Barlin Investments Pty Ltd v Westpac Banking Corporation
[2012] NSWSC 699
•26 June 2012
Supreme Court
New South Wales
- Amendment notes
Medium Neutral Citation: Barlin Investments Pty Ltd v Westpac Banking Corporation [2012] NSWSC 699 Hearing dates: 4 to 5 June 2012 Decision date: 26 June 2012 Jurisdiction: Equity Division Before: Ball J Decision: See paragraphs 43 and 44 of this judgment.
Catchwords: REAL PROPERTY - unregistered interests - caveats - operation of s 74H(4) of the Real Property Act - meaning of "has been lodged" - consideration of definition of lodgment in s 36(1B) - held that dealing is not lodged until given distinctive reference.
REAL PROPERTY - unregistered interests - priority - determination of "better equity" - postponing conduct - where earlier interest holder has withdrawn caveat - where later interest holder has acquired their interest from a person with a "better equity" but is on notice of the earlier interest.
REAL PROPERTY - unregistered interests - priority - operation of s 43A(1) - where person has acquired interest from a person entitled to protection under s 43A(1) - held still entitled to priority.Legislation Cited: Real Property Act 1900 (NSW) Cases Cited: Butler v Fairclough (1917) 23 CLR 78
Elderly Citizens Home of SA Inc v Balnaves (1998) 72 SASR 210
Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326
IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550
J & H Just (Holdings) Pty Ltd v Bank of NSW (1971) 125 CLR 546
Jonray (Sydney) Pty Ltd v Partridge Bros Pty Ltd (1969) 89 WN (Pt 1) (NSW) 568
Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liquidation) (1964-1965) 113 CLR 265
Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671
Perpetual Trustee Company Ltd (original plaintiff), Performance Capital Mortgage Pty Ltd v Motive Finance & Leasing Pty Ltd [2010] NSWSC 429
Rice v Rice (1853) 61 ER 646
Taleb v National Australia Bank Ltd [2011] NSWSC 1562
United Starr-Bowkett Co-operative Building Society (No 11) Ltd v Clyne (1967) SR (NSW) 331
Weller v Williams [2010] NSWSC 716
Wilkes v Spooner [1911] 2 KB 473Category: Principal judgment Parties: Barlin Investments Pty Ltd ACN 001 762 063 (Plaintiff)
Westpac Banking Corporation (First Defendant)
Michael Chiha (Second Defendant)
Kay Mitchell (Third Defendant)
Paul Francis Mitchell (Fourth Defendant)Representation: DKL Raphael (Plaintiff)
PT Newton (First Defendant)
No Appearance (Second Defendant)
G Van Der Vlag (Third & Fourth Defendants)
CMC Lawyers (Plaintiff)
Kemp Strang (First Defendant)
No Appearance (Second Defendant)
Lamrocks (Third & Fourth Defendants)
File Number(s): 2010/155506
Judgment
These proceedings raise the question of which of a number of unregistered dealings in respect of a strata unit situated in Fairfield has priority. With one exception, which I will come to, the facts are not substantially in dispute.
Factual background
The plaintiff, Barlin, is a property investor. On 28 February 2003, it entered into a put and call option with Equipped Constructions Pty Ltd in respect of premises Barlin owned at Fairfield. Equipped Constructions proposed to redevelop the site as residential and one or more commercial strata units. Barlin exercised the put option and, on 13 October 2004, the resulting contract of sale settled. The purchase price of the property was funded in part by Capital Finance Australia Limited, which took a first registered mortgage over the property as security. In addition, Barlin provided vendor's finance of $400,000. That loan was secured by an unregistered mortgage over the property. Under the terms of that mortgage, the loan was repayable on 14 October 2005. On 19 November 2004, Barlin lodged a caveat to protect its interest under the mortgage.
In connection with the sale, Equipped Constructions also agreed to sell to Mr Barill and Mr Cattalini, the two directors of Barlin, or entities associated with them, two of the residential units on completion of the redevelopment for a combined price of $625,000. Those units were lots 34 and 36 in the proposed strata plan.
