Trevor David Nudd v The Official Trustee in Bankruptcy

• 10 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1484/02 TREVOR DAVID NUDD v THE OFFICIAL TRUSTEE IN BANKRUPTCY JUDGMENT 1 In the Summons filed on 13 February 2002 the plaintiff claims "a declaration that Caveat No. 5470936 registered over Folio Identifier 1/82242 validly secures the interest" of the plaintiff. It was conceded that the Summons was inelegantly pleaded and during the hearing of the matter counsel for the parties agreed that the issue for decision is whether the plaintiff was granted an equitable charge over the subject property to secure the repayment of a loan advanced to the registered proprietor of the property in 1997. 2 The plaintiff loaned $366,000 to Pauline Weir in various amounts over the period late 1996 and early 1997. By late 1997 the plaintiff had become concerned that the loan was not being repaid. In early December 1997 the plaintiff telephoned Ms Weir and said "I want to discuss repayment of the loans". Ms Weir said "I will come and see you about it. I will give you a caveat over my home to secure you. That will be my personal guarantee. There is no risk that you will not be repaid". 3 On 5 December 1997 Ms Weir visited the plaintiff at his home at 776 Botany Road, Mascot and said: "I will write out a Loan Agreement which records the amount owing at this time". That Loan Agreement was in the following terms: 5/12/97 Loan Agreement between Trevor Nudd And Pauline Weir. This acknowledges a loan made today of $366,000 from Trevor Nudd to Pauline Weir repayable on 5th December 1998, interest to be paid monthly at a rate of 10% in the amount of $3050. 4 After the Loan Agreement was completed and signed by Ms Weir and the plaintiff, Ms Weir informed that plaintiff that she had brought with her a Caveat form. Ms Weir said, "Here is the Caveat to secure the borrowings". The plaintiff said, "I have been advised that I need to insert the words 'charge to secure loan advance'" to which Ms Weir responded, "That's fine. Whatever you want". 5 Ms Weir then handed the Caveat form to the plaintiff on which she had written next to "(A) Land" the words and numerals "Lot 1 DP 82242 12.14/12.14 x 45.44/45.44", next to "(D) Registered Proprietor" the words "Pauline Dorothy Hinks", a name by which Ms Weir was also known, and "42 Garden Street Eastlakes, NSW 2018" and next to "(E) Caveator" the words "Trevor David Nudd, 1/776 Botany Road, Mascot. 2020". Schedule 1 which as follows: SCHEDULE 1 Estate or Interest claimed Nature of the estate or interest in the Land/Registered Dealing: Charge to secure loan advance of $366,000.

By virtue of the instrument referred to below/facts stated below:

Nature of Instrument Date Parties Loan Agreement $366,000 5/12/97 Pauline Dorothy Weir (Hinks) Trevor David Nudd

6 The italicised words are in handwriting. The words "Charge to secure loan advance of $366,000" were written by the plaintiff. The words under the headings, nature of instrument, date and parties had been written by Ms Weir prior to her handing the form to the plaintiff. After the plaintiff wrote the words in Schedule 1 he handed the form back to Ms Weir. 7 Section "(L)" of the Caveat form entitled "Consent of Registered Proprietor (section 74F Real Property Act 1900)" provides "I, the Registered Proprietor named above, for the purposes of section 74F(6) of the Real Property Act 1900 only, consent to this Caveat" underneath which there is a line and underneath that line the words "Signature of Registered Proprietor". When the plaintiff handed the form back to Ms Weir she then signed this section as "P. Hinks" and handed the form back to the plaintiff. 8 The Statutory Declaration in section "(K)" was not completed on 5 December 1997. The loan was not repaid on 5 December 1998 and on 16 December 1998 the plaintiff completed the Statutory Declaration and lodged the Caveat with the Land Titles Office. 9 On 15 March 2000 Ms Weir was made bankrupt by order of the Federal Court of Australia in Sydney. The plaintiff lodged a Proof of Debt with the Trustee in Bankruptcy in July 2000. In late January or early February 2002 the plaintiff received a Notice of Proposed Lapsing of the Caveat and commenced these proceedings. On 13 February 2002 Campbell J ordered that the operation of the Caveat be extended until further order of the Court. The matter, subject to directions, was listed in the Short Notice List on 28 March 2002 and called on for hearing before me on 3 May 2002 when Mr B Skinner, of counsel, appeared for the plaintiff and Mr W.G. Muddle, of counsel, appeared for the defendant. 10 Section 23C of the Conveyancing Act 1919 (the Act) provides relevantly as follows: 23C Instruments required to be in writing

