Walker v Australian Forestry Holdings Pty Ltd

Lodgement of caveats

1. AFH, in its submissions, has referred to a succession of caveats lodged on the titles to one or more of the properties (the Walkers in their written submissions refer only to the caveat that was withdrawn on 3 May 2018 - see below).
2. The first caveat to which reference is made in AFH's submissions (at [33]-[35], referring to Mr Chestakov's affidavit and Ms Krizan's January 2018 affidavit respectively, that as noted above were not read on the applications before me) is one that is said to have been signed by Mr Walker prior to exchange of the December contracts on 21 December 2012 in favour of PHL Surveyors to secure their fees of $3,941. It is said that that caveat was not registered until 17 January 2013 and was not disclosed at the time of exchange of the December contracts.
3. The existence of that caveat apparently prevented registration for some time of the transfer(s) in relation to the properties sold to AFH. AFH maintains that, after unsuccessfully seeking that the Walkers pay the relevant invoice, it paid PHL's invoice on behalf of Mr Walker so that the transfer of the properties could be registered and that registration of the transfers then occurred on 28 August 2013 (see defendant's submissions at [34]-[36]).
4. AFH says that, two business days after AFH was registered on the respective titles as owner, Mr Walker lodged a caveat (caveat AH986861P), claiming an interest on the basis of a mortgage dated 4 March 2013. (A copy of that caveat was produced on subpoena by the Office of the Registrar-General.) AFH says that a lapsing notice was issued and that caveat lapsed. (See the defendant's submissions at [37], referring to Ms Krizan's January 2018 affidavit.) AFH says that on 14 December 2015, Mr Walker lodged a second caveat (said to be caveat no AK64870F) (the second Walker caveat), which caveat also subsequently lapsed (see the defendant's submissions at [38], referring to an affidavit sworn 18 February 2016 by Mr Walker himself at [3]).
5. In February 2016, a further caveat (effectively, a third caveat in the Walkers' interests) was lodged, being caveat no AK239679W (CB 21), claiming an interest by the Walkers as equitable mortgagees of the property comprising the titles Auto-Consol 15246-77, 328/755911, 326/755911, 329/755911 pursuant to the "unregistered written mortgage dated 4 March 2013". (AFH submits that the addition of Mrs Walker as caveator "appears to be a sleight of hand to get around s 74O of the Real Property Act", noting that Mrs Walker does not appear to have signed caveat AK239679W although she is named as caveator, and that her name is handwritten on the mortgage document and reference schedule attached.)

Proceedings

1. In 2015, the Walkers commenced proceedings in the District Court to recover the sum of $100,000 plus interest and costs (proceedings no 2015/00274395).
2. In about May 2016, a lapsing notice was served in relation to caveat AK239679W. On 2 June 2016, the Walkers commenced these proceedings seeking an order for the extension of the operation of that caveat. On 6 June 2016, Darke J made an order extending the operation of that caveat until further order of the Court.
3. On 16 August 2016, AFH filed a notice of motion seeking, among other things, that the order extending the caveat be vacated. That application was heard by Darke J on 19 August 2016 and was unsuccessful.
4. On 11 October 2016, AFH filed another notice of motion seeking that the caveat be withdrawn on such terms and conditions as the Court deemed appropriate. (The Walkers note that this notice of motion did not refer to the correct caveat, although it is not apparent that anything turns on this.) On 13 October 2016, Darke J granted AFH leave to file that notice of motion and listed it for hearing on 21 October 2016.
5. Relevantly, on that date, consent orders were made by his Honour in the following terms: 1. Upon the payment into Court of $180,000 by the defendant, the plaintiffs provide a withdrawal of caveat no AK239678W [sic; should clearly be AK239679W] to the defendant; 2. The payment in order 1 is security for judgment and for the Plaintiff's [sic] costs in proceedings currently in the District of NSW [sic] the subject of case number 2015/00274395; 3. No order as to costs.
6. On 2 December 2016, the District Court proceedings were transferred to this Court and the District Court claim now forms part of these proceedings. (When the matter came before me on 2 May 2018 - see below - I was informed that the reason the proceedings had been transferred to this Court was that an order was required for rectification of the contract under which the $100,000 is claimed to be owing. Presumably this is required in view of the fact that the special conditions on which the Walkers rely name the purchaser (and party obliged to pay the consultancy fee) as AFC not AFH.)
7. On or about 1 May 2018 (which the Walkers note was some 18 months after the consent orders were made in October 2016), AFH paid into this Court the sum of $180,000 (see Mr Bryett's affidavit sworn 4 June 2018 at [14]).
8. Prior to the payment of that amount into Court, AFH's solicitor had written to the Walkers' solicitor on 24 April 2018, advising that AFH would be paying $180,000 into Court and requesting confirmation that the Walkers would then provide an executed withdrawal of caveat (see defendant's submissions at [45]; affidavit sworn 2 May 2018 of Mr Loel at [5]).
9. AFH says that there was no reply to that letter, which precipitated an application before me in the duty list on 2 May 2018 by AFH for an order that the Walkers withdraw the extant (third Walker) caveat (in compliance with the consent orders made in October 2016).
10. The urgency of the application (as deposed to in the affidavits of Mr Loel read on that occasion) was said to arise from the fact that the sum of $180,000 which had been paid into Court had been procured by way of bridging finance; that the bridging finance was required to be repaid within a short time (or a penalty of some $20,000 would apply); and that a loan had been approved for $700,000 (out of the proceeds of which the bridging finance could be repaid), but this was conditional on the removal of the caveat from the relevant property titles by a stated time.
11. The application by AFH for withdrawal of the caveat was resisted by the Walkers, for whom an application was in effect made orally for the variation of the consent orders made in October 2016 in order to increase the amount required to be paid into Court (on the basis that the sum presently held in Court as security for judgment in these proceedings would no longer be sufficient in light of the costs which had by then been incurred and which were secured by the mortgage).
12. Having heard argument on that application, I concluded that the Walkers should be required to comply with the order that had been made (by consent) in October 2016, but indicated that it would be open to the Walkers to seek leave (after the withdrawal of the caveat) to lodge a further caveat (if they were so minded to do). Thus, on 2 May 2018, I ordered, pursuant to s 74MA of the Real Property Act, that caveat AK239679W be withdrawn. That order was complied with on 3 May 2018 (see Mr Bryett's affidavit at [16]).
13. On the basis that the necessity for the urgent application for withdrawal of the caveat had arisen due to the failure of the Walkers to make known their position in relation to the compliance or otherwise with the order to which they had consented in October 2016 (and by which they were bound), I ordered that the Walkers pay AFH's costs of the application heard on 2 May 2018.
14. This brings me to the present application, by which the Walkers seek leave pursuant to s 74O(2) of the Real Property Act to lodge another caveat in respect of the same estate and interest as the caveat that I had ordered be withdrawn. The basis for the making of that application (which I heard on 17 July 2018) is that which was foreshadowed on 2 May 2018, namely that, since the making of the consent orders in October 2016, the payment into court of the sum of $180,000 does not cover the moneys that may be found owing to the Walkers by AFH and are secured by the mortgage.
15. In that regard, I note that the mortgage on which the Walkers rely (the validity of which is disputed by AFH) provides that, in addition to the repayment of the $100,000 and interest at 11.5% per annum, the mortgagor (there named as AFC) is to pay all costs and expenses, including costs as between solicitor and client, incurred by the Walkers in consequence or on account of any default (see cl 5 of Memorandum Q860000 annexed to the affidavit sworn by Mr Bryett). Mr Bryett has deposed (at [23]) that the amount potentially owing under the mortgage is: $100,000 for principal; $60,375 for interest as at 4 June 2018; $69,843.16 for costs incurred to 4 June 2018; and $41,257 as an estimate of future costs to be incurred.
16. For AFH, in resisting the grant of the leave now sought, it is submitted that it was in reliance on the October 2016 consent orders that it applied for and took out the loan of $700,000 (see the affidavit sworn 16 July 2018 of Ms Krizan at [3]; [44]); that lawyers representing the lender have advised that the lodgement of a further caveat by the Walkers would be considered by the lender as another party having an interest in the properties, which would be an event of default under the loan (see Ms Krizan's affidavit at [12]-[18]); and such a default would cause great prejudice to AFH (see Ms Krizan's affidavit of 16 July 2018 at [19]-[20]). The Walkers challenge those latter propositions (see below).

