Allan and Allan & Ors (No 2)
[2012] FamCA 932
FAMILY COURT OF AUSTRALIA
| ALLAN & ALLAN AND ORS (NO 2) | [2012] FamCA 932 |
| FAMILY LAW – application to reopen – where there is no proven explanation as to why evidence was not adduced at the first hearing – where there would be prejudice to the other party – application to reopen refused FAMILY LAW – application to remove caveats – where the husband has no basis to maintain caveats lodged by him |
| Family Law Act 1975 (Cth) Real Property Act 1900 (NSW) |
| Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 Upton v Tasmanian Perpetual Trustees Ltd [2007] FCAFC 57 Inglis v Commonwealth Trading Bank in Australia (1972) 126 CLR 161 St George Bank Ltd v JB (Northbridge) Pty Ltd [2009] NSWSC 1347 Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 Composite Buyers Ltd v Soong (1995) 38 NSWLR 286 J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 Riverview Projects Pty Ltd v Elleray & Anor [2007] VSC 150 Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997 Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 87 Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd and Anor [1994] 1 VR 672 Vasiliou v Westpac Banking Corporation & Ors [2007] VSCA 113 Patmore v Upton [2004] TASSC 77 Gippsreal Ltd v Paul Vincent Hanna [2009] NSWSC 169 |
| APPLICANT: | Ms Allan |
| 1st RESPONDENT: | Mr Allan |
| 3rd RESPONDENT: | Ms B |
| 4th RESPONDENT: | Mr C |
| 5th RESPONDENT: | Ms D |
| 6th RESPONDENT: | Ms E |
| 7th RESPONDENT: | S Nominees |
| 8th RESPONDENT: | Ms G |
| 9th RESPONDENT: | Mr H |
| 10th RESPONDENT: | Mr J |
| 11th RESPONDENT: | Mr K |
| 12th RESPONDENT: | Mr L as trustee for M Trust |
| 13th RESPONDENT: | Mr L |
| 14th RESPONDENT | N Pty Ltd |
| INTERVENORS : | Mr O & Mr P (Receivers) |
| FILE NUMBER: | SYC | 3842 | of | 2008 |
| DATE DELIVERED: | 26 October 2012 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Watts J |
| HEARING DATE: | 6 September 2012; 19 October 2012 |
REPRESENTATION
| COUNSEL FOR THE 1ST RESPONDENT: | Mr Green |
| SOLICITOR FOR THE 1ST RESPONDENT: | Litigant in person |
| SOLICITOR FOR THE 12TH RESPONDENT: | Delaney Lawyers |
| COUNSEL FOR INTERVENORS: | Mr Roberts |
| SOLICITOR FOR INTERVENORS: | Kelly & Co Lawyers |
Orders
N Pty Ltd are joined as a party to these proceedings for the limited purpose of responding to the husband’s Application in a Case filed 17 August 2012 and to enable them to make any consequential application for costs.
The husband’s Application in a Case filed 9 October 2012 be dismissed.
The subpoena issued to HWL Ebsworth Lawyers on 26 September 2012 be set aside.
The husband’s Application in a Case filed 17 August 2012 be dismissed.
Within five business days Mr Allan take all necessary steps to lodge with the Registrar-General in New South Wales a Notice of Withdrawal of Caveat Nos. … and … and notify HWL Ebsworth Lawyers (Attention: Mr Peter Garrett) in writing that he has done so.
Without limiting the generality of paragraph 5, that within five business day Mr Allan execute the documents in the forms of exhibits “DAC2” to the affidavit of Mr Q sworn 20 September 2012 and “DAC4” to the affidavit of Mr Q sworn 4 October 2012 before an eligible witness and deliver them up to HWL Ebsworth Lawyers (Attention: Mr Peter Garrett).
Until further order, an injunction be granted restraining Mr Allan from lodging with the Registrar-General in New South Wales any further caveat over the land described in and comprising folio identifies ….
If husband refuses or neglects to comply with Orders 5 and 6 above (within the times required in those orders for him to do so), the Registrar of the Sydney Registry of the Family Court of Australia is hereby appointed pursuant to the provisions of s 106A of the Family Law Act1975 (Cth) to execute such documents on behalf of the husband.
The husband pay the costs of the Receivers and N Pty Ltd in respect of their Application in a Case filed 9 October 2012 and in respect of the husband’s Application in a Case filed 17 August 2012, on a party/party basis, to be agreed or assessed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Allan & Allan and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 3842 of 2008
| Ms Allan |
Applicant
And
| Mr Allan |
1st Respondent
And
| Ms B |
3rd Respondent
And
| Mr C |
4th Respondent
And
| Ms D |
5th Respondent
And
| Ms E |
6th Respondent
And
| S Nominees |
7th Respondent
And
| Ms G |
8th Respondent
And
| Mr H |
9th Respondent
And
| Mr J |
10th Respondent
And
| Mr K |
11th Respondent
And
| Mr L as trustee for M Trust |
12th Respondent
And
| Mr L |
13th Respondent
And
| N Pty Ltd |
14th Respondent
And
| Mr O & Mr P (Receivers) |
Intervenors
REASONS FOR JUDGMENT
INTRODUCTION
N Pty Ltd is a mortgagee exercising its power of sale over parcels of property collectively referred to as “R property”.
By way of an Application in a Case filed on 17 August 2012, the husband, who is an undischarged bankrupt, seeks to make an application in the following terms:
1.N Pty Ltd be added as a party to these Family Court proceeding.
2.N Pty Ltd be injuncted from selling any land at R property as mortgagee exercising power of sale.
The husband’s trustee in bankruptcy is apparently unaware of the application. The husband also indicated that he may wish to recast applications 3 – 6 in a way that was not comprehensively articulated.