Although Equipped Constructions had not paid the debt of $400,000, on 28 November 2005, for reasons which are not clear, Barlin withdrew its caveat. However, at that time, it did not press for payment of its loan, expecting to be able to set off the purchase price of the two units against the amount owed to it.
On 7 August 2008, the strata plan in respect of the development was registered and the existing folio identifiers for the property were cancelled and replaced by a new folio identifier.
Following registration of the strata plan, the directors of Barlin sought to complete the acquisition of lots 34 and 36 and to setoff the purchase price against the amount owed. Settlement, however, did not occur and there were further meetings between representatives of Barlin and representatives of Equipped Constructions relating to the arrangements between them. Following those meetings, on 19 May 2009, Barlin's solicitors wrote to the solicitors for Equipped Constructions referring to the meetings and saying:
In an effort to further assist your client, our client and yours have agreed as follows:-
1. A fresh mortgage over Lot 75 in Strata Plan 81081 supported by guarantees be signed by your client and such mortgage to remain unregistered until the residential units in the Strata scheme have been sold whereupon your client will discharge its current mortgage to Capital Finance Australia Limited and allow our client's mortgage to be registered.
2. In the meantime, our client as [sic] to lodge a Caveat over Lot 75 to protect its interest under the mortgage.
3. The mortgage term not to exceed six (6) months, however our client has consented to extend the period to January 2010.
4. Your client to lease out the units sold to Balesgrow Pty Ltd (Unit 34) and Marcello & Arminia Virilia Cattalini (Unit 36) and use the rental monies obtained thereby in reduction of the interest owed under the mortgage.
5. Upon settlement of the sale of those two (2) units your client to restore the units as required.
6. Our reasonable fees in connection with the two (2) conferences held at our office (7th April 2009 and 28th April 2009) to be met by your client.
On 24 September 2009, the second defendant, Mr Michael Chiha (Mr Chiha), entered into a contract to buy Lot 33 from Equipped Constructions for $430,000. Mr Chiha is related to Mr Joe Chiha, a director of Equipped Constructions. Mr Chiha did not file an appearance in the proceedings and according to Mr Raphael, who appeared for Barlin, neither he nor Mr Joe Chiha can now be found.
On 1 December 2009, the first defendant, Westpac (formerly St.George Bank) agreed to lend Mr Chiha $342,000 for the purpose of purchasing Lot 33. Settlement of that sale occurred on 8 December 2009. At that time, the only dealing recorded in the Register maintained by the Office of Land and Property Information (LPI) in respect of Lot 33 was the first registered mortgage to Capital Finance. At the time of settlement, Westpac paid the sum of $335,360 and Mr Chiha paid the sum of $24,000 from the first home owner's grant. Capital Finance was paid the sum of $359,360 in discharge of the amount owing under its mortgage. It is not clear whether the balance of the purchase price was paid and, if so, where it came from. Relying on that fact, Mr Rafael suggested in closing submissions that the sale to Mr Chiha was in some way fraudulent. However, that allegation was not pleaded and there is no evidence to support it. In the transfer from Equipped Constructions to Mr Chiha, Equipped Constructions acknowledged receipt of $430,000. In the absence of any other evidence, I accept that acknowledgement as accurate.
On 9 December 2009, Westpac's settlement agent lodged for registration the following documents:
- Discharge of mortgage from Capital Finance in connection with its first registered mortgage;
- Transfer from Equipped Constructions to Mr Chiha;
- Mortgage from Mr Chiha to Westpac.
Those dealings (together the Chiha Dealings) were lodged by what is commonly referred to as the "Bulk System". Under that system, batches of documents are lodged with LPI in bulk by frequent users. At the time the documents are delivered, they are left with an LPI employee at the bulk lodgment counter. Cheques presented for payment of registration fees are separated from the documents and presented to cashiers who provide receipts for the presented cheques. The documents themselves are placed in "batts" for processing by an examination officer. No distinctive reference is given to the individual documents at that stage and no document details are entered into the Integrated Titling System (ITS) on which the Torrens Register is maintained. Documents waiting lodgment are allocated to an examination officer and are generally processed within 24 hours of presentation. Once examined, the documents are accepted for lodgment, in which case they are given a distinct reference and are entered into the ITS. Alternatively, if not accepted, they are returned to the lodging party.
