Coco C'Bay Association (Inc) v Paddison - [2022] WASC 5

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION:   COCO C'BAY ASSOCIATION (INC). -v- PADDISON [2022] WASC 5
CORAM:   SOLOMON J
HEARD:   26 OCTOBER & 6 DECEMBER 2021
DELIVERED          :   12 JANUARY 2022
FILE NO/S:   CIV 2119 of 2021
BETWEEN:   COCO C'BAY ASSOCIATION (INC).
Plaintiff
AND
MURRAY CLIVE PADDISON
First Defendant
DAWN MICHELLE EALES
Second Defendant
THE REGISTRAR OF TITLES
Third Defendant

Catchwords:

Application for extension of caveat - Plaintiff Association with Buyer Covenant and Rules - Absolute caveat to protect plaintiff's interest - Subject to claim caveat - Caveatable interest - Charge - Non-pecuniary objection - Obligations running with the land

Legislation:

Interpretation Act 1984 (WA), s 5.
Transfer of Land Act 1893 (WA), s 4, s 4(1), s 105, s 137, s 138, s 138B, s 138C(1), s 138C(2)

Result:

Caveat extended

Category: B

Representation:

Counsel:

Plaintiff	:	G Nofal
First Defendant	:	M Rennie
Second Defendant	:	M Rennie
Third Defendant	:	No appearance

Solicitors:

Plaintiff	:	HHG Legal Group
First Defendant	:	HFM Legal Group
Second Defendant	:	HFM Legal Group
Third Defendant	:	No appearance

Case(s) referred to in decision(s):

Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393; 86 NSWLR 174
Avco Financial Services Ltd v White [1877] VR 561
Bashford v Bashford [2008] WASC 138
Beneficial Finance Corp Ltd v Multiple Constructions Pty Ltd (1995) 36 NSWLR 510
Coleman v Bone (1996) 9 BPR 16,235
Composite Buyers Ltd v Soong (1995) 38 NSWLR 286
Custom Credit Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1996) 70 FCR 328; 141 ALR 687
Graham v Chappell (1993) 9 WAR 157
Gumland Holdings Pty Ltd v Duffy Brothers Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237
IMF (Aus) Ltd v Meadow Springs Fairway Resort Ltd (2008) 253 ALR 240
Kalx Capital Securities Pty Ltd v Richardson 1 Pty Ltd [No 2] [2021] WASC 302
Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987
KT & T Developments Pty Ltd v Tay (1995) 13 WAR 363
Lang v Asemo [1989] VR 773
McDonald's Australia v Bendigo and Adelaide Bank [2014] VSCA 209
Midland Brick Company Pty Ltd v Welsh (2006) 32 WAR 287
Midland Brick Pty Ltd v Welsh [2002] WASC 248
Murphy v Wright (1992) NSW Conv R 55-652
Nigam v Divjakoski [2010] WASC 185
P&A Swift Investments (a firm) v Combined English Stores Group [1989] 1 AC 632
Re Charge Card Services Ltd [1987] Ch 150
Spunter Pty Ltd v Hall & Anor [2006] WASC 6
Troncone v Aliperti (1994) 6 BPR 13,291
West Coast Developments Pty Ltd v Lehmann [2013] VSC 617
West Coast Developments Pty Ltd v Lehmann [2014] VSC 293
Weston v Metro Apartments [2002] NSWSC 876

SOLOMON J:

The plaintiff is an incorporated association. The first and second defendants (defendants) are the owners of a residential property in Saffron Loop in the suburb of Falcon. The plaintiff brings this application under s 138C(1) of the Transfer of Land Act 1893 (WA) (TLA) for an order extending the operation of the caveat it lodged over the defendants' property in October 2013. The third defendant, as is the usual course, has not participated in the proceeding, and has advised the court that it will abide by the outcome.[1]
[1] Letter from Registrar of Titles (25 October 2021).
In support of its application, the plaintiff filed two affidavits sworn by Mr Petrus William Vredenbregt. Mr Vredenbregt was, until recently, the chairperson of the plaintiff and he continues to be authorised to represent the plaintiff in the proceedings. Mr Vredenbregt's first affidavit sets out the background to the matter. His second affidavit annexes a valuation of the facilities operated by the plaintiff and sets out Mr Vredenbregt's apparent understanding of 'the purpose' of the caveat.
The first defendant, Murray Clive Paddison, swore a brief affidavit responding to Mr Vredenbregt's first affidavit.
The background below emerges uncontroversially from the affidavits sworn and filed by the parties.

