Weller v Williams [2010] NSWSC 716 | Case summary

2010/41618 HERBERT HUGO WELLER v BARBARA LORRAINE WILLIAMS & ORS JUDGMENT 1 HIS HONOUR: The first and second defendants are the registered proprietors of a property at Kurrajong (the Property). During the period from July 2003 to November 2007, they entered into various fee agreements with the plaintiff, who is a solicitor, in relation to legal services to be provided by him to them. It was a term of those fee agreements that the first and second defendants would give the plaintiff a charge over property that they owned to secure payment of the plaintiff's fees and that the plaintiff was entitled to lodge a caveat on the title of any real property that the first and second defendant owned in relation to that charge. The Property was subject to a mortgage in favour of Permanent Mortgages Pty Limited (Permanent Mortgages) dated 6 March 2008. 2 In or around June 2009, the first and second defendants agreed to sell the Property to Mr and Mrs Xerri. The third defendant (the Bank) agreed to provide finance for the purchase and, on 17 June 2009, Mr and Mrs Xerri executed a mortgage in favour of the Bank over the Property. 3 Settlement of the sale to Mr and Mrs Xerri occurred on 21 September 2009. At that time, the Bank's agent at settlement was provided with a certificate of title for the Property and a transfer deed in the appropriate form together with a discharge of the mortgage granted by the first and second defendants to Permanent Mortgages. 4 On 21 September 2009, the plaintiff became aware that the first and second defendants had sold the Property and, on 29 September 2009, he lodged a caveat in respect of the equitable liens granted to him by the first and second defendants. 5 On 6 October 2009, the Bank attempted to register the discharge of the mortgage to Permanent Mortgages, the transfer to Mr and Mrs Xerri and the mortgage granted to it. It was prevented from doing so by the caveat and, on 2 February 2010, it served a lapsing notice on the plaintiff in respect of the caveat. In response, the plaintiff commenced these proceedings on 16 February 2010 seeking an order pursuant to s 74K of the Real Property Act 1900 (the Act) that the operation of the caveat be extended and a declaration that the first and second defendants' interest in the property is subject to the equitable liens claimed in the caveat. It is unclear why Mr and Mrs Xerri were not joined as a party to the proceedings. I return to this matter below. 6 On 22 February 2010, Rein J granted the extension of the operation of the caveat sought by the plaintiff. The matter was then listed for final hearing before me. 7 The case essentially raises two questions. The first is whether the Bank's interest in the Property has priority over that of the plaintiff as a result of s 43A of the Act. The second issue - which only arises if I decide the first issue adversely to the defendants - is whether the equitable interest obtained by the plaintiff should be postponed to the equitable interest obtained by the Bank. 8 Section 43A of the Act relevantly provides: "(1) For the purpose only of protection against notice, the estate or interest in land under the provisions of this Act, taken by a person under a dealing registrable, or which when appropriately signed by or on behalf of that person would be registrable under this Act shall, before registration of that dealing, be deemed to be a legal estate. (2) No person contracting or dealing in respect of an estate or interest in land under the provisions of this Act shall be affected by notice of any instrument, fact, or thing merely by omission to search in a register not kept under this Act." 9 The plaintiff says that s 43A does not apply in this case because a dealing is not "a dealing registrable" unless it is immediately registrable without any intermediate steps having to be taken. He says that the transfer to Mr and Mrs Xerri and the mortgage to the Bank do not satisfy that requirement. In support of that proposition, he relies on IAC Finance v Courtenay (1993) 110 CLR 550 and the decision in that case at first instance: Courtenay v Austin (1961) 78 WN (NSW) 1082. 10 In IAC Finance v Courtenay, Ms Austin sold property she owned to the Courtenays. The purchase price was payable over time and, to secure its payment, the Courtenays mortgaged the property back to Ms Austin. The relevant memorandum of transfer and mortgage were lodged for registration by Ms Austin's solicitor, Mr Easton. Subsequently, however, Mr Easton withdrew them and purported to sell the land to Denton Subdivisions Pty Limited (Denton). Denton, in turn, mortgaged the property to IAC (Finance) Pty Limited (IAC) and Hermes Trading & Investment Pty Limited (Hermes). The transfer to Denton and the mortgages to IAC and Hermes were presented for registration but had not been registered at the time proceedings were commenced. The Courtenays commenced proceedings seeking a declaration, in effect, that their interest took priority over those of Denton, IAC and Hermes. Denton, IAC and Hermes sought, among other things, to rely on s 43A. The High Court held that they were not entitled to do so. 11 Dixon CJ simply expressed the view that "[w]hatever be the meaning of s 43A, it cannot give priority to the later dealing over the earlier in circumstances like this" (at 568). 