Antar v Fairchild Development Pty Ltd (R&M App) & Ors

[2008] NSWSC 638

CITATION:	Antar v Fairchild Development Pty Ltd (R&M App) & Ors [2008] NSWSC 638
HEARING DATE(S):	16 June 2008
JUDGMENT DATE :	16 June 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Palmer J
EX TEMPORE JUDGMENT DATE:	16 June 2008
DECISION:	Caveat extended.
CATCHWORDS:	CAVEAT – EXTENSION – Whether prima facie case for caveatable interest made out. - POWER OF SALE – Whether mortgagee whose receiver adopts and seeks to enforce a contract for sale made before appointment of receiver is exercising power of sale and may invalidate a lease under s 53(4) Real Property Act.
LEGISLATION CITED:	Real Property Act 1900 (NSW) – s 53(4), s 74K, s 74MA
CATEGORY:	Procedural and other rulings
CASES CITED:	- Iron Trades Employers’ Insurance Association Ltd v Union of House & Land Investors Ltd [1937] Ch 313 - Parkinson v Braham [1962] SR(NSW) 663
PARTIES:	Abdul Rahim Antar (Plaintiff) Fairchild Development Pty Ltd (R&M App) (In liq) (First Defendant) John Frederick Lord (Second Defendant) Atle Crowe-Maxwell (Third Defendant) St George Bank Limited (Fourth Defendant)
FILE NUMBER(S):	SC 2825/08
COUNSEL:	A.J. Grant (Plaintiff) N.J. Kidd (Fourth Defendant)
SOLICITORS:	Thurlow Fisher (Plaintiff) N.J. Kidd (Fourth Defendant)

2825/08 Antar v Fairchild Development Pty Ltd (R&M App) & Ors

JUDGMENT – Ex tempore
16 June, 2008

1 There are two Notices of Motion before the Court. The Plaintiff's Amended Notice of Motion seeks an order pursuant to s 74K of the Real Property Act 1900 (NSW) extending the operation of a caveat. The Fourth Defendant's Notice of Motion seeks an order under s 74MA of the Real Property Act that the Plaintiff withdraw that caveat forthwith. The same questions arise in both applications: does the Plaintiff have an arguable or prima facie claim to the interest which he seeks to protect by the caveat and, secondly, where does the balance of convenience lie as to whether or not the caveat should be extended or should be withdrawn. The facts are somewhat unusual. For the purposes of these applications they may be summarised as follows.

2    The First Defendant (“Fairchild”), is the registered proprietor of commercial premises at Fairfield comprising retail shops and offices. The Plaintiff, Mr Antar, carries on business as a green grocer. In early 2006 he negotiated for a lease for one of the shops in the premises. He attended a number of meetings with Mr Mahmoud, a director of Fairchild. Mr Antar says that agreement as to the essential terms of the lease was reached and he embodied those terms in a document which was signed by Mr Mahmoud and another director of Fairchild, Mr Skaf, on or about 17 February 2006. That document, apparently signed by the two directors of Fairchild, is in evidence.

3    Fairchild gave instructions to its solicitors to prepare a formal lease. While documentation was being prepared, Mr Antar paid a deposit to Fairchild and was let into possession of the shop. He undertook a fit-out and commenced trading from about May 2006. He continues to trade in the shop to the present time. He has paid rent since June 2006 after expiry of a rent-free period and his rent is currently paid up to 30 June 2008.

4    The execution of a formal lease between Mr Antar and Fairchild was delayed because of a dispute between those parties as to its terms. Protracted correspondence between the parties and their solicitors ensued. On 2 May 2007, as the dispute had not then been resolved, Mr Antar's solicitors lodged a caveat against the title to the Fairfield property. The nature of the estate or interest claimed was described thus:

“Leasehold interest pursuant to agreement dated 17 February 2006.”