The plaintiff association

The members of the plaintiff association are the owners of some 150 residential properties (the lots) in or about the suburb of Falcon. The lots are identified in a schedule to the plaintiff's 'Constitution and Book of Rules' (Rules). Falcon is a beachside suburb located south of Mandurah in Western Australia with frontage to both the ocean (Falcon Bay) and the Mandurah and Peel Harvey estuaries.
The object of the plaintiff is to promote the interests of its members, that is, the property owners, by the provision of facilities for sporting, recreational and social activities. To that end, the plaintiff owns a substantial property at 28 Coco Drive in Falcon in close proximity to the members' homes. The property is in the nature of club rooms and contains swimming pools, a spa, a gymnasium, a games room, lounge, dining room, kitchen and barbeque area. The facilities are available to members seven days a week.
The genesis of the plaintiff is unclear on the evidence before the court. It appears to have arisen around the time of, and perhaps as part of, the sub-division of land which led to the creation of the lots that were ultimately sold to the owners who became members of the plaintiff.
The plaintiff maintains its membership, and thereby its facilities, in the following manner. Every contract for the purchase of any of the lots includes an annexure entitled 'Buyer Covenant'. The Buyer Covenant is in the form of a deed. The Buyer Covenant includes the following clauses:
The Buyer and the Coco C'Bay Association Incorporated (Association) agree as follows:
1.The Buyer will become a member of the Association and will provide to the Seller at settlement of the sale of the Property a completed and signed membership application form for the Association. Application forms are available from the Association.
2.At all times while the Buyer is a member of the Association, the Buyer will comply with the rules of the Association as varied from time to time and, in particular but without limitation, will pay the Nomination Fee and all Annual Fees required to be paid by members under the rules of the Association.
3.The Buyer will not sell or transfer the Property to a third party (Third Party) without providing to the Association, prior to the settlement of the sale of (sic) transfer, an executed deed of covenant between the Third Party and the Association in substantially the same form as this Covenant. A copy of the deed of covenant required to be executed by the Third Party is available from the Association.
4.The Buyer will not grant a mortgage (Mortgage) in respect of the Property to any party (Mortgagee) without providing to the Association, prior to the grant of the Mortgage, an executed deed of covenant by the Mortgagee under which the Mortgagee essentially agrees that, if the Mortgagee enters into possession of the Property, the Mortgagee will be bound by and comply with the obligations of the Buyer contained in this Covenant. A copy of the deed of covenant required to be executed by the Mortgagee is available from the Association.
5.To secure the performance of the Buyers (sic) obligations under clauses 1 to 4 above, the Buyer:
a)charges the Property in favour of the Association with the performance of the Buyers (sic) obligations under this Covenant; and
a)authorises the Association to lodge an absolute caveat, at the Buyer's cost, at the WA Land Titles Office against the title to the Property in order to protect the rights and interests of the Association and secure the performance of the Buyers (sic) obligations under this Covenant.
6.Subject to:
a)there being no unremedied breaches of any of the Buyer's obligations under this Covenant; and
b)the Buyer complying with this Covenant,
the Association will, at the request of the Buyer and at the Buyer's cost, provide to the Buyer a withdrawal of any caveat lodged by the Association pursuant to this Covenant required to enable the registration of any transfer or mortgage of the Property, provided that the Association is entitled to re-lodge, at the Buyer's cost, an absolute caveat following the registration of that transfer or mortgage.
In addition, articles 5.1 and 5.2 of the Rules provide as follows:
5.1The Members of the Association are those persons who are shown on the Certificate of Title of a Residential Lot or a Caveat Absolute as an Owner of a Lot as per the Schedule of Lot Numbers or in the case of a Company the person whose name is shown on company records as a Director of such Company after the payment of the Nomination Fee as set out in these Rules.
5.2 CESSATION OF MEMBERSHIP: The cessation of membership to the Association occurs only when the Members (sic) names are removed from the Certificate of Title of the Residential Lot, as in the case of a registered sale of a Lot, or other legal action.
The practical effect of these instruments is that the owner of each of the lots is bound to become and remain a member of the plaintiff association for so long as she or he retains that ownership. The owner is thereby bound to abide by the Rules, including the payment of annual membership fees. The maintenance of this arrangement is ensured by the agreement of the owner under the Buyer Covenant to procure the same covenants from any subsequent purchaser of the lot. By cl 5 of the Buyer Covenant, the owner agrees to charge the relevant lot as security for performance of his or her obligations under the Buyer Covenant and agrees to the plaintiff association lodging an absolute caveat over the lot to protect that security.
The arrangements reflect a community of interest among property owners who have come together as an incorporated entity to provide facilities to enhance the recreational and social amenity of the neighbourhood. The continuity of the arrangement is secured by the instruments described above which, in effect, mandate participation in the arrangement, and its attendant costs and obligations when a person elects to purchase a lot within the scheme.

