Valerica v Global Minerals & Ors

1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

FRIDAY 8 DECEMBER 2000 3905/00 Global Minerals Australia Pty Limited v Valerica Pty Limited

2764/00 Valerica Pty Limited v Global Minerals Australia Pty Limited

1 Global Minerals Australia Pty Limited ("Global") is the registered proprietor of the land comprised in folio identifiers 1-5/253462 being land at Penrose in the Southern Highlands of New South Wales ("the Penrose Land"). It claims in proceedings 3905 of 2000 (1) a declaration that caveat no. 6943800 lodged by the defendant company, Valerica Pty Limited ("Valerica") against folio identifiers Nos 1-5/253462 comes within s74O of the Real Property Act 1900 (the Act) and is of no effect; and (2) an order under s74MA of the Act that the defendant withdraw that caveat. The defendant, Valerica has applied by notice of motion for an order that these proceedings be consolidated with proceedings no. 2764 of 2000. It also seeks an order although by oral application, under s74O(2)(a) of the Act giving leave for the lodgement of Caveat No. 6943800 or a Caveat in the same terms and purportedly based upon the same facts. 2 Caveat No. 6855381 was lodged by Valerica against the land comprised in folio identifiers Nos 1-5/253462 and lapsed following service of a notice under s74J on 30 June 2000 and the expiry of the 21 day period without the defendant having obtained an order extending the caveat. Valerica says that this first caveat did not articulate an interest in the land, and it was for that reason that it was allowed to lapse and that a second caveat, being caveat no. 6943800 was lodged on or about 13 July 2000. Although counsel for Global did argue that this caveat was lodged to protect the interest claimed in the earlier caveat, it was accepted by both parties that the real question for decision was whether caveat no. 6943800 claimed an interest in the land which could be protected by caveat. If it did it was accepted that I should frame an order so as to allow it to remain in force until the determination of proceedings 2764/00 or earlier order.

3 The interest claimed in caveat no. 6943800 was "as Equitable Chargee over the subject Land under ASIC Charge No.92828 dated 15/01/89 from Ostabridge Pty Limited (ACN 003 611 194) ("Ostabridge", or "Chargor") to Standard Chartered Bank (Australia) Limited (ACN 008 262 897) ("the Original Chargee"). That Equitable Charge was assigned to the Caveator by the Original Chargee on 06/02/92." That interest was claimed by virtue of "Equitable Charge ASC Charge No. 36083; ASIC Charge No. 92828 and by the facts stated below: 1. On 9 November the land comprised in Folio Identifiers 1-5/253462 ("the Penrose Land") was sold and transferred by Australia Machinery Equipment Sales Pty Limited (ACN 050 035 053) ("AMES") to the Chargor.

By reason of 1 above, since 9 November 1995, the Chargor has been the beneficial owner of the Penrose Land, and until 8 December 1999, AMES was a constructive trustee of the Penrose Land for the Chargor. Caveat 0727645 was lodged by the Chargor to protect its equitable interest in the Penrose Land.

Global Minerals Australia Pty Limited (ACN 090 740 177) ("Global") became the registered proprietor of the Penrose Land by Transfers purportedly executed for and on behalf of AMES as Transferor and by Global as Transferee on or about 8 December 1999: Folio Identifier: Transfer No: 1/253462 674193 2/253462 671494 3/253462 671495 4/253462 671496 5/253462 671497

At all material times, including the times of the Sale and Transfer of the Penrose Land by AMES to Global, i.e. on or about 8 December 1999: (a) the sole Directors of Global were Voula Kekatos ("Mrs Kekatos") and Rhonda Dawn Stafford ("Mrs Stafford"); and

(b) the sole Shareholders of Global were Mrs Kekatos, Mrs Stafford and Susan Stafford.

The said Transfers of the Penrose Land from AMES to Global were effected fraudulently, in breach of trust, in contravention of Section 232 of the Corporations Law and in breach of fiduciary duties owed by Wayne Albert Stafford ("Stafford") and George Kekatos ("Kekatos") whilst they were directors of Ostabridge and AMES, respectively. Those Transfers were executed without the consent of, or notice to, the other directors of those companies, namely Eric Tsun Man Yeung ("Yueng") and Joseph Tak-Wong Wong ("Wong") or the holding company of AMES, being Ostabridge, after Stafford and Kekatos had purportedly, unlawfully and without authorisation of the other directors and shareholders of AMES: (a) terminated the said Contracts; (b) removed Yeung and Wong as directors of AMES; (c) de-consolidated AMES as a subsidiary of Ostabridge and (d) withdrew Caveat 0727645.

At all material times before and after 8 December, Global and its Directors and Shareholders had notice or knowledge of, and were privy to, the conduct referred to in paragraph 5 above.