On 10 December 2009, before the Chiha Dealings had been entered onto the ITS or assigned distinctive references, the solicitor for Barlin discovered that Lots 34 and 36 had been sold to other purchasers. As a result, on that day Barlin's solicitor lodged caveats over Lots 33 and 75, which, at the time, were the only lots that were still registered in the name of Equipped Constructions. Those caveats were lodged by what is referred to as the "face to face" system of lodgment. Under that system, a document is examined at the time it is presented. If it is in registerable form it is given a distinct reference and entered into the ITS at that time.
The result is that the caveat in respect of lot 33 was entered into the ITS before the Chiha Dealings, and before the Chiha Dealings were given distinct references.
On 11 December 2009, the Chiha Dealings were examined and were given distinct references at that time. However, because of the caveat, the dealings were not registered and LPI sent Westpac a requisition in respect of those dealings referring to the caveat.
On 4 May 2010, Westpac lodged a lapsing notice with LPI in respect of the caveat.
On 22 June 2010, Barlin commenced these proceedings against Westpac seeking an extension of the caveat.
On 24 June 2010, the third and fourth defendants, Mr and Mrs Mitchell, entered into a contract to buy Lot 33 from Mr Chiha for $385,000. Coincidentally, St.George (now Westpac) agreed to lend Mr and Mrs Mitchell $347,500 in respect of that purchase to be secured by a first registered real property mortgage over lot 33. It appears that the persons at Westpac who were responsible for that loan were unaware that these proceedings had been commenced.
On 29 June 2010, the contract for purchase of lot 33 by Mr and Mrs Mitchell was settled. At that time, Mr and Mrs Mitchell paid the sum of $60,991.77 and drew a bank cheque from their account with Westpac in the sum of $281,600.24. The total of those two amounts, $342,592.01, represented the amount owing under the mortgage from Mr Chiha to Westpac. At the same time, Mr Chiha gave Mr and Mrs Mitchell a real property transfer formally acknowledging receipt of $385,000 and transferring his estate in lot 33 to Mr and Mrs Mitchell and Mr and Mrs Mitchell gave Westpac a real property mortgage.
Although Westpac was aware of the caveat, as I have said, the relevant persons at Westpac were unaware of the application for an extension of the caveat. They believed that the caveat would lapse in accordance with the lapsing notice. It is unclear why Mr and Mrs Mitchell's solicitor went ahead with the settlement in the light of the caveat.
The matter came before the court on 30 June 2010, at which time an order was made for an extension of the caveat. Subsequently, directions were made for the proceedings to continue on pleadings and for Mr Chiha and then Mr and Mrs Mitchell to be joined as defendants.
By its amended statement of claim, Barlin seeks a number of declarations to the effect that its interest take priority over those of Westpac and Mr and Mrs Mitchell. Mr and Mrs Mitchell have filed a cross-claim seeking declarations to the opposite effect and an order under s 74MA of the Real Property Act 1900 (NSW) (RPA) that Barlin withdraw its caveat.
The issues
Westpac advances five reasons for why its interest should take priority over that of Barlin. First, it says that Barlin gave up its security in lot 33 as a consequence of the agreement recorded in the letter dated 19 May 2009 from Barlin's solicitors to the solicitors for Equipped Constructions. Second, it says that, by virtue of s 74H(4) of the RPA, the caveat did not prevent the registration of the Chiha Dealings and that, as soon as the transfer to Mr Chiha is registered, it will, by virtue of ss 42 and 43 of the RPA, extinguish the interest claimed by Barlin. Third, it submits its equitable interest takes priority over the equitable interest claimed by Barlin. Fourth, it claims that its interest is given priority over the interest claimed by Barlin by s 43A(1) of the RPA. Lastly, it claims that it is subrogated to the rights of Capital Finance under its registered mortgage. With some variations, which I will explain, Mr and Mrs Mitchell rely on the same or similar arguments.
