a suit and then, and only then, was the caveat to be extended until the hearing of the suit. " 20In Wu v Dardaneliotou [2008] NSWSC 1319 Brereton J said (at [2]): " ... as I have said many times in the past, a Summons claiming an order extending operation of a caveat must include a claim for final relief. " 21In Waco Kwikform Limited v Jabbour [2010] NSWSC 1379 I said (at [62]), after referring to the above cases, that where there was no dispute about the interest claimed by the caveator and where the caveator might have no need to seek any relief other than an order for the extension of the caveat, it may not be necessary for the summons to include a claim for final relief. But, where the defendant has made it clear that he contests the enforceability of the charge asserted by the caveator, the observations of Young CJ in Eq in Iaconis v Lazar and of Brereton J in Wu v Dardaneliotou applied. 22In the present case, the amended summons does not include a claim for final relief. That is to say, the plaintiff has not sought a declaration that it is entitled to a charge over the defendants' interest in the subject property, nor a declaration that a charge secures moneys payable under the order of the Local Court. In that respect the proceeding is defective. However, that is not necessarily an answer to the plaintiffs' claim because, as I said in Waco Kwikform Limited v Jabbour , failure to make a claim for final relief might not bar the making of an order for extension of a caveat if the plaintiff undertakes to file a further amended summons seeking to vindicate the interest claimed in the caveat. 23Prima facie the finding of the arbitrator that the lease agreement was terminated by frustration upon the lessee company going into liquidation was essential to his decision and creates an issue estoppel binding on the parties. Likewise, prima facie the arbitrator's finding that the obligations of Mr Wild as guarantor survived that mode of termination of the lease agreement also creates an issue estoppel, (or may be res judicata,) and is binding on the parties. I do not think that any question arises as to whether or not the lease agreement was terminated by the notice of 19 November 2009 because the arbitrator did not proceed on that basis. Given that the parties are prima facie bound by the arbitrator's finding that Mr Wild's obligations as guarantor survived termination, I think there is a serious question to be tried that the charge given by clause 12 of the lease agreement that secures Mr Wild's obligations as guarantor also survives the termination of the lease agreement by what the arbitrator called frustration. I might add that although the arbitrator recorded that the lease agreement was also terminated pursuant to clause 7.2(d), there is nothing in his reasons to indicate and no evidence placed before me, that any notice was served by the plaintiff after 3 December 2009 terminating the lease. 24The question of the continued validity of the charge in the light of the arbitrator's finding and the extent to which the arbitrator's finding do create an issue estoppel raise considerable questions of law. These questions are not appropriate for determination on this present application. It is enough to say that I am satisfied that there is a serious question to be tried that the charge exists. I also think there is a serious question to be tried that the charge secures the obligations of Mr Wild under the Local Court judgment. 25Mr Wild's submission that his obligations under the lease agreement have been merged in the judgment has prima facie attraction. However, clause 12.1 provides that the charge secures not only the payment of all moneys payable by a lessee and the guarantor to the lessor pursuant to the provisions of the agreement, but also the performance by the lessee and the guarantor of their obligations. I do not think it would be a commercially sensible construction of clause 12 to say that the obligations of Mr Wild were secured only for so long as the plaintiff did not obtain judgment to enforce the debt secured by the charge. Even if it could not be said that there were any moneys payable by him pursuant to the provisions of the agreement after merger of the cause of action in the judgment, I think there is a strong prima facie case that the charge secures the performance of his obligations to the plaintiff. 26It is more doubtful whether the charge secures all that is claimed in the proposed caveat. The debt claimed to be secured is not only the judgment debt for the amount the arbitrator found was owing under the guarantee at the date of the judgment, but also interest on that debt and costs. Interest payable is not the contractual interest, but interest pursuant to s 100 of the Civil Procedure Act 2005 and the liability to pay costs arises from the exercise of the court's discretion under s 98 of the Civil Procedure Act . However, it is arguable, and I think there is a serious question to be tried, that the words " performance by the ... guarantor of [his] obligations " extend to the performance of the guarantor's obligations arising under a judgment given to enforce the cause of action under the guarantee. 27Accordingly, the question is whether or not the balance of convenience favours maintenance of the caveat. The plaintiff has all of the remedies available to it of a judgment creditor. The amount of the outstanding judgment debt is less than ten thousand dollars plus costs, and there is something to be said for the proposition that the plaintiff should be left to its remedies as a judgment creditor as it elected to proceed in that way and has not sought to enforce the charge. 