The facts relied upon were stated thus:
“On 17 February 2006, the Caveator sent a facsimile to MUHAMMED MAHMOUD (described in ASIC company abstract of ACN 098 155 670 as ABOU MAHMOUD MOHAMED) a director of FAIRCHILD DEVELOPMENT PTY LIMITED and described thus: ‘This is an outline of our agreement’. MAHMOUD signed the fax and sent it back to the Caveator by return fax.”

The caveat has been registered.

5    On 15 October 2007 Fairchild entered into a contract with Northaxis Pty Limited for the sale of the whole of the Fairfield property for a sum in excess of $4.6M. The directors and shareholders of Northaxis were, at the time of the contract, and remain, two of the three directors of Fairchild, namely Mr Mahmoud and Mr Trad. As at the date of the contract, the dispute between Mr Antar and Fairchild as to the terms of the lease had not been resolved.

6    The contract for sale required completion six months after its date, that is, by 15 April 2008. It provided on the first page that the property was sold “subject to existing tenancies”. There was no list of the tenancies. However, included in the documentation attached to the contract were copies of certain executed leases, together with a title search which disclosed the caveat registered in May 2007 by Mr Antar. There must be, at least, an arguable inference that, quite apart from a disclosure in the contract which must have put Northaxis upon enquiry as to the interest claimed in Mr Antar’s caveat, Northaxis through its directors, who were also directors of Fairchild, was actually aware when it entered into the contract that Mr Antar was in occupation of the shop premises and was claiming that he had an enforceable agreement for lease. There must, at the least, be an arguable case that, if it were ultimately found that Mr Antar did have an enforceable agreement for lease, the contract for sale between Fairchild and Northaxis was subject to that tenancy.

7    Fairchild had granted a first registered mortgage over the whole of the Fairfield property to St George Bank on 10 December 2004. Clause 8 of the mortgage provided that Fairchild could not do, or agree to do, a number of things in relation to the mortgaged property without the Bank's consent. In particular, Fairchild could not, without consent, agree to lease the property or to part with possession of any of it. It is not in dispute that Fairchild has never requested the consent of the Bank to the alleged agreement for lease to Mr Antar.

8    On 16 November 2007, the directors of Fairchild appointed Mr Kassem and Mr Andrew as administrators of the company. That appointment constituted an event of a default under Fairchild's mortgage with the Bank, and on 28 November 2007 the Bank appointed Messrs Lord and Crowe-Maxwell as Receivers and Managers of Fairchild. The Receivers entered into possession of Fairchild's assets. On 13 December 2007 Messrs Kassem and Andrew were appointed liquidators of Fairchild in a creditors' voluntary winding up.

9    The Receivers have endeavoured to obtain completion of the contract for sale to Northaxis entered into by Fairchild prior to their appointment. The scheduled date for completion of that contract, 15 April 2008, has passed. Northaxis is taking the position that it will not complete the contract unless the caveat lodged by Mr Antar is first removed. The Receivers seek to enforce that contract and to obtain performance of it but in order to do so they wish to have Mr Antar's caveat removed in compliance with the requisition of Northaxis.

10 The Receivers say they are entitled to have the caveat removed because the interest claimed by Mr Antar cannot possibly prevail against the Bank as mortgagee. They rely upon s 53(4) of the Real Property Act, which provides:

“A lease of land which is subject to a mortgage, charge or covenant charge is not valid or binding on the mortgagee, chargee or covenant chargee unless the mortgagee, chargee or covenant chargee has consented to the lease before it is registered.”

11 It is arguable that s 53(4) of the Real Property Act applies only when a leasehold interest is asserted against a mortgagee who has not consented to its grant; it does not invalidate the rights and obligations between the lessor and the lessee themselves. So, for example, a lease to which the mortgagee has not consented could not prevent the mortgagee from evicting the lessee in order to exercise its power of sale and to convey a title clear of the lease, but the lease would be enforceable by the lessee against the lessor and against anyone else other than the mortgagee: see e.g. Iron Trades Employers’ Insurance Association Ltd v Union of House & Land Investors Ltd [1937] Ch 313, at 317ff; Parkinson v Braham [1962] SR(NSW) 663, at 672.