Did Barlin agree to give up its interest in lot 33?
In my opinion, it did not. Although the letter dated 19 May 2009 purports to record the terms of an agreement reached between Barlin and Equipped Constructions under which it appears Barlin was to give up its unregistered mortgage in exchange for, among other things, a mortgage over lot 75, there is no evidence that that agreement was ever accepted by Equipped Constructions. On the contrary, the evidence suggests that Equipped Constructions either did not regard itself as bound by the agreement or alternatively repudiated it when it sold lots 34 and 36 to third parties, despite the fact that the terms of the agreement contemplated that those units would be leased out for a period and would ultimately be sold to Balesgrow Pty Ltd (a company associated with Mr Barill) and Mr and Mrs Cattalini. In addition, there is no evidence that Equipped Constructions paid Barlin's solicitors' reasonable fees as contemplated by para 6 of the letter dated 19 May 2009. The letter does not specifically record that Barlin would release the unregistered mortgage it held over the property. If the letter did record the terms of a binding agreement by which Barlin agreed to release its unregistered mortgage, it seems to me that that release was conditional on Equipped Constructions performing its obligations under the agreement, which it did not.
Mr Newton, who appeared for Westpac, pointed to the fact that the letter contemplated that Barlin would lodge a caveat over lot 75, which is what it did. Mr Newton submitted that that conduct provided some evidence that the agreement had been performed. There are, however, two difficulties with that submission. First, the evidence is at best equivocal. The caveat was lodged by Ms Wilson, a secretary employed by the solicitor for Barlin. She explained that she lodged caveats over lots 75 and 33 because they were the only two lots still owned by Equipped Constructions. The lodgment of those caveats is consistent with Barlin's claim that it still had the benefit of the original unregistered mortgage. Second, the evidence does not provide an answer to the point that there is no evidence that Equipped Constructions complied with the terms of the agreement.
Did s 74H(4) of the RPA permit registration of the Chiha Dealings notwithstanding the caveat?
Section 74H(4) of the RPA provides:
Where, at the time when a caveat is lodged under section 74F to protect a particular legal or equitable estate or interest in land, a dealing which relates to the same land has been lodged for recording in the Register and is in registrable form, the caveat does not prohibit the recording in the Register of that dealing.
Section 74F relevantly provides:
(1) Any person who, by virtue of any unregistered dealing or by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled.
Sections 74F(1) and 74H(4) must be read together with ss 36(1A) and (1B), which provide:
(1A) When the Registrar-General accepts a dealing, memorandum or caveat presented for lodgment, the Registrar-General shall allot thereto a distinctive reference.
(1B) A dealing, memorandum or caveat is lodged, within the meaning of this Act, only when the Registrar-General has, under subsection (1A), allotted thereto a distinctive reference.
Mr Newton submitted that there is a distinction between the expression "is lodged" used in s 36(1B) (and its grammatical equivalents) and the expression "may lodge" used in s 74F(1). The latter expression is in the active voice. It refers to the act of someone physically presenting a caveat to LPI for the purpose of that document being recorded in the Register. On the other hand, the expression "is lodged" is in the passive voice and derives its meaning from s 36(1B). A dealing, memorandum or caveat "is lodged" when it is allotted a distinctive reference by the Registrar-General. Or, to put the point another way, s 74F(1) focuses on the acts of the caveator, whereas section 36(1B) is concerned with the acts of the Registrar-General. Section 74H(4) applies when a caveat is lodged in accordance with s 74F(1) - that is, when the caveator presents the caveat for lodgment. Therefore, that section says that, provided a dealing has been presented for registration, a caveat that is lodged subsequently cannot prevent the registration of that dealing.
In my opinion, there is no merit in this argument. That is so for three reasons.