Relevant legal principles

1. There was no dispute as to the applicable legal principles on an application brought under s 74O(2) of the Real Property Act for leave to lodge a further caveat where a previous caveat claiming the same estate, interest or right has lapsed or been withdrawn.
2. The court must be satisfied that the claim to be entitled to lodge the caveat has or may have substance (Schibaia v Elias [2013] NSWSC 1485 at [47] per McDougall J) and approaches the application in a manner similar to that which it would undertake had the caveator applied for an interlocutory injunction to protect the interest (see Summit Acceptance Pty Ltd v Wild [2011] NSWSC 659 at [17] per White J, as his Honour then was; Xabregas v St George Bank Ltd [2017] NSWSC 200 at [59]; 18 BPR 36,885 per Darke J). However, additional discretionary considerations then arise (Summit Acceptance Pty Ltd v Wild (at [17])).
3. In De Meyrick v Dimitriou [2011] NSWSC 1291, Brereton J, as his Honour then was, said (at [5]-[6]): Pursuant to a notice of motion filed on 30 September 2011, the plaintiff now moves primarily for leave pursuant to s 74O to lodge a further caveat, in substantially the same form as the lapsed caveat. On such an application, considerations similar to those relevant to applications for interlocutory injunctions apply [Fitzgibbons v Shaftsbury [2011] NSWSC 525, (at [3])]. Primarily, they are whether the proposed further caveat has or may have substance; and considerations pertaining to the balance of convenience [Warner v Andrews [2011] NSWSC 956 (at [5] and [10])]. A determination that the caveat has or may have substance is a necessary but not sufficient condition for the caveat to be extended (s 74K), or for leave to be granted to lodge a fresh caveat (s 74O): the Court retains a discretion to order that the caveat not be extended, be withdrawn, or to refuse leave to lodge a fresh caveat if the balance of convenience favours such a course. In addition, on an application under s 74O, it will be relevant to understand the circumstances in which the earlier caveat lapsed, including whether permitting a new caveat to be lodged would cause detriment in those circumstances. This overlaps with the balance of convenience.
4. The caveator thus bears the onus of demonstrating that there is a serious question to be tried in the sense that there is a probability, sufficient in the circumstances to justify leave, that it is presently entitled to the interest claimed in the caveat (see Summit Acceptance Pty Ltd v Wild at [17]; Warner v Andrews [2011] NSWSC 956 at [5], [10] per Brereton J; Beecham Group Laboratories Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 622; [1968] HCA 1 per Kitto, Taylor, Menzies and Owen JJ).
5. If the caveator can successfully demonstrate this, it must then show that the injury it would likely suffer, if leave to lodge the caveat were to be refused, outweighs the injury that the registered proprietor would suffer if leave were to be granted (De Meyrick v Dimitriou at [5]). The "convenience" of the registered proprietor in being able to deal with the land must be balanced, among other things, against the "inconvenience" of the caveator's claim losing priority to any interest which might be created by the registered proprietor (Redman Construction Pty Ltd v Tarnap Pty Ltd [2005] NSWSC 1011 at [31]; 12 BPR 23,395 per Brereton J).

Is there a serious question to be tried as to the existence of the claimed caveatable interest?