12    In the present situation, the Bank is not selling the property to Northaxis in exercise of its power of sale. As Counsel for the Bank, Mr Kidd, concedes, the Receivers are the agents of Fairchild itself in seeking to enforce a contract entered into by Fairchild prior to their appointment. It is true that Northaxis insists that it will not perform that contract while it is subject to the claimed tenancy of Mr Antar. However, Northaxis may not be justified in taking that position, for the reasons which I have given. It may be that the contract, in fact, compels Fairchild to transfer, and Northaxis to accept, a title subject to Mr Antar’s tenancy. It may be that the Receivers, as agents of Fairchild, will decide to seek specific performance of the contract according to its terms.

13    Mr Kidd says that specific performance of the contract would never be granted because the Bank would not consent to the lease to Mr Antar and would never permit registration of the transfer to Northaxis even if the Court were prepared otherwise to order specific performance. I think that that is a somewhat artificial position. The Bank is concerned only with one thing: recovering its security. As the evidence presently stands, the contract with Northaxis is the best offer available to the Receivers, the evidence suggesting that the market has fallen for this type of property since the date of the contract. If, therefore, there was an order that Northaxis specifically perform the contract and take title subject to the tenancy of Mr Antar, it is hard to see how it could be in the interests of the Bank to stand in the way of completion of that contract by refusing consent to any lease which might be established on behalf of Mr Antar and, thereby, frustrating the achievement of the only purpose with which it is concerned, namely, recovery of the maximum value of its security.

14    It seems to me that, as matters presently stand, it is premature for the Bank as mortgagee to insist on removal of the caveat protecting Mr Antar's claimed leasehold interest. In the scenario which I have depicted, it may well never arise that the Bank has to exercise its power of sale because, as I have said, it may be that the contract with Northaxis will be specifically performed.

15    If, for some reason, the contract with Northaxis fails and is terminated by one side or the other so that the Bank is then directly and immediately confronted with the necessity to exercise its power of sale in its own right, as it were, rather than by adopting a contract made by Fairchild itself, then, if it wishes, it may prevail in its claim against Mr Antar so that his caveat does not stand in the way of a new sale.

16    However, that situation at the moment is hypothetical because it may be that if the Bank comes to exercise its power of sale directly it will find that purchasers are more interested in having Mr Antar as a tenant in the shop than having the shop vacant. There is no evidence of any weight suggesting to the contrary. One of the employees of the Receivers thinks that the property would be more valuable without Mr Antar as tenant, but gives no reasons in support of that view. That view is contradicted by the Receivers’ own real estate agent. There are many possibilities as to what may arise in the future. It is for this reason that, as matters presently stand, I think that the Bank's claim to have the caveat removed is premature.

17    In my view, there is a serious question to be tried as to whether:

– Mr Antar has an enforceable agreement for lease as against Fairchild;

– if the agreement for lease is established as enforceable, the contract between Fairchild and Northaxis is subject to that agreement;

– Northaxis may be compelled to complete the contract with Fairchild, subject to the claim of tenancy made by Mr Antar;

Further, there is a serious question whether the contract between Fairchild and Northaxis is a contract made in the exercise of the Bank’s power of sale or whether it has been adopted by the Bank and the Receivers so that the Bank has no present right to invalidate under s 53(4) Real Property Act .

18    As to whether the balance of convenience favours an order for withdrawal of Mr Antar’s caveat, for the reasons I have stated, I think that any such action now by the Bank would be premature.

19    As to whether the balance of convenience favours extending the caveat, it seems to me that it does. The question whether Northaxis will perform the contract must be ascertained with certainty and the Receivers must decide what they wish to do about enforcing that contract if Northaxis refuses to complete and take title subject to Mr Antar’s claimed tenancy. If the sale is lost, then the Receivers, on behalf of Fairchild, will have their remedy in damages against Northaxis if Northaxis has wrongfully rescinded. They will have a remedy in damages pursuant to the usual undertaking for damages to be extracted from Mr Antar if the sale is lost because Northaxis rightly rescinds and Mr Antar fails to establish his claim to an enforceable agreement for lease.