First, there is no merit in the proposition that s 74F(1) is concerned with the presentation of a document for registration by the caveator whereas s 36(1B) is concerned with acceptance by the Registrar-General. Both sections are concerned with lodgment. Necessarily, lodgment involves both presentation and acceptance of the thing being lodged. The purpose of s 36(1B) is to identify with precision when the series of acts which constitute lodgment is complete. Section 74F(1) confers on certain persons a right to lodge a caveat. It does not purport to identify the time when the exercise of that right is to be treated as being effective. That is determined by s 36(1B), which expressly applies to caveats as well as dealings and memoranda. Section 74H(4) simply says that a caveat that is lodged in accordance with s 74F - that is, a caveat which meets the requirements of s 74F, such as the requirement in subs (1) that the person lodging the caveat "claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act", and that is lodged within the meaning of s 36(1B) - does not prevent the registration of a document that was lodged before the caveat.
Second, the argument depends on a confusion. It depends on construing s 74H(4) by reference to s 74F and has as its premise the proposition that implicit in s 74F is a special meaning of "lodge" because that section uses the active tense and is, therefore, concerned with the conduct of the caveator, not the conduct of the Registrar-General. However, the conclusion of the argument is that the term "lodged" in the expression "has been lodged" in s 74H(4) also has a special meaning in relation to the lodgment of a dealing. That special meaning is that the dealing should be regarded as having been lodged as soon as it is presented for lodgment so that such a dealing takes "priority" over a caveat that is presented for lodgment after the dealing, but is "lodged" within the meaning of s 36(1B) before the dealing. That is, the argument starts with the proposition that a special meaning should be given to the notion of lodging a caveat because of the wording of s 74F(1) but ends with the conclusion that a special meaning should be given to the notion of lodging a dealing for the purpose of s 74H(4). Moreover, that special meaning is said to attach to the expression "has been lodged for recording in the Register". Like the term ("is lodged") defined in s 36(1B), that expression is in the passive tense. The only difference is that it is in the past tense and has appended to it the words "for recording in the Register". The past tense cannot make a difference. Nor can the additional words. Those words add nothing to the notion of lodgment. By using the words "has been lodged" the draftsperson must have intended to pick up the definition of the expression "is lodged" in s 36(1B).
Third, there can be no reason for treating the lodgment of a dealing for the purpose of s 74H(4) differently from the lodgment of a dealing for other purposes. Indeed, doing so would only lead to confusion.
Does Westpac's equitable interest take priority over that of Barlin's?
The traditional principle employed to determine priority between competing equitable interests is that, where the merits are equal, the earlier in time prevails over the later: Rice v Rice (1853) 61 ER 646 at 648. However, later cases have emphasised that that principle should not be applied mechanically and that the real task of the court "is to determine where the better equity lies": Latec Investments Ltd v Hotel Terrigal Pty Ltd (in liquidation) (1964-1965) 113 CLR 265 at 276 per Kitto J; approved in Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 at 333 per Gibbs CJ (Wilson J agreeing), 339 per Mason and Deane JJ.
One circumstance in which the later interest holder will be held to have a "better equity" than the earlier is where the earlier interest holder is guilty of an act or omission which had or might have had the effect of inducing the later interest holder to act to his or her prejudice: Butler v Fairclough (1917) 23 CLR 78 at 91 per Griffith CJ. In the case of Torrens Title land, one omission which has been held to be of particular relevance is the failure to lodge a caveat. Where that failure has led a subsequent interest holder to assume that there are no interests in the land besides those recorded on the Register, the prior interest may be postponed by the failure of the interest holder to lodge a caveat promptly to protect his or her interest: Butler v Fairclough at 91-92. Similarly, a person may be guilty of postponing conduct if the person withdraws a caveat in circumstances where the withdrawal has led a subsequent interest holder to believe that the person no longer seeks to protect his or her interest or no longer has an interest to protect: Perpetual Trustee Company Ltd (original plaintiff), Performance Capital Mortgage Pty Ltd v Motive Finance & Leasing Pty Ltd [2010] NSWSC 429 at [35] per Windeyer AJ, referring to Elderly Citizens Home of SA Inc v Balnaves (1998) 72 SASR 210. However, the mere failure to lodge a caveat is not itself enough to postpone an earlier interest if some other action has been taken to protect the unregistered interest, such as retention of the certificate of title: J & H Just (Holdings) Pty Ltd v Bank of NSW (1971) 125 CLR 546.
