Cheetham v 805 Archer Road Pty Ltd (in liq)
[2015] VSC 96
•18 March 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2014 4669
| MARK CHEETHAM | Plaintiff |
| v | |
| 805 ARCHER ROAD PTY LTD (ACN 127 745 975) (IN LIQUIDATION) (SUBJECT TO DEED OF COMPANY ADMINISTRATION & OTHERS (according to the attached schedule) | Defendant |
---
JUDGE: | VICKERY J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10-12, 17-18 March 2015 |
DATE OF JUDGMENT: | 18 March 2015 |
CASE MAY BE CITED AS: | Cheetham v 805 Archer Road Pty Ltd (in liq) and ors |
MEDIUM NEUTRAL CITATION: | [2015] VSC 96 |
---
EQUITABLE MORTGAGE – Equitable mortgage created from agreement to provide a registrable mortgage - Company in liquidation - Whether secured creditor precluded by s 444D Corporations Act2001 (Cth) from realising his security under equitable mortgage - Whether security abandoned or waived by the security holder – Legal principles of abandonment, waiver and election – Whether no action taken to prevent lapsing of a caveat capable of evidenced abandonment or waiver – Transfer of land subject to rights of equitable mortgagee – No lapse of caveat under exception in s 90(1)(d) of Transfer of Land Act 1958 - On sale of the land subject to a caveat, the equitable mortgage converts to an equitable charge over the fund created by the proceeds of sale – Deed of Company Arrangement preserved the security of the Equitable Mortgagee – The contract of sale of the land preserved the security of the Equitable Mortgagee – The Transfer of land preserved the security of the Equitable Mortgagee.
CORPORATIONS - Company in liquidation – Whether secured creditor precluded from realising his security – Corporations Act 2001 (Cth) s 444D.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Herskope | JBT Lawyers |
| For the Defendant | Ms N Papaleo | Lander and Rogers |
HIS HONOUR:
Introduction
In this proceeding the Plaintiff claims an entitlement to a distribution from the liquidators, who are the Second and Third Defendants (the ‘Liquidators’). The Liquidators have been appointed as the liquidators of the First Defendant, 805 Archer Road Pty Ltd (In Liquidation) (the ‘Company’). The Plaintiff claims an entitlement as a secured creditor of the Company pursuant to an equitable mortgage (the ‘Equitable Mortgage’).
The Company was incorporated to own and develop the land located at 805 Archer Road, Kialla (near Shepparton) in Victoria (the ‘Land’). The Company was a trustee of a unit trust known as the ‘805 Archer Road Unit Trust’. The Plaintiff was one of four unitholders in the unit trust.
The Second and Third Defendants were appointed liquidators of the Company on 28 June 2012.
The sole asset of the Company was the Land.
The arrangement between the unitholders to develop the Land was contained in a Joint Venture/Unitholders agreement executed on 5 October 2009. It included a requirement for a third party, Mr Yil Yildirim who was associated with Mufasa Investments Pty Ltd (as trustee for ‘The Cani Trust’), to lend the sum of $300,000 to the Company (the ‘Third Party Loan’) and for the Plaintiff, in his capacity as trustee for ‘The Como Investment Trust’, to lend the sum of $200,000 to the Company (the ‘Plaintiff’s Loan’).
The Plaintiff’s Loan was also evidenced by a loan agreement dated 5 October 2009 (the ‘Loan Agreement’).
Between 19 September 2009 and 1 May 2010 the Plaintiff progressively advanced the loan amount to the Company in accordance with the terms of the Loan Agreement.
Although the Loan Agreement provided for a registered mortgage in favour of the Plaintiff to secure his loan, a copy of which was annexed to the Loan Agreement, this never happened. In spite of being requested in writing to do so, the Company did not execute or register the mortgage in favour of the Plaintiff over the Land.
The Land was subject to a registered first mortgage in favour of a Mr Peter Robertson. The estimated ‘Dividend Comparison/Outlook’ prepared by the Liquidators, annexed to their Supplementary Report to Creditors dated 27 August 2012, estimated the sum due to the secured creditor Mr Robertson to be $464,000.
As a result, the Land became subject to a second but unregistered mortgage in the form of an equitable mortgage (the ‘Equitable Mortgage’), which arose pursuant to the Loan Agreement dated 5 October 2009.
The Liquidators, although initially disputing the existence of the Equitable Mortgage, on the first day of the trial admitted the creation of the Equitable Mortgage.