20    Further, Mr Antar is presently trading in the premises and has continued to do so since early 2006. He has paid his rent up to 30 June 2008. Extending the caveat will enable him to continue trading until the issues which I have outlined above can be determined. Finally, it remains to be seen whether, if the contract with Northaxis is terminated, a new purchaser wishes to have Mr Antar as a continuing tenant.

21    It seems to me that the best way of cutting the Gordian Knot between these parties is to bring about proceedings whereby the Receivers endeavour to enforce the contract against Northaxis if Northaxis continues to refuse performance, and that in the one set of proceedings (or by different proceedings heard at the same time) there are decided the issues as to whether there is an agreement for lease which is binding as between Fairchild and Mr Antar, whether the Northaxis contract is subject to such an agreement for lease, whether specific performance would be ordered of that contract, and whether the Bank has any right to frustrate an order for specific performance by refusing to consent to such a lease or by refusing to permit registration of a transfer in performance of the contract. There are many questions to be resolved; those are but some of them. They are not for resolution in such an application as this.

22    For those reasons, I am of the view that the caveat lodged by Mr Antar should be extended until further order of the Court and the Bank's Motion should be dismissed.

23    The Plaintiff seeks costs on the indemnity basis against the Second and Third Defendants, who are the Receivers and Managers or, alternatively, against the Fourth Defendant, the Bank, in respect of the Amended Notice of Motion which the Plaintiff filed for the extension of his caveat. The Plaintiff also seeks costs against the Bank in respect of the Notice of Motion which the Bank filed for withdrawal of the caveat.

24 Mr Grant of Counsel, who appears for the Plaintiff, has taken me to correspondence from the Receiver's solicitors which suggested a number of grounds for the Bank's stance. One of those grounds was without foundation, namely, that an agreement for lease could not give rise to a caveatable interest in land. That submission was not made today but the Bank did press an alternative argument founded upon s 53(4) of the Real Property Act.

25    I cannot say that that argument was bound to fail and that responsible counsel could not reasonably have put such an argument. The fact that it has not found favour does not mean that the Bank and its advisers were acting improperly in putting forward their case. There is nothing in the conduct of the Bank's case otherwise which would lead me to conclude that an indemnity costs order should be made. Accordingly, I think that the Bank should pay Mr Antar’s costs of both Motions on the party/party basis.

26    However, I think that it is proper to order the Plaintiff’s costs of these Motions be assessed and paid by the Bank forthwith rather than at the conclusion of the proceedings, as would occur in the ordinary event. My reasons are as follows.

27    First, I regard the issues raised on these Notices of Motion as discrete and particular to these applications, giving rise to questions as to whether a prima facie case of a caveatable interest exists and where the balance of convenience lies. Second, the financial positions of Mr Antar and the Bank are manifestly different. The Bank will be far better able than Mr Antar to withstand the costs of what promises to be a rather complicated and lengthy litigation. Mr Antar should not have to wait until the conclusion of those proceedings, some time in the indefinite future, to have his costs of these Motions paid. Third, I have had regard to the fact that Fairchild is in liquidation and in receivership so that if Mr Antar ultimately succeeds against it in establishing his claim to an enforceable agreement for lease, he may not recover the whole of his costs.

28    Upon the Plaintiff by his counsel giving the usual undertaking as to damages, I make an order in terms of paragraph 7 of the Plaintiff’s Amended Notice of Motion, varied by deleting the words "the hearing of these proceedings" and substituting the words "further order of the Court". I order that the Fourth Defendant pay the Plaintiff's costs of both Notices of Motion, including reserved costs, on the party/party basis and that the costs be assessed and paid forthwith. I grant liberty to apply on two days’ notice. The material produced to the Court on a confidential basis can be returned immediately to the Fourth Defendant. I direct that the order for the extension of the caveat be entered forthwith.

– oOo –