As at 3 May 2000, substantial defaults had occurred under the said Equitable Charge, it operated as a fixed charge as against any real estate owned by the Chargor, it had become immediately enforceable, and the moneys secured thereby had immediately become due and payable. That Charge secured approximately $8,551,265.25 as at 30 May 2000. "

4 The relevant history of the above transactions was evidenced in the affidavit of Joseph Tak-Wong Wong sworn on 13 June 2000 and filed in proceedings no. 2764 of 2000. That evidence as yet untested is as follows. In January 1989 Standard Chartered Bank made finance facilities available to Ostabridge and as part of the security taken, took a floating and fixed charge dated 15 January 1989 over the assets and undertakings of Ostabridge. The Standard Chartered Bank loan to Ostabridge and supporting securities was assigned by Standard Chartered Bank to Valerica on 5 February 1992 for consideration in the sum of $1,050,000. 5 The relevant terms of the Standard Bank Charge provided that the mortgaged property included freehold land and any estate or interest therein; that the charge operated as a fixed charge on all freehold and leasehold property and other property particularised; and operated a floating charge on the rest of the mortgaged property which would, I consider, include estates or interests in freehold land. The charge also provided that failure to pay the secured moneys constituted an event of default making all the secured moneys due, upon which the charge became a fixed charge over all the mortgaged property. Upon the happening of an event of default the chargee was empowered to appoint a receiver acting as agent for the chargor with full and ample powers, including power to take proceedings in the name of Ostabridge. Upon an event of default the chargee was given power to do itself anything a receiver if appointed, could do.

6 Under five separate contracts for sale dated 9 November 1995 AMES, as registered proprietor, sold the five Lots comprising the Penrose Land to Ostabridge for a total $760,000. It was intended that Ostabridge and AMES would act as joint venture companies in relation to the Penrose Land. On 10 November 1995, Ostabridge (as Principal) and AMES (as Agent) entered into a Principal and Agency Agreement in relation to the Penrose Land. Upon completion of the purchase of the Penrose Land by Ostabridge from AMES, it was not possible to register the transfers immediately because there were some prior encumbrances registered on the relevant titles, which AMES was then unable to satisfy. Consequently the transfer was never registered but Ostabridge lodged a caveat no. 0727645 to protect its interest in the Penrose Land. Valerica claims that that caveat was later withdrawn as part of the fraudulent transfer to Global, encompassing also the obtaining consent of other caveators to the transfer. This fraud claim appears to be based on fraud on AMES and fraud on the minority in AMES.

7 Global denies the factual claims of the Valerica but it accepted that for the purpose of this application the facts set out above should be assumed in favour of the defendant. I should add that Bryson J on 26 September 2000 in proceedings no. 2764 of 2000 ordered that pending the hearing of those proceedings, Global be restrained from dealing with the Penrose Land; and that Valerica be restrained from exercising any power under the deed of equitable charge.

8 The interest claimed by the alleged facts stated in caveat no.6943800 is that of an equitable chargee over the interest of an unregistered transferee in the land which land has been transferred to a third party (Global) by fraud. If the allegation of fraud with notice is proven Global cannot take the benefits of indefeasibility under s42 of the Act.. The question for decision is then whether the interest of a chargee over the interest of a purchaser who held an unregistered transfer of land is a claim capable of protection by caveat in circumstances where the land in question has been transferred to another person whom the caveator claims has obtained title through fraud or has had notice of the fraud.

