Capital Access v Welch No. Scciv-01-1014

[2002] SASC 43

CAPITAL ACCESS  v  WELCH
[2002] SASC 43

Magistrates Appeal
Nyland J:

1. This is an appeal from a judgment of a magistrate sitting in the civil jurisdiction of the Magistrates Court at Adelaide.  Ms Welch was the plaintiff in the original proceedings and Mr Smallacombe was the first defendant.  Ms Welch and Mr Smallacombe lived together in a de facto relationship for a period in excess of three years.  In the course of that relationship, Ms Welch and Mr Smallacombe acquired a property at Lot 778 Badcoe Street, Pooraka in the State of South Australia.  They were registered as joint tenants of that property.  The relationship between Ms Welch and Mr Smallacombe terminated in or about the month of December 1997. 

2. On 16 August 1999, they entered into a cohabitation agreement (“the agreement”) pursuant to the Defacto Relationships Act 1996.  The agreement provided inter alia that Ms Welch would transfer her interest in the property to Mr Smallacombe for the sum of $30,000.  The sum of $5,000 was to be paid within seven days of the signing of the agreement.  The balance of $25,000 was payable by monthly instalments of $208.33 over a five year period and any remaining balance upon the sale of the property or within five years of the agreement, whichever first occurred.  It was agreed that subsequent to the transfer, Ms Welch would be at liberty to place a caveat on the title of the property to secure the payment of the balance of moneys owing to her.  There was an agreement that Mr Smallacombe’s solicitors would lodge the caveat on Ms Welch’s behalf immediately following the registration of the transfer.  Ms Welch subsequently executed a transfer of her interest in the property to Mr Smallacombe.  The memorandum of transfer is undated but appears to have been returned to Mr Smallacombe’s solicitors by Ms Welch’s solicitors on 11 August 1999.  The transfer was not, however, registered, nor did Mr Smallacombe’s solicitors lodge the agreed caveat for Ms Welch.  A caveat was subsequently lodged by solicitors acting on behalf of Ms Welch on 20 October 1999, claiming an equitable interest over the whole of the land by virtue of being an unpaid vendor of her interest therein pursuant to the terms of the agreement.

3. On or about 25 August 1999, Mr Smallacombe paid Ms Welch the sum of $5,000 which was the first instalment due under the agreement.  It appears that in order to make that payment Mr Smallacombe obtained a loan from Capital Access Australia (“Capital Access”).  Capital Access lodged a caveat dated 29 August 1999 claiming an interest in the land pursuant to an unregistered mortgage of the same date between Mr Smallacombe as mortgagor and itself as mortgagee. 

4. At the time that Ms Welch and Mr Smallacombe negotiated their agreement, the subject property was (inter alia) encumbered by Mortgage Number 7800084 in favour of the Westpac Banking Corporation (“Westpac”). 

5. The terms of the agreement between Ms Welch and Mr Smallacombe required Mr Smallacombe to make the repayments on the mortgage to Westpac as well as to pay the rates, taxes, and all other charges and outgoings relating to the property and he was required to indemnify Ms Welch with respect to all such payments.  Mr Smallacombe failed, however, to make the repayments with respect to the Westpac mortgage.  As a result of that failure, Westpac issued a default notice on 10 September 1999 advising that enforcement proceedings would be taken to recover possession of the land if the arrears were not paid.  Mr Smallacombe did not pay the arrears to Westpac, as a result of which the property was duly sold and settlement effected on or about 21 January 2000.  The nett proceeds of sale after repayment of moneys owing to Westpac was the sum of $14,757.05.  That sum was initially paid into the trust account of Westpac’s solicitors, Minter Ellison but was later paid into court. 

6. Mr Smallacombe failed to pay Ms Welch the balance of $25,000 which, pursuant to the agreement, was to be paid to her upon the sale of the property.  Ms Welch therefore issued proceedings against Mr Smallacombe seeking to recover the balance of moneys owing to her pursuant to the agreement.  Ms Welch claimed to be entitled to an equitable charge over the nett proceeds of sale.  Westpac was joined as second defendant and Capital Access as the third defendant in those proceedings.  The Bank of South Australia and the South Australian Public Service Savings and Loans Credit Union Limited were joined in the proceedings as fourth and fifth defendants respectively as they also had claims with respect to the property.  Agreement was, however, reached as to their claims and the proceedings against the third and fourth defendants were discontinued on 16 February 2001.

7. Mr Smallacombe did not take any part in the proceedings in the Magistrates Court and the case eventually proceeded as a dispute between Capital Acess and Ms Welch with respect to the nett proceeds of sale of the property.

8. Capital Access opposed Ms Welch’s claim to relief and by counterclaim sought payment of all of the proceeds of sale to them.  The counterclaim referred to an unregistered Memorandum of Mortgage dated 19 August 1999, pursuant to which they had advanced Mr Smallacombe the sum of $15,000 upon security of his interest in the land.  It also referred to the caveat lodged by Capital Access to protect that interest.  Capital Access argued that no equitable interest in the property remained with Ms Welch as her interest had in effect been extinguished when she disposed of her interest as joint tenant to Mr Smallacombe.

9. The learned magistrate rejected that submission.  He said:

   “I have indicated that although I am not able to confidently particularise or specify Ms Welch’s interest in the property it is clear to me that she has same and I refer to the statement of [McClelland CJ] in Coleman v Bone (1996) NSW Supreme Court (unreported) where his Honour said ‘If a contract grants an authority to lodge a caveat in respect of a property, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised’.

