Windella (NSW) P/L v Ronald James Hughes & 2 Ors

COUNSEL : D R Stack (Plaintiff) M B Duncan (Defendants SOLICITORS : Hunt & Hunt (Plaintiff) Ross Fiddes by their Agent Gwynne Thompson (Defendants) CATCHWORDS : REAL PROPERTY - Caveats - Adequacy of description of unregistered second mortgage as "an equitable mortgage of the fee simple in the said land" - if deficient, whether cured by mandatory effect of s74L of the Real Property Act 1900 (NSW). ACTS CITED : Real Property Act 1900 (NSW) s74F(5)(b)(v), s74K, s74L, s74J Real Property Regulation 1993 (NSW) Schedule 2 Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 CASES CITED : Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 Frazer v Walker [1967] 1 AC 569 In the Marriage of Stevens (1991) 15 Fam LR 51 DECISION : Caveats valid

REVISED - 2 December, 1999 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY

No. 4159/99 WINDELLA (NSW) PTY LIMITED ACN 059 038 345 Plaintiff/First Respondent RONALD JAMES HUGHES First Defendant/Applicant ROBERTA HUGHES Second Defendant/Applicant JOANNE MICHELLE HUGHES Third Defendant/Applicant TWO NOMINEES PTY LIMITED ACN 003 540 412 Second Respondent

overview 1 The Defendants contest the continuance of the Plaintiff's two caveats. They do so on the ground that they fail, beyond any possible remediation under s74L of the Real Property Act 1900 (NSW), to specify any estate or interest, legal or equitable, known to the law. The Plaintiff contends, first, the specification was of an equitable interest compliant in form, second, even if it were non-compliant, any such failure would be cured by the directive in s74L. " 74L If in any legal proceedings a question arises as to the validity of a caveat lodged under a provision of this Part, the court shall disregard any failure of the caveator to comply strictly with the requirements of this Part, and of any regulations made for the purposes of this Part, with respect to the form of the caveat."

MATERIAL FACTS 2 The following can be treated as uncontroversial as a description of the circumstances giving rise to the matter before me. 3 Following the service of lapsing notices pursuant to s74J of the Real Property Act ("RPA"), the Plaintiff filed a summons on 30 September 1999 seeking the extension of two caveats over two parcels of land of which the Defendants are variously the registered proprietors. Austin J granted ex parte orders extending the operation of those caveats on 30 September and 6 October. The orders have been registered by the Registrar General. The Plaintiff's Summons seeks relief not only in relation to the caveats but also declarations as to the validity of certain unregistered mortgages alleged to have been given by the Defendants. 4 The parties have filed various affidavits and the Defendants have changed solicitors once. They are now represented by Messrs Fiddes of New Lambton and are represented by counsel. 5 On 1 and 2 October 1999 the Defendants filed motions seeking various relief including directions as to pleadings, the further conduct of the proceedings and orders relating to the hearing of proceedings in the Common law Division in which the first mortgagee seeks possession of one of the properties the subject of one of the caveats. That first mortgagee has also listed the other property the subject of the second caveat for sale on 28 November 1999. 6 There is evidence (at this stage still contested) that the First and Second Defendants, by a conveyance of one of the properties to one of their daughters, and the Second and Third Defendants, by refinancing the second property, are able to raise funds which, together with other funds from other family members will be sufficient to pay out the first mortgagee and bring the common law proceedings to an end. The final hearing will need to deal with other grounds of attack on the second mortgage. 7 Against that background, the matter comes before the Court today for a separate determination of the limited issue of the validity of the two caveats lodged by the Plaintiff and whose operation has so far been extended by the Court. 8 The Defendants say that the caveats do not on their face allege a caveatable interest. 9 The First and Second Defendants are the registered proprietors of all that piece or parcel of land contained in Folio Identifier 32/E/109967 at which the Defendants and some of their children reside ("the home"). There is a registered first mortgage to FWO Nominees Pty Limited ("FWO") and the Plaintiff alleges that it is entitled to a second mortgage. 10 The Second and Third Defendants are the registered proprietors of all that piece or parcel of land contained in Folio Identifier 7/550349 situate at and known as 189 Myall Street, Teagardens used for holidays ("the holiday home"). There is also a registered first mortgage over this property to FWO and the Plaintiff again alleges that it is entitled to a second mortgage. 11 The validity of the second mortgages does not presently arise and is to be determined on final hearing. 12 It is the operation of the caveats 3911823 and 3911844 which has been extended.

