Capital Finance Australia Ltd v Karabassis

[2003] NSWSC 737

CITATION:	Capital Finance Australia Ltd v Karabassis & Ors [2003] NSWSC 737
HEARING DATE(S):	08/08/03
JUDGMENT DATE:	12 August 2003
JUDGMENT OF:	Gzell J
DECISION:	Order that operation of caveats be extended until determination of proceedings or further order
CATCHWORDS:	CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - Caveats against Dealings - Equitable mortgages claimed by plaintiff - Whether plaintiff as undisclosed principal could sue on provision in gaurantee to give a legal mortgage - Whether evidence necessary of approval of guarantee form by principal - Whether description in caveat as equitable mortgagee was accurate - Whether undisclosed principal may enforce proprietary rights - Whether provision appointing attorney to perfect legal mortgage ousts entitlement to sue for legal mortgage
LEGISLATION CITED:	Real Property Act 1900
CASES CITED:	Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 Keighley, Maxsted & Co v Durant [1901] AC 240 Garrett v Handley (1825) 4 B & C 664 (107 ER 1208) Re Caveat of Clara Elizabeth Dixon (1922) 39 WN (NSW) 89 Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard (1992) 27 NSWLR 415 Composite Buyers Ltd v Soong (1995) 38 NSWLR 286 Murphy v Wright (1992) 5 BPR 11,734 J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 Troncone v Aliperti (1994) 6 BPR 13,291 Burns Philp Trustee Co Ltd v Viney [1981] 2 NSWLR 216 Dyster v Randall & Sons [1926] Ch 932 Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed, LBC Information Services, Sydney, 1996 Bowstead and Reynolds on Agency, 17th ed, Sweet & Maxwell, London, 2001
PARTIES :	Capital Finance Australia Ltd - Plaintiff George Karabassis - 1st Defendant Gabriel Jim - 2nd Defendant Daniel Cheng - 3rd Defendant
FILE NUMBER(S):	SC 4013/03
COUNSEL:	Mr P T Russell - Plaintiff Mr L J W Aitken - Defendants
SOLICITORS:	Cridlands Lawyers Horowitz and Bilinsky Solicitors

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

GZELL J

TUESDAY 12 AUGUST 2003

4013/03 CAPITAL FINANCE AUSTRALIA LTD v GEORGE KARABASSIS AND ORS

JUDGMENT

1 The plaintiff caused caveats to be registered with respect to land registered in the names of each of the defendants. Each caveat identified the caveator’s interest in the land as an equitable mortgage pursuant to a guarantee and indemnity dated 14 March 2002 between the caveator and the registered proprietor of the land as guarantor.

2 Lapsing notices having been served in accordance with the Real Property Act 1900, s 84J, the plaintiff seeks an order pursuant to s 74K(2) extending the operation of the caveats until the determination of the proceedings or further order of the Court. The defendants oppose the application.

3 The proceedings relate to a lease of computer equipment. It was common ground, for the purpose of the application, that rent payable under the lease was in arrears and the lessee was in default for the purposes of the guarantee and indemnity agreement. The proceedings seek to enforce the guarantee and indemnity agreements against each of the defendants.

4 The lease dated 14 March 2002 was between a company Comlease AFG Ltd as lessor and Apple Communications Ltd, now called Green Communications Pty Ltd, as lessee.

5 Each of the defendants executed a document described as a composite guarantee and indemnity- secured also dated 14 March 2002. They were addressed to Comlease. Each contained the statement that the guarantor should be aware that in signing it, the guarantor would become liable to pay to Comlease all amounts that the customer must pay to Comlease and, in default, Comlease could take legal action. Clause 4 of the document was in the following terms:

“If Customer does not pay any of the Money on the due date, Guarantor must pay the whole of that money to Comlease immediately upon demand by Comlease and at that time each Guarantor grants to Comlease a legal mortgage of any land now or hereafter held personally by that Guarantor in order to secure the Guarantor’s obligation to pay the Money and further appoints authorised officers of Comlease as attorney to perfect this security.”

6 The defendants object that the plaintiff was not a party to the guarantees and indemnities and cannot sue on them.

7 Clause 15 of the lease agreement provided that the lessee and the guarantor acknowledged that Comlease might be entering into the agreement as agent for another person, whether disclosed or otherwise, and that other person might have or acquire property in the equipment. However, the defendants were not parties to the lease agreement and no similar provision appeared in the guarantees and indemnities.