1. Although a caveator must do more than satisfy the court that its claim is not frivolous, such a standard provides a "relatively low" threshold (see Swansson v Pratt [2002] NSWSC 583 at [25]; 20 ACLC 1594, per Palmer J) and that test will generally be met unless there is no real or sensible prospect that the plaintiff is presently entitled to the interest it claims (Beecham Group Laboratories Ltd v Bristol Laboratories Pty Ltd at 622-623).
2. In the present case, although AFH disputes the authenticity of the documents upon which the Walkers rely as establishing an interest as equitable mortgagees in the relevant lots, AFH appears for present purposes to accept that there is a serious question to be tried on that issue (though it argues that there is no strong prima facie case and that there are serious concerns about the Walkers' claim - see T 37.23 - hence labelling this as a neutral factor in the balancing exercise).
3. Certainly, at the ultimate hearing the trier of fact would not doubt be required to take account of the serious nature of the matters advanced by AFH as to the authenticity (or lack thereof) of the alleged mortgage. In Rejfek v McElroy (1965) 112 CLR 517 at 512; [1965] HCA 46 the High Court observed that: …The "clarity" of the proof required, where so serious a matter as fraud is to be found, is an acknowledgment that the degree of satisfaction for which the civil standard of proof calls may vary according to the gravity of the fact to be proved.
4. To similar effect, in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; 110 ALR 449 at 450, the majority of the High Court (Mason CJ, Brennan, Deane and Gaudron JJ) held that, although the standard of proof remains the balance of probabilities, where the matter to be proved involves fraud, "clear or cogent or strict proof" is required, this being a reflection of: … a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct.
5. In Telfer v Telfer (2014) 87 NSWLR 176; [2014] NSWCA 186, where the trial judge had accepted the defendant's contention that documents relied upon by the plaintiff were forgeries, Sackville AJA (with whom Macfarlan and Gleeson JJA agreed) said (at [72]): [T]he seriousness of an allegation of this kind should be taken into account by the trier of fact in determining whether the proponent of the document has made out his or her case on the balance of probabilities. That is so even though the proponent bears the onus of establishing the authenticity of the document on the balance of probabilities: Gawne v Gawne [1979] 2 NSWLR 449 at 454 per Glass JA (Reynolds JA agreeing). In the present case, the primary judge did not advert to the seriousness of the allegations made against Neil and Sandra or, in the words of Dixon J, the "inherent unlikelihood" that Neil would have forged the second codicil or knowingly propounded a forgery.
6. However, it is not necessary here to consider the application of those principles in the present case. Annexed to Mr Bryett's affidavit sworn 4 June 2018 are copies of the front page and what it is claimed constitute the special conditions of two contracts for the sale of land dated 4 March 2013, and a copy of what the Walkers contend is an unregistered mortgage executed on that date. On their face, such documents, if genuine, would create a present entitlement in the Walkers to an interest in the relevant properties as equitable mortgagees. I accept that the Walkers have established a serious question to be tried as to their entitlement to the interest for which they contend.

Balance of convenience

1. I note that the strength of a plaintiff's case is not considered in isolation from the balance of convenience and will often be an important factor to be to be weighed in the balance (see Samsung Electronics Company Ltd v Apple Inc (2011) 217 FCR 238; [2011] FCAFC 156 at [67] per Dowsett, Foster and Yates JJ). Hence, a strong case for final relief may warrant leave to lodge a further caveat even if the balance of convenience may, in other respects, barely favour the caveator. Conversely, a weaker case for final relief may support granting leave if the balance of convenience clearly weighs in favour of the caveator (Farahbakht v Midas Australia Pty Ltd [2006] NSWSC 1323 at [2] per Brereton J).
2. The strength of the caveator's case must be viewed in the light of the opportunity to secure evidentiary material and the extent of the material produced at that point in the proceedings (De Mestre v AD Hunter Pty Ltd (1952) 77 WN (NSW) 143 at 145 per Hardie AJ). In Hanson Construction Minerals Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240, Sackville AJA said (at [84]): … [D]epending on the strength or weakness of the caveator's case and other considerations material to the balance of convenience, it will not necessarily be 'rare' for an order to be made for the withdrawal of a caveat, even if there is a potentially adverse impact on the caveator's claimed priority.

AFH's submissions on balance of convenience

1. In its submissions, AFH argues that three matters are relevant to the assessment of the balance of convenience: the strength of the Walkers' prima facie case; the circumstances in which the third Walker caveat was lapsed (or, strictly speaking, withdrawn); and the prejudice which would be suffered by AFH if a further caveat were to be permitted to be lodged.
2. As to the first, AFH argues (see its written submissions at [13]) that there is "a great deal of suspicion and confusion surrounding the execution of documents on 4 March 2013". AFH accepts that the determination of that issue will be dependent (see T 37.16-37.21) on the expert evidence relating to the documents, together with the cross-examination of witnesses and the assessment of the credibility of those witnesses in the proceedings.
3. AFH also argues that the Walkers' case is beset by other problems, namely, their claim that Mr Walker was never obliged to perform any services in relation to the consultancy but rather, that the "consultancy" referred to in the special conditions was simply a device to reduce the price of the property for stamp duty purposes (referring to the pleading at the further amended statement of claim filed 6 December 2016 at 10; [11]). AFH's case is that the consultancy arrangement was a part of the December contracts but formed no part of the 4 March 2013 contracts - as the services that Mr Walker might have been able to provide had already, by that time, been shown to be worthless; but in any event AFH argues that if the Walkers are correct on this aspect of the matter, the likelihood is that the court will decline to grant any relief on grounds of public policy (referring in this regard to what was said in Holdcroft v Market Garden Produce Pty Ltd [2001] 2 Qd R 381; [2000] QCA 396 at [26] per Thomas JA (with whom Pincus JA and Ambrose J agreed)). AFH submits that if the Court were to accept the Walkers' allegation that the agreement to convert $100,000 of the sale price into a "consultancy fee" was designed to reduce the stamp duty payable on the transaction, then the contact would be irretrievably tainted with illegality and the Court would properly exercise its discretion to decline to assist the Walkers in its enforcement.
4. Leaving aside the criticism raised for the Walkers in oral submissions as to the submission for AFH that AFH's request for four additional contracts was some form of device to secure stamp duty grants (i.e. that AFH's conduct would not be condoned by the Court), when considering the weakness or strength of the Walkers' case for the purpose of assessing the balance of convenience I am left with the difficulty that there is a stark difference between the respective factual contentions of the parties (see Hanson Constructions Minerals Pty Ltd v Roberts at [85]) which it is impossible to reconcile at this stage in the proceedings. It does not in my view advance the assessment of the balance of convenience to advert to what AFH describes as the "suspicion and confusion" surrounding the documents propounded by the plaintiffs. I proceed on the basis that there is a serious question to be tried, but that no conclusion can presently be drawn either way as to the strength or weakness of the Walkers' case.
5. As to the second matter (the circumstances of the withdrawal of the previous caveat), AFN emphasises that the Walkers were at the relevant times aware of the pendency of the October 2016 orders (noting that on 26 March 2018, their counsel referred to AFH's failure to pay the stipulated money into Court in submissions as to concerning why AFH should not be allowed an extension to serve its expert evidence), yet the Walkers did nothing to have those orders varied or set aside.
6. AFH maintains that it acted in reliance on those October 2016 orders when it arranged for finance. Ms Krizan has deposed that, had she known that the Walkers could put another caveat on the properties, she would not have paid the $180,000 into Court at that time, but would have made arrangements and would have sought to adjust the orders to provide for future securities and would have obtained a bigger loan to cover the costs of the court proceedings (see the affidavit of Ms Krizan sworn 16 July 2018 at [44]).
7. As to the third of those matters (the question of prejudice), AFH submits that a further caveat would be an event of default under the terms of the loan facility documents and that a default would be "ruinous" to AFH, referring to the matters to which Ms Krizan deposes in her 16 July 2018 affidavit (including as to the lodgement of a further caveat on title amounting to a potential breach of AFH's agreement and the feared impact of this on future lending).