Order 3 in the husband’s Application in a Case filed on 17 August 2012 asks that he be reappointed as a director of S Nominees (with authority on his own behalf to process applications for the R property rezoning and subdivision) or alternatively that he be appointed the agent of S Nominees for that purpose. Order 4 seeks that interest upon N Pty Ltd loans be reduced to nil for the period from 15 August 2009 to 15 August 2013 because of the inappropriate change to the rezoning and subdivision that they endeavoured to prosecute. Order 5 seeks an examination summons be issued against N Pty Ltd to provide full details of:
4.1.securities held by it from S Nominees ;
4.2.all loan agreements and letters of offer;
4.3.amounts of principal under each loan and the interest and fees charged and accumulated on each loan;
4.4.current amount of principal and interest and how much interest is accumulated by way of default interest and at what rate and for what period and details of how funds have been allocated from the sale of secured and other assets carried out or on behalf of N Pty Ltd.
Order 6 seeks N Pty Ltd provide a further loan to S Nominees of $200,000 to assist with the applications for rezoning and subdivision based on Mr Allan’s agreed proposal with T Town Council, the Department of Planning, and the Heritage Commission in 2009.
Counsel for the husband maintained that the husband wished to formulate some claim against the mortgagee in possession arising from an assertion by the husband that the mortgagee had (to borrow the words the husband has used in the application numbered 4), inappropriately changed the rezoning and subdivision from that which the husband asserts was agreed in principle with T Town Council, the Department of Planning, and the Heritage Commission in 2009.
N Pty Ltd consented to being a party to the proceedings for the purposes of opposing the orders sought by the husband and for making any costs application that might flow from the judgment in this matter.
HUSBAND’S APPLICATION TO REOPEN
By way of Application in a Case filed 9 October 2012, the husband seeks an order in the following terms:
In respect to the proceedings pending before Watts J which were before the court on 6 September 2012, in respect of which judgment is reserved, leave be granted to reopen the case for [Mr Allan] and rely upon the affidavit sworn by him on 18 September 2012.
During submissions, counsel for the husband indicated that there were only certain parts of the husband’s affidavit sworn 18 September 2012 which the husband wished to have read as fresh evidence. They were as paragraphs 37, 38, 47 and the remaining paragraphs to the end of the affidavit (and any annexures referred to in any of those paragraphs).
The general principle is that a party is bound by the conduct of his case at a hearing. I shall consider the following things:
9.1.Whether or not this evidence could have been previously presented at the first hearing;
9.2.Whether there would be prejudice to the other party by reason of the granting of the leave;
9.3.The overall impact of the proposed new evidence and whether it would most probably affect the result of the trial;
9.4.Whether the new evidence is so material that the interests of justice requires its admission.
In relation to the first matter, counsel for the husband referred to the fact the husband is an undischarged bankrupt and asserted that he had difficulty in obtaining legal representation. I do not accept that submission from the bar table. The husband from time to time has appeared with senior counsel and other counsel before me on a reasonably regular basis and was represented by Mr Green at the original hearing.
Counsel for the Receivers and N Pty Ltd correctly submits that the husband has not adduced any evidence that would provide an explanation as to why the material he now seeks to read could not have been brought forward at the original hearing.
In respect of the issue of prejudice to the Receivers and N Pty Ltd, it is an agreed fact that the evidence upon which the husband relies, whilst delivered ex parte to my chambers on 18 September 2012, was not served on the Receivers until 11 October 2012. I accept the evidence of Mr Q set out in his affidavit of 17 October 2012 that as a result of the way the new material had been provided by the husband, the Receivers were unable to comprehensively respond to the material produced by the husband.
I also accept the submission that if I were to give the husband leave to file the evidence which the husband now seeks to adduce, there would be significant issues as to the admissibility of parts of it. On its face, a good deal of the material is commentary and submissions by the husband and the husband’s opinion in relation to particular matters.
Counsel for the husband submits that it is in the interest of justice to allow the material. He says it goes to whether the property was being marketed in circumstances that contravened my order of 2010 (as I find elsewhere, that argument is misconceived). It is also submitted that receiving the additional information from the husband would strengthen the husband’s chances of having a discretion exercised in his favour to prevent the sale of the relevant property. Having considered the admissible parts of the extra material, I am unable to say that it adds to what I already have in evidence in a way that would most probably affect the result.
Finally, counsel for the husband submits that the material that has been provided by the husband is all within the Receivers’ knowledge so that they are not taken by any surprise by it. That submission is not one that is consistent with Mr Q’s evidence in the affidavit he swore on 17 October 2012.
Conclusion
There is no adequate explanation as to why the evidence now sought to be led by the husband was not part of his original material.
I am not satisfied that the interests of justice require me to reopen the case to consider it. N Pty Ltd, who currently have an outstanding contractual obligation with a bona fide third party purchaser, would be put to further trouble and expense if I was to allow the case to be reopened. I dismiss the husband’s application to reopen the hearing.
APPLICATION TO SET ASIDE SUBPOENA
At the request of the husband, on 26 September 2012 a subpoena was issued to HWL Ebsworth Lawyers for the production of five categories of documents described in the schedule to the subpoena.
HWL Ebsworth Lawyers act as the solicitors for N Pty Ltd and the Receivers in relation to the sale of R property, including in relation to the specific titles, the subject of the Subpoena.
The subpoenaed documents relate to:
20.1.Categories 1 and 2 – contracts for the sale of R property allotments; not merely executory or even completed contracts, but also draft contracts contained on the solicitors’ file and rescinded contracts (by definition, contracts which never proceeded);
20.2.Category 3 – any documents whatsoever contained within the solicitors’ file relating to the sale of R property allotments, whether or not privileged, and irrespective of the nature of the communication;
20.3.Category 4 – any communications with the Receivers contained within the solicitors’ file relating to the sale of R property allotments, which by definition will inevitably be privileged, and irrespective of the nature of the communication; and
20.4.Category 5 – any communications with N Pty Ltd contained within the solicitors’ file relating to the sale of R property allotments, which by definition will inevitably be privileged, and irrespective of the nature of the communication.