(1) Subject to the provisions of the Act with respect to the creation of interests in land by parol: (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by the person's agent thereunto lawfully authorised in writing, or by will, or by operation of law, … (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same or by the person's will, or by the person's agent thereunto lawfully authorised in writing. 11 Section 54A of the Act provides relevantly as follows: 54A Contracts for sale etc of land to be in writing

(1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged. 12 There is no reference in the Loan Agreement to any grant of a charge over the real property or the plaintiff's entitlement to lodge a caveat. Mr Skinner submitted that the Loan Agreement and the Caveat form completed by the parties on 5 December 1997 were together sufficient to satisfy the statutory requirements. Mr Muddle submitted that the words in the caveat cannot amount to the grant of an equitable charge because the words: "charge to secure loan advance of $366,000"amount to merely the "claimed" interest and that such claim relies upon the Loan Agreement in which there appears no evidence of an intention to grant a charge over the land. 13 In Murphy & Anor v Wright (1992) NSW ConvR 55-652 a Deed of Guarantee by which a guarantor guaranteed the repayment of a loan provided in part: In the event of default of the borrowers…then the lender shall in addition to the rights set out herein or in the Security Documents be entitled to attach the debt due to any of the assets of the Guarantor…whether such assets be real or personal and further the parties hereto agree that in the event of such default the Lender may register a caveat against any property registered in the name of the (guarantor). 14 Those in whom the lenders interest in the loan had vested, the Caveators, caused a Caveat to be lodged on the title of the Guarantor's property. They claimed to be chargees of the property pursuant to clause 12 of the Deed and applied to the Supreme Court to have the operation of the caveat extended. At first instance the Court found that the words of clause 12 did not amount to either the granting of an immediate charge over the property or a promise by the Guarantor to create such a charge. 15 The Court of Appeal (Priestley JA & Handley JA, Sheller JA dissenting) construed clause 12 as an attempt to confer on the lender an option that could be exercised on default. In other words, the guarantor had agreed that in the event of default the lender could attach the debt to any of her assets and that the attachment of a debt to property by agreement is apt to create an equitable charge. Handley JA said at 59,734: In my opinion cl 12 should be construed as a conditional contract by the Guarantor authorising the lender to attach the debt to her property. On this basis the clause fails to confer an effective option on the Lender over the Guarantor's property other than her Torrens title land. As to such other property in the language of Gibbs J there are no "stipulated conditions" for the exercise of the option. To that extent the option fails because the manner of its exercise has not been specified. The position is otherwise in relation to Torrens title land because, once the "entitlement" has arisen, the lender has the right to "register" a caveat. Section 74F (1) of the Real Property Act enables a person who claims to be entitled to an estate or interest in any land to lodge a caveat against the title. A registered proprietor cannot by contract confer a right to lodge a caveat where no caveatable interest exists. See Tooth & Co Ltd v Barker (1960) 77 WN (NSW) 231 at 233, 242-243. If the clause only confers a contractual right it will be ineffective. However, the existence of this right suggests that the Lender was intended to have an equitable charge which would support a caveat. 