HIS HONOUR: The plaintiff is the registered proprietor of a residential property in Botany. He bought it in 1971 with his wife. In 1994, the plaintiff became the sole owner. Since about 1996, the defendants, who are his daughter and son-in-law respectively, have lived there. They remain in occupation. The plaintiff commenced these proceedings seeking to recover possession of the property.
The defendants have filed a cross-claim in which they allege that the plaintiff holds the whole of the property upon trust for them. They contend that sometime in 1996 the plaintiff promised that the property would be transferred to them if they fixed the property up and looked after the plaintiff. The defendants say that, acting in reliance upon that promise, they moved into the property but otherwise altered their position to their detriment in that they stopped looking for a home of their own and in addition expended very considerable time and resources repairing and improving the property which was in a state of disrepair. The cross-claimants contend that they cared for the plaintiff by cooking his meals, clothing him, washing his clothes, transporting him, providing him with money, looking after his physical well-being, attending to his taxation affairs and paying his tax, and providing him with company. His daughter says that she forwent taking up employment in order to do these things.
The defendants allege that it was an express term of the agreement that the plaintiff would transfer the property to them in return for their promise to fix it up and look after him. The defendants do not appear to make clear when this transfer was to occur. That is perhaps unsurprising having regard to the continuing and unrestricted nature of the obligations upon them to which the alleged promise to transfer the property is said to be subject.
The proceedings were commenced by statement of claim filed on 28 February 2017. In response to the plaintiff's claim for possession, the defendants pleaded the following:
"In answer to the whole of the claim the defendants have and continue to occupy the property pursuant to an invitation by and agreement made with the plaintiff in about May 1996 that he would give the property and/or transfer it to them if they entered into possession and renovated and restored the property to a habitable condition and looked after the plaintiff. Pursuant to the agreement and in reliance upon it the defendants entered into possession, restored and renovated and maintained the property and looked after the plaintiff."
The defendants' written submissions indicate that they seek proprietary relief in the form of a constructive trust over either the entire property or to such degree as reflects the value of their contributions to its improvement, and/or an order for the transfer of the fee simple to them. That relief is said to rest on alternative grounds:
1. promises of a testamentary character creating an estoppel by encouragement: Sidhu v Van Dyke (2014) 251 CLR 505; [2014] HCA 19 at [58]; Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 at [3]-[6]; Pascoe v Turner [1979] 1 WLR 431 at 439.
2. a testamentary contract to leave identified property by will: Delaforce v Simpson-Cook (2010) 78 NSWLR 483; [2010] NSWCA 84 at [31].
The proceedings came before me on the plaintiff's application under s 74MA of the Real Property Act 1900 to require the defendants to withdraw a caveat lodged by them claiming an equitable interest in the property. Despite some arguable inconsistencies between the defendants' pleaded case and their written submissions provided to me, it is accepted that the validity or otherwise of any caveatable interest is coextensive with their prospects of success in the proceedings. It goes without saying that their claims to equitable relief remain yet to be determined.
The plaintiff is elderly and in poor health. His life expectancy is apparently very short and his physical ability to withstand or mental capacity to comprehend his inevitable cross-examination is presently uncertain.
I am informed by Mr Trout of counsel, who appears for the plaintiff, that he has no funds or realisable assets apart from the property to which he might have access to fund his legal costs of these proceedings. The property is presently encumbered by a mortgage in favour of a bank securing a current indebtedness of approximately $160,000. The plaintiff is in respite accommodation. He requires the withdrawal of the caveat in order to permit him to raise a further $200,000 or so in order to pay his lawyers in this case. In that respect, I note that I have expedited the proceedings and that they are now listed for hearing commencing on 17 September next with a five day estimate. A previous order that the plaintiff's evidence be taken on commission has been overtaken by my order that the whole of the proceedings be expedited.
The plaintiff maintains that his legal interest as the registered proprietor of the property should prevail over the as yet unestablished or unproven claim by the defendants. It is conceded by the plaintiff that there is a serious question to be tried as to whether the defendants have an equitable interest in the property. The existence of that interest is contested.
The principles governing the withdrawal of caveats were summarised by Brereton J in Buchanan v Crown & Gleeson Business Finance Pty Ltd (2006) 13 BPR 24,513; [2006] NSWSC 1465 as follows:
"[8] Where there is a seriously arguable or undisputable caveatable interest, the Court retains a discretion, based on the balance of convenience, as to whether it will maintain the caveat or require its withdrawal. There is a valuable discussion of the cases and principles by Sheryl Jackson in Removal of a Valid Caveat - How Convenient (1996) 4 APLJ 1. The circumstance that a caveator has a caveatable interest is not conclusive that the caveat will not be removed. The Court will order the withdrawal even of an indisputably valid caveat where the balance of convenience favours that course. An instance of this is to be found in Australian Property & Management Pty Ltd v Devefi Pty Ltd (1997) 7 BPR 15,255, and reference was made to it in Esther Investments Pty Ltd v Wilson International Pty Ltd [1982] ANZ ConvR 647.