Counsel for the husband indicated that the documents that might be obtained if the subpoena were issued went to whether or not it would be appropriate for the court to make an order in the terms of order 2 as sought by the husband in his Application in a Case dated 16 August 2012. Counsel for the husband could give no explanation as to why that subpoena had not been issued prior to the original hearing on 6 September 2012.
Given that the husband’s application to reopen the hearing of 6 September 2012 has not been successful then it is not appropriate to require the production of documents for the purpose indicated by the husband’s counsel.
I need not otherwise deal with the assertions by counsel for N Pty Ltd that the subpoena is too broad and constitutes impermissible fishing; the lack of indemnity to HWL Ebsworth Lawyers for their expenses in the production of documents; the oppressive nature of the subpoena and issues in relation to legal professional privilege.
The subpoena will be set aside.
THE HUSBAND’S APPLICATION FOR INJUNCTIVE RELIEF
As developed by counsel for the husband in argument, the contention that N Pty Ltd ought be restrained from exercising its power of sale in respect of the R property arises from the husband’s contention that N Pty Ltd has acted in an inappropriate manner by changing the way a rezoning and subdivision application had been developed by the husband and actively pursuing a course which the husband asserts will inevitably lead to a lower price being obtained in respect of the R property than if his application for a subdivision had been pursued.
The husband also at the end of submissions, attempted to develop an argument that orders 7 and 8 made 17 June 2010 in some way got in the way of the mortgagee exercising its power of sale.
The terms of orders 7 and 8 of 17 June 2010 are as follows:
7. The operation of Order number 5 made on 23 September 2009 insofar as same operates to prevent the sale of a property owned by [S Nominees] being the land in folio identifier … at [U Street, V Town] in the State of New South Wales (“the property”) be and the same is hereby discharged so far as is necessary to enable the property be sold by [S Nominees] in accordance with the orders made on 26 June 2009 as soon as practicable for the best price reasonably available upon and subject to the receipt by the wife in her capacity as Director of [S Nominees] of advice from [W Pty Ltd] that such sale will not inhibit or adversely affect the proposed subdivision, and rezoning of [S Nominees’] remaining lands at [V Town] PROVIDED THAT [S Nominees] shall not exchange contracts in respect of any proposed sale of the property until [S Nominees] has given the husband 21 days notice of the proposed sale.
8. The husband has liberty within 14 days from receiving notice from F in relation to a proposed sale of the property to file any application upon which he seeks to rely in respect of that sale and any affidavit evidence in respect of which he seeks to rely in relation to that application and in those circumstances F shall not exchange contracts until that application is determined.
Whilst it is true that S Nominees, which at that stage was controlled by the wife as a result of the order I made on 26 June 2009 (order 4), had a responsibility to give notice to the husband, there is no basis for an assertion that that responsibility extended to a mortgagee in possession. The mortgagee had rights of sale which were independent of any order that I had made.
N Pty Ltd rejects the notion that its sale methodology is somehow flawed and that a sale of part of R property will prejudice S Nominees’ earlier rezoning and subdivision proposals. At paragraph 5 of his affidavit, Mr X indicates that he has relied on experts in dealing with the rezoning and subdivision alternatives.
Section 109 Conveyancing Act 1919 (NSW) allows N Pty Ltd as the mortgagee, to exercise power of sale on terms it thinks fit.
Pendlebury v Colonial Mutual Life Assurance Society Ltd (1912) 13 CLR 676 provides that a mortgagee owes an equitable duty of good faith when exercising the power of sale. A mortgagee also has the duty of care in exercising a power of sale pursuant to s 420A Corporations Act 2001 (Cth).
The first point to note is that that duty in this case is owed to S Nominees Pty Ltd (in liquidation). No complaint is raised by the liquidator. Nor is any complaint raised by the wife (who was present in court during the initial hearing of this application but chose not to participate in the proceedings) who at the time the company went into liquidation was the sole controller of that company. Section 420A Corporations Act 2001 (Cth) provides that the controller exercising a power of sale must take all reasonable care to sell a property for its market value or the best price that is reasonably obtainable in regard to the circumstances existing when the property is sold.
The husband has not brought any evidence that would indicate that the mortgagee is attempting to sell the property at undervalue.
Counsel for the receiver submits that s 420A Corporations Act 2001 (Cth) is only enlivened upon a sale for less than market value and that until there has been a sale there is no basis to restrain the conduct of a mortgagee.
On the evidence provided by the husband, he has not established any prima facie case that N Pty Ltd did anything other than prudently considered whether or not they should extend their facility in circumstances where it was hoped by the wife that the obtaining of a subdivision may lead to a circumstance where the value of the R property was increased.
On 26 June 2009 I made an order that effectively put the control of the development of R property into the hands of the wife in circumstances where the husband did not appear to oppose the wife’s application that that happen.
The husband relies upon an email between Ms Y and Mr Z which was copied to Mr AA and Mr X, both of N Pty Ltd, and dated 8 September 2009. It is submitted that this document indicates that, although the wife took over the running of the development of the subdivision from 26 June 2009 and N Pty Ltd did not take possession as mortgagee until 19 November 2010, N Pty Ltd were intricately involved in what the husband asserts was behaviour that effectively stopped the subdivision that he had originally hoped for coming to fruition.
It should be noted in passing that the husband originally sought to effect a subdivision of R property in 2001 and had continued to do so up until that role was taken away from him by the orders of 26 June 2009.
I do not accept on the evidence that has been tendered that N Pty Ltd did anything other than fulfil their role as financier. Between 26 June 2009 and 19 November 2009 the wife who controlled S Nominees was the person who had effective say in the final control over what happened in relation to the subdivision. She had no experience in this role and relied upon the consultants whom the husband had previously used up until June 2009 when he had had a falling out with them over fees. The wife also employed Mallesons Stephen Jaques (see the letter between Mallesons Stephen Jaques and the wife’s lawyers at page 70 of the husband’s affidavit).