In the present case, Westpac took a first mortgage over lot 33 on the faith of the Register and in circumstances where it did not have any reason to believe that the property was subject to a mortgage other than to Capital Finance, which was to be discharged on settlement. Mr Chiha, who had acquired the property from Equipped Constructions, was in a position to grant that mortgage. Barlin had lodged a caveat but had subsequently withdrawn it, with the result that anyone conducting a search of the Register would have been left with the clear impression that, whatever interest Barlin had, that interest did not exist at the time that Westpac advanced Mr Chiha the sum of $342,000 and took its mortgage. It is also relevant that Westpac was simply replacing Capital Finance as first mortgagee with the result that Barlin was not in any worse position as a result of Westpac's mortgage: see Taleb v National Australia Bank Ltd [2011] NSWSC 1562 at [39] per Bryson AJ. For those reasons, in my opinion, Westpac had the better equity when compared to that of Barlin's.
In my opinion, Mr Chiha was in the same position as Westpac. Mr Chiha did not give evidence. However, there is no reason to believe that he was any more aware of Barlin's equitable interest than Westpac. Like Westpac, he was entitled to rely on the Register; and the Register did not reveal the existence of Barlin's interest because Barlin had chosen to withdraw its caveat. Mr Chiha took a transfer of the property and became liable to repay Westpac the amount he had borrowed from it. It is difficult to believe that he would have done so if he had been aware of the mortgage to Barlin. In those circumstances, in my opinion, Barlin's interest was also postponed to his.
The position is different in the case of Mr and Mrs Mitchell. At the time they acquired their interest, Barlin had lodged a caveat in respect of its interest. If Mr and Mrs Mitchell were not aware of that caveat that could only be the result of their failure to search the Register. That failure cannot give them the better equity.
Mr Van Der Vlag, who appeared for Mr and Mrs Mitchell, submitted that they had the better equity because they took their interest from someone - that is, Mr Chiha - who had a better equity. I do not accept that submission. The question is whether Mr and Mrs Mitchell's equitable interest was superior to that of Barlin's. That involves a consideration of the circumstances surrounding the creation of the two competing equitable interests, not other equitable interests. One circumstance that is relevant to that examination is the fact that Mr and Mrs Mitchell acquired their interest from someone whose interest did have priority. However, that cannot outweigh the fact that the lodgment by Barlin of its caveat put Mr and Mrs Mitchell on notice of Barlin's interest. The same, of course, is true of Westpac insofar as it claims an interest based on the mortgage it took from Mr and Mrs Mitchell.
Does s 43A of the RPA give Westpac and Mr and Mrs Mitchell priority.
Section 43A(1) of the RPA provides:
For the purpose only of protection against notice, the estate or interest in land under the provisions of this Act, taken by a person under a dealing registrable, or which when appropriately signed by or on behalf of that person would be registrable under this Act shall, before registration of that dealing, be deemed to be a legal estate.
It is now accepted that this section "confers upon a purchaser who has received a registrable instrument and paid the purchase money the same protection against notice as that achieved by a purchaser who acquires the legal estate at common law": Meriton Apartments Pty Ltd v McLaurin & Tait (Developments) Pty Ltd (1976) 133 CLR 671 at 676 per Barwick CJ, Mason and Jacobs JJ, approving the decision of Taylor J in IAC (Finance) Pty Ltd v Courtenay (1963) 110 CLR 550 at 583-5. Consequently, the interest of a purchaser who receives a registrable instrument without notice of a prior unregistered interest takes priority over the earlier interest. However, the protection of s 43A(1) is not available to a purchaser who, at or before completion of the transaction, receives notice of a prior unregistered interest: United Starr-Bowkett Co-operative Building Society (No 11) Ltd v Clyne (1967) SR (NSW) 331.