[9] One circumstance in which such a course will be taken is where the party applying for removal of the caveat has an interest in the land superior to that of the caveator, and especially where that party is being prevented by the caveat from a legitimate exercise of its rights. Thus a caveat by an unregistered second mortgagee will be removed if it is preventing the registered first mortgagee from exercising its power of sale with a clear title [see, for example, Kerabee Park Pty Ltd v Daley [1978] 2 NSWLR 222]. This is not without significance, at least by analogy, in the present case: St George, as a judgment creditor with a writ for possession, could exercise its power of sale as mortgagee to satisfy its debt, and in order to facilitate its doing so could obtain removal of the Crown & Gleeson caveat. At present a mortgage sale by St George is not contemplated; but it is instead proposed that the St George debt be refinanced. A refinance in these circumstances is analogous to a mortgagee sale, and unless it will be more prejudicial to the caveator than a mortgagee sale, there is a strong case for removal of the caveat to permit it to be pressed.
[10] A valid caveat may also be removed by the Court if it prevents the registered proprietor from the legitimate exercise of a right in respect of the land, including a proper sale or refinance (as was suggested in Esther Investments v Wilson International). Again, this usually occurs where the registered proprietor can point to other interests in the land superior to that of the caveator - such as a first mortgagee where the caveator is a subsequent encumbrancee [see, for example, Wildschut v Borg Warner Acceptance Corp (Aust) Ltd [1987] ANZ ConvR 283].
[11] A highly relevant consideration is whether the removal of the caveat will derogate from the caveator's claim. There is great force in the submission made by Mr Bransgrove that if the removal of the caveat would have the practical effect of deferring the priority of the caveator's equitable mortgage, its removal ought not be countenanced. That view is supported by authority which indicates that it is a rare case where a valid caveat will be removed for reasons of the balance of convenience. Thus in Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, Owen J said (at 50):
'However it seems to me interlocutory removal of a caveat where an arguable case as to the existence of a caveatable interest has been demonstrated would be unusual. It is important to bear in mind the nature and purpose of a caveat under the Torrens system. By its very nature the caveatable interest must be a proprietary interest in the land. The purpose of the caveat is to restrain the registered proprietor from dealing with the land in a way which will defeat or derogate from the incidents attaching to that proprietary interest until the respective rights of the parties have been honoured (if there is agreement) or to determine if there is disagreement. In many cases, removal of the caveat will have the effect of destroying for all practical purposes, the benefit of the proprietary interest. For example, a creditor, having a specific security interest in land will rank as an unsecured creditor once the property, the subject of the specific security, no longer exists. This will often be the result of removal of a caveat which permits the registered proprietor to sell the property free from any practical obligation to recount to the secured creditor for the proceeds of sale.'
[12] In my view, similar considerations are relevant, if the priority of the caveator's interest will be adversely affected by the removal of the caveat, even if the caveator will retain some interest in the land. A critical question on the present application, then, is whether removal of the caveat will derogate from the caveator's claim and priority."
His Honour offered remarks to similar effect in Tadrous v Tadrous [2009] NSWSC 407 at [8] as follows:
"[8] Thus, where the registered proprietor wishes to refinance an existing first mortgage, there may be a strong case on the balance of convenience to permit it to do so, at least where that course will not prejudice or derogate from the caveator's claim. But it is always a highly relevant consideration whether the removal of the caveat will derogate from the caveator's claim, and it is a rare case indeed, if there is any, where a valid caveat will be removed for reasons of balance of convenience, if to do so would have an adverse effect on the priority of the caveator's claim [Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42 (Owen J); Buchanan v Crown & Gleeson [10]; Oceanview v Balaz, [11]. If the priority of the caveator's interest would be adversely affected by the removal of the caveat, it is at least ordinarily inappropriate to remove the caveat having regard to considerations of the balance of convenience [Custom Credit v Ravi, 50; Buchanan v Crown & Gleeson, [11]; Oceanview v Balaz, [11]. At least, ordinarily speaking, if the removal of the caveat would have the practical effect of deferring the priority of the caveator's equitable interest, its removal ought not be countenanced. One reason for this is that to do so is practically to prefer unsecured rights over the proprietary rights of the caveator."