Given that the facility was fully drawn, the wife, in order to progress any proposal in respect of furthering the subdivision, needed the approved financial backing of the mortgagee. That is the role that N Pty Ltd fulfilled.
The husband has not established any prima facie case on the evidence he has presented in relation to anything that N Pty Ltd have done that would lead to him having an action against them which would provide the underpinning for the making of an injunctive order which would interfere with their rights as mortgagee in possession.
The husband complains that his proposal was changed. There is no doubt that it was. It was changed on the advice of the relevant consultants. The husband points to a letter by Mr BB which is at page 83 of his affidavit to say that the advice of the consultants was poor.
The husband at no time attempted to have the matter relisted between June 2009 and August 2012 to either complain about the role the wife had played in furtherance of the rezoning and subdivision or about the role the mortgagee had played.
At pages 89 and following, the husband has annexed to his affidavit an invoice from N Pty Ltd to the wife as the director of S Nominees in relation to the loan facility for $2,500,000. That document sets out the expenditure of those sums which on the face of that document appear to be payments associated with the development of a subdivision proposal and there is no evidence that any inappropriate payment was made by the wife.
It seems to be an agreed fact that the change in the original proposal took place in March 2010 and that that was in accordance with professional advice.
S Nominees’ sole director is not complaining then or now about the rezoning and there is no complaint about the breach of the controllers’ duties nor the way the controller has acted.
The husband has not established a prima facie case that N Pty Ltd have done anything that is actionable.
Pendlebury cast no duty to improve the asset prior to it being sold. A mortgagee is entitled to sell the property as is. There is no obligation on the mortgagee to undertake activities, such as improvement of the property or the obtaining of further approvals with respect to it, other than to prevent a property being sacrificed (see Upton v Tasmanian Perpetual Trustees Ltd [2007] FCAFC 57, see also Pendlebury at 701-702). In the circumstances, there can be no obligation on N Pty Ltd to carry out a subdivision of the property in a particular way or at all.
Counsel for the husband asserted that given that N Pty Ltd were prepared to provide finance for the new proposal which was unsuccessful that has enlivened an obligation to have spent whatever money was necessary to attempt to fulfil the husband’s original proposal (a proposal which he was not able to obtain approval for between 2001 and 2009). I do not accept that as a viable submission.
The payment into court by the husband of the liability owing
Inglis v Commonwealth Trading Bank in Australia (1972) 126 CLR 161 is authority for the proposition that where a party seeks to restrain a mortgagee’s power of sale, the party seeking an injunction to restrain the mortgagee must first pay the liability owed to the mortgagee into court.
In Inglis, Walsh J of the High Court of Australia held at 164 that:
A general rule has long been established, in relation to applications to restrain the exercise by a mortgagee of powers given by a mortgage and in particular the exercise of a power of sale, that such an injunction will not be granted unless the amount of the mortgage debt, if this be not in dispute, be paid or unless, if the amount be disputed, the amount claimed by the mortgagee be paid into court.
On appeal, Barwick CJ (with whom Menzies and Gibbs JJ agreed) upheld the decision of Walsh J and stated (at 169 of the same report):
The case falls fairly, in my opinion, within the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage.
In this case the husband has not paid the liability owed to N Pty Ltd into Court, and as an undischarged bankrupt is plainly unable to do so, unless he has assistance from some third party.
No undertaking as to damages
Further, the husband has not proffered an undertaking as to damages in relation to the injunctive relief sought. As an undischarged bankrupt, any such undertaking from the husband would be of no value unless it was supported by some security.
The husband should have been aware from June 2009 onwards that he could approach the court for either an order for the provision of information by the wife to him as to her handling of the subdivision or for some order varying the current order that she be in charge of the project.
It is common ground that there was no significant change in the proposal for the subdivision after March 2010.
Conclusion in relation to injunctions
I conclude that there is no foreseeable basis upon which the husband could mount a persuasive argument that this court should interfere with a mortgagee’s right of sale.
The application for an interlocutory injunctive order fails because of:
58.1.Lack of the articulation of any possible substantive relief that the husband might seek against N Pty Ltd;
58.2.The lack of an offer to pay monies into court;
58.3.The lack of an undertaking as to damages;
58.4.The delay by the husband in bringing any application of this nature for almost two years.
Conclusion in relation to other applications by the husband
Although counsel for the husband indicated that orders 3 – 6 as sought might be recast, that did not happen at the subsequent relisting. I will deal with them briefly.
Firstly the husband seeks to be reappointed as a director of S Nominees which is currently in liquidation in circumstances where he is an undischarged bankrupt. That application cannot succeed due to his automatic disqualification without leave of the court (s 206B(3) Corporations Act 2001 (Cth)). The purpose the husband wishes to be reappointed as director is to enable him to interfere with the mortgagees’ sale of R property. The husband has demonstrated no basis upon which such an order would be appropriate. There is no proper basis for the husband to obtain the court’s leave or to be appointed as an agent for S Nominees as sought in the alternative. There is nothing from the liquidator about this issue.
The husband has not identified any proper basis that would justify interfering with the contractual arrangements between the parties in relation to interest rates levied by N Pty Ltd.
The husband’s request for an “examination summons” was put on the basis that the husband wished to involve the court in an inquiry as to whether or not there might be a cause of action available to him upon the inspection of the records. Any inquiry would be in the nature of a fishing expedition. There is no proper evidentiary basis which would warrant the order sought.
The husband has not put forward a proper basis, or identified power that would enable me to direct a mortgagee in the position of N Pty Ltd to lend monies to a company in liquidation to permit it to undertake rezoning and subdivision applications. Counsel for N Pty Ltd refers to St George Bank Ltd v JB (Northbridge) Pty Ltd [2009] NSWSC 1347, Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 382 as a basis of submitting that the receiver cannot incur a liability which binds the company while the company is in liquidation.