On 6 March 2014, the Land was sold and transferred to a new registered proprietor for a sale price of $700,000. After payment of moneys owing to the first mortgagee, the purchaser paid the surplus of the sale proceeds to the Company.
The Plaintiff seeks a declaration that the surplus proceeds of the sale of the Land after discharge of the registered mortgage (less the proper costs of the Liquidators in realising the Land, which was the only asset of the Company) were moneys secured by the Equitable Mortgage and that they be paid to him together with interest.
However, the Liquidators contend that there are three reasons why the Plaintiff should fail, which became the issues in the trial:
(a)initially they contended that the Plaintiff is precluded by the operation of s 444D of the Corporations Act 2001 (Cth) (the Corporations Act) from realizing his security, having voted in favour of a deed of company arrangement (the ‘DOCA’) pursuant to which he agreed to compromise his security;
(b)they contended that the Plaintiff by his conduct abandoned or waived his Equitable Mortgage, and as a consequence became and remains an unsecured creditor and has lost his priority as a secured creditor; and
(c)they also contend that, after taking into account the proper costs of realising the Land, which was the sole asset of the Company, there is no surplus remaining to distribute to the Plaintiff in any event, even if he was and remains a secured creditor pursuant to a valid and continuing Equitable Mortgage or equitable charge over the proceeds resulting from the sale of the Land.
Operation of s 444D of the Corporations Act
The Defendants initially submitted that the Plaintiff is precluded by the operation of s 444D of the Corporations Act from realizing his security, having voted in favour of the DOCA pursuant to which he agreed to compromise his security.
Section 444D provides for the effect of a deed of company arrangement on creditors, in the following terms:
(1)A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).
(2) Subsection (1) does not prevent a secured creditor from realising or otherwise dealing with the security interest, except so far as:
(a) the deed so provides in relation to a secured creditor who voted in favour of the resolution of creditors because of which the company executed the deed; or
(b) the Court orders under subsection 444F(2).
(3) Subsection (1) does not affect a right that an owner or lessor of property has in relation to that property, except so far as:
(a) the deed so provides in relation to an owner or lessor of property who voted in favour of the resolution of creditors because of which the company executed the deed; or
(b) the Court orders under subsection 444F(4).
(3A) Subsection (3) does not apply in relation to an owner or lessor of PPSA retention of title property of the company.
(4)Section 231 does not prevent a creditor of the company from becoming a member of the company as a result of the deed requiring the creditor to accept an offer of shares in the company.
I accept that the Plaintiff did in fact vote in favour of a resolution of creditors pursuant to which the Company executed a deed of company arrangement.
This occurred in the following way:
(a)On 3 October 2012 a DOCA was approved by the creditors of the Company. On that occasion, the Plaintiff voted against the resolution adopting the DOCA;
(b)On 20 June 2013 amendments to the DOCA were approved by the creditors of the Company. The amendments were confined to matters of administration relating to the proposed sale of the Land. The amendments did not alter the security held by the Plaintiff. The resolution to adopt the amendments was moved by a Mr Steve Marks, who acted as proxy for the Plaintiff. The inference is that Mr Marks also voted in favour of the resolution to amend the DOCA. In moving the resolution to amend the DOCA, and by inference also voting in favour of the resolution, Mr Marks was acting on behalf of the Plaintiff as his agent. The effect of this conduct was that the Plaintiff voted in favour of the resolution of creditors to adopt the DOCA as amended by the amending resolution.
However, I find that the DOCA, as amended, did not prevent the Plaintiff, as a secured creditor, from realising his security interest pursuant to his Equitable Mortgage. On the contrary, the sections of the DOCA which remained unamended, expressly preserved the rights of secured creditors, including those of the Plaintiff. This is made clear in the following Clause 4.4 of the DOCA:
4.4 No Effect on Rights of Secured Creditors
Nothing in the Deed shall affect in any way and at any time the rights of any Secured Creditors in relation to the enforcement of their Securities during the Deed Period or their interests in the assets of the Company over which they have security.
The following definitions set out in the DOCA are also relevant in defining ‘Deed’ to include the DOCA ‘as amended from time to time’; providing for what is meant by ‘Secured Creditor’; and the provision of a wide definition of ‘Security’:
1.12Deed means this Deed of Company Arrangement as amended from time to time.