The Walkers' submissions on balance of convenience

1. As to the strength or weakness of their case, the Walkers maintain that there is prima facie a security interest in the properties sufficient to support the lodgement of a caveat by them (noting the provisions of s 74F(1) of the Real Property Act and what was said in Composite Buyers Ltd v Soong (1995) 38 NSWLR 286 at 288 by Hodgson J, as his Honour then was, namely that "any equitable interest in land is sufficient to support a caveat, even if the caveator does not have a registrable instrument, and even if the caveator may not be entitled to an instrument which will lead to a recording in the register").
2. As already noted, I accept that there is a serious question to be tried on this issue, but I consider the strength or weakness of the Walkers' case to be a neutral factor here.
3. As to the circumstances in which the previous caveat came to be withdrawn, the Walkers argue that the October 2016 consent orders do not prevent them from seeking leave to lodge another caveat and that this should not be implied. I agree. However, that of itself does not address the difficulty posed for AFH of reliance on the agreement for withdrawal of the caveat, in proceeding to arrange funding for the purposes of payment into Court, if immediately thereafter that funding is put at risk by reason of an application of the kind now made.
4. The force of AFH's claim on the issue as to balance of convenience seems to me to be as to the matters raised by Ms Krizan as going to the prejudice that may be suffered by AFH if leave is granted for the filing of a further caveat.
5. In that regard, there were a number of objections raised by the Walkers to Ms Krizan's affidavit evidence on the present application.
6. First, that there was no evidence that she is a current director, shareholder or employee of AFH or has authority to give evidence for it in the proceedings. That objection ultimately went nowhere in the face of evidence that Ms Krizan is a director of the company (the confusion arising, as already noted, because she is named as a director on ASIC records as Nada Kovacevic, that being her married surname, but for whatever reason has used her maiden name for the purposes of the affidavit evidence in these proceedings).
7. Second, that there was no evidence that the loan agreement exhibited to Ms Krizan's affidavit (on which the prejudice argument for AFH is largely if not wholly premised) has been stamped. In that regard, Counsel for the Walkers was not able to enlighten me as to the liability or otherwise for stamping of the loan document (it being a document executed in Queensland). In those circumstances I accepted an undertaking from AFH to the Court to pay any stamp duty payable on the document (and I will, on the handing down of these reasons, seek confirmation as to the steps taken in compliance with that undertaking).
8. The next complaint by the Walkers was that, insofar as Ms Krizan's evidence is that AFH has borrowed money to develop the Braidwood property, there is no proper evidence of the costs of such development. In that regard, it is said that there is no explanation of who created the document headed "Australian Forestry Holdings Pty Ltd - PROJECT OUTLINE - Stages 1 & 2" (appearing at pp 192-198 of Exhibit NK-3 to Ms Krizan's affidavit of 4 June 2018, that exhibit being admitted as Exhibit 2 on the present application) as to the costs associated with development of the property.
9. There was no answer to a call made by Counsel for the Walkers on a notice to produce issued in advance of the hearing of the present applications calling for: a copy of any document showing the income earned by the defendant from the harvesting of the pine plantation as set out at [13] of Ms Krizan's 4 June 2018 affidavit; a copy of any document from AFH notifying Lehne Investments Pty Ltd (the lender) of the mortgage which is Annexure A to Mr Bryett's 4 June 2018 affidavit; a copy of any document from the lender to AFH providing written consent to the mortgage; and a copy of any document from AFH notifying the lender of the these proceedings (i.e., the claim arising from the further amended statement of claim and the amended notice of motion seeking leave to lodge a further caveat). Counsel for AFH did, however, inform me that documents in answer to at least the first of those matters were exhibited to the affidavit of Francis Kovacevic sworn 18 December 2017 in the substantive proceedings (referring to an Exhibit FK1 at pp 101-145).
10. In response to the submissions made for AFH to the effect that the lodgement of a further caveat: will jeopardise its defendant's current loan conditions; may place AFH in default under the loan agreement; or may otherwise give rise to difficulties in relation to its financing arrangements and be financially ruinous, the Walkers make a range of submissions.
11. First, they argue that the mortgage is already in existence and is an estate or interest affecting the properties. It is submitted that the lender presumably has knowledge of the mortgage (I assume by reference to the reference to the mortgage in the caveat) and that the fact that it is not registered on title "would send a clear message that the plaintiffs could seek to lodge another Caveat".