In relation to applications 3 to 6 as sought by the husband in his Application in a Case filed 17 August 2012, I dismiss those applications for two reasons:
64.1.They are not supported by any application for final orders;
64.2.Counsel for the husband during submissions made it clear that these were not the form of the orders that the husband sought on a final basis. Counsel for the husband did indicate that the husband wanted some “examination summons” issued against N Pty Ltd, but even if an application for such an interlocutory order was fashioned it needs firstly to have some prima facie justification and there does not appear to be any.
It follows the whole of the husband’s Application in a Case filed 17 August 2012 will be dismissed.
CAVEATS
Immediately following the argument on 6 September 2012 in respect of whether interlocutory injunctions should be granted, and notwithstanding that my decision was reserved, the husband lodged the following caveats over titles in respect of the R property (the caveats):
66.1.on 7 September 2012, the husband lodged caveat no. AH220034C in respect of the land described in and comprising folio identifiers … and …;
66.2.on 17 September 2012, the Husband lodged caveat no. AH240895H in respect of the land described in and comprising folio identifiers …, and ….
The caveats relate to the various titles collectively constituting the R property.
In each of the caveats:
68.1.the husband claims an estate or interest in the relevant land purportedly as a "Beneficiary of a trust of which the registered proprietor is the trustee which is the subject of a court order of the Family Court of Australia"; and
68.2.the purported estate or interest is claimed by virtue of a "Family Court Order" dated 17 June 2010, by which it is asserted by the husband that "The Court Order prohibits the sale of the property until a report has been received from [W Pty Ltd] confirming the sale will not adversely affect a proposed rezoning and subdivision and until 21 days notice is given to the Caveator".
N Pty Ltd holds security over the property titles the subject of the caveats. It has entered possession as mortgagee and has sought to conduct an orderly realisation of its security. The caveats lodged by the husband prevent any sale of R property by either N Pty Ltd or the Receivers.
By Application in a Case dated 20 September 2012 (as amended on 4 October 2012), the Receivers and N Pty Ltd seek orders requiring the husband to have the caveats withdrawn, together with ancillary orders.
I need to consider whether or not the husband’s claim to an estate or interest by caveat can be maintained by him.
Although it was not argued, given the application by the husband for interlocutory injunctions and the effect of the caveats that he has lodged, the court would have found accrued jurisdiction to deal with the matter under the Real Property Act 1900 (NSW) had that application been made. Instead, the court is asked to make in personam orders against the husband.
In this case the caveat relies upon orders that I have made as a basis upon which an interest in land has been created.
Because of that connection and in order to avoid a multiplicity of proceedings in the New South Wales Supreme Court, it is appropriate that I exercise the powers that I have in considering the Receivers’ and N Pty Ltd’s application for orders against the husband for removal of the caveats.
As discussed below, some identical principles apply in relation to the sustainability of the caveats and as to whether interlocutory injunctive relief would lie to restrain the Receivers from the sale of the R property in consequence of orders of 17 June 2010.
In addition it is argued that there are additional impediments to the lodging of caveats by the husband.
Lodgment of caveats – general principles
The caveats have been lodged pursuant to s 74F of the Real Property Act 1990 (NSW) (“the Act”).
Pursuant to s 74F of the Act, a person who claims to be entitled "to a legal or equitable estate or interest in land" may lodge a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled.
It is only a person who has a legal or equitable interest in land, partaking of the character of an estate in it or equitable claim to it, who can lodge a caveat. That is, the requisite interest of a caveator must be a proprietary interest in the land.
It is the existence of such an interest in the land that gives the caveator the locus standi to caveat.
The connection between the injunctive relief sought and the relief sought in respect to the caveats
The requisite interest in the land necessary to create a caveatable interest must be one in respect of which equity would grant specific relief or protect by specific injunction. In Composite Buyers Ltd v Soong (1995) 38 NSWLR 286, Hodgson J stated that (at 288):
In my opinion, what is necessary is that there be an interest in respect of which equity will give specific relief against the land itself, whether this relief be by way of requiring the provision of a registrable instrument, or in some other way giving satisfaction of the interest claimed by the caveator out of land itself, for example by ordering the sale of the land and payment out of the proceeds of an amount in respect of which the caveator has a charge.
The view that the important requirement is that the interest be one in respect of which the Equity Court will give specific relief against the land is supported by the judgment of Mahoney JA in Troncone v Aliperti, where he goes to the extent of saying in a covenant by deed by the registered proprietor that until a loan be repaid he will not sell or deal with the land would, if the Court would enforce that covenant by injunction, give rise to a legal or equitable estate or interest in land within s 74F.
In the recent case of Anna Katherine Szozda & Ors v NSW Trustee & Guardian & Ors [2012] NSWSC 194, Nicholas J referred with apparent approval to the decision in Composite Buyers Ltd v Soong and stated that (at [22]):
It follows that it is necessary for the caveator to demonstrate a proprietary interest in respect of which he could obtain equitable relief to satisfy the interest out of the land itself e.g. by an order for the sale of the land.
In J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546, Barwick CJ described the purpose of a caveat in the following passage:
Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration.
Similarly, Windeyer J said:
[T]he primary purpose of a caveat against dealings is not to give notice to the world of an interest. It is to warn the Registrar-General of a claim. The word caveat has long been used in law to describe a notice given to an official not to take some step without giving the caveator an opportunity to oppose it ... If a person intending to deal with the registered proprietor becomes aware of a caveat, it is notice to him of a claim that an interest is outstanding: and then: caveat emptor ...
