Babies Galore v Kelso Builders Supplies

[2006] NSWSC 353

CITATION:	Babies Galore v Kelso Builders Supplies [2006] NSWSC 353
HEARING DATE(S):	20/04/06
JUDGMENT DATE :	20 April 2006
JURISDICTION:	Equity Division
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	04/20/2006
DECISION:	See para 23 of judgment.
CATCHWORDS:	REAL PROPERTY – Caveats – Plaintiff exercised option for renewal of lease and lodged caveat to protect its rights and interests under the lease – Second defendant, as mortgagee in possession, exercised power of sale over subject land – Second defendant entered into contract with third party for sale of subject land – Application by plaintiff for order to extend operation of caveat – Section 74K(2) of the Real Property Act 1900 (NSW) – Application granted.
LEGISLATION CITED:	Real Property Act 1900 (NSW)
CASES CITED:	Mercantile Credit Limited v Shell Company of Australia Limited (1976) 136 CLR 326 National Australia Bank limited v Bridge Wholesale Acceptance Corporation (Australia) Limited (1990) 21 NSWLR 96 Bahr v Nicolay (No. 2) (1988) 164 CLR 604
PARTIES:	Babies Galore Pty Ltd v Kelso Builders Supplies Pty Ltd & Anor
FILE NUMBER(S):	SC 2401/06
COUNSEL:	Plaintiff: M Lawson 2nd Defendant: M J Cohen
SOLICITORS:	Plaintiff: Smith Lawyers 2nd Defendant: N/A

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

WHITE J

Thursday, 20 April 2006

2401/06 Babies Galore Pty Ltd v Kelso Builders Supplies Pty Ltd & Anor

JUDGMENT

1 HIS HONOUR: The plaintiff is a lessee of part of the land at 433 Great Western Highway, Wentworthville. It seeks an order pursuant to s 74K(2) of the Real Property Act 1900 (NSW) extending the operation of caveat number AC105449 until further order. In support of that application the plaintiff, through its counsel, offers the usual undertaking as to damages.

2 By a lease registered number 3327080Y, the first defendant, Kelso Builders Supplies Pty Ltd, granted to a company called Baby Joy Pty Ltd, a lease of property described as being "all those warehouse premises situated on the land contained in folio identifier 1/784812 and known as 433 Great Western Highway, Wentworthville".

3 The lease was for a term of eight years, expiring on 31 July 2005, and was subject to an option for renewal for a further term of eight years.

4 On 29 June 2000, the lease was transferred to the plaintiff. That transfer was registered. The plaintiff exercised its option for renewal on or about 18 March 2005.

5 A new lease for the new term was entered into between Kelso Builders Supplies Pty Ltd and the plaintiff on a date which does not clearly appear. That lease has not been registered.

6 On 9 February 2006 the plaintiff lodged a caveat to protect its "interests and rights in terms of the lease of the subject land entered into between the caveator as lessee and the registered proprietor lessor which commenced on 1 August 2005”. There is no doubt that the plaintiff has a caveatable interest in the land.

7 The caveat, inter alia, prohibits the recording in the Register of any dealing, other than the plan, affecting the estate or interest claimed by the caveator.

8 The first defendant is in liquidation. The current dispute is between the plaintiff and the second defendant, Perpetual Nominees Limited. It is a registered mortgagee of the property. It appears from the title search, and this was not contested, that when it took its mortgage, it took it subject to the original registered lease in favour of Baby Joy Pty Ltd, number 3327080.

9 Assuming that the new lease which has been entered into was made pursuant to the exercise of the option of renewal, the second defendant is subject to the rights of the plaintiff under the renewed lease (Mercantile Credit Limited v Shell Company of Australia Limited (1976) 136 CLR 326).

10 From 6 October 2005, the solicitors for the plaintiff forwarded to the solicitors for the registered proprietor the lease executed by the lessee and asked for the registered proprietor to sign the lease and attend to its registration and the obtaining of the mortgagee's consent. Quite why the mortgagee's consent was thought to be required to the registration of renewed lease is not apparent. Be that as it may, the second defendant did not consent to the lease in its current form. The reason for that, I was told, was that it is concerned that the lease is expressed to cover a greater area than was provided for in the original lease, or at least a greater area than that which is intended should be the subject of a lease to the plaintiff.