8 On 20 April 2001, the plaintiff and Comlease executed an agreement whereunder the plaintiff appointed Comlease its agent. Clause 4.1 provided:

“If the Principal approves a Leasing Proposal then the Principal authorises the Agent to sign as agent for the Principal the relevant Leasing Agreement and any Security specified in the Leasing Proposal.”

9 It was submitted on behalf of the plaintiff that it was an undisclosed principal under the lease and the guarantees and indemnities and as such could sue and be sued on those contracts in the absence of any term inconsistent with Comlease being an agent or otherwise expressly or impliedly confining the right to sue or to be sued to Comlease (Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 at 207).

10 Reference was made to Keighley, Maxsted & Co v Durant [1901] AC 240 at 261 where Lord Lindley said that the explanation of the doctrine that an undisclosed principal can sue and be sued on a contract made in the name of another person with his authority is, that the contract is in truth, although not in form, that of the undisclosed principal himself.

11 O’Donovan and Phillips, The Modern Contract of Guarantee, 3rd ed, LBC Information Services, Sydney, 1996, at 514 states that the signatory to a guarantee may be acting in the capacity of an agent for a principal and, in such case, the principal may enforce the guarantee though not named in it, citing Garrett v Handley (1825) 4 B & C 664 (107 ER 1208).

12 In my view, the plaintiff was entitled to sue on the guarantees and indemnities as undisclosed principal.

13 Clause 4.2(b) of the agency agreement provided that if the plaintiff approved of a leasing proposal, Comlease was to deliver to it, amongst other things, the leasing agreement and any security specified in the leasing agreement, each in an approved form and duly signed by all parties. The term “approved form” was defined in cl 1.1 to mean, in relation to any document, a form approved in writing by the principal from time to time.

14 Mr Aitken, who appeared for the defendants, submitted that there was no evidence that the guarantees and indemnities were in a form approved in writing by the plaintiff.

15 The guarantees and indemnities are in a printed form with the name of Comlease printed into the document. Under the Real Property Act 1900, s 74K(2) the Court may make an order extending the operation of the caveats if it is satisfied that the caveator’s claim has, or may have, substance.

16 I am dealing with an interlocutory application to extend the caveats pending the final resolution of the proceedings. On that hearing, evidence that the form of guarantee and indemnity had been approved in writing by the principal might be led. In that case, the point taken will not arise. For the purpose of these proceedings and in order to determine whether the plaintiff’s claim may have substance, I am prepared to infer that the guarantee and indemnity form had been approved in writing by the plaintiff.

17 Mr Aitken submitted that the descriptions in the caveats of the interests of the plaintiff as an equitable mortgagee were inaccurate. The guarantees and indemnities provided for the grant of legal mortgages.

18 Mr Russell, who appeared for the plaintiff, submitted that the undertakings in the guarantees and indemnities to execute legal mortgages themselves created in the plaintiff equitable mortgages because the plaintiff could enforce by relief analogous to specific performance the making of the legal mortgages.

19 In Re Caveat of Clara Elizabeth Dixon (1922) 39 WN (NSW) 89 Street CJ in Eq took the view that an undertaking to execute a mortgage was sufficient to create an interest in land so as to entitle a caveat to be lodged.

20 In Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard (1992) 27 NSWLR 415 the Court of Appeal concluded that an agreement in a guarantee to grant a legal mortgage of any land then or thereafter held by the guarantor was enforceable. At 423, Clarke JA said:

“The contract is not an executory one. The applicant has carried out its part of the bargain and the relief which it seeks, while often described as specific performance, is more accurately described as being relief analogous to specific performance. The difference lies in the fact that in one case (true specific performance) the contract is executory and one party seeks an order compelling the execution in specie of the contract: see, eg, J C Williamson Ltd v Lukey and Mulholland (1931) 45 CLR 282 at 297 per Dixon J. In the other case a party seeks the aid of the court to compel the other party to perform its obligations according to the terms of the contract: see generally, Burns Philp Trust Co Ltd v Kwikasair Freightlines Ltd [1963] SR (NSW) 492.”

21 In Composite Buyers Ltd v Soong (1995) 38 NSWLR 286, Hodgson J at 288 after reference to Bridge Wholesale, Murphy v Wright (1992) 5 BPR 11,734, J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546 and Troncone v Aliperti (1994) 6 BPR 13,291 concluded that they supported the view that any equitable interest in land is sufficient to support a caveat, even if the caveator does not have a registrable instrument, and even if the caveator may not be entitled to an instrument which will lead to a recording in the register. His Honour went on to say:

“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.”