Thus, the underlying nature of a caveat is similar to an interlocutory injunction. The Privy Council in Eng Mee Yong & Ors v Letchumanan [1980] AC 331 held, in relation to the Malaysian equivalent of an application for removal of a caveat, that a procedure which is similar to that adopted on applications for an interlocutory injunction is appropriate:
The caveat under the Torrens system has often been likened to a statutory injunction of an interlocutory nature restraining the caveatee from dealing with the land pending the determination by the Court of the caveator's claim to title to the land, in an ordinary action brought by the caveator against the caveatee for that purpose. Their Lordships accept this as an apt analogy with its corollary that caveats are available, in appropriate cases, for the interim protection of rights to title to land or registrable interest in land that are alleged by the caveator but not yet proved. Nevertheless their Lordships would point out that the issue of a caveat differs from the grant of an interlocutory injunction in that it is issued ex parte by the Registrar acting in an administrative capacity without the intervention of the Court and is wholly unsupported by any evidence at all. Unless there were some speedy procedure open to the registered proprietor to get the caveat set aside in cases where the caveator's claim is baseless or frivolous or vexatious, the Torrens system of land registration and conveyancing, so far from giving certainty to title to land ... would leave the registered proprietor in a more precarious position as respects his powers of disposition of his land than an unregistered proprietor under English law.
Their Lordships went on to state the onus on a caveator (i.e. the husband) on an application made by the caveatee (i.e. the Receivers) for the removal of the caveat in the following passage:
[The caveator] must first satisfy the court that on the evidence presented to it his claim to an interest in the property does raise a serious question to be tried; and, having done so, he must go on to show that on the balance of convenience it would be better to maintain the status quo until the trial of the action, by preventing the caveatee from disposing of his land to some third party.
A similar approach has been taken in relation to the Real Property Act 1900 (NSW). Waddell J said in Martyn and Another v Glennan and Another[1979] 2 NSWLR 234:
In the light of these expressions of opinion, it seems to me that the appropriate principle to apply in the present case is to inquire whether the defendants would, in all the circumstances, be entitled to an interim injunction and, if not, to order that the caveat be withdrawn.
The onus rests on the husband to justify the maintenance of a caveat.[1]
The Receivers’ and N Pty Ltd’s arguments against the maintenance of the caveats
i)[1] Re Little; Ex parte Thorne's Bankstown Estate Ltd (1929) 29 SR (NSW) 401.
The Receivers submit that the caveats are not maintainable for at least the following reasons:
89.1.first, the orders dated 17 June 2010 do not bind N Pty Ltd (or any other mortgagee);
89.2.secondly, the orders do not establish a "caveatable interest" in the land in favour of the husband;
89.3.thirdly, the husband has failed to pay into court the outstanding debt (the sum of $34 million), which is a condition of the maintenance of a caveat against a mortgagee;
89.4.fourthly, the balance of convenience does not favour the maintenance of the caveats; and
89.5.fifthly, an undertaking as to damages is a pre-condition to the maintenance of the caveats.
The husband’s status as a beneficiary of a discretionary trust
Counsel for the husband submits that the husband has an inchoate proprietary interest as a discretionary beneficiary under a trust that gives rise to a caveatable interest. He cites in support of that proposition Riverview Projects Pty Ltd v Elleray & Anor [2007] VSC 150. That case however does not deal with the rights of a beneficiary of a discretionary trust but rather the rights of a beneficiary under an implied or constructive trust which by their very nature constitute interests in land.
In Szozda, the caveator claimed an interest in the property by virtue of a trust deed by which he was a named beneficiary (amongst other reasons). Relevantly, Nicholas J referred to relevant authorities and held in this regard that the caveator did not have the necessary proprietary interest, stating at [31] that:
The reality is that Mark is a beneficiary of a discretionary trust, with the right to equitable relief to restrain an improper dealing with trust property, or to enforce the proper management of the trust by Szozda Holdings. However, he has no equitable interest in the trust income or assets and in particular in the properties affected by the caveats (Redglove Projects par 32; ASIC pars 26–30). In other words, he does not have the necessary proprietary interest in the properties as described in Composite Buyers (p 288) which entitles him to lodge a caveat under s 74F(1). In my opinion, in the circumstances, Mark has no equitable estate in the properties by virtue of the trust deed of 11 August 1975 and pars 2 and 3 of Annexure A to schedule 1 to the caveats. It follows that extension of the caveats based on the claims to an interest under s 74F(1) must be refused. [emphasis added]
In the facts of this case, I am unable to find that the husband has a caveatable interest in the land as a beneficiary of a discretionary trust.
Are the caveats sustainable in their current form?
The caveats lodged by the husband do not rely upon a sale at undervalue but rather the alleged breach of this court’s orders.
Seen in this light, the evidence that the husband leads in relation to any allegations as to the breach of the mortgagee’s duties are irrelevant when one comes to assess the sustainability of the caveats. This is because that is simply not the basis upon which the caveats have been lodged by the husband.
The caveats which the husband has lodged are to be assessed according to whether the rights asserted in the caveats themselves give rise to a caveatable interest (see Brereton J in Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997; (2005) 12 BPR 23,403 at [21]).
In each of the caveats, the husband refers to a "Family Court Order" dated 17 June 2010 in purported support of his claim to an estate or interest in the relevant land.
No particular paragraph of the orders made 17 June 2010 is identified by the husband. However, it is assumed that the husband seeks to refer to paragraphs 7 and 8 of those orders. It is convenient to again set out the terms of these orders:
7.The operation of Order number 5 made on 23 September 2008 insofar as same operated to prevent the sale of a property owned by [S Nominees] being the land in folio identifier … at [U Street, V Town] in the State of New South Wales ("the property") be and the same is hereby discharged so far as is necessary to enable the property be sold by [S Nominees] in accordance with the orders made on 26 June 2009 as soon as practicable for the best price reasonably available upon and subject to the receipt by the wife in her capacity as Director of [S Nominees] of advice from [W Pty Ltd] that such sale will not inhibit or adversely affect the proposed subdivision, and rezoning of [S Nominees'] remaining lands at [V Town] PROVIDED THAT [S Nominees] shall not exchange contracts in respect of any proposed sale of the property until [S Nominees] has given the husband 21 days notice of the proposed sale.