16 Handley JA concluded that the action of the lender in lodging the caveat operated as an exercise of its option to attach its debt to the subject property, and created an equitable charge over that property (at 59,736). 17 Murphy v Wright has been referred to as a "curious case" by reason of the "paradoxical" finding that it was the lodgement of the caveat claiming an interest as the chargee which created the charge which supported the caveat: Lindsay S. Caveats Against Dealings in Australia and New Zealand. The Federation Press, 1995. 18 Murphy v Wright may appear to be inconsistent with the principle that a caveat does not add to rights and only protects rights from being destroyed: FNCB-Waltons Finance Ltd v Crest Realty Pty Ltd (1987) 10 NSWLR 621 at 631. However Santow J in Wilson v Graham, unreported, 30 April 1997, referred to Handley JA's judgment and to the conclusion that registration of the caveat attached the debt so as to create the equitable charge and said at page 2: A critical step in that reasoning was that the registration of the caveat was essential to create the equitable charge. It gives rise to this apparent dilemma. If the registration of a caveat pre-supposes a prior interest in land, could that interest be created by the very act of registering the caveat? If to register a caveat there must be a pre-existing interest in land, the answer would have to be no. But the answer must, by implication, be that the interest can arise simultaneously with registration. In any event, so far as a single judge of this Court is concerned, the matter is settled by binding precedent of the Court of Appeal. 19 Sheller JA, dissenting, referred to Norton on Deeds (1906) page 43 and Schuler AG v Wickman Machine Tools Ltd [1974] AC 235 at 59,737 and said: "But the question to be answered is "What is the meaning of what the parties have said?" not "What did the parties mean to say?". Mr Muddle relied upon this distinction to submit that what the parties said in writing in this case does not amount to the grant of an equitable charge. 20 At first instance in Murphy v Wright, NSWSC, unreported 25 March 1992, Brownie J said at page 3: The plaintiffs submit, and I also accept that, for the purpose of discerning the intention of the parties, it is legitimate to look at the two deeds together….I also accept that it is not necessary to use any particular words in order to create an equitable charge, and that all that is necessary is that the court can fairly spell out from the instrument an intention that the parties intended to create an equitable charge: Gorringe v Irwell India Rubber and Gutta Percha Works (1886) 34 ChD 128 at 136 particularly, Craddock v The Scottish Provident Institution (1893) 69 LT 380 at 382 and Avco Financial Services Ltd v White [1977] VR 561 at 564. 21 In Tonitto v Bassal (1992) 28 NSWLR 564 Sheller JA, with whom Handley JA and Hope A-JA agreed, "authoritatively demonstrated the soundness of the propositions that the memorandum or note required to satisfy the provisions of s.54A of the Conveyancing Act need not be contained in one piece of paper; and that, if words used in a document are capable of referring to another document, parol evidence can be led to connect the two documents: Baloglow v Konstantidis & Ors [2001] NSWCA 451 per Priestley JA at [98]-[99]".