12. Second, that there is no evidence of what specific provision in the loan agreement AFH relies on to assert that another caveat could trigger a default (something to which AFH responded in more detail in oral submissions).
13. I note that Ms Krizan referred in her affidavit sworn 16 July 2018 to a document called a "General Security Interest" document, which was at pp 112-150 of Exhibit "NK-3" to her 4 June 2018 affidavit - Exhibit 2. That document provides for its execution as a deed by AFH (as "grantor") and the lender Lehne Investments Pty Ltd (as "secured party"). Ms Krizan referred to cl 1.1 of that document, which contains a definition of "potential default", that being defined as "any event, thing or circumstance which would become a Default with the giving of notice, the making of a determination under a Finance Document or the passage of time (or any combination of those things)". Ms Krizan also refers to cll 3.2, 6.2, 6.3(a)(i) of the "General Security Interest" document; and to her concern, following discussions with the lawyers for the lender, as to a further caveat giving rise to a potential event of default.
14. The argument for the Walkers, in effect, seems to be that there is already a breach of the contract of sale agreement with Mr Walker by reason of the entry into the loan agreement without his consent (see T 30.35); and hence a breach of the representation and warranty by the borrower contained in the loan agreement at cl 8.1(d)(ii) (there referring to the loan agreement between AFH and Lehne Investments Pty Ltd appearing at pp 27-60 of Exhibit 2) (by reason of the fact that execution delivery and performance of the loan agreement violates or conflicts with the contract for sale) (see T 31.6-10). (In that regard, it is submitted that an undertaking given to the Court by Mr Walker on 19 August 2016, to consent to the registration by AFH of a mortgage over the property provided it secured an amount of no greater than $1.15m, was not relevant to this alleged breach in circumstances where the consent was given in a different context and not to the loan agreement the subject of the $700,000 loan advance - see T 35.3.)
15. The submission for the Walkers is that insofar as AFH is arguing that lodgement of a further caveat will be in breach of the loan agreement, the Walkers will argue that AFH is already in breach of the loan agreement (and, as I understand it, that no weight should thus be placed on a further potential breach). Reference was also made on this basis to cll 8.1(e) and (g), for the submission that there are already multiple breaches of that agreement.
16. The argument put for the Walkers was that there was nothing in the loan document that prevented a caveat from being lodged or had the result that AFH would be in breach of the agreement (see T 33.24). It was submitted that the main clause that AFH relies upon (cl 6.1, which refers to "otherwise deal with any of the secured property") does not apply since lodging a caveat would not be dealing with the property; similarly, that cl 6.3 (that the grantor must comply with the terms of each security interest binding on it) and cl 6.3(a)(i) (not to create or permit to exist any security interest over any secured property) are not engaged where the lodgement of a caveat would not be a creation of any security interest, and that AFH could not be said to be permitting a security interest to exist. In that regard it was submitted that the definition of security interest would not include a caveat in this document and reliance on the General Security Interest document was misplaced.
17. Third, the Walkers argue that whether the lender elects to do no further business with AFH is a matter of conjecture and irrelevant to the motion; and that there is no evidence to support this other than the unsubstantiated opinion of Ms Krizan.
18. Fourth, they argue that AFH has provided no evidence of what irreversible detrimental effect on its operations a further caveat may have (and, albeit being in the best position to provide such evidence, has failed to do so).
19. Fifth, the Walkers note that AFH has not adduced any evidence of its financial position (including that it has adduced no evidence of what was earnt from the harvesting of pine trees on the properties between 2014 and 2016 and what happened to that money); and has failed to adduce any evidence that shows there is sufficient equity in the properties to cover any amount found owing by AFH to the Walkers.
20. The Walkers submit that the balance of convenience lies in granting them leave to lodge another caveat on the basis that the existing payment into Court of $180,000 is not sufficient to cover the principal, interest and costs to be incurred by them and that, without another caveat: AFH is free to sell the properties and has indicated an intention to do so (Ms Krizan's affidavit sworn 16 July 2018 at [5]); there is no evidence of the value of the properties and what equity remains in the properties; AFH could divest itself of the funds raised by the sale of the properties; and the Walkers, if successful in the main proceedings, could be faced with enforcing a judgment against an impecunious defendant.
21. It is submitted that AFH has not put forward any genuine reason to refuse leave being granted for the Walkers to lodge another caveat.