1.39Secured Creditor means any person who had the benefit of a Security which was valid at the Appointment Date or which is validated within 14 Business Days of the execution of the Deed, over all or any assets of the Company securing all or any part of its Claim but only to the extent of that Security at the Appointment Date.
1.40Security means any mortgage, chattel mortgage, pledge, charge, agreement, encumbrance, lien, any right of set-off (arising otherwise than by operation of law or as a result of a banker's right to combine accounts), assignment which provides for and secures the payment of any debt or monetary liability or the performance of any obligation.
The DOCA by Clause 8.5.1 also acknowledged the claim of the Plaintiff, and that of Mr Yil Yildirim, to interests in the Land as equitable mortgagees ‘ranking behind the Mortgagee [Mr Robertson] and securing advances of $200,000 and $300,000 respectively’.
For this reason s 444D of the Corporations Act does not operate to preclude the Plaintiff from realizing his security.
In any event, it appears that the Defendants did not ultimately pursue the submission that the Plaintiff is precluded by the operation of s 444D of the Corporations Act from so realizing his security.
Whether any Surplus Remaining to Distribute to the Plaintiff
The central issue in determining whether or not there remains a surplus that is capable of being distributed to the Plaintiff to satisfy his security as an equitable mortgagee, in whole or in part, turns on whether the costs incurred and the fees charged by the Liquidators were costs and fees reasonably incurred in the realisation of the asset, being the Land.
The issue was articulated by the Liquidators in lengthy and detailed particulars entitled ‘Further Particulars of the Amounts Expended in the Realisation of the Property’. This document was prepared by and under the supervision of Mr Howell, who was one of the Liquidators. The particulars itemised hundreds of items and extended over 88 pages. The particulars were delivered to the Court on the morning of the third day of the trial, 18 March 2015 (the ‘Particulars’). They were adopted by Mr Howell and admitted into evidence.
Mr Herskope, who appeared as counsel for the Plaintiff, took issue with the Particulars, and proceeded to cross-examine Mr Howell in some detail on particular items referred to in the document. In the course of this examination, counsel indicated that there were many items which he sought to challenge on the basis that, not only were the items of expenditure when considered as a whole disproportionate to the value of the asset dealt with (being the Land), but a good number of the items of the costs and fees did not properly relate to the preservation and realisation of the Land.
It became clear to the parties and to the Court that the matter could not be concluded within the three day trial estimate allocated to the case.
Accordingly, in the exercise of its case management powers conferred under the Civil Procedure Act 2010 and the Rules of Court, the Court determined that a separate question should first be dealt with and stated the following question:
The question as to whether or not the Plaintiff abandoned or waived his equitable mortgage will be determined as a separate question pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules2005.
After stating the question, the Court adjourned to 18 March 2015 to hear final addresses on the issue, following which it was anticipated that judgment on the question would be delivered and directions made as to any further elements of the case which remained to be determined.
I will proceed to determine the separate question.
Abandonment of the Equitable Mortgage
The Liquidators submitted that by his conduct the Plaintiff abandoned or waived his rights under his Equitable Mortgage, and as a result, became an unsecured creditor of the Company.
In support of this contention, the Defendants say that the Plaintiff:
1.failed to take any steps to prevent the lapsing of the caveat after receiving notice of the dealing lodged in respect of the transfer of title to the purchaser;
2.failed to take any real steps (for example, issuing legal action) until 5 September 2014, being some 7 months after settlement of the sale of the Land;
3.took steps that were consistent with the abandonment of his interest as a secured creditor and the acceptance of a distribution in accordance with the provisions of the DOCA, including:
(a) in response to the email of 19 March from Mr Kukulovski to Mr Marks, saying:
“We have received funds in our trust account, however in order to get these funds we agreed not to use them until the end of March.
Once this time elapses, we will be getting court approval for the DOCA and then will look to distribute funds.
It is anticipated that we will be in a position to pay a dividend late April.”
Mr Marks said:
“And with the distribution, is this as per our agreement for our client?”
(b) by email of the same day from Mr Marks to Mr Kukulovski, saying:
“That seems great, so the transfer lodged by the Mortgagee is pursuant to the DOCA?”
(c) by email of 22 May 2014 from Mr Marks to Mr Kukulovski, saying:
“How are you going with declaring a dividend?”