Finally, in Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [78]-[79], Sackville AJA said this:
"[78] In some circumstances, an application by a registered proprietor for the removal of a caveat is unlikely to succeed. If the nature and extent of the caveator's interest is undisputed and removal of the caveat will clearly destroy the caveator's interest, it is fair to say that it would be very unusual for the application to be granted. An example of such a case is where the caveator has an equitable charge to secure repayment of a loan and the practical effect of removing the caveat would be to render the charge worthless. But as the Court in Moondancer observed, to say that in these circumstances it would be unusual - perhaps extremely unusual - to order the withdrawal of the caveat, is not to elevate 'unusual' into a legal test that must be satisfied before an order can be made. To do so imposes unwarranted constraints on the discretion conferred on the Court by s 74MA of the Real Property Act.
[79] The authorities also recognise that the strength of the caveator's claim to an interest in land may be significant in assessing the balance of convenience. This is consistent with the well-established principle that the apparent strength of each party's case is a material factor in assessing the balance of convenience on an application for an interim injunction. It follows that a registered proprietor seeking an order for the removal of a caveat to permit the refinancing of a mortgage loan, may have a stronger case if there is real doubt as to whether the interest claimed by the caveator is valid and enforceable." [Citations omitted]
The balance of convenience will rarely favour removal of a caveat if doing so would have the effect of destroying the benefit of the caveator's interest. Although the defendants contend that such a result would follow in the present case if the caveat were to go, that is not precisely correct. What would occur is that the defendants' interest in the property would in all practical likelihood be irrevocably diminished to the extent of the plaintiff's proposed secured borrowings against it. I do not understand the plaintiff to contend that the removal of the caveat would preclude the defendants from lodging a further caveat to protect what would in those circumstances be their interest in the property subject to the plaintiff's mortgage. It must, however, be accepted that success by the defendants in these proceedings would render the property less valuable to that extent as the plaintiff would appear to have no other assets and has proffered no undertaking to make good the amount he proposes to borrow against the property in the event that he were unsuccessful. I accept that the removal of the caveat will diminish the value of the defendants' interest and that the deficiency will not be recoverable.
As Brereton J observed in Tadrous, it would be a rare case that warranted an order removing an apparently valid caveat by reference only to the balance of convenience if to do so would have an adverse effect upon the priority of the caveator's claim. The present situation is analogous.
The plaintiff's claim is patently directed to recovering the property so that it may become, or on one view may remain, part of his estate. It is apparent that there is a significant rift between the first defendant and her brother Robert Zelic, who has sworn affidavits in support of his father in these proceedings. Although I have not been provided with evidence to this precise effect, I am prepared to assume that Robert is likely to be the sole beneficiary of the plaintiff's testamentary bounty to the exclusion of the first defendant. For example, Robert Zelic is his father's enduring attorney and enduring guardian. Whatever may be the terms of any will executed by the plaintiff, or even if he has not executed any will, it is apparent that Robert has exhibited an interest in the outcome of these proceedings. Much in the nature of the interest that company directors may have in prosecuting legal rights said to remain reposed in an insolvent or liquidated company, Robert Zelic may appear to be an obvious source of funds for his father's maintenance of the claim for possession and the defence of the cross-claim. I remain to be convinced that the plaintiff will be somehow left without sufficient funds or access to resources for these purposes if the caveat is maintained.
In this respect I note that paragraph 33 of Robert Zelic's affidavit sworn on 24 August 2018 is relevantly as follows:
"33. My mother and father have remained married giving my father certain rights in Family Law against my mother's home ** Banksia Street, Botany that was his usual place of residence prior to 24 July 2018. On being made aware of his potential rights against my mother as a source of funding for aged care and legal costs, my father said to me words to the effect that 'I will not do to your mother what my daughter is doing to me so long as I own my house.'
An order that the caveat be removed would be tantamount to requiring the defendants, if they are successful, to fund the plaintiff's own claim and his opposition to theirs. In accordance with the reasoning referred to in the cases cited above, that would be an unusual, and on one view an extraordinary, result. I am not prepared to order that it happens in this case.
Although it goes without saying, I have not formed any view, preliminary or otherwise, about the outcome of these proceedings. The affidavit evidence that has been filed so far is voluminous. I have intentionally refrained from referring to almost any of it. My major present concern is to recognise the need to uphold the operation of what the authorities have described for years as a statutory injunction, unless there were shown to exist circumstances that appeared to work a significant and unwarranted interference with the legal rights of a registered proprietor. While the matter remains to be determined at a final hearing, it cannot presently be said, to adopt what was said in Hanson at [79], that "there is real doubt as to whether the interest claimed by the caveator is valid and enforceable". I am not satisfied that an unwarranted interference with the plaintiff's rights as the legal owner of the property is caused in the circumstances of this case by the maintenance of the defendants' caveat.