Conclusion as to balance of convenience

1. As indicated above, the factor that I consider weighs against the grant of leave to lodge a further caveat is the potential prejudice to the financing that AFH put in place in order to be in a position to make the payment into Court that was required for the caveat to be withdrawn in accordance with the consent orders put in place by Darke J. True it is that those consent orders did not preclude the making of a subsequent application for the lodgement of a new caveat (nor for the making of an application to vary, albeit not by consent perhaps, the regime then put in place by way of security for any judgment). However, there was no intimation by the Walkers (through their solicitors) when confirmation was sought as to the withdrawal of the caveat on 24 April 2018 (prior to the payment into Court) that they would be seeking an increase in the amount to be held in court as security for any judgment (and future costs) as is presently the case. Nor was there any regime put in place in that regard at the time the consent orders were agreed.
2. In submissions, as noted above, Counsel for the Walkers raised issues as to the claim by Ms Krizan that the lodgement of a caveat would potentially result in an event of default under the loan agreement. I accept the Walkers' submission that the lodgement on AFH's title of a caveat against dealings under s 74F(1) would not necessarily place AFH in breach of cll 6.1 or 6.3 of the General Security Interest document because it would not properly be characterised as the creation by AFH of a "security interest" in the secured property within the meaning of the loan agreement. The recording of a caveat against dealings as provided for by s 74F(1) is properly characterised, not as a grant of a security interest in or over the land by the registered proprietor, but as the recording of a "statutory injunction" which warns the Registrar‑General of the caveator's claim and ensures that the caveator shall receive notice of proposed dealings with the land by the registered proprietor (J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1975) 125 CLR 546 at 552; [1971] HCA 57 per Barwick CJ).
3. However, AFH's submissions as to the balance of convenience were not limited to the possibility of AFH being placed in breach of its agreements with the lender. Rather, AFH's submission in relation to the balance of convenience encompassed the risks associated with the withdrawal of funding by the financier and other commercial consequences. In that regard, the relevance is perhaps not so much as to the likelihood that an event of default would be established but the potential for this to be raised by the lender (as has been foreshadowed by the lender's lawyers).
4. As to the submission that there are already breaches by AFH of warranties in the loan agreement, while this might give rise to a claim for damages for breach of the representations or warranties in cl 8 of the loan agreement (assuming any damage had been suffered), I am not persuaded that this is necessarily an event of default under the loan agreement. In any event, insofar as the nub of the submission appeared to be that I should not be concerned that permitting lodgement of a further caveat would cause a breach of the loan agreement because there are already multiple breaches of the loan agreement, that submission does not commend itself to me. To the extent that the lender has not acted in relation to any other breaches (of which it is aware or has so far been notified), that says nothing as to whether or not it might take a different stance if there were to be a fresh caveat lodged - and the indication from the lender's lawyers to Ms Krizan suggested that there is a genuine basis for concern in that regard.
5. I accept the criticism by the Walkers that the claimed potential prejudice to any future lending by this lender (or other lenders) is mere speculation; that the evidence as to the possible costs associated with the development of the property and as to the current value of the property is only general in nature; and that there is no (or little) evidence of the current financial position of AFH (other perhaps than what could be inferred from its evidence as to the inability to fund the $50,000 in forensic expert's fees). However, on balance, I am concerned that there is potential for the financing arrangements to be placed at risk if a further caveat is lodged; and, in the particular circumstances where the Walkers played a key role in engendering AFH to proceed to obtain that finance (by giving their consent in October 2016 to court orders for the withdrawal of the caveat), I consider that the balance of convenience lies on the side of the registered proprietor.
6. In this regard I note that a caveat does not represent an interest of any kind in the subject property: as adverted to above, it is merely a device for the purposes of warning the Registrar-General of the existence of the claim and of preserving the status quo to give a person who claims an unregistered interest time to assert that interest (Griffiths v Falck [2008] NSWSC 998 at [48]). The difficulty here is that intervening events mean that the status quo is no longer able to be preserved. There would be, in my view, a degree of artificiality in this Court granting relief to preserve the status quo when there has been an intervening period, by the consent of the parties, when no caveat was on the title, during which time the registered proprietor has entered into a loan agreement - which may now, at least commercially, be jeopardised if a fresh caveat is lodged. The consent of the Walkers to that course (at a time, I note, when they were represented by legal advisors) is, to my mind, a particularly compelling consideration, since ordinarily 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" (Iaconis v Lazar [2007] NSWSC 1103 at [22]); that is to say, a caveat is not an instrument for bargaining.
7. Finally, as to the concern raised by the Walkers as to the potential for them to be faced with a judgment against an impecunious defendant and that AFH is intending to proceed with the sale of properties in the development (with a refinancing obligation in or around mid-2019), in essence that is an argument for a security for costs application (not that I am encouraging any further interlocutory applications) and it seems to me to illustrate the disproportionality of the costs apparently already incurred in the present interlocutory stoushes. The amount sought to be recovered is $100,000 (plus interest and costs). It is suggested that, with the estimate of future costs, the amount now in issue is around $271,000. On any view of things, the sum of $180,000 is already secured by the payment into Court. Leaving aside the component of the sum of $271,000 that relates to future anticipated costs, the spectacle that currently faces the Court is that increasing costs are being incurred in interlocutory proceedings in circumstances where there is a relatively small potential shortfall at this stage in the sum already secured.
8. There is a very real sense in which I consider that it can be said that the Walkers had their opportunity to preserve the caveat when the issue first arose before Darke J; they chose to agree to a consensual regime that did not provide for supplementation of the amount paid into Court; and, had there not been delay in the conduct of the proceedings (delay to which at the very least they have contributed in the apparent lack of co-operation in confirming what are the actual documents - original or otherwise - on which they intend to rely), the proceedings might have well been disposed of with far more expedition and less cost.
9. Balancing all the above considerations, I am of the view that leave should not be granted for the lodgement of a further caveat by the Walkers over the Braidwood property.

AFH's application for costs of the motion for leave to adduce expert evidence

Background to this application

1. The background to the application by AFH for costs of its interlocutory application for leave to adduce expert evidence (namely, the evidence of a forensic expert going to the issue of the authenticity of the relevant documents) is as follows.
2. Orders were originally made for AFH to serve its expert evidence by 22 January 2018. That date was extended, first to 7 March 2018 and then to 18 May 2018. On 26 March 2018, orders were made by the Registrar that AFH was to serve its expert evidence by 18 May 2018 and that AFH could not rely on any expert evidence served after that date except by leave of the Court.
3. By notice of motion filed 17 May 2018, AFH sought a further extension of time to file its expert evidence. That motion was returnable for directions in the applications list before Parker J on 5 June 2018. The Walkers say that on that occasion they indicated to his Honour that they did not oppose the order seeking an extension of time. That was not the understanding of Counsel appearing for AFH on the present application, though he was not present when the matter was before Parker J on 5 June 2018. Nor was that apparently the understanding of AFH's solicitors (conveyed without demur from the Walkers' solicitors), namely that "your clients' Counsel indicated that he thought that the technical objections that had been taken to the Subpoenas … might be capable of being withdrawn, to the extent necessary, to provide the Defendant's expert with the relevant documents" - see letter dated 8 June 2018 annexed to the affidavit sworn 17 July 2018 of Rhys Matthew Williamson. There is, of course, a difference between withdrawal of an objection to subpoenas and consent to an extension of time for the filing of expert evidence.
4. Without a transcript, it is not possible to take this issue further. For present purposes, assuming that an indication of non-opposition to the extension of time was given to his Honour on 5 June 2018, it seems surprising that orders would not have been made there and then. In any event, there seems still to have been some ongoing communication between the parties as to the documents necessary to be provided to AFH's expert until finally, by the letter of 22 June 2018, documents were provided to AFH's expert with confirmation that the Walkers' solicitors did not hold originals of various documents (including the disputed special conditions page).
5. An order extending the time for the service by AFH of expert evidence was ultimately made by consent on 26 June 2018, extending the time for service of that evidence to 24 July 2018.