12 Kitto J held that s 43A, in the circumstances in which it applied, gave a person the same protection as that person would obtain on registration of the relevant dealing. However, his Honour took the view that "the purported withdrawal of the transfer by Ms Austin's solicitor, being unauthorized, left the application for registration on foot notwithstanding the physical removal of the document from the Registrar-General's custody" (at 574). Consequently, s 43A could not confer a priority on Denton (or IAC and Hermes). 13 Taylor J reached the same conclusion by a different route. His Honour held that s 43A only gave the purchaser the protection available to a legal owner at common law. On this approach, s 43A only protected a bona fide purchaser who took for value and without notice. His Honour held that Denton was on notice of the Courtenays' interest because his solicitor was aware of the transfer that had been lodged in their favour. His Honour dealt (at 590-1) with the claims by IAC and Hermes in the following terms: "The final question is concerned with the position of Denton's proposed mortgagees - I.A.C. and Hermes. The learned trial judge has held that they parted with their money without notice of Courtenay's interest and no reason appears for challenging this finding. In these circumstances they claim, independently of Denton, to be entitled to a degree of protection pursuant to s. 43A. But I agree with the learned trial judge that this claim must fail. That section clearly contemplates the position of a person dealing with a registered proprietor for it speaks of "the estate of interest in land under the provisions of this Act, taken by a person under an instrument registrable … under this Act" and an instrument would only be so registrable if executed by the registered proprietor. But I.A.C. and Hermes dealt only with Denton and their respective instruments would become registrable only upon registration of Denton's memorandum of transfer. That being so, the additional submission made on their behalf must fail and, accordingly, all three appeals should, in my view, be dismissed." 14 The trial judge (Hardie J) put the same point in these terms Courtenay v Austin (1961) 78 WN (NSW) 1082 at 1099: "The claim of each mortgagee is under an instrument in registrable form but not immediately registrable; such instrument was executed, not by Miss Austin the registered proprietor, but by the Denton Company claiming under a transfer in registrable form from Miss Austin; in one case the transfer was about to be lodged for registration, and in the other case it had already been lodged for and was awaiting mortgage registration. The question as to whether the mortgage instrument comes within the description in the sub-section of "an instrument registrable" under the Act does not appear to have been considered in any reported decision. Having regard to the language of s. 43A and its relationship to s. 43 and the other provisions of the Act, I am of opinion that neither of the mortgage instruments executed by the Denton Company and handed over on settlement of the respective mortgage transactions was "an instrument registrable" under the Act within the meaning of s. 43A." 15 It is these two passages that the plaintiff relies on. 16 The approach that was adopted by Taylor J is now generally accepted as the correct approach: Jonray (Sydney) Pty Ltd v Partridge Bros Pty Ltd (1969) 89 WN (Pt 1) (NSW) 568; Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671. 17 The plaintiff maintains that the only instrument which is "immediately registrable" in this case is the discharge of the mortgage to Permanent Mortgages. According to the plaintiff, the transfer to Mr and Mrs Xerri was dependent on that discharge of mortgage and the mortgage to the Bank was dependent on the transfer to Mr and Mrs Xerri. 