[2]
The Harman undertaking
The plaintiff also seeks to be released from the implied undertaking relating to two letters produced in response to subpoenas issued to the ANZ Bank and the St George Bank. It is apparent that the plaintiff contends that the letters, which on their face purport to have been signed by the first defendant with the plaintiff's authority, were in fact signed without his knowledge or authorisation. There is at present no evidence before me that supports or refutes that suggestion.
In Papantoniou v Stonewall Hotel Pty Ltd [2018] NSWCA 85, Barrett AJA said this at [30]:
"[30] … That matter was considered by the Full Court of the Federal Court in Liberty Funding Pty Ltd v Phoenix Capital Ltd [2005] FCAFC 3; 218 ALR 283. It was there said (at [31]) that a party in the position here occupied by Aristotelis and Efthemia must show 'special circumstances' in order to be released from the obligation. This does not mean that 'some extraordinary factors must bear on the question before the discretion will be exercised'. In Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217, Wilcox J said (at 225) that for 'special circumstances' to exist it is enough that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. In other words, good reason must be shown why, contrary to the usual position, the constraint should not apply; and that reason must be found in all the circumstances of the case. If the court does find 'special circumstances', it then has 'a broad discretion as to whether or not to grant leave': James G Oberg (Sales) Pty Ltd v Oberg [2012] FCA 722; (2012) 292 ALR 673 at [27] (Edmonds J)."
In the present case I have been given no indication of the way in which the plaintiff wishes or proposes to utilise these letters in breach of the undertaking. I have little doubt that the letters will be relied upon by one or other of the parties for some purpose in the course of these proceedings. That use would not be contrary to the constraints emanating from the Harman principle. Far from the plaintiff having demonstrated special or even extraordinary circumstances, the plaintiff has not demonstrated why he should be released to rely upon the letters in some context beyond the present litigation. If the plaintiff wishes to cross-examine the first defendant concerning the creation or use of the letters then, subject to any questions of relevance or other objection to that course, he should be entitled to do so in these proceedings. The issue of his entitlement to rely upon the letters in some context beyond this case remains to be considered when and if it becomes relevant.
Moreover, there is no longer the type of urgency that the plaintiff identified when the plaintiff's evidence was merely listed to be taken by a commissioner. The proceedings now have a date before me and the issue of the tender of the letters can be dealt with expeditiously in the course of that hearing.
[3]
Amendment
The defendants' original cross-claim filed on 8 April 2017 sought a declaration that they held an equity or equitable interest in the property that entitled them to reside there and to have it transferred to them. It also sought a declaration that the plaintiff is estopped from denying their interest.
On 1 July 2018, the defendants filed a motion to amend the cross-claim. The proposed amendments allege that the defendants are entitled to specific performance of a contract that came into existence between them and the plaintiff that was breached by him when he sought to recover possession of the property from them and encumber it further. The defendants continue to assert an estoppel and maintain further that it would be unconscionable for the plaintiff to resile from his promise to them. The defendants allege that the whole of the property is in these circumstances held for them upon a constructive trust or a trust at least to the extent of their contributions to its improvement.
In support of the application, the defendants maintain that the original cross-claim is vague and imprecise. The reason for the amendment is said to be explained in part by the retention of new counsel in 2018 when the need for amendments became apparent. The proposed amendments are said to clarify the basis for the defendants' claim to be entitled to an equitable interest in the property.
Having regard to ss 56, 57 and 58 of the Civil Procedure Act 2005, the defendants contend that it is consistent with the dictates of justice that leave be given. They submit that the amendments will facilitate the purpose of s 64(2) of the Act by enabling the determination of "the real questions raised by … the proceedings" as reflected by the evidence filed to date: see Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [14], [71].
Secondly, the defendants say that the proposed amendments will not cause prejudice to the plaintiff because he has already responded to their evidence in support of the allegations that the proposed amended cross-claim brings forward. Put another way, the defendants assure me that the evidence on their side is complete and that no further or other evidence will be filed. They point to the fact that the promises upon which they rely have already been exposed in their own evidence and that the plaintiff has specifically responded to that evidence. For example, they point to the affidavit of Ivanka Barisic sworn 4 July 2017 at paragraphs 94 and 95 to which the plaintiff has responded in his affidavit sworn 16 May 2018 at paragraphs 121 and 122.