22 In Troncone v Aliperti (1994) 6 BPR 13,291 the Court was construing a loan agreement that provided for the repayment of the loan and for interest. It did not in terms provide for any security for the repayment of the loan, however clause 5 provided that "the Debtor authorises the Creditors to lodge a Caveat on any property owned by the Debtors (sic) to protect his interest". The trial judge held that clause 5 did not grant to the creditors any estate or interest in the land and that the caveats which had been lodged should be withdrawn. 23 On appeal Mahoney JA, with whom Priestley and Meagher JJA agreed, said at 13,292: It is a fundamental principle of construction that "Whoever grants a thing is deemed to grant that without which the grant itself would be of no effect" (Cuicunque aliquis quid concedit concedere videtur et id sine quo res ipsa esse non potuit): Broome's Legal Maxims (9th ed) p 307. The principle is said to go back to Shepherd's Touchstone 89. A caveat cannot be entered against land unless the caveator has the relevant proprietary interest in the land: see Real Property Act 1900 s 74F(1) ("a legal or equitable estate or interest in land"). Therefore, unless there be evident an intention to the contrary, the grant to the creditors of an authority to lodge a caveat on the relevant property carried with it by implication such an estate or interest in land as was necessary to enable the authority to be exercised. 24 Mahoney JA did not find it necessary to decide the precise nature of the interest in the land by which the implied grant was passed. Priestley JA saw no material distinction between the case and Murphy v Wright and concluded that "the same result should be reached" (at 13,293). Meagher JA concluded that unless one construed clause 5 as granting a charge, the clause would be meaningless (at 13,293). 25 In Coleman v Bone (1996) 9 BPR 16,235 McLelland CJ in Eq was construing a written agreement in relation to a loan of $50,000 in which there appeared the words "About the $50,000 I shall want to put a caveat on the property" and "As the caveat will safeguard my investment, and you are over borrowing, I will not remove it unless you can (when you wish to sell) repay the $50,000 plus my share of capital gain plus money owed on the bank loan". McLelland CJ in Eq, in holding that the agreement supported an implication of a grant of an equitable charge to secure the repayment of the loan, said at 16,239: So far as the "caveat" is concerned, it has been held by the Court of Appeal (in Troncone v Aliperti (1994) 6 BPR 13,291; NSW ConvR 55-703) that if in a contract between A and B, A grants B authority to lodge a caveat in respect of property of A, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised. Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money ( Troncone at BPR 13,293-4; ConvR 60,020 per Meagher JA). 26 Mr Muddle relied upon Cummins J's judgment in Go-Tell Nominees Pty Ltd & Ors v Nichols & Ors, SC VIC, unreported, 7 February 1997, in support of his submission that there had been no effective grant of any interest in the land to the plaintiff. In that case the caveators had loaned $116,000 to the registered proprietor of the subject land (the company). The directors of the company signed a memorandum on 30 November 1993 that included reference to the loan and the amount of interest that had been agreed to be paid. The memorandum also stated "I hereby place you as a valued creditor with a caveat" on the property. On 31 January 1994 an "Authority" was executed under seal by the company that stated that the company "hereby authorises (the caveators) to lodge a caveat to the value of $200,000" over the subject property. The caveat lodged in February and amended in June referred to the "instrument" of 31 January 1994 as the "grounds of claim" for "an equitable interest as charged between" the company and the caveators. 27 Cummins J in ordering the removal of the caveat distinguished the circumstances in the case before him from those in a line of cases that his Honour referred to in which he said the courts were construing agreements that contained "charging words". Those cases included Troncone v Aliperti. Mr Muddle submitted that the reliance upon the Loan Agreement as the instrument for the charge in this case is similar to the reliance upon the Authority in Go-Tell Nominees. He submitted that neither contained what Cummins J referred to as "charging words". 28 Although Go-Tell Nominees was the subject of an appellate judgment, Nichols v Go-Tell Nominees Ltd, VIC CA, Phillips, Charles, Callaway JJA, unreported, 9 October 1997, the question of whether the appellant had a caveatable interest was not decided. 29 Mr Muddle also submitted that the completed and signed form of Caveat should not be construed as giving any further interest to the plaintiff than that identified in the Loan Agreement. It was submitted that the Caveat refers specifically to the Loan Agreement as the Instrument "by virtue" of which the plaintiff claims the "charge to secure loan advance of $366,000" and cannot be construed as evidence of an agreement to grant the charge. 30 The question that arises is whether the two documents, the Loan Agreement and the form of Caveat, completed and signed on 5 December 1997, properly construed, gave rise to an interest in the land. Contrary to Mr Muddle's submissions I am satisfied that the form of Caveat completed on 5 December 1997 may be read in conjunction with the Loan Agreement in deciding whether there is sufficient writing, signed by the person creating the interest, so as to satisfy the Act: Tonitto v Bassal (1992) 28 NSWLR 564; Balaglow per Priestley JA at [98]-[99]. 31 On 16 December 1998 the plaintiff could have completed and lodged a separate Caveat referring to the Loan Agreement and the Caveat form completed and signed by Ms Weir on 5 December 1997 as the basis of the claim of the equitable interest in the land. Indeed Mr Muddle submitted that if that had been done the defendant would probably not be opposing the plaintiff's application. He submitted that the Caveat is merely a notice of a pre-existing right or interest and cannot itself be evidence of the grant of any interest in the land.