(d) by emails of 30 May 2014 from Mr Marks to Mr Kukulovski, referring three times to the fact that $100,000 was allegedly owing to his client; and
(e) by statement of his legal practitioner on 25 June 2014 (being some four months after the sale of the property), saying that the plaintiff was “entitled to $100,000...”.
Legal Principles Relating to Abandonment and Waiver
As to waiver, it was written by Kirby J in Agricultural and Rural Finance Pty Ltd v Gardiner and anor:[1]
The existence of a “waiver” will depend upon the facts and circumstances[2] that produce a representation or conduct that is “clear and unequivocal”[3]. It involves ascertaining the “conscious intention”[4] of the waiving party, in this case, of the Indemnifier. As the party potentially liable upon the indemnity, it is essential to consider the conduct of the Indemnifier to establish a “waiver”. The onus is upon the Borrower, as “the party relying” on the waiver[5], to prove the necessary facts. Critically, here the Borrower must show that it would be manifestly unfair for the Indemnifier to rely on the Borrower's failure to pay “punctually” as demonstrating that the indemnity agreement was not “effective and enforceable”. In this case, the Borrower failed to satisfy this threshold requirement.
[1]251 ALR 322 [147].
[2]Craine (1920) 28 CLR 305, 326. See also Osland (2008) 82 ALJR 1288, 1302 [49], 1309 [93]; 249 ALR 1, 17, 27.
[3]Marc Rich & Co AG v Portman [1996] 1 Lloyd's Rep 430, 442 (affirmed [1997] 1 Lloyd's Rep 225); Road Accident Fund (2000) 4 SA 38, 50 [19].
[4]Saskatchewan River Bungalows Ltd [1994] 2 SCR 490, 500.
[5]British American Oil Co Ltd [1951] 2 DLR 37, 44; Road Accident Fund (2000) 4 SA 38, 50 [19].
In Commonwealth of Australia v Verwayen,[6] the High Court earlier said that waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right. The abandonment of a right occurs where the person waiving the right is entitled to alternative rights inconsistent with each other, and elects to take one of those paths.
[6](1990) 170 CLR 394, 406.
Kirby J in Agricultural and Rural Finance, drew in turn upon the observations of the High Court in Craine v Colonial Mutual Fire Insurance Co Ltd[7] which included the following passage:[8]
A waiver must be an intentional act with knowledge" (per Lord Chelmsford LC in Earl of Darnley v Proprietors &c of London, Chatham and Dover Railway). First, “some distinct act ought to be done to constitute a waiver” (per Parke B in Doe d. Nash v Birch and per Williams J in Perry v Davis); next, it must be “intentional”, that is, such as either expressly or by imputation of law indicates intention to treat the matter as if the condition did not exist or as if the forfeiture or breach of condition had not occurred; and, lastly, it must be “with knowledge”, an essential supported by many authorities, from Pennant's Case and down to Matthews v Smallwood. “Waiver” is a doctrine of some arbitrariness introduced by the law to prevent a man in certain circumstances from taking up two inconsistent positions (see per James LJ in Pilcher v Rawlins). It is a conclusion of law when the necessary facts are established. It looks, however, chiefly to the conduct and position of the person who is said to have waived, in order to see whether he has “approbated” so as to prevent him from “reprobating”—in English terms, whether he has elected to get some advantage to which he would not otherwise have been entitled, so as to deny to him a later election to the contrary (see per Lord Shaw in Pitman v Crum Ewing). His knowledge is necessary, or he cannot be said to have approbated or elected.
[7](1920) 28 CLR 305.
[8]At p 326.
In this way, as submitted by Ms Papaleo on behalf of the Defendants, the concept of waiver is an example of the doctrine of election. The doctrine of election rests upon the notion that it is unfair for one party to a transaction to adopt inconsistent positions in his or her dealings with another party.[9] For the doctrine to operate, there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights that he or she possesses.[10] A finding of an election does not depend on proof of an actual intention: objective considerations are sufficient. It must be judged from acts.[11] It is an ‘effect which the law annexes to conduct which would be justifiable only if an election had been made.’[12]
[9]Oliver Ashworth (Holdings) Ltd v Ballard (Kent) Ltd [2000] Ch 12, 27.
[10]See Sargent v ASL Developments Ltd (1974) 131 CLR 634, 642.
[11]Carr v JA Berriman Pty Ltd (1953) 89 CLR 327, 351 (Fullagar J), quoting with approval from Robert A Munro &Co, Ltd v Meyer (1930) 2 KB 312, 331.