18 In my opinion, this argument is a misapplication of the principles stated by Taylor J and Hardie J. Mr and Mrs Xerri's interest in the Property derives from the transfer executed by the first and second defendants as the registered proprietors. The transfer is immediately registrable because the interest that is sought to be registered is derived immediately from the person who is entitled to grant it. It is true that, if it is registered in that form without a discharge of the mortgage to Permanent Mortgages, then Mr and Mrs Xerri would take their interest subject to that mortgage. But that does not mean that the transfer is not immediately registrable. Nor does the fact that Mr and Mrs Xerri may not be prepared for the transfer to take place in those circumstances; or that a transfer in those circumstances may be a breach by the first and second defendants of their obligations under that mortgage. The requirement that the interest be in registrable form goes to the characteristics of the instrument, not whether or not the parties would want it to take effect in certain circumstances. 19 The position is different in the case of the Bank. It takes its interest from Mr and Mrs Xerri, who are not the registered proprietors. Consequently, in accordance with the principles stated by Taylor J in IAC Finance v Courtenay (1963) 110 CLR 550, it is not entitled to the benefit of s 43A. However, I do not think that that conclusion assists the plaintiff. The plaintiff is not entitled to prevent the registration of the transfer to Mr and Mrs Xerri, since their interest takes priority over his. Immediately on registration of their interest, the Bank is entitled to register its mortgage. Mr and Mrs Xerri's interest is an interest that will have the effect of extinguishing the plaintiff's interest in the Property: see s 42 of the Act. It follows that the mortgage to the Bank cannot be subject to that interest either. 20 The way in which these proceedings were constituted is not entirely satisfactory. In my opinion, Mr and Mrs Xerri ought to have been joined as parties since they are persons who are clearly affected by the orders sought by the plaintiff. Even if I were otherwise inclined to make an order in the plaintiff's favour, I would not do so in their absence. As the Full Court of the Federal Court explained in News Ltd v Australian Rugby Football League Ltd (1996) 139 ALR 193 at 298: "… Where the orders sought establish or recognise a proprietary or security interest in land, chattels or a monetary fund, all persons who have or claim an interest in the subject matter are necessary parties. This is because an order in favour of the claimant will, to a corresponding extent, be detrimental to all others who have or claim an interest."

That passage was quoted with approval by the High Court in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 266 ALR 462 at 493. 21 It was explained to me during the course of the hearing that Mr and Mrs Xerri were aware of the proceedings and were content to leave it to the Bank to defend them. However, I do not think that that relieves the plaintiff of the obligation to join them if he wants the court to make the orders he seeks. Once joined, of course, the level of their participation in the proceedings would be a matter for them. 22 The decision not to join Mr and Mrs Xerri has also complicated the orders that have been sought and should be made. The relief now sought by the plaintiff is a declaration that the registered proprietors' (that is, the first and second defendants') interest in the Property is subject to the equitable assignments and charges on the land the registered proprietors gave to the plaintiff. However, it is difficult to see how that declaration would resolve the dispute between the parties - particularly in the absence of Mr and Mrs Xerri. The Bank, on the other hand, seeks a declaration that it has a legal interest in the Property which ranks in priority to any interest held by the plaintiff. It also seeks an order pursuant to s 74MA of the Act requiring the plaintiff to withdraw his caveat. For the reasons I have given, I do not think I can make the declaration sought by the Bank. However, I can see no reason why I should not make an order under s 74MA. 23 The Bank made an application for indemnity costs in this matter on the basis that it was brought in wilful disregard of known facts or clearly established law: see J-Corp Pty Ltd v Australian Builders Labourers Union of Workers [1993] FCA 42 per French J. In my opinion, this is not an appropriate case for an order for indemnity costs. I do not think that the principles which have lead to the defendants' success in this case could be said to be so clearly established that it was improper of the plaintiff to bring these proceedings. It was conceded that he had an equitable interest in the Property. For whatever reason, he chose not to protect that interest by caveat, although he had lodged and withdrawn a caveat some time earlier. When he heard that the first and second defendants had sold the Property, he made an attempt to protect his interest. Although that attempt has failed, I do not think it could be said that it was bound to do so. 24 The orders I therefore make are: 1. I vacate the order made by Rein J on 22 February 2010.

Weller v Williams

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