32 Ms Weir's signature as "P.Hinks" in section "(L) Consent of Registered Proprietor" is in my view significant. The statement made by Ms Weir by placing her signature on the Caveat is "I, the Registered Proprietor named above, for the purposes of section 74F(6) of the Real Property Act 1900 only, consent to this Caveat". Section 74(6) provides: (6) On the lodgement of a caveat under subsection (1), the Registrar-General must give notice in writing of the lodgement of the caveat to the registered proprietor of the estate or interest affected by the caveat by: (a) sending the notice by post to the address of the registered proprietor specified in the caveat; or (b) giving the notice in such other manner, whether by advertisement or otherwise, as the Registrar-General considers appropriate, unless the consent of the registered proprietor is endorsed on the caveat. 33 Section 74F(7) provides: (7) In subsection (6), a reference to the registered proprietor in relation to an estate or interest referred to in that subsection includes a reference to a person who claims to be entitled to such an estate or interest under a dealing lodged in the office of the Registrar-General for recording in the Register. 34 The consent is stated to be "for the purposes of section 74F(6) only". This specific matter was not the subject of any submission by either party. The question that arises is whether Ms Weir's signature in the "consent" section of the Caveat form is able to be read with the balance of the form and the Loan Agreement so as to create an interest in land: s.23 of the Act. This requires a consideration of the effect of the words in the statement signed by Ms Weir "for the purposes of s 74F(6) only". 35 The Explanatory Note to the Bill of the Real Property (Caveats) Amendment Act 1986 states that the amendments were designed to effect certain improvements to the caveat procedure provided for in the Real Property Act 1900. It also states that "the Registrar-General will not be required to serve notice of the lodgment of a caveat on a registered proprietor whose consent is endorsed on the caveat". Although the second reading speech [Hansard, Assembly, 24 April 1986, 2747] refers to the registered proprietor's "simple summary means of challenging the right of a caveator to maintain his caveat…by service of an appropriate notice upon the caveator (to) call upon him to justify his caveat before the court or have it lapse completely", there is no specific mention of the registered proprietor's consent to the caveat. 36 The statutory effect of Ms Weir's consent is that as registered proprietor she is not required to be notified by the Registrar General "of the estate or interest affected by the caveat". The reason for that is that Ms Weir consented to the lodgement of the caveat and did not need to be notified. There may be cases in which a consenting registered proprietor may wish to argue that the signature does not mean the caveator's entitlement to the claimed interest is a good one. That particular point has not been argued in this case. The plaintiff submitted that the Trustee could have called Ms Weir to give evidence but did not do so. There was some cross-examination of the plaintiff but I accept his evidence as to what was said and done and the sequence in which the portions of the caveat were written on 5 December 1997 when the two documents were signed. Indeed Mr Muddle did not make submissions to the contrary. 37 In In the Will of Brett. Union Trustee Co. of Australia Ltd. V Carse [1948] "The Argus" Law Reports 17 the court was construing a will in which a testator had granted an option to certain of his children and stated that they "shall have for the purpose only of erecting a residence thereon the option.". Herring CJ said: And to make it clear that it was for this case only that he was providing, he has introduced the word "only" in declaring the purpose for which the optionee shall have the option. This word introduces a negative element, a restriction, that shows it was not his intention that the option should be availed of for the purpose of turning the land into a money-making proposition by the erection thereon of several residences or other buildings, such as flats. [at 18] ……… The optionee, therefore, on exercising the option, will take the land subject to the condition imposed by the words "for the purpose only of erecting a residence thereon." This condition, once the option is exercised, will operate as a condition subsequent and must be construed strictly. [at 19] ……… The negative aspect of the condition results from the insertion of the word "only", and gives rise to considerable difficulty, both with regard to its duration and operation. As a matter of construction it should, I think, be read as doing no more than reinforcing the positive aspect of the condition by precluding the optionee from devoting the land to any other purpose than the erection thereon of a residence for herself. [at 20]