8.The husband has liberty within 14 days from receiving notice from [S Nominees] in relation to a proposed sale of the property to file any application upon which he seeks to rely in respect of that sale and any affidavit evidence in respect of which he seeks to rely in relation to that application and in those circumstances [S Nominees] shall not exchange contracts until that application is determined.
Paragraph 7 of the orders of 17 June 2010 in turn refer to the property being sold by S Nominees in accordance with the orders made on 26 June 2009.
As I have indicated above, the husband's purported reliance upon the orders of 17 June 2010 is misplaced. Those orders do not bind or confer any rights on the husband against N Pty Ltd, the mortgagee in possession.
First, the terms of paragraphs 7 and 8 of the Orders are specifically directed to S Nominees. There is nothing in the Orders that refers to or otherwise binds N Pty Ltd as mortgagee in possession.
Secondly, the terms of the orders made on 17 June 2010 only refer to the land in folio identifier …. This is just one of the titles referred to in caveat AH220034C, and the orders have no bearing upon the remaining titles the subject of the caveats.
Thirdly, the referenced order made on 26 June 2009, whilst prescribing a certain procedure to be adopted by the wife, the husband, and S Nominees for the sale of certain properties, is not directed to N Pty Ltd as mortgagee in possession.
Fourthly, the orders made on 26 June 2009 specifically note (in paragraph 13 thereto) that such orders "are not intended to affect any right a mortgagee might otherwise have to sell a property". The operation of the orders therefore specifically excludes N Pty Ltd as mortgagee in possession.
Therefore, N Pty Ltd is not bound by the orders referred to by the husband in the caveats. To the extent that the husband may have rights pursuant to the orders of 17 June 2010, those rights do not and cannot bind N Pty Ltd as mortgagee in possession. The husband has therefore failed to discharge his onus of establishing that the right asserted to sustain the caveats (the alleged contravention of the orders of 17 June 2010) gives rise to a sufficient prima facie case for final relief against N Pty Ltd.
The argument as to whether or not a breach of mortgagee duty would sustain a caveat
There was a significant difference between the parties as to whether or not a mortgagee’s duty, if breached in a way which results in the property being sold for undervalue, gives rise to an equitable interest in land which may be caveated.
Counsel for the husband submitted that “a party seeking to prevent or impeach a sale by a mortgagee on the grounds of [sic] the mortgagee has or will improperly exercise its power of sale may give rise to sufficient grounds to establish a caveatable interest.”
Counsel referred to Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 87, where Needham J held that a defrauded mortgagor had an equitable interest within the meaning of s 72(1) Real Property Act 1900 (NSW). His Honour went on to say “the question of whether the registered proprietor may lodge a caveat before the completion of the contract is not different from the question whether, after the contract has been completed and the transfer registered, the mortgagor may lodge a caveat to protect his right to have the sale set aside.”
As counsel for the Receivers and N Pty Ltd pointed out, the decision in Sinclair predates the decision of Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd and Anor [1994] 1 VR 672. In Swanston, Brooking J, with whom Southwell and Teague JJ agreed, analysed the decision of Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liq) [1965] 113 CLR 265 and discussed the distinction between a “mere equity” and an “equitable interest”. While his Honour was of the view that a mortgagor has an equitable interest after a voidable contract has been completed, his Honour said:
The conclusion that the mortgagor has only an equity, not an interest in land, for the purposes of a caveat in cases where no transfer has been registered seems to me to follow if I am correct in my conclusion that on the reasoning of Kitto J and Menzies J in the Latec Investments Case the mortgagor in that case had no caveatable interest.
Counsel for the Receivers and N Pty Ltd correctly points out that the decision in Swanston was followed in Vasiliou v Westpac Banking Corporation & Ors [2007] VSCA 113. However, neither counsel for the Receivers and N Pty Ltd, nor counsel for the husband drew attention to the controversy surrounding the Swanston decision. Indeed in Vasiliou, the Court acknowledged criticism of the decision in Swanston:
120 The decision in Swanston Mortgage has been followed or implicitly approved in decisions of this Court, but a different approach has been taken in New South Wales. In Patmore v Upton, Underwood J undertook a detailed analysis of the competing authorities and declined to follow the Swanston Mortgage decision. The decision in Swanston Mortgage has been criticised in journal articles and the learned authors of Meagher Gummow and Lehane, Equity Doctrines and Remedies, suggest that it is wrong.
121 It may be that the correctness of the Swanston Mortgage decision requires reconsideration. But, unless and until that decision is overruled after a full hearing before a bench of five appellate judges, we are bound by it. [citations omitted]
In Patmore v Upton [2004] TASSC 77, Underwood J (as he then was) said at paragraph 60:
…Swanston has been gently criticised by Ms Rodrick in The Response of Torrens Mortgagors to Improper Mortgage Sales [1996] MonashULawRw 12; (1996) 22 Mon ULR 289 at 336 et seq, and vigorously criticised by Mr David Wright in Does the Registered Proprietor Have a Caveatable Interest? The authors of Meagher, Gummow and Lehane's Equity Doctrines & Remedies have this to say about Swanston in the fourth edition at 151:
"Even if the competition were viewed as between the mortgagor entitled only to an equitable interest (his equity of redemption) and the purchaser asserting his equitable interest under the contract, the former must succeed on the ordinary rules as to priority. Before completion of the contract there was no conveyance to be set aside and thus no 'impediment' to the assertion of the mortgagor's equity of redemption; so, in contrast to Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liq) [1965] HCA 17; (1965) 113 CLR 265; [1966] ALR 775, the mortgagor's interests had not been degraded to a 'mere equity' and in a suit to restrain completion of the contract the earlier equitable interest was to prevail. These principles were applied by Needham J in Sinclair v Hope Investments Pty Ltd [1982] 2 NSWLR 870 and Ryan J in Re McKean's Caveat [1988] 1 Qd R 524. They were ignored in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672, where Brooking J was beguiled by the reasoning in Latec's case into holding that a registered proprietor whose mortgagee had entered into, but not completed, a contract in fraudulent exercise of its power of sale lacked an interest in the land sufficient to support a caveat. That decision has been rightly condemned by D Wright (1995) 69 ALJ 935."