[12] Tropical Traders Ltd v Goonan (1964) 111 CLR 41, 55.
In this case, the Defendants submitted that the Plaintiff had two inconsistent options, being:
(a)reliance on his equitable charge to effect the repayment of the full sum of his debt after the satisfaction of the debt owed to the registered mortgagee; and
(b)the acceptance of a lesser sum in satisfaction of his debt as an unsecured creditor.
It was submitted that the Plaintiff’s conduct amounted to the making of an election of the latter course.
The Defendants also relied upon the decision of the majority of the Full Federal Court of Australia in Commissioner of Taxation v Park (Park).[13] The decision is authority for the proposition that, where a security holder voluntarily releases its security over a property, it loses its priority position as to the property.
[13][2012] FCAFC 122. Of course, this court is not bound to follow decisions of the Federal Court of Australia. However, the authorities have the effect that the court ought to follow such decisions unless persuaded that the decision is clearly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, 492.
The Full Federal Court held in Park that the voluntary nature of a party’s [Instyle’s] disposition of its interest compromised its security. The Court said:[14]
… if there is a discernible point at which Instyle’s position was compromised by the sequence of events which occurred on 23 February 2010, it was when it released its mortgage over the property. Although the Commissioner consented to settlement going ahead under arrangements which included that release, he made it clear in correspondence that his consent was not to be interpreted as surrender of his claim [made by the Notice].
[14]At [114].
The Defendants correctly submitted that notwithstanding that Instyle continued to assert its right to the funds, it was still taken by the court to have compromised its security, and it was therefore no longer entitled to payment ahead of the Commissioner of Taxation.
Failure to take Steps to Prevent the Lapsing of Caveat
The legislation relating to the lapsing of caveats is set out in s 89A and s 90 of the Transfer of Land Act 1958 (Vic) (the ‘Act’).
The effect of the lodging and recording of a caveat is to prevent dealings in the land in respect of which an interest is claimed.[15] The caveat procedure is a convenient and effective procedure to protect unregistered interests in land from dealings in land which are contrary to the unregistered interest.[16]
[15]Dharmalingham v Registrar of Tiles and Anor [2005] VSC 417 [19].
[16]Dharmalingham v Registrar of Tiles and Anor [2005] VSC 417 [19] (Hargrave J).
This objective is achieved by the following mechanism: the recording of a caveat in respect of registered land has the effect of preventing the registered proprietor of land from dealing with that land.
The Act also provides the registered proprietor of land over which a caveat has been lodged and recorded, and any other person affected by a caveat, a number of methods to achieve the result that a caveat ceases to have effect.
Section 89A of the Act provides an administrative mechanism which enables any person affected by a caveat to apply to the Registrar for the service of a notice on the caveator pursuant to s 89A(3). The service of such a notice under s 89A(3) may have the result that the caveat in question lapses and the Register is amended accordingly.
47 Section 89A provides:
Removal of caveat on application to Registrar
(1)Subject to the provisions of this section, where a recording of a caveat (not being a caveat lodged by the Registrar) has been made pursuant to section 89(2), any person interested in the land affected thereby or in any part thereof may make application in an appropriate approved form to the Registrar for the service of a notice pursuant to subsection (3).
(2) An application under this section shall—
(a)specify the land and the estate or interest therein in respect of which it is made; and
(b)be supported by a certificate signed by a person for the time being engaged in legal practice in Victoria, referring to the caveat and stating his opinion that, as regards the land and the estate or interest therein in respect of which the application is made, the caveator does not have the estate or interest claimed by him.
(3)Upon receiving any such application and certificate and upon being satisfied that the applicant has an interest in the land in respect of which the application is made, the Registrar shall give notice to the caveator that the caveat will lapse as to the land and the estate or interest therein in respect of which the application is made on a day specified in the notice unless in the meantime either—
(a)the application is abandoned by notice in writing given to the Registrar by or on behalf of the applicant; or
(b)notice in writing is given to the Registrar that proceedings in a court to substantiate the claim of the caveator in relation to the land and the estate or interest therein in respect of which the application is made are on foot.
(4)The Registrar shall not cause a day to be specified in the notice that is less than 30 days after the day on which the notice is served or, if the notice is sent by post, the day on which it is introduced into the course of post.