38 I am satisfied that the insertion of the word "only" in the caveat form reinforces the positive aspect of the condition of the consent. That is that the registered proprietor has consented that the Registrar General does not have to serve a notice on the registered proprietor notifying "the estate or interest affected by the caveat". It is not the fact of the lodgement of the caveat that the Registrar General would otherwise have to serve but the "estate or interest affected" that has to be notified. A registered proprietor may be able to mount a successful argument that a signature on this section of the caveat cannot be taken to create an interest that is otherwise not provided for in writing in the caveat itself or in the "instrument" by virtue of which the interest is said to arise. It would be argued that the "consent" is only to the Registrar General's actions, or more precisely, his lack of action in respect of notices. However this case is different. 39 The two documents, the Loan Agreement and the Caveat form, read together are not dissimilar to the facts in Troncone v Aliperti. In that case the clause provided that "the Debtor authorises the Creditors to lodge a Caveat on any property owned by the Debtors (sic) to protect his interest". These are the words construed and must have been the words to which Cummins J referred as "charging words". The circumstances of this case are also not dissimilar to what the parties wrote in Coleman v Bone. In that case the words were "I shall want to put a caveat on the property". 40 In Go-Tell Nominees and in the line of cases to which Cummins J referred and in the cases to which I have referred there was no suggestion that the registered proprietor had signed the consent section of the Caveat. The question in relation to the signature on the caveat in this case is whether the signature can be used as evidence that the document is "signed" for the purposes of the Act. The fact that the consent may be conditional does not in my view preclude the signature from being used as evidence that the writing was "signed" for the purposes of s 23 of the Act and s 54 of the Act if it is the case that the latter section was required to be complied with for the purpose of these proceedings: Balaglow v Konstantinidis. 41 The words "charge to secure loan advance of $366,000" were written after the reference to the Loan Agreement was placed in the "nature of Instrument" section of the Caveat and before Ms Weir signed it. Ms Weir went further in this case than either of the registered proprietors in Troncone v Aliperti and Coleman v Bone. Ms Weir armed the plaintiff with a completed Caveat in which she provided details of the property and signed the consent section. Read as a whole Ms Weir signed the document(s) in which the term "charge to secure" appeared with reference to not only the Loan Agreement but also the details of the property to which the charge was to attach. Consistently with the approach adopted by McLelland J in Coleman v Bone, I am satisfied that the writing signed by Ms Weir in both the Loan Agreement and the form of Caveat, was authority given to the plaintiff to lodge a caveat in connection with Ms Weir's obligation to repay the plaintiff and that there is not any "sufficient indication to the contrary" that would defeat the implication that the estate or interest granted is an equitable charge to secure that repayment. I am satisfied that from the two documents an intention to create an equitable charge can be fairly spelt out.

42 The parties intended that the equitable charge be granted to the plaintiff and that the caveat would protect and secure the plaintiff's interest. I am satisfied that the writing in the Loan Agreement and the Caveat form, both signed by Ms Weir is sufficient to satisfy the requirements of the Act. The fact that the plaintiff did not lodge a separate form of caveat referring back to the Caveat "signed" by Ms Weir does not in my view make the grant any less valid.

43 I am satisfied that the plaintiff was granted an equitable charge over the land that entitled him to lodge the caveat. The parties are to bring in Short Minutes of Order and I will hear any argument as to costs if the parties are unable to agree on a costs order. *******************

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