THE QUESTION FOR DETERMINATION 13 The only questions for determination on this application can, then, be stated in short compass: Does the estate or interest recorded in caveats 3911823 and 3911844 meet the requirements of s 74F(5)(b)(v) of the Real Property Act, insofar as it requires the caveat to specify "the prescribed particulars of the legal or equitable estate to which the caveator claims to be entitled" or if not, is any defect such as the court is required to disregard under s74L of the Real Property Act 1900 (NSW)? The only relevant prescription is that contained in the Real Property Regulation 1993 (NSW) Schedule 2 of which providing (in cl 8(4)) that "If the caveator claims as mortgagee, chargee or covenant chargee, a statement of … the nature of the debt, annuity, rent charge or other charge secured on the land." 14 The Defendant made clear that it did not contest the continuance of the caveats on the basis of balance of convenience. 15 The relevant caveats (see agreed bundle pages 17-22) each contain the following description of the nature of the estate or interest in the relevant land under "estate or interest claimed": "As equitable mortgagee of the fee simple in the said land." 16 This is in each case by virtue of an instrument described as "mortgage" in favour of the named parties being the First and Second Defendants in the first case and the Second and Third Defendants in the second case. There follows this description: "The registered proprietors have agreed to grant to the Caveator a mortgage of the fee simple in the said land in consideration of a loan or other financial accommodation granted by the Caveator at the request of the registered proprietors."

17 For present purposes I shall treat as established on a prima facie basis and subject of course to the resolution of the matters earlier referred to in a final hearing, that the relevant Defendants are grantors of unregistered mortgages by way of a second mortgage ranking after a first mortgage in each case. 18 Turning now to the grounds of attack upon the caveat, these are essentially that the description of the estate or interest claimed repeated in the reference to the relevant instrument is such as to describe an interest not known to the law in respect of what is Torrens System land. This is because it is said that the Torrens System makes no provision for the mortgage of the fee simple. 19 It is contended that under the Torrens System all that is left after the granting of a registered first mortgage is an interest in the equity of redemption. Alternatively, it is contended that even if, as registered proprietor, such a mortgagor retains a statutory interest equivalent to a fee simple, the granting of an unregistered equitable mortgage could not be "of" the fee simple. It is conceded that the grantee of an unregistered mortgage Torrens System land can properly be described as "equitable mortgagee" when it comes to describing the estate or interest claimed. This is because the mortgagee in those circumstances has, whilst unregistered, no statutory interest but an interest properly described as equitable, recognised nonetheless by the Torrens system; see, for example, Frazer v Walker [1967] 1 AC 569, 580 and 585 and numerous authorities since. It is equitable insofar as it touches the conscience of the mortgagor and insofar as equity will enforce the mortgagee's rights including to be registered. 20 Thus the problem lies solely in the concluding words "of the fee simple in the said land". 21 While it is undoubtedly correct that the Torrens system creates by statute interests which become upon their registration legal interests, it is well settled that the Torrens system does not preclude equitable interests such as that presently before me. The fundamental difference between Old System title and Torrens Title is this. Under old System, the grant of a registered first mortgage is a conveyance of the title by way of mortgage, leaving only the equity of redemption. Under the Torrens system the grant of a first mortgage carves out an interest by way of mortgage which becomes a legal interest upon its registration and which does not merely leave the equity of redemption; the Torrens title mortgagor remains the owner not only in equity but also at law. Prior to registration, such a mortgage operates in equity upon the conscience of the mortgagor. Thus, as is said in Butt "Land Law" LBC 1996 at 536: "It is common to describe the Torrens title mortgagor's interest as an "equity of redemption". This is acceptable in so far as it recognises the mortgagor's right to seek equity's aid in enforcing rights analogous to those enjoyed by a mortgagor of old system title land,87 including the right to redeem after the contractual date for payment has passed. But in fact the Torrens title mortgagor has more than a mere equity of redemption: the Torrens title mortgagor remains the registered proprietor of the land - the owner, not only in equity but also at law.88 This means that not all of the principles applicable to the equity of redemption in its classical, old system, form can be carried over into the Torrens system.89 For example, a Torrens title mortgagor can pass the "legal" title to the land to a purchaser, and a second or subsequent mortgage of Torrens title land is not a mortgage of a mere equitable interest."

87 See, eg, Re Forrest Trust [1953] VLR 246; Addison v Billion [1983] 1 NSWLR 586 at 595-597; Road Chalets Pty Ltd v Thornton Motors Pty Ltd (in liq) (1986) 47 SASR 532 at 537.