(5) Upon the specified day, unless—
(a) the application has been abandoned as aforesaid; or
(b)notice in writing has been given to the Registrar that proceedings as aforesaid are on foot—
the caveat shall lapse as to the land and the estate or interest therein to which the application then relates, and the Registrar shall make all necessary amendments in the Register.
(6)An application under this section may be abandoned either wholly or as to part of the land or the estate or interest therein in respect of which it is made either before or after notice is given pursuant to subsection (3), but where notice has been given, only with the consent of the caveator or his agent.
(7)Where notice in writing of the kind referred to in paragraph (b) of subsection (3) is given to the Registrar—
(a)if in the proceedings in question the claim of the caveator is not substantiated to the satisfaction of a court—the court may make such order in relation to the caveat as the court thinks fit and the Registrar shall give effect thereto;
(b)if there is subsequently served upon the Registrar a copy of any notice, or an office copy of any order of the court, disclosing that the proceedings in question have been discontinued, withdrawn or struck out or evidence to the satisfaction of the Registrar that those proceedings have been dismissed—the caveat shall lapse as to the land and the estate or interest therein to which the application then relates, and the Registrar shall make all necessary amendments to the Register.
A second way in which a caveat may lapse, or be removed, is pursuant to the provisions of s 90 of the Act.
49 Section 90 of the Act relevantly provides:
Except in certain cases caveat to lapse after thirty days notice given to caveator
(1)Subject to this Act every such caveat except a caveat lodged by the Registrar shall lapse as to any land affected by any transfer or other dealing other than—
(a) a transmission under Division two of Part IV; or
(b) a transfer or dealing as to which the caveator or his agent has lodged with the Registrar his consent in writing; or
(c)in the case of a caveat lodged by or on behalf of a beneficiary claiming under a will or settlement—a transfer or dealing giving effect to the appointment of a new trustee or to any other transaction which in the opinion of the Registrar is not inimical to the interests of the beneficiaries; or
(d)a transfer or dealing which is expressed to be subject to the rights of the caveator; or
(e) a transfer or dealing the registration or entry of which is provided for in the caveat—
upon the expiration of thirty days after notice given by the Registrar to the caveator that a transfer or dealing has been lodged for registration, but in the case of a transfer or other dealing which does not dispose of the whole of the estate or interest of the registered proprietor in the land affected thereby the caveat shall lapse only to the extent necessary to permit the registration of the transfer or dealing.
(2)If before the expiration of the said period of thirty days or such further period as is specified in any order made under this subsection the caveator or his agent appears before a court and gives such undertaking or security or lodges such sum as the court considers sufficient to indemnify every person against any damage that may be sustained by reason of any disposition of the property being delayed, the court may direct the Registrar to delay registering any dealing with the land for a further period specified in the order, or may make such other order (and in either case such order as to costs) as is just.
(3)Any person who is adversely affected by any such caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit.
...
Thus, the lodgement of a dealing by another party in respect of land which is the subject of a caveat will cause the caveat to lapse, to the extent necessary to permit the registration of the transfer or dealing, unless the caveator obtains an order from ‘the Court’ under s 90(2) of the Act.
Further, without any dealing being lodged, any person adversely affected by a caveat may bring proceedings in ‘the Court’ against the caveator under s 90(3) for removal of the caveat.
In this case, the Liquidators rely upon an alleged lapsing of the Plaintiff’s caveat over the Land, which had been lodged to protect his Equitable Mortgage. The estate or interest claimed on behalf of the Plaintiff in his caveat was ‘An interest as Chargee’, and the grounds of his claim were expressed to be: ‘As the Chargee pursuant to a Charge in writing dated 5/10/2009 between 805 Archer Road Pty Ltd ACN 127 745 975 and Mark Cheetham.’
The alleged lapsing was brought about under the s 90 procedure, which was triggered upon the registration of a transfer of the Land to the purchaser following the realization of the Land upon its sale by the Liquidators on 10 April 2013. Settlement of the sale of the Land was delayed and took place in or around the end of February 2014. The Transfer of Land was registered on the title to the Land on 6 March 2014.
The special conditions to the contract of sale for the Land provided by clause 4.3 that the purchaser would prepare the Transfer of Land ‘on the basis that the transfer is subject to all of the Encumbrances: …’.
The definition of ‘Encumbrances’ set out in clause 4.1 of the contract of sale, included the Plaintiff’s claimed interest as set out in his caveat by providing that the purchaser ‘takes the property subject to all mortgages and caveats registered on title (and any interest claimed therein) as at the day of sale (Encumbrances) and …’.