   The cohabitation agreement, in my opinion, creates a caveatable interest.  I do not agree that, by executing the transfer, Ms Welch has divested herself of her rights under the said agreement.  The transfer has not been registered although I would dispute Mr Dal Cin’s contention that Mr Smallacombe now has the whole of the interest in the land and therefore had the power to divest himself of the whole of that interest.”

10. The learned magistrate authorised payment to Ms Welch of the moneys paid into court, namely the sum of $14,750.05.  He also gave judgment for Ms Welch against Mr Smallacombe for the balance of the money.  Capital Access then appealed against the order made by the magistrate with respect to the moneys in court.

11. The original notice of appeal contained a number of grounds upon which it sought to impugn the decision of the learned magistrate.  On the hearing of the appeal however, Mr Dal Cin, who appeared as counsel for Capital Access, indicated that he was content to rely only on para 4.2 of the Notice of Appeal which asserts that the learned magistrate erred in law in failing to find that the interest of Ms Welch was that of an equitable vendor’s lien over Ms Welch’s original half interest in the land which was the subject of a settlement between Ms Welch and Smallacombe, and over the proceeds of the sale of the land paid into Court.  On that basis, Capital Access sought a declaration that they were entitled in equity to one half of the funds held in court.

12. Mr Dal Cin submitted that Ms Welch’s entitlement to a share of the nett proceeds arose by way of an unpaid vendor lien which was limited to her original interest in the land as a joint tenant and did not extend to an equitable interest over the whole of the land.  Mr Dal Cin contended that the execution of the transfer by Ms Welch meant that Capital Access’ interest was the only equitable charge over Mr Smallacombe’s original interest as joint tenant.  Mr Keith, who appeared as counsel for Ms Welch on the hearing of the appeal, did not dispute that Ms Welch’s interest arose as a result of being an unpaid vendor but argued that her lien was against the whole of the property as security for the advance of the moneys until such time as the money due pursuant to the agreement was paid in full.  He submitted that there was no reason to limit her claim to her original half share of the property which was the subject of the Memorandum of Transfer.

13. On the hearing of the appeal both counsel conceded that, but for the agreement and the signed transfer, Ms Welch would have been entitled to all of the money from the proceeds of the sale until she had received the $25,000 owing to her.  In that situation, the claim of Capital Access would have only been against Smallacombe. 

14. Mr Dal Cin submitted, however, that once the agreement and transfer were executed, Ms Welch had disposed of her interest in the land.  She therefore no longer had a claim against Mr Smallacombe’s original interest in the land.  Her only entitlement was that of an unpaid vendor with respect to that part of the land which she transferred pursuant to the agreement.  Capital Access, however, had an interest over all of Mr Smallacombe’s asset, which effectively meant that Capital Access had an equitable interest in Mr Smallacombe’s original one-half interest in the property and a competing equitable interest with Ms Welch to the part which she had disposed of by way of the agreement and transfer.

15. The learned magistrate, in reaching his conclusion in favour of Ms Welch, did not deal with the argument as to the extent of the vendor’s lien but proceeded on the basis that whatever equitable interest she had in the property which had been created pursuant to the agreement was over the whole of the interest in the land. 

16. The learned magistrate reached this conclusion on the basis of his finding that Capital Access were aware of the fact that the property was registered in the joint names of Mr Smallacombe and Ms Welch prior to advancing the money to Mr Smallacombe by way of their mortgage.  He rejected the argument that there had been a subrogation because all parties intended Capital Access to be secured.  The magistrate said that Ms Welch was not a party to that or any agreement whereby Mr Smallacombe was to obtain funds from Capital Access.  Although Ms Welch at some stage became aware that Capital Access would not lend any moneys if her name remained on the title the learned magistrate referred to the fact that as at 19 January 2000, Ms Welch was still registered on the title as a joint tenant and in his view, this was a further indication that Capital Access at all times had notice of Ms Welch’s prior claim.

17. Although the learned magistrate did not identify the nature of Ms Welch’s equitable interest in the property, nor deal specifically with the unpaid vendors lien, in my opinion, he reached the correct conclusion.  Ms Welch had an interest as an unpaid vendor with respect to the whole of the unpaid price.  In my opinion, that interest extended to the whole of the fee simple interest in the property.  That arises by virtue of the joint tenancy between Ms Welch and Mr Smallacombe as “[t]he interests of each joint tenant in the land held are always the same in respect of possession, interest, title and time” (per Latham CJ in  Wright v Gibbons (1949) 78 CLR 313 at 323.

18. Capital Access was aware of the fact that Ms Welch was registered on the title as a joint tenant when they advanced the money to Mr Smallacombe by way of a loan.  Ms Welch was not a party to that loan agreement.  Capital Access were aware of the terms of the agreement between Mr Smallacombe and Ms Welch as one of the reasons for Mr Smallacombe taking out the loan was to pay the first instalment of $5,000 which was due under the agreement.  There is no evidence as to the purpose to which Mr Smallacombe intended to put the balance of the loan.  That, in any event, is irrelevant.  Capital Access were clearly aware that the agreement required the balance of $25,000 to be paid to Ms Welch in the event of a sale of the property.

19. Mr Smallacombe’s interest in the property was charged with a vendor’s lien in favour of Ms Welch to secure the payment of $25,000 to her prior to the creation of the interest claimed by Capital Access.  Capital Access should not have any better title to the property than Mr Smallacombe.  Mr Smallacombe was not entitled to any of the money from the sale until Ms Welch had received the money due to her under the agreement.  There was insufficient moneys resulting from the sale to pay the whole of the debt due to Ms Welch.  In my opinion, the learned magistrate correctly found her to be entitled to receive all of the proceeds of the sale.

20. In my opinion, the appeal should be dismissed.