11 I was told that there are a number of warehouse premises on the land and that the plaintiff occupies only one part of those premises. However, the new lease, reflecting the words of the original lease, provides that the property leased is "all those warehouse premises situated on the land". For its part, the plaintiff said that it would not assert that it was entitled to a lease over more land than it had occupied.

12 On the face of it, this is an issue which should be readily capable of being resolved. If the original lease and the new lease do contain a mistake as to the area of the land leased, it seems that the plaintiff will not seek to hold the lessor to that mistake. That, however, does not resolve the current issue.

13 On or about 12 March 2006, the second defendant, as mortgagee in possession, exercised its power of sale over the land and entered into a contract for sale to a company, Line Vale Pty Ltd. That contract is due to be completed on 5 May 2006. The contract provides that the property is sold subject to the tenancies referred to in the contract. The contract in turn identifies as the tenancies to which the sale is subject, the original lease to Baby Joy Pty Ltd, the transfer of the lease, and the unregistered lease to the plaintiff. It also notes the existence of the caveat.

14 The second defendant says that if the caveat is not removed, the purchaser will be entitled to refuse to complete as the vendor is obliged to remove any caveat from the title. (See National Australia Bank limited v Bridge Wholesale Acceptance Corporation (Australia) Limited (1990) 21 NSWLR 96 at 103-104).

15 The caveat would prohibit the registration of a transfer in favour of the purchaser, which affected the interest claimed by the plaintiff under the unregistered lease. In this case, the prima facie position appears to be that the second defendant's rights as mortgagee are subject to the rights of the plaintiff as lessee entitled to a registered lease pursuant to the exercise of the option for renewal.

16 If a transfer to the purchaser is registered, then, in the absence of fraud and subject to the possible in personam rights which the plaintiff might have against the purchaser, on the principles of Bahr v Nicolay (No. 2) (1988) 164 CLR 604, the purchaser would, on registration, take its interests free from those of the plaintiff. The procedures for lodgement of caveats are designed to prevent just such an occurrence.

17 Insofar as questions of balance of convenience are relevant, it is necessary to weigh, on the one hand, the adverse effects upon the second defendant if it is unable to complete the contract of sale, and on the other, the possibility that the plaintiff may be unable to assert its interest as lessee against a new unregistered proprietor.

18 Given the prima facie position that the second defendant's rights as mortgagee are subject to the rights of the plaintiff pursuant to the exercise of the option of renewal, I think that that balance clearly lies in favour of maintaining the caveat. Indeed, the chronology of the correspondence makes it clear that the issue as to whether the second defendant should consent to the registration of the lease so that it could be registered, and the plaintiff's seeking to protect its position by the lodgement of a caveat, all arose before the contract of sale was entered into.

19 There was doubtless good reason for the property being submitted for sale whilst the issue of the registration of the plaintiff's lease was unresolved. Nonetheless, it seems to me that the second defendant assumed the risk which has now emerged by selling the land before that issue was resolved. The balance of convenience does not dictate that the caveat ought to be removed.

20 I also bear in mind that the plaintiff proffers the usual undertaking as to damages, so that the second defendant will not be forced to have recourse to a claim for damages under the Real Property Act, if it is found that the caveat was not properly lodged.

21 It was also submitted by the second defendant that if the caveat was to be extended, its operation should not be extended until further order, but only up to 5 May 2006. Such an order would give the parties some time to attempt to resolve what appears to be the only issue preventing the registration of the lease. However, I do not think that is really practicable. The parties can still resolve that issue, whether the caveat be extended until further order or only for a limited period.

22 If an order were made to the extension of the caveat up to 5 May 2006, and the lease is still unregistered at that time, the position which then obtained would be that which presently obtains. Unless there has been a material change of circumstances, the plaintiff would then, in my view, be entitled to a further extension of the caveat. I do not see that there is anything to be gained by forcing the plaintiff to make further applications for the extension of the caveat. If there is a relevant change of circumstance, it will be open to the second defendant to apply to the Court for an order that the caveat be withdrawn.

23 For these reasons, upon the plaintiff, by its counsel giving the usual undertaking as to damages, I make an order pursuant to subs 74K(2) of the Real Property Act extending the operation of caveat number AC105449 lodged on registered folio 1/784812 until further order. That order may be entered forthwith.

24 The costs of today's application will be the plaintiff's costs in the proceedings.

25 I stand the proceedings over to the Registrar's list on 18 May 2006, and give liberty to the parties to apply to the duty judge on 24 hours’ notice.

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