The defendants and the caveat

In October 2013, the defendants purchased the Saffron Loop property. As part of that transaction, on 24 October 2013, the defendants and the plaintiff executed the Buyer Covenant deed which included the terms set out above. On 28 October 2013, the plaintiff association executed and lodged an absolute caveat against the defendants' property forbidding the registration of any interest affecting the estate or interest claimed. The estate or interest claimed in the caveat was 'as chargee'. That claim was said to arise from cl 5 of the Buyer Covenant deed.
In mid 2020, solicitors wrote to the plaintiff on behalf of 'certain members' of the association. Those solicitors did not immediately disclose the identity of their clients but ultimately, by letter dated 28 October 2020, a list of over 30 'claimants' was provided to the plaintiff's lawyers. The list included the first defendant but not the second defendant.
The correspondence raised a number of grievances regarding the operation and management of the plaintiff association. The correspondence did not, in terms, seek to impugn the validity or effect of the Buyer Covenant or the caveats lodged on the members' properties. In essence, the correspondence sought a resolution whereby those members would cease their membership of the plaintiff association and the caveats would be removed. In short, a group of some 30 members wanted to put an end to the arrangement they had previously agreed to join; they wished to resign from the plaintiff association, relinquish its benefits, and have the caveat on their homes removed.
The correspondence did not resolve the grievances and in any event, it appears to have come to an end by November 2020.
In October 2021, the defendants applied under s 138B of the TLA for the third defendant to serve the plaintiff as caveator with a notice that the caveat will lapse, unless, within 21 days, the plaintiff obtained an order from the Supreme Court extending the operation of the caveat. The 21 days were due to expire on 29 October 2021. On 25 October 2021, the plaintiff brought this application under s 138C of the TLA for an order extending the operation of the caveat. On 26 October 2021, I made an interim order extending the operation of the caveat until further order and the matter was adjourned to 6 December 2021 for substantive argument.

Plaintiff's submissions

The plaintiff relies upon the arrangements embodied in the Buyer Covenant and the Rules to support the maintenance of the caveat. The plaintiff contends that the defendants' real grievance is that they no longer wish to remain members of the association. However, the effect of the Buyer Covenant is plain and entitles the plaintiff to maintain the caveat. By reason of the charge in cl 5, the Buyer Covenant creates a caveatable interest in the defendants' land in favour of the plaintiff and expressly authorises the lodgement of an absolute caveat to protect that interest. The plaintiff contends that the defendants are, in effect, asking the court to set aside the Buyer Covenant, which the defendants freely executed when they purchased the property. The defendants have not advanced a basis to impugn the Buyer Covenant.
The plaintiff complains that if the operation of the caveat is not extended then the arrangements described in [8] to [10] above, which it says are 'integral' to the continuity of the plaintiff association, will be undermined. Those arrangements cannot be preserved adequately without an absolute caveat. The plaintiff contends that is especially so in light of the plaintiff's limited capacity and resources to monitor transactions associated with all of the lots.
In oral submissions, counsel for the plaintiff emphasised that the defendants had voluntarily and knowingly assumed the obligations secured by the Buyer Covenant and supported by the caveat. Counsel also emphasised that the obligations underlying the caveat included the obligation to procure the same covenant from future purchasers and thus 'ran with the land'. As obligations that were secured against the land, and ran with the land, they were appropriately protected by a caveat.