More recently, in Stone and Anor v Leonardisand Anor [2011] SASC 153, White J said:
[43] The decision in Swanston has been followed in a number of later decisions in Victoria, including Vasiliou v Westpac Banking Corporation; and by a Master in this Court in RMBL Investments Ltd v Lorbay Pty Ltd.
[44] On the other hand, a number of courts have either declined to follow, or noted criticisms of, Swanston. These decisions include Patmore v Upton; McCourt v National Australia Bank Ltd; and Capital Finance Australia Ltd v Bayblu Holdings Pty Ltd. In this State both Judge Withers in Nubanc Finance Pty Ltd v BNY Trust (Aust) Registry Ltd (No 2) and Judge Clayton in Jacem Pty Ltd v RMBL Investments Ltd have held that a caveat may be lodged by a mortgagor who contends that the mortgagee’s exercise of its power of sale is improper. In addition, the decision in Swanston has been the subject of criticism by academic writers and by the authors of Meagher, Gummow and Lehane’s “Equity: Doctrines and Remedies”.
[45] The criticisms of Swanston have included the following:
(1) It failed to recognise that until the registration of a transfer by a mortgagee exercising its power of sale, the mortgagor retains the legal interest, that being an interest which can be protected by caveat, and that even if the mortgagor has only an equitable interest arising from the equity of redemption, it is still an interest which can be caveated.
(2) Brooking J had said that on the approach of Kitto J in Latec, the mortgagor in Latec could not on any view be said to have had a caveatable interest. However, Kitto J had not made any statement to that effect and had not addressed the issue of a possible caveatable interest.
(3) Although Brooking J had construed the reasoning of Menzies J in Latec as indicating that the registered proprietor’s interest in circumstances such as the present was only a mere equity, Menzies J had not addressed the position and his reasoning did not have to be construed in that narrow way.
[46] The decision in Swanston, being a decision of an intermediate Court of Appeal in another State on a legislative provision which is in comparable terms to s 191, does of course command considerable respect. This court should not depart from the approach in Swanston unless convinced that the decision is plainly wrong.
[47] However, as already noted, Swanston has been the subject of considerable criticism. Courts in at least two States (Patmore in Tasmania and Capital Finance in New South Wales) have declined to follow it. I note also that the decision of Needham J in Sinclair v Hope Investments has continued to be followed in New South Wales. Although the Court of Appeal in Victoria followed Swanston in Vasiliou v Westpac Banking Corporation, the court noted the criticisms which had been made and accepted that the correctness of Swanston may require reconsideration.
[48] In my respectful opinion, the criticisms of Swanston are well made. I consider, with respect, that this court is entitled to hold that the decision in Swanston is clearly wrong and that this court should not follow it. [citations omitted]
The issues that arise from the preceding discussion were not argued before me. I need not form a concluded view on this plank of the Receivers’ and N Pty Ltd’s case for an order that the husband remove the caveats as that application succeeds for other reasons.
Given the other basis upon which the caveats must fail, I do not need to determine whether or not I am bound by Swanston (although I am probably not).
Need for payment of outstanding debt into court
The earlier discussion of Inglis and the husband’s failure to pay the liability owed to N Pty Ltd into court applies as much to whether or not a caveat can be maintained as it does to the principles governing interlocutory injunctions. In Gippsreal Ltd v Paul Vincent Hanna [2009] NSWSC 169, Brereton J [at 4] said:
It is well established that a mortgagor is entitled to an injunction restraining the exercise of a power of sale by a mortgagee only on payment into Court of the amount of the mortgage debt… In the absence of any ability to pay the mortgage debt into Court, a mortgagor’s remedy is by way of proceedings for an account, or an action for breach of duty against the mortgagee.
The husband’s failure to pay money into court or to provide any undertaking as to damages is an additional reason why his caveats cannot be maintained.
Conclusion in relation to caveats
The husband has no basis to maintain the caveats as they are currently drawn or more generally. In the circumstances, the husband should be required to take all necessary steps to withdraw the caveats. It is appropriate for the orders which are sought in personam against the husband to be made.
106A APPLICATION
Counsel for the Receivers and N Pty Ltd made an oral application for an order under s 106A Family Law Act 1975 (Cth) (“FLA”). The husband did not wish to be heard in relation to that oral application. Given the history of this matter, it is appropriate for that order to be made, to avoid a further court application in the event the husband is not cooperative in relation to signing withdrawals of caveats.
COSTS
The Receivers and N Pty Ltd have sought that the husband pay the costs of the husband’s Application in a Case filed 17 August 2012 and their amended Application in a Case filed 8 October 2012.
The orders sought by the husband in his Application in a Case filed 17 August 2012 were not ones which were likely to be able to be made from the outset. The husband has been wholly unsuccessful in the prosecution of that application. Notwithstanding that the husband is an undischarged bankrupt, it is just that a costs order be made against the husband.
In relation to the second application, the husband chose to lodge caveats immediately following me reserving my decision as to whether or not the husband’s application for injunction in relation to the selling of any land at R property by the mortgagee exercising power of sale should be granted. The Receivers and N Pty Ltd have been wholly successful in their application to have the caveats removed and it is just that an order for costs be made in their favour.
In their written submissions, the Receivers and N Pty Ltd have sought liberty to pursue a costs application against the husband’s solicitor. The seeking of such leave is misconceived. In the event that the Receivers and N Pty Ltd believe they have proper grounds, they may make such an application as of right (s 117(2) FLA; rule 19.10 Family Law Rules 2004 (Cth)). It goes without saying that any unsuccessful application may itself result in an order for costs against the Receivers and N Pty Ltd.
I certify that the preceding one hundred and twenty-one (121) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 26 October 2012.
Associate:
Date: 26.10.2012