AFH's submissions

1. AFH submits, in essence, that it should have its costs of the motion for leave to extend the time for it to serve its expert evidence: first, because the application was at first resisted and only later (after 22 June 2018) consented to by the Walkers, this being said to amount to a "capitulation", and that costs should follow the event; and, second, because of the delay in the provision by the Walkers of the original documents that had been sought by AFH.
2. In that regard, the chronology of events set out in Mr Loel's two affidavits filed in support of the respective extensions of time sought in March and then in May 2018 is as follows.
3. On 16 January 2018, a subpoena was issued at the request of AFH addressed to the Office of the Registrar-General seeking the original of caveat (AH986861P) lodged by Mr Walker, and the original of a document referred to in a notation on the foot of page one of the caveat to as "lodgement evidence" (see Mr Loel's affidavit of 7 March 2018 (his first affidavit) at [6]).
4. On 12 February 2018, AFH was ordered to file and serve its expert evidence by 7 March 2018 (Mr Loel's first affidavit at [3]).
5. On 13 February 2018, Mr Loel contacted a particular forensic expert enquiring as to her availability to provide a report within that timeframe ([4]). On the same day, following receipt of an email from the proposed expert, Mr Loel wrote to the Walkers' solicitor: enclosing a copy of the subpoena issued to the Registrar-General and documents produced in response thereto; referring to an email dated 18 December 2017 in which it was said that Mr Bryett had confirmed that he would forward the original documents returned to him by his expert to AFH's expert; and requesting the provision urgently of a list of the original documents held by Mr Bryett and that those documents be sent to the named forensic expert (Mr Loel's first affidavit at [6]).
6. On 15 February 2018, Mr Loel received an email dated the previous day from Mr Bryett providing a list of documents (see at [7]), which I note included a number of documents described as "copy only", being the front page of various contracts (the original contracts, the contract conditions, and four contracts dated 4 March 2013), as well as two documents not described as copy only, but again only being the front page (those being two front pages of contracts dated 4 March 2013).
7. Mr Loel took issue with the accuracy or completeness of the list, indicating what documents he believed were missing from the plaintiffs' list of documents (see at [8]); referring to earlier correspondence in which he said Mr Bryett had confirmed that he had the original copies of the two contracts dated 4 March 2013 and the original mortgage document stamped 19 February 2017; and enclosing a notice to produce dated 18 May 2017 in response to which the Walkers' lawyers had indicated that they held the originals of those documents.
8. There was then an exchange of correspondence from 16-21 February 2018 as to the whereabouts of the originals of the various contracts and the mortgage (see Mr Loel's first affidavit at [9]-[18]), it being confirmed by letter dated 20 February 2018 from the Walkers' solicitors that they held the original mortgage and that the front pages of the 4 March 2013 contracts were "the originals" (see CB 277); in response to which AFH's solicitor pointed out, as surely cannot be disputed, that the front page does not constitute the contract (see CB 278). The copy of the alleged "original mortgage", as stamped in February 2016, appears at CB 14; and an unstamped copy appears at CB 279. Both those copies bear handwritten annotations adding the name of Mrs Walker, whose signature does not appear on the document.
9. In late February 2018, Mr Loel received instructions to brief an alternative expert (Mr Chris Anderson) (see his first affidavit at [23]), in circumstances where the fees estimated by the first proposed expert were $50,000. Mr Anderson was advised as to the making of the "guillotine" order in relation to the preparation of the expert evidence (see Mr Loel's affidavit of 17 May 2018 at [7]). Arrangements were made for the documents held by the first expert to be forwarded to Mr Anderson (see Mr Loel's 17 May affidavit at [8]-[14]).
10. Mr Loel has deposed that on 30 April 2018 he was informed by Ms Krizan that Mr Anderson had told her that further documents were required to complete his report and, in particular, that he could not complete his report without being provided with an entire copy, whether photocopy or original, of the 21 December 2012 contracts and the complete 4 March 2013 contracts, including the standard terms and Annexure A (see Mr Loel's affidavit at [15]). Mr Loel deposed that until then he had understood that the Walkers' lawyers had provided the complete contracts to Mr Anderson.
11. Mr Loel himself spoke with Mr Anderson on 10 May 2018 and received similar information (see [22]). Relevantly, Mr Anderson advised by letter dated 11 May 2018 that if he had had all the material by 28 April he could have completed the examination "except for the latent indentation examination" (by 18 May 2018) (CB 429). He confirmed that he required the original or best copy available of certain documents "not just any copy of them".
12. On 11 May 2018, subpoenas were issued at the request of AFH to each of the Walkers, their former solicitor and their current solicitors ([25]), seeking the production, among other things, from the Walkers' current solicitors of: all documents, original or copied, containing the signature of Sergeui Chestakov "whether it be and [sic] original signature or a copy of an original signature" and the complete original contracts, or any photocopies of them, signed on 4 March 2013 including the standard terms pages and Annexure A (CB 435-437).
13. The Walkers' former solicitor confirmed, by letter dated 14 May 2018, that he did not hold any documents. The Walkers' current solicitors, by letter dated 24 May 2018, responded (singularly unhelpfully in my opinion) by asserting that the subpoena addressed to "A R Walmsley Solicitors & Co" was not addressed to a legal entity; that the subpoena addressed to their clients was in breach of r 33.3(2) of the Uniform Civil Procedure Rules 2005 (NSW); drawing attention to the disclosure provisions of Practice Note SC Eq 11 and inviting the withdrawal of the subpoenas served "otherwise an application will be made to have them set aside" (see Exhibit 4). (Pausing here, that response, in circumstances where the authenticity of the relevant documents and the whereabouts of the original documents had been in issue for some time, is to my mind not what is expected of solicitors as officers of this Court bearing in mind the overriding mandate in s 56(1) of the Civil Procedure Act 2005 (NSW) to facilitate the just, quick and cheap resolution of the real issues in dispute.)
14. The matter came before Parker J for directions on 5 June 2018 (see affidavit sworn 17 July 2018 of Mr Williamson at [10]); and on that occasion AFH's motion was stood over to 26 June 2018.
15. By email dated 6 June 2018, AFH's solicitor advised that his client's motion listed for directions on 12 June 2016 would "be completely resolved" if there were to be produced to his client's expert the "actual version" of the attached documents that the plaintiffs proposed to tender at the trial (CB 462).
16. On 7 June 2018, Mr Bryett responded that he and his clients did not have any original contracts or parts thereof and that all original pages were with the expert already (see Mr Williamson's affidavit at [12]). Further email correspondence ensued from 8-9 June 2018 (see Mr Williamson's affidavit).
17. By letter dated 22 June 2018, the Walkers' solicitors forwarded to Mr Anderson various copy documents, confirming in respect of various of the documents that no original was held (including the special conditions to the 4 March 2013 contracts).
18. By reference to the above chronology of events, AFH submits that the Walkers' solicitors had originally represented that they held certain original contracts from 4 March 2013; and it transpired only later that they only held original front pages of those contracts and copies of the documents which the Walkers allege form the balance of those contracts. AFH says that its copies of the 4 March 2013 contracts do not contain the special conditions in "Annexure A" and that, insofar as the contracts on which the Walkers rely do contain those conditions, AFH alleges that those special conditions were "later lifted from the 21 December 2012 contracts and inserted into the 4 March 2013 contracts".
19. AFH says that it has been seeking (since February 2018) that the Walkers provide its forensic document expert with the documents on which they will be relying on at trial and that the last of those documents were only provided on 22 June 2018. It maintains that the delay in service of its expert evidence lies at the Walkers' feet; and that the Walkers ultimately capitulated to the substantive relief sought by it and, on 26 June 2018, accepted orders for the service of the defendant's expert evidence. Thus it submits that costs should follow the event.