The protection afforded by s 43A is also only available to a person who takes his or her interest from the registered proprietor. As Taylor J explained in IAC (Finance) Pty Ltd v Courtenay (1993) 110 CLR 550 at 591:
[The] section clearly contemplates the position of a person dealing with a registered proprietor for it speaks of "the estate of interest in land under the provisions of this Act, taken by a person under an instrument registrable ... under this Act" and an instrument would only be so registrable if executed by the registered proprietor.
However, at common law, a person who claims an interest through a person who is a bona fide purchaser for value and without notice is entitled to the same protection as the protection afforded to the person through whom the interest is claimed, even if the person making the claim acquired his or her interest with notice: Wilkes v Spooner [1911] 2 KB 473. Section 43A operates in the same way. As the Court of Appeal said in Jonray (Sydney) Pty Ltd v Partridge Bros Pty Ltd (1969) 89 WN (Pt 1) (NSW) 568 at 477:
... s 43A operates not only to protect against notice the mortgagor who takes the discharge of mortgage, but also any person claiming under the mortgagor, i.e. the purchaser. It gives what has been described before us as a "successive" effect to s 43A, but such an effect seems to us to accord with the general law. If A has the benefit of a defence of purchaser for value without notice, all persons claiming under A have the same benefit, whether or not they had notice and whether or not they were purchasers for value, provided they did not participate in an original breach of trust (In re Stapelford Colliery Co. (Barrow's Case) [(1880) 14 Ch D 432 at 445]).
The decision in Jonray has since been approved by the High Court in Meriton Apartments at 674-677.
In the present case, on the findings I have made, Mr Chiha was entitled to the protection of s 43A because he took his interest from the registered proprietor for value and without notice of Barlin's interest. Westpac and Mr and Mrs Mitchell were entitled to the same protection because they took their interests from him. In any event, on registration of Mr Chiha's interest, Barlin's interest would be extinguished under ss 42 and 43 of the RPA. In those circumstances, there is nothing to prevent registration of the subsequent dealings: Weller v Williams [2010] NSWSC 716.
Mr Raphael sought to resist the conclusion of the previous paragraph on two grounds. First, he submitted that the successive effect of s 43A could not be stretched as far as Mr and Mrs Mitchell, who were clearly on notice of Barlin's interest. Secondly, he submitted that there was no evidence that any of the relevant dealings were in registrable form. I do not accept either of those submissions. The first is inconsistent with Jonray. As to the second, the relevant dealing is the transfer from Equipped Constructions to Mr Chiha. On the face of it, that dealing appears to be in registrable form. Mr Raphael does not point to any aspect of it to suggest otherwise. Following examination of the Chiha Dealings, the only requisition raised in respect of them by LPI was Barlin's caveat. In those circumstances, I am satisfied that the dealing is in registrable form. The result is that Westpac's and Mr and Mrs Mitchell's interests have priority over that of Barlin.
Is Westpac subrogated to the rights of Capital Finance?
Having regard to the conclusions I have reached, it is not necessary to determine this question. However, had it be necessary for me to do so, I would have applied the approach taken by Bryson AJ in Taleb v National Australia Bank Ltd [2011] NSWSC 1562 at [69]-[70] and concluded that Westpac was subrogated to the rights of Capital Finance up to the amount it paid to discharge the mortgage owed to Capital Finance - that is, up to the amount of $335,360.
Orders
In my opinion, there is no reason to make any of the declarations sought by Mr and Mrs Mitchell. It is sufficient to order that Barlin withdraw its caveat over lot 33 so that the relevant dealings can be registered.
Consequently, the orders of the court are:
(1) Within 7 days of the date of this judgment the plaintiff withdraw caveat AF184665.
(2) The parties have liberty to apply for further orders to give effect to order (1).
(3) The proceedings, including the first cross-claim, otherwise be dismissed.
(4) The plaintiff pay the defendants' costs of the proceedings (including the cross-claim).
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Amendments
02 August 2012 - Typographical error. The word "lender's" replaced with "vendor's".
Amended paragraphs: 2
Decision last updated: 02 August 2012
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