Terry v O'Connell [2010] NSWSC 255 | Case summary

2010/076598 Diana Terry v Mellissa O'Connell & Anor JUDGMENT 1 HIS HONOUR: This is an application for an order extending the operation of a caveat over land in Jamisontown. In the caveat, the plaintiff claims an estate or interest in the land in the nature of "an equitable charge and/or an equitable mortgage in the sum of $40,000." The caveat states the facts by reason of which that interest is claimed as follows: " In or about July 2002 the Caveator and the Registered Proprietors of the land entered into an oral agreement pursuant to which the Caveator advanced the sum of $40,000.00 to construct on the land a granny flat on the following terms and conditions: i) that the Caveator would be entitled to reside in the granny flat free of charge other than the payment of the sum of up to $150.00 per week for groceries, electricity accounts and other household expenses for as long as: a) the life of the caveator; or b) upon sale of the land ii) upon sale of the land the interest of the Registered Proprietor of the land be charged with the sum of $40,000.00 to be repaid to the Caveator. " 2 In her affidavit read in support of the relief claimed in the summons the plaintiff deposes that the land in question is owned by her daughter and her daughter's husband. She deposes that in about January 2002 she had a discussion with each of them in which words to the following effect were said: " First defendant: 'Mum, with our second child coming along we require more space. If you want to stay with us it will be necessary for us to convert the garage into a granny flat. If you pay the costs of the renovation of the garage you will be able to reside in it free of charge.' Plaintiff: 'What happens if the place gets sold?' First Defendant: 'We will pay you back the money spent if we sell. But we don't intend to sell.' Plaintiff: 'I will get some quotes to find out how much it will cost me. If I undertake the work and renovate the garage and live there I think it is only fair that I pay a sum per week for groceries and as a contribution to the household expenses. I think $150 per week would be a fair sum.' First Defendant: 'We don't want that mum, but if you could help us that way it would be appreciated'." 3 The plaintiff deposes that she spent over $60,000 in converting the garage to a granny flat. She deposes that after the work was completed she had a further conversation with her daughter in which her daughter expressed surprise at the amount spent and said that she would have thought it would cost no more than $40,000. In reply the plaintiff deposes that she said "I'll agree to accept $40,000 when you sell the property." She says that the first defendant agreed. 4 The plaintiff also deposes that in July 2008 she was told that the defendants wanted to sell the property and she said "Okay as long as I get paid my $40,000 when it sells." There was then an argument. She deposes that she was required to leave the property and did so in July 2008. She has not remained in occupation of the property. The defendants have advised that they intend to sell the property and have served a lapsing notice in respect of the caveat. 5 The plaintiff's evidence does not establish a serious question to be tried that she is entitled to a charge or equitable mortgage over the land as distinct from a charge over the proceeds of sale. As is said in Tyler, Young and Croft, Fisher and Lightwood's Law of Mortgage, 2nd Australian ed (2005) LexisNexis Butterworths at [1.9]: " A charge is the appropriation of real or personal property for the discharge of a debt or other obligation without giving the creditor either a general or special property in, or possession of, the subject of the security ... " 6 The remedies of a chargee are to apply to the court for an order for judicial sale of the charged property or the appointment of a receiver to realise the property or its income to satisfy the charge debt. The plaintiff's evidence does not establish that the plaintiff was to have any right to deal with the land itself in order to satisfy her claim for $40,000. Nor does it suggest that she was to have the right to approach the court for an order for judicial sale or the appointment of a receiver. That is not to say that if the plaintiff's evidence is accepted she would not be entitled to a charge over the proceeds of sale to secure payment of $40,000. But an interest in the proceeds of sale is not an interest in the land, at least where the chargee of the proceeds of sale does not have a right to have the land sold (Epple v Wilson [1972] VR 440; Simons v David Benge Motors Pty Ltd [1974] VR 585; Davies v Uratoriu (1995) 6 BPR 13,917 at 13,923; Luxury Homes Pty Ltd v Danieli [2005] NSWSC 379; (2005) 12 BPR 23,105 at [23]). 