The Walkers' submissions

1. In response to AFH's application for costs, the Walkers rely on: their solicitor's letter dated 24 May 2018 "informing the defendant of the defects in the subpoenas purportedly served by the defendant"; an email sent on 30 May 2018 from Mr Bryett to Mr Loel regarding the return of the subpoenas (to the effect that there was no appearance on behalf of AFH; no orders were therefore made; and that Mr Bryett considered the subpoenas "now spent"); the email sent on 6 June 2018 regarding documents sought by AFH's expert (referred to above); and the letter from their solicitors to Mr Anderson on 22 June 2018 sending the documents requested.
2. The Walkers submit that AFH should be ordered to pay their costs of the motion for the following reasons: that AFH was never in a position to comply with the order made on 26 March 2018 (i.e., to serve its expert evidence by 18 May 2018); that the subpoenas were "purportedly" served on 11 May 2018, only 7 days before the expert evidence was due, and returnable on 30 May 2018, 12 days after the expert evidence was due; that, even if the documents sought in the subpoenas were produced immediately, the expert had advised Mr Loel that he required 30 days to prepare his report, well beyond the deadline of 18 May 2018; that the subpoenas were defective, and that Mr Loel was informed of the defects and did not respond thereto; that there was no appearance for AFH at the return of the subpoena and AFH took no further steps in seeking documents from the Walkers until 6 June 2018; that on 6 June 2018, Mr Loel sent an email indicating the documents AFH's expert required; and that Mr Bryett responded by letter dated 22 June 2018 and provided the documents sought by AFH's expert.
3. It is submitted that no reason has been provided as to why AFH did not seek documents from the Walkers prior to 11 May 2018, considering the last orders for service of the defendant's expert evidence were made on 26 March 2018.

Determination

1. Once the "guillotine" orders were made, and once it was apparent that the 18 May 2018 deadline could not be met, it would have been necessary for AFH to make application for leave to adduce the expert evidence whatever the stance adopted by the Walkers to that application, and it would appear (from the chronology outlined above) that by the time Mr Loel understood that original documents had not been provided to AFH's forensic expert (on 30 April 2018), it was already too late for the expert to have delivered his report within the timeframe set by the Registrar (even though requests in relation to the original documents had been made as early as February 2018).
2. However, this was not a case where the Walkers adopted a passive stance to the application for an extension of time. It would seem that the Walkers, through their lawyers, took issue with the attempts made by AFH, through the subpoenas issued by it, to ascertain the whereabouts of original documents; and that there was difficulty in obtaining from the Walkers confirmation as to the actual documents on which they would be seeking to rely. Therefore, although an application to the Court would have been necessary in any event, I would infer that the costs of the application for an extension of time were likely to have been increased (and certainly not minimised) by the resistance seemingly shown by the Walkers in response to that application. As already adverted to, it is by no means clear that unambiguous consent was given to an extension of time when the matter first came before Parker J for directions.
3. In the circumstances, I certainly would not order that AFH pay the Walkers' costs of an application that clearly would not have been necessary had the position articulated by the Walkers' solicitors on 7 June 2018 been made clear at the outset (or, perhaps more relevantly, had it been made clear when the request was first made in February 2018 that the actual documents to be tendered at trial would not include complete copies of the December contracts or the 4 March 2013 contracts; or any documents that contained original signatures on the special conditions page). I accept that by the time the subpoenas were issued it is likely that it was already too late for the deadline for expert evidence to be met, but I do not consider that the stance taken in relation to compliance with the subpoenas issues by AFH reflects well on the legal profession. Moreover, the disproportionality between the amount in issue and the costs no doubt thus far incurred on interlocutory stoushes of this kind is deplorable.
4. I do not consider that costs should follow the event on the basis of a complete capitulation by the Walkers (as was submitted by AFH), but I consider that the appropriate course (as foreshadowed during the hearing of the application) is to order that the costs of the application for an extension of time to serve expert evidence should be the defendant's costs in the cause and I will so order.

Conclusion

1. For the reasons above, I make the following orders: 1. Dismiss with costs the application by the plaintiffs for leave to lodge a further caveat over the land comprising the Braidwood property (namely, the land contained in certificates of title folio identifiers 328/755911, 326/755911, 329/755911 and Auto Consol 15246-77) claiming the same estate or interest as that set out in an earlier caveat (AK239679W) which was withdrawn on 3 May 2018. 1. Order that the costs of the application by the defendant for an extension of time to serve its expert evidence be the defendant's costs in the cause.

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: 12 October 2018