The Transfer of Land was accordingly expressed to include a transfer to the transferee of ‘the estate and interest specified in the land [which was an estate and interest in FEE SIMPLE] ”but“ subject to the encumbrances affecting the land …’.
The contract of sale also incorporated part of the DOCA. The following provision of the contract appears as Clause 2 of the Special Conditions:
2.Settlement of this contract is conditional upon satisfaction of clause 8.2.1 of the Deed of Company Arrangement [the DOCA].
Clause 8.2.1 of the DOCA provided that the contract of sale of the Land that was contemplated to realise the asset of the Company was to be ‘conditional and subject to’:
8.2.1.1the Current Mortgagee consenting to the transfer of the Mortgage to the Purchaser or its nominee for a consideration not exceeding $500,000; and
8.2.1.2the Purchaser or its nominee assuming the obligations of the Company under the Mortgage.
These provisions of the DOCA did not detract from the security held by the Plaintiff pursuant to his Equitable Mortgage. Indeed, clause 4.4 of the DOCA earlier referred to specifically preserved the rights of secured creditors, and was entirely consistent with the terms of the Special Conditions of the contract of sale.
The Transfer of Land was accordingly expressed to be subject to the rights of the caveator, the Plaintiff. Although the Land was affected by the Transfer, the exception in s 90(1)d) of the Act operated, which provided that a caveat would not lapse in relation to any land in relation to: ‘(d) a transfer or dealing which is expressed to be subject to the rights of the caveator’, which was the case here.
Although it appears the Registrar gave a s 90(1) notice dated 13 March 2014 to the Plaintiff as the caveator that the transfer had been lodged for registration, in law the Plaintiff’s caveat was not at risk of lapsing at all, by the operation of s 90(1)(d). For this reason, the Registrar’s notice was of no force or effect, and the Plaintiff was not obliged to take any action in response to the notice in order to preserve his caveat.
Accordingly, given the fact that at law there was no risk of the Plaintiff’s caveat lapsing, there was no conduct on his part in relation to his caveat which could support any claim that he had abandoned or waived his Equitable Mortgage.
In any event, following the sale of the Land, even if the Plaintiff’s caveat did lapse over the Land, the lapsing of the caveat upon the completion of the sale and the registration of the Transfer of Land did not mean that he lost the benefit of his security as equitable mortgagee and become an unsecured creditor. Any submission to the contrary would defy the well-established principle of equity that upon a sale of land subject to an equitable mortgage, the interest of the equitable mortgagee attaches as an equitable charge to the fund produced, arising from a surplus on the sale.[17]
[17]Aircon Heating and Airconditioning Pty Ltd v Crane Distribution Ltd and Registrar of Titles [2006] VSC 76 [48] and [51] (Hansen J).
Hansen J in Aircon Heating and Airconditioning Pty Ltd (in liq) v Crane Distribution Ltd,[18] said in the following passages:
[18][2006] VSC 76.
[48] It is sufficient, by way of authority on this point, to refer to the decision of Young J in AVCO Financial Services Ltd v Commonwealth Bank of Australia.[19] In that case a mortgagee of Torrens System Land had sold the land and paid into Court the balance remaining of the sale proceeds after recouping the amount owed to him. On an equitable chargee applying for payment out of the fund in Court it was held, granting the application, that on the land being sold the equitable charge attached to the fund that was produced as a result of there being a surplus on the sale ...
[19](1989) 17 NSWLR 679.
...
[51] It is thus seen that Crane’s submission that removal of the caveat and completion of the sale meant that it would lose the benefit of its security as equitable mortgagee and, indeed, become an unsecured creditor, is wrong.
The Plaintiff’s conduct in taking no step pursuant to s 90(2) of the Act is consistent with him placing reliance on his equitable rights referred to above, and cannot amount to an abandonment or waiver of those rights as submitted on behalf of the Defendants.
The Defendants pointed to no conduct prior to the sale of the Land which was said to amount to an abandonment or waiver of the Plaintiff’s interest in his Equitable Mortgage. On the contrary, the contract of sale and subsequent transfer expressly preserved his rights. Accordingly, there was no impediment to the rights secured by his Equitable Mortgage being converted to rights pursuant to an equitable charge over the fund consisting of the surplus proceeds of sale.