7 Mr Drummond, who appeared for the plaintiff, submitted that the plaintiff's interest as chargee of the land was "supported" by her being entitled to a constructive trust over the land which, he submitted, gave her an interest in the land, including a right to reside on it. He referred to Milton v Proctor (1989) NSW ConvR 55-450. In that case, according to the headnote, the licensee of land moved into a cottage on the land on the understanding that as long as she paid rates, she could reside on the premises for her life. Presumably in reliance on that understanding, the licensee did a substantial amount of work to the property. Clarke JA, with whom Mahoney JA agreed, observed that it may not be accurate to say that a licensee can never hold an interest in land and that a proprietary interest may be created under a constructive trust or by way of proprietary estoppel. But there is nothing in that case, nor in Young v Lalic [2006] NSWSC 379 to which Mr Drummond also referred, which supports the submission that the plaintiff has an interest as chargee of the land. Mr Drummond also referred to the well known decision of McLelland J in Morris v Morris [1982] 1 NSWLR 61 where his Honour found that a plaintiff who had expended money on a house jointly owned by his son and daughter-in-law, on an assurance that he would be entitled to reside in the property indefinitely, was entitled to recoup his expenditure when his expectation of residence was disappointed and was entitled to an equitable charge over the property to secure repayment. Counsel submitted that Morris v Morris was on all fours with the present case. It is not. In the present case the plaintiff says that the agreement was that she would be recouped, not out of the land but out of its proceeds of sale. 8 The question arises as to how then to dispose of the present application. Section 74K of the Real Property Act 1900 (NSW) provides: "74K Power of Supreme Court to extend operation of a caveat lodged under section 74F (1) Where a caveator is served with a notice prepared under section 74I (1) or (2), 74J (1) or 74JA (3), the caveator may prepare, in the manner prescribed by rules of Court, an application to the Supreme Court for an order extending the operation of the caveat. (2) Subject to subsection (3), on the hearing of an application made under subsection (1), the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application. (3) Unless the Supreme Court has made an order dispensing with service, it may not hear an application made under subsection (1) unless it is satisfied that all interested parties disclosed by the notice which gave rise to the application have been served with copies of the application before the hearing. (4) An order under subsection (2) may be made ex parte or otherwise. " 9 In the notes to s 74K in PW Young, A Cahill & G Newton, Annotated Conveyancing and Real Property Legislation New South Wales, 2009 ed (2009) LexisNexis Butterworths the learned authors say (at [41970.20]) that "All interested parties must be served and given the opportunity to make a presentation to the court." They say that s 74K(3) has been interpreted as forbidding ex parte applications before the summons has been served on all interested parties (see Wonderland Business Park Pty Ltd v Hartford Lane Pty Ltd [2001] NSWSC 86; (2001) 10 BPR 18,733; and Malouf v O'Donohoe [2001] NSWSC 335). 10 In the present case notice of the application was given to both defendants. The second defendant appeared, the first defendant did not. She has not been served with the summons and supporting affidavit. More recently, in Bidmonta Pty Ltd v D'Angolo [2009] NSWSC 438, Brereton J, after referring to s 74(K)(4) expressed the view that s 74K(3) prohibits only the substantive hearing of an application for extension of a caveat without notice unless an order dispensing with services be made, but does not otherwise prohibit an application being dealt with ex parte. 11 The plaintiff sought to have her application heard. As I will not be making an order extending the caveat it seems to me the appropriate course is to dispense with service on the first defendant of the notice of the application for the relief in paragraph 3 of the summons. This does not otherwise dispense with the requirement for service of the summons on the first defendant. 12 My conclusion that the caveat should not be extended does not imply that the plaintiff may not be entitled to other relief. Subject to hearing the second defendant, I see no reason the plaintiff should not have leave to amend, if leave be necessary, to seek a declaration that any proceeds of sale of the property are charged with repayment of $40,000 and to seek an injunction to restrain the defendants from dealing with up to $40,000 of the proceeds of sale. However, for the reasons I have given, I refuse the relief in paragraph 3 of the summons. 13 I order the plaintiff to pay any costs of the second defendant in relation to the application for the relief in paragraph 3. The second defendant is unrepresented, but he may have incurred expenses, for example in travelling to court, and is entitled to those costs.

Terry v O'Connell

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