22 Mr Aitken cavils with the Court of Appeal in Bridge Wholesale and with Hodgson J in Composite Buyers. He submits that cl 4 creates in the plaintiff a proprietary interest and a proprietary interest cannot be enforced by an undisclosed principal and can only be enforced by the agent as the party to the contract.

23 No authority is cited for this proposition beyond a reference to Bowstead and Reynolds on Agency, 17th ed, Sweet & Maxwell, London, 2001 at par 8-172:

“When however there is a transfer to a person who is acting as agent for undisclosed principal and intends to receive for his principal, the position becomes very difficult to analyse. The operation of the undisclosed principal doctrine outside the realm of pure contract raises many problems, the solutions to which have hardly been considered.”

And at par 5-109 with respect to the proposition that if an agent who agrees to acquire land on behalf of his principal acquires it in his own name or on his own behalf, he becomes a trustee of it for his principal:

“The assumption behind this rule is that at least in the case of land, neither a disclosed nor an undisclosed principal can claim that conveyance to the agent vests property in the principal.”

24 In my view, cl 4 of the guarantees and indemnities is a contractual term that may give rise to an interest registrable against the land. To speak of the executory obligation in cl 4 as a proprietary right ignores the problem of differentiating between remedy and right and raises the circuity of identifying the starting point as the proprietary interest or the right to enforce the interest under the guarantees and indemnities: the jurisprudential mystery to which Kearney J referred in Burns Philp Trustee Co Ltd v Viney [1981] 2 NSWLR 216 at 223.

25 It would be an extraordinary proposition, in my view, if an undisclosed principal was entitled to enforce executory obligations of a guarantor that do not give rise to rights or limitations against property, but was unable to enforce executory obligations of that kind.

26 This is not a case of a transfer of property to an agent to which the observations in Bowstead are directed. The “equitable” interest that arises in the plaintiff under cl 4 of the guarantees and indemnities is to call in aid a Court of Equity to grant relief in the nature of specific performance against the recalcitrant guarantors.

27 Mr Aitken’s submission is also inconsistent with Dyster v Randall & Sons [1926] Ch 932 in which it was held that an undisclosed principal could sue for specific performance of a contract of sale of land to his agent and Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 in which it was held that a contract for sale of goods by an agent will vest title in the goods in an undisclosed principal. Furthermore, I am bound by the decision of the Court of Appeal in Bridge Wholesale.

28 I reject the submission that cl 4 of the guarantees and indemnities could not be enforced by the plaintiff.

29 Mr Aitken then points out that cl 2.5 of the agency agreement required Comlease to hold on behalf of the plaintiff all rights under or in relation to all leasing agreements, securities, equipment and insurances and all moneys received or receivable by Comlease under or in connection with any of them.

30 In my view, however, that clause does not imply that the plaintiff may not sue or be sued under the agreements. Indeed, cl 6.2 of the agency agreement provided that if a lessee or security provider failed to comply with any of its obligations, the plaintiff might itself take, or it might require Comlease to take at the plaintiff's cost, any action that the plaintiff reasonably considered necessary or desirable in connection with the failure.

31 Finally, Mr Aitken submitted that Bridge Wholesale was distinguishable because cl 4 of the guarantees and indemnities enabled Comlease to perfect a mortgage in registrable form and to register it.

32 That is a difference between the instant circumstances and Bridge Wholesale. It does not, in my opinion, exclude the entitlement of the plaintiff to sue for enforcement of the obligation by the guarantors to create legal mortgages.

33 As a matter of discretion, a Court of Equity might refuse to grant relief on the basis that an alternative remedy is available. But that does not exclude the existence of the entitlement to the other remedy. At this interlocutory stage, I would not exercise a discretion to refuse relief on the basis that the plaintiff or Comlease had it in its power to create registrable mortgages.

34 In my view, the plaintiff has established a claim of substance with respect to its entitlement to lodge the caveats and I make an order in terms of par 1 of the summons. The defendants must pay the plaintiff’s costs.

35 For the purposes of a short extension of the caveats while I considered my judgment, the plaintiff, through its counsel, gave an undertaking that it, by its directors, servants and agents would not make any suggestion to Comlease, its directors, servants or agents, that that company lodge any caveat with respect to the lands of the defendants.

36 I propose to release the plaintiff from that undertaking. In my view, the substantive proceedings should not be compromised for want of a proper party.

**********

Last Modified: 08/18/2003