28However, given that I have found that there is a serious question to be tried that the plaintiff is entitled to the benefit of a charge to secure payment of the moneys owing under the judgment, there is a risk that if the caveat is not extended, the plaintiff could be put into the position of an unsecured creditor. That risk would arise if Mr Wild's interest in the subject property were transferred to a third party who became registered without fraud and took an indefeasible title clear of any other unregistered interest. Mr Wild gave evidence (as I understood it) that he has assigned his interest in the subject property to his partner (the second defendant) who is the other joint tenant of the property. No transfer has been registered. The plaintiff's caveat would prevent the registration of an instrument of transfer. As I understood Mr Wild's evidence, the consideration payable by his partner for the transfer was her payment of debts of a company. He did not give evidence that if the transfer were registered he would become entitled to any further payment from his partner that would provide alternative security for the plaintiff's judgment debt. 29I think there is a serious risk that if the caveat is not extended the plaintiff could find itself in a position where it would be said that it has no interest enforceable against the registered proprietor of the property by way of charge to secure the judgment debt. No other evidence was given material to the balance of convenience. For example, there is no evidence of any other imminent dealing with the property which would be prevented by the continued existence of a caveat. 30In my view, the balance of convenience favours the grant of leave to lodge a fresh caveat. I do not think that the fact that a caveat was previously lodged which claimed a greater interest than that to which the plaintiff is arguably entitled precludes the grant of leave under s 74O. 31That brings me back to the matter raised in Iacona v Lazar and Wu v Dardaneliotou . There is no evidence that the plaintiff wishes to enforce its charge at this time by appointment of a receiver or by obtaining an order for judicial sale. There is no evidence at this stage that the plaintiff intends to seek an order for the appointment of trustees for sale pursuant to s 66G of the Conveyancing Act 1919. However, I do not think that the requirement that a caveator in the position of the plaintiff must make a claim for final relief requires the plaintiff to include as a claim for final relief orders for enforcement of its claimed interest as chargee. If that were so, a proprietor of land who had granted security could, in effect, compel a chargee to elect when to enforce its security by causing a lapsing notice to be served, thus compelling the caveator to apply for an extension of the caveat. In other words, I do not think that the fact that the plaintiff has not said that it wishes to enforce its charge at this stage, is a reason for refusing leave under s 74O. However, as I have also said, it is incumbent on the plaintiff to seek final relief of the kind that I indicated earlier in these reasons. 32The plaintiff offers the usual undertaking as to damages. If it also proffers an undertaking to the court to further amend its summons to seek a declaration to the effect that it is entitled to a charge over Mr Wild's interest in the property to secure the moneys payable under the Local Court judgment, then I would be prepared to make the order giving leave under s 74O for it to lodge a fresh caveat substantially in the form of annexure J to the affidavit of Mr David Keith Gordon Milne sworn 16 May 2011, subject to correcting the name of the second defendant. 33I should add that although the second defendant was joined as a party to the proceeding, the caveat does not claim an interest in her interest in the property. She might be entitled to be heard on the application. I am satisfied that she has been served with the application. 34Upon the plaintiff by its solicitors, giving the usual undertaking as to damages and also an undertaking to the court that within 21 days, it will file a further amended summons claiming final relief to the effect of at least a declaration that it is entitled to a charge over the defendant's interests in the property at 169 Springvale Road, Elderslie being Lot 3 in DP 1102521 to secure the obligations of the first defendant under a judgment given in the Local Court in favour of the plaintiff against the first defendant on 14 September 2010, I give leave to the plaintiff, pursuant to s 74O of the Real Property Act to lodge a further caveat in the form of the caveat that is annexure J to the affidavit of David Keith Gordon Milne, sworn 16 May 2011 subject to the amendment in the notification of the name " Charmaine Linden Wild " to " Charmaine Linden Smith ". 35The exhibits may be returned after 28 days. [Parties addressed on costs.] 36On the question of costs, the plaintiff is not entitled to any costs prior to the amendment of its summons as it is not pressing for the relief originally claimed. It accepts that the caveat originally lodged claimed a greater interest than it is entitled to. The amended summons was filed on 27 April 2011. On that day the proceedings were stood over to 4 May 2011. On that day orders were made for the plaintiff to serve further evidence by 11 May 2011. The matter was stood over to the duty judge's list today. Mr Milne's further affidavit was sworn on 16 May 2011. The defendant's presence on 27 April 2011 was required by the service of the original summons which was stood over to that day. I order that the plaintiff pay the defendants' costs up to and including 27 April 2011. Thereafter, the costs of the proceedings to date will be costs in the cause. I so order. 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: 29 June 2011