88 Anderson v Liddell (1968) 117 CLR 36 at 48; Australia & New Zealand Banking Group Ltd v Greig [1980] 1 NSWLR 112 at 115-116; Quint v Robertson (1985) 3 NSWLR 398; Re Australia and New Zealand Banking Group Ltd [1993] 2 Qd R 477

89 Re Australia & New Zealand Banking Group Ltd [1993] 2 Qd R 477 at 481. Vukicevic v Alliance Acceptance Co Ltd (1987) 9 NSWLR 13.

22 Later at 537 Butt says of unregistered mortgages under the Torrens system: "Torrens title mortgages are sometimes left unregistered. There are a number of reasons for this: the mortgage might not be embodied in an instrument (as in the case of a mortgage by deposit of title deeds); or it might be embodied in an instrument that is not in registrable form; or the parties may omit to register it, by oversight or design. But whatever the reason for non-registration, unregistered mortgages of Torrens title land are regarded as being in the nature of equitable mortgages, and are enforced in the same way as equitable mortgages.95 "

95 Barry v Heider (1914) 19 CLR 197; J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546

23 Turning then to the additional words that I have earlier quoted under equitable mortgagee, the word "of" preceding the reference to "fee simple" would be incorrect if it were to suggest that the fee simple is conveyed or has somehow vested in whole or part with the equitable mortgagee. But the word "of", if it had been replaced by the alternative expression "in relation to", would be a not inapt description of the estate or interest claimed. It is in that sense analogous to the position of a beneficiary in an unadministered estate, described in Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 as a "right in personam ad rem". 24 It is therefore difficult to view the misdescription as at worst, other than technical. At best it is not a misdescription at all, if the word "of" be construed in the way I have earlier referred as equivalent to "in relation to". 25 Thus even if the defect is taken to exist, I am satisfied that it is the kind of defect which the Court is required to disregard under s74L of the Real Property Act 26 Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 and In the Marriage of Stevens (1991) 15 Fam LR 51 indicate that in New South Wales the court now has the power to overlook any deficiency in the drafting of the caveat provided that the caveator possesses a caveatable interest of some description and even though that latter is not specified at all. In Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd, Clarke JA (at 471-472) reviewed the amendments made to the Real Property Act 1900 (NSW) which accompanied the introduction of ss74K and 74L and said: "It is clear that the legislature has set out in these sections to remedy the problems which previously arose from a technical approach to the description of the interest claimed in the caveat, the unrestricted specifications of the dealings the recording of which were forbidden by the caveat and the lodging of caveats which on their face did not comply with the requirements of the relevant part of the Act"

He considered that s74L excused both a technical deficiency in the description of the interest claimed and an excessively wide prohibition against dealings (at 475). In In the Marriage of Stevens (supra), failure to describe the interest claimed in terms identifying an interest capable of supporting a caveat was excused on the basis that the evidence showed that the caveator otherwise did have an interest in the property. At 53, Cohen J said: "I regard the reference to form of the caveat [in s74L] as including issues over whether the caveatable interest claimed in the document is a caveatable interest. If this is not the case, the purpose of the whole part [of the Act] … is defeated. It was recently amended in such a way that its clear intent is to overcome the strict rules for validity of caveats which had, until the amendment, developed through judicial interpretation."

27 I should make it clear that based on these authorities the curative power of s74L is clearly not to be treated as limited to technical defects in areas other than the description of the estate or interest. I have already concluded that the present defect, if it be one, is certainly not of such fundamentality as to give rise to an interest unknown to the law. Clearly enough the Plaintiff retains a caveatable interest as equitable mortgagee in relation to the mortgagor's registered estate in the land. Though that mortgage be unregistered, that circumstance can be called in aid, even were the caveat's description of the claimed estate or interest deficient. That indeed is precisely what s74L mandates, ensuring the caveat is not thereby invalidated. 28 Finally, I should say that I do not consider that s74L, when operative, creates any necessity for orders to the effect that a substitute caveat be lodged which omits or corrects the non-compliant material. Such an interpretation would ignore the mandatory language of s74L. 29 It follows that the Plaintiff's caveats the subject of the question before me are not to be set aside based upon the contentions of the Defendants. The question earlier posed should be answered in the affirmative.

ORDERS AND COSTS 30 I make the following orders (2 and 3 being by consent):

2. That all issues between the parties proceed on pleadings with evidence by affidavit in the usual way.

3. The matter to be stood over to the Registrar's List on 23 November 1999 for directions.

4. The Defendant to pay the Plaintiff's costs such to be assessed forthwith.

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