The plaintiff opposes the application to amend upon a number of bases. First, the plaintiff says that the proposed amendments come far too late, in circumstances where the defendants have had plenty of opportunity to correct any perceived deficiencies in the pleadings before now and when they were, or should have been, aware of the inadequacy of their original cross-claim. Secondly, the hearing is now scheduled to commence in only two weeks so that it is wholly unacceptable that the plaintiff's preparation for the hearing should be disrupted by the need to respond to the proposed cross-claim at this late stage. Thirdly, and in a related sense, the plaintiff maintains that he will be prejudiced if the defendants are permitted to add what he describes as a new cause of action in the shadow of the hearing, particularly as this would require him to re-examine the evidence and give consideration to the need for further evidence to meet the proposed new claims. Fourthly, the plaintiff's physical and mental conditions have deteriorated considerably to the knowledge of the defendants and are such that his ability to comprehend the new claims and provide instructions concerning them is severely, if not completely, compromised. Fifthly, the plaintiff maintains that because this fact was, or should have been, well known to the defendants, their late application to amend in such circumstances is evidence of bad faith on their part and that the proposed amendment should be disallowed for this reason alone. Finally, the plaintiff says that an order for costs is in any event an insufficient salve for these previously identified difficulties.
I think that it is important in cases such as this to be alive to the possible difference between unexceptionable statements of well-known and accepted legal principles on the one hand and the actual significance in practical terms for the parties, especially in this case the plaintiff, if those principles are applied without a close and careful understanding of the consequences that might flow from their application on the other hand. For example, there is no doubt that the proposed amendments come very late indeed and in circumstances where an appreciation of the need for any such amendment should have been accommodated well before now. It would also be patently unfair to impose the proposed amendments upon the plaintiff if there was even a remote prospect that some prejudice may be occasioned as a result. The plaintiff should not be required to take account of some late change in course by the defendants that might interfere with the plaintiff's need or ability to be ready in time for the hearing. Moreover, the plaintiff, even notwithstanding the likelihood that his contribution to an assessment of the finer legal points of the proposed cross-claim may be small if not entirely non-existent, is certainly entitled to have sufficient time to digest what is being framed against him. The plaintiff's present physical and mental pressures only emphasise this imperative.
Having regard to these uncontroversial matters of general principle, it seems to me that the present application must be decided most significantly and fundamentally by reference to the plaintiff's actual position and not by reference to his theoretical or assumed position. It is obvious from the plaintiff's defence to the current cross-claim that he denies every relevant assertion made by the defendants. That denial has been maintained unaltered as the very detailed exchange of evidence between the parties has proceeded. Importantly for present purposes, the evidence upon which the defendants intend to rely is now complete, and that is not changed by the proposed amended cross-claim.
In my experience, the claims that the defendants now wish to propound in their new cross-claim are likely to have been identical to the way in which their case would have been argued as the pleadings now stand. In one sense, the plaintiff would be in a better position, but arguably in no worse position, if the amendments were allowed. Fundamentally, however, the same facts and the parties' respective competing contentions about what transpired between them since the time when the defendants commenced to occupy the property over two decades ago will continue to determine the outcome of these proceedings, rather than the differing legal characterisations that might be applied to those facts. Accepting that the identification of prejudice is not the sole determinant of applications such as the present, I have been unable to identify any authentic or tangible way in which the plaintiff is likely to be worse off if the amendments are allowed. Moreover, the proposed amendments will in my view serve well to focus the attention of all concerned upon the important issues as the hearing proceeds. In other words, they will facilitate the identification and determination of what are and in my opinion have always been the real issues in dispute.
Mr Trout of counsel for the plaintiff has indicated that the formulation of a defence to the proposed amended cross-claim will unfairly occupy his limited time and divert his attention from more pressing aspects of preparation for trial. That concern can in my view be alleviated by dispensing with the need for the plaintiff to file a defence.
I consider that it is in the interests of justice for the amendment to be allowed. It goes without saying that the defendants should pay the costs of and incidental to the amendment application.
The orders that I propose to make are therefore as follows:
1. Dismiss the plaintiff's application to require the defendants to withdraw their caveat.
2. Dismiss the plaintiff's application to be released from the Harman undertaking.
3. Grant leave to the defendants to file an amended cross-claim in the form annexed to the notice of motion filed on 1 July 2018.
4. Dispense with the requirement that the plaintiff file a defence to the amended cross-claim.
5. Order that the defendants pay the plaintiff's costs of and incidental to the application to amend.
[4]
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Decision last updated: 04 September 2018