9 Mr Ashhurst, counsel for Global, argued first that Valerica had no caveatable interest because the charge was not registrable in any event. That argument was not strongly pressed and could not be sustained in the light of the decision in Composite Buyers Ltd v Soong (1995) 38 NSWLR 286. Next he relied on Re Pile's Caveat [1981] QdR 81. That was a case of a wife claiming that her one half interest in a property had been transferred to trustees of a trust as a result of a fraudulent representation of her husband. Dunn J held that "a prima facie equity to relief involving land is not necessarily the same as the prima facie existence of an interest in land" and that the claim was not an interest in land protectable by caveat so that the only way to secure the rights of the wife in that case was by injunction. Ryan J is said to have come to a different conclusion in Re McKean's Caveat [1988] 1 QdR 524 when Re Pile's Caveat does not appear to have been cited to him. In that case he concluded that a mortgagor claiming breach of duty by a mortgagee in exercise of power of sale and seeking to set aside a contract of sale had a caveatable interest in spite of the completion of the mortgagee sale. I do not understand that these decisions are necessarily in conflict. It seems clear the transfer by the mortgagee under power of sale to the purchasers had not been registered or it seems, lodged for registration, prior to lodgement of the caveat. Thus there could have been, in the absence of a section equivalent to s43A of the Act, competing equitable interests. The references in McKean to Forsyth v Blundell (1973) 129 CLR 477 support this, but this latter case was not concerned with the question of caveatable interests, but rather the circumstances in which the court could, by injunction, restrain completion of a mortgagee sale, albeit that at page 495 Walsh J said: …If a mortgagee has acted in breach of his duty, it may become necessary to decide whether the available relief is limited to making him liable to make good to the mortgagor such loss as has been caused by that breach of duty or includes the obtaining of an order to set aside a conveyance or transfer by which a sale had been carried into effect or, in cases in which the contract of sale has not been completed, an injunction to restrain the mortgagee from completing it. 10 That statement does not carry the finding that a possible right to obtain an order to set aside a transfer gives rise to an interest in land which can be properly protected by caveat. I should probably complete this by noting the decision in Andel Pty Ltd v Century Car Care Pty Ltd [1989] ANZConvR 252 where Pincus J said that he would follow McKean in preference to Pile if it had been necessary to deal with the point, which it was not. In the case in question he was dealing with a claimed interest, made as a claim for re-conveyance as a result of fraudulent misrepresentation. That claim is not the same as a claim to set aside a contract prior to registration of a transfer, but I appreciate the view expressed, although not necessary to the decision, is contrary to the conclusion to which I have come. 11 It is my view that as a matter of principle a claim to set aside a transfer on the ground of fraud, is a claim in personam which may result in a proprietary interest in land, but is not a claim for such an interest. I consider that conforms with the decision in Composite Buyers. In that case Hodgson J stated the test for determining whether a claim gave rise to an interest in land protectable by caveat to be as follows: …what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way satisfaction of the interest claimed by the caveator out of land itself, for example by ordering the sale of the land and payment out of the proceedings of an amount in respect of which the caveator has a charge. There he held a charge under a guarantee not in registrable form over "all freehold and leasehold interests in land which we or any of us now have or during the currency of this instrument may acquire" was capable of giving an equitable interest in land. He did not hold that it did, but rather that it would, if equity would grant specific relief against the defendant's land on the basis of the instrument. There was, I consider, no doubt that there was a discretion in the court to make orders for the sale of the land to give effect to the charge, so that specific relief might have been given against the land itself. That decision is one I should follow and it seems to me with respect to be clearly correct. However, I do not think that it assists Valerica in this action. I agree with the decision in Re Pile's Caveat . 12 It is proper to deal with the second argument by Global. It is that as Ostabridge had not obtained any relief in respect of the land, the most that Valerica can do as chargee is to appoint a receiver who could, in the name of Ostabridge, seek orders (1) to have the transfer set aside; (2) to have the transfer to Ostabridge registered; and (3) to give effect to the charge by an order for sale of the charged property. This entitlement to such relief was characterised by counsel for Global as a possible potential interest in land rather than a present interest and therefore not capable of protection by caveat.

13 Against this Mr Leslie, the solicitor for Valerica argues that Valerica has had since 9 November 1995 an equitable interest in the land by derivation and, as chargee over Ostabridge's rights against AMES is entitled to seek specific performance of the contract. He cites the judgment of Lord O'Hagan in Shaw v Foster (1872) LR5HL 321 at 349 where after referring to the nature of a uncompleted contract for sale it was said that: And it is farther very clear that the interest so vested in the purchaser may be the subject of charge or assignment, and that the sub-assignee or incumbrancer may enforce his rights against the vendor, at all events if he assumes the position of the vendee, and fulfils the duties and sustains the liabilities created by the contract. This statement was cited with approval by Hudson J in Naismith v Smith (1954) VLR 567 at 574 and I accept it as correct. But it is of no assistance to Valerica for the reasons I have stated. 14 For Valerica to be in a position to obtain any relief enforceable against the land the transfer to Global must be set aside. Global has an indefeasible title unless fraud with which it is associated can be established. To do that Ostabridge or its receiver in its name or perhaps Valerica in its name would have to bring an action against AMES and Global, and presumably the directors of those companies, seeking orders to set aside the transfer and for registration of its unregistered transfer. Whether or not other persons might claim interests which would require their joinder, it is impossible to say. Unless that action were successfully brought to conclusion Valerica would have no interest in the land and could obtain no relief against the land itself. Its possible right to have the transfer set aside so as to establish a proprietary interest in the land itself, would be a mere equity nor an equitable interest in land. 15 The purpose of caveats under Torrens Title is to give notice of interests in land and to prevent registration of dealings which would have the effect on registration of extinguishing those interests. A mere equity is not an interest in land capable of protection by caveat. Apart from anything else, in property law, relevant notice for priorities is notice of prior interests and not prior equities. I discussed this at greater length in Tanzone Pty Ltd v Westpac Banking Corporation [1999] NSWSC 478 at 45 to 48. 16 It follows that the caveat should be withdrawn.

1. Order that the defendant withdraw caveat 6943800 within seven days.

2. Order the defendant pay the plaintiff's costs of the summons. In action 2764/00

2. Order that the plaintiff's application for leave to lodge caveat 6943800 or a caveat in the same terms be dismissed.

3. Order the plaintiff pay the defendant's costs of the notice of motion and application.

5. Order the plaintiff file and serve a statement of claim by 15 January 2001.

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