Further, and in any event, it is trite law that a caveat creates no interest in land. As observed by Kitto J in Lamshed v Lamshed:[20] … the lodging of a caveat does not turn the caveator's interest into a registered interest: it has the effect of a statutory injunction which continues in force until the caveat is removed or lapses.
[20]Lamshed v Lamshed (1963) 109 CLR 440, 451 (Kitto J).
Accordingly, merely permitting a caveat to lapse, without more, cannot amount to a positive act of abandonment or waiver of rights secured under an interest in land or its proceeds.
Delay in Taking Steps to Assert His Claim
The summons on the Originating Motion which commenced this proceeding was issued on 5 September 2014. It was supported by affidavits sworn 4 September and 11 September 2014 and extensive exhibit material.
Reference is made to the 6 year limitation period set out in s 5 of the Limitation of Actions Act 1958 (Vic).
In this context, I do not regard a 7 month period before the proceeding was issued as undue delay in commencing the proceeding. Still less can this amount to or evidence an abandonment or waiver of the Plaintiff’s Equitable Mortgage or equitable charge in respect of which a declaration was claimed in paragraph 2 of the Originating Motion.
Statements Inconsistent with Equitable Interest
The abandonment or waiver of his interest as a secured creditor would have been a very serious step for the Plaintiff to take, and it would have been directly against his interests to have taken any such step.
It was put to the Plaintiff in cross-examination that by his conduct in various statements purportedly made on his behalf, he had abandoned or waived his interest as a secured creditor, under his equitable mortgage. The Plaintiff denied this was the case. I accept this evidence of the Plaintiff.
I also accept the evidence of Mr Marks on the issue. Mr Marks said in cross-examination that his references to $100,000 in the emails were in error and were not made on the instructions of the Plaintiff.
With regard to the sum of $100,000 said to be owing to the Plaintiff in the emails sent by his agent Mr Marks, which was said by the Defendants to be inconsistent with the amount of $200,000 he claimed was secured by this equitable mortgage, the Plaintiff denied, in effect, that the references in the emails to this were made with his authority. I also accept the evidence of the Plaintiff on this matter.
It is also to be noted that the Defendants, without explanation, did not call Mr Yildirim, a director of the Company, who was in a position to shed light on the matters put by them as to the sum of $100,000 said to be owing to the Plaintiff in the emails sent by his agent Mr Marks. In particular the Defendants did not adduce evidence in support of the existence of any agreement between the Plaintiff and Mr Yildirim pursuant to which the Plaintiff was said to have abandoned his equitable mortgage and accepted a distribution in accordance with the DOCA. I draw a Jones v Dunkel inference that the evidence of Mr Yildirim, if he had been called, would not have assisted their case.
In the light of my findings, I do not regard any of the statements made by the Plaintiff’s agent, Mr Marks, or his legal practitioner, to the Liquidators, through Mr Kukulovski, in the emails or exchanges relied upon as being capable of supporting the allegation that by this conduct the Plaintiff had abandoned or waived his rights as an equitable mortgagee over the Land or as an equitable chargee in respect of the fund produced upon the sale of the Land.
Conclusion
I am not satisfied that the Defendants have discharged the onus placed upon them to prove that there was some clear and unequivocal conduct on the part of the Plaintiff which evidenced a conscious intention on the part of the Plaintiff, who was said to be the waiving party, to abandon or waive his rights secured under the Equitable Mortgage, and the equitable charge.
In answer to the question as to whether or not the Plaintiff abandoned or waived his equitable mortgage, which on the sale of the Land converted into an equitable charge, the answer is: No.
The outstanding issue which remains to be dealt with is whether or not there remains a surplus that is capable of being distributed to the Plaintiff to satisfy his security as an equitable chargee, in whole or in part. This will turn on whether the costs incurred and the fees charged by the Liquidators were costs and fees reasonably incurred in the realisation of the asset, being the Land.
I will adjourn the proceeding sine die for directions as to the management of the outstanding issue, and reserve costs.
---
SCHEDULE OF PARTIES
| MARK CHEETHAM | Plaintiff |
| v | |
| 805 ARCHER ROAD PTY LTD (ACN 127 745 975) (IN LIQUIDATION) (SUBJECT TO DEED OF COMPANY ADMINISTRATION | First Defendant |
| MALCOLM KIMBALL HOWELL | Second Defendant |
| TRAJAN JOHN KUKULOVSKI | Third Defendant |
2
12
0