Defendants' submissions

The defendants in response to the application do not seek to impugn the Buyer Covenant or suggest that the arrangement reflected in the Buyer Covenant and the Rules is not binding on its terms. Nor do the defendants raise the complaints agitated in the correspondence between August and October 2020. Those matters, the defendants say, may be for another day.
The defendants concede that the plaintiff has a caveatable interest in their property, insofar as the Buyer Covenant secures the obligation to pay the plaintiff association's annual fees.
The defendants contend, in effect, that the Buyer Covenant can only create a charge over the defendants' property in respect of an obligation to pay money. The charge cannot secure 'non‑pecuniary' obligations. The only 'pecuniary' obligation the subject of the Buyer Covenant and therefore secured by the charge, is the obligation to pay membership. That fee is modest. The affidavit of Mr Paddison demonstrates that it is currently little more than $2,000 per annum.
In those circumstances, the defendants contend that an absolute caveat is not justified. In aid of that submission, the defendants refer to Kalx Capital Securities Pty Ltd v Richardson 1 Pty Ltd [No 2] as authority for the propositions that a caveat must not go beyond the legitimate claim necessary to protect the caveator's rights, and that where the caveator claims an interest as a chargee, an absolute caveat is not appropriate.[2]
[2] Kalx Capital Securities Pty Ltd v Richardson 1 Pty Ltd [No 2] [2021] WASC 302 (Kalx Capital).
On that basis, the defendants maintain that the court should not extend the operation of the caveat. Rather, the caveat, if it is to be maintained at all, should be amended to a 'subject to claim' caveat.
In support of the contention that a charge cannot secure a non‑pecuniary obligation, counsel for the defendants relied upon the observations of Bryson J in Ralph Symonds Australia Pty Ltd v Pacific Property Investments Pty Ltd.[3] His Honour observed that 'a charge almost always refers to a charge of some money obligation by a legal or equitable mortgage or by some transaction in some way analogous to such an obligation'.[4]
[3] Ralph Symonds Australia Pty Ltd v Pacific Property Investments Pty Ltd (1988) 10 BPR 18,729 (Ralph Symonds).
[4] Ralph Symonds 18,731.

Statutory framework and legal principles

In broad terms, s 137 of the TLA allows any person claiming an estate or interest in land to lodge a caveat. Section 138B provides a mechanism whereby the proprietor of land over which a caveat has been lodged can require the caveator to justify the maintenance of the caveat by an application to the Supreme Court under s 138C.
The general principles applicable to an application under s 138C were summarised in Bashford v Bashford and need not be repeated.[5]
[5] Bashford v Bashford [2008] WASC 138 [42] - [56].
In broad terms, it is well settled that the court must be satisfied of two things. First, that there is a serious question to be tried as to the existence of a proprietary interest in the property in question and secondly, that the balance of convenience favours the maintenance of the caveat: KT & T Developments Pty Ltd v Tay.[6]
[6] KT & T Developments Pty Ltd v Tay (1995) 13 WAR 363, 366.

Consideration

The first issue for consideration on this application is whether the interest claimed in the caveat 'has or may have substance' so as to justify the extension of the caveat under s 138C(2). Plainly, the claim that the caveator is required to show has, or may have substance, is the claim of 'any estate or interest in land' under s 137 asserted in the caveat.
The plaintiff claims it satisfies the burden of s 138C by reason of the charge embodied in cl 5 of the Buyer Covenant.
Section 137 provides that a caveat can be lodged by a person claiming an estate or interest in land arising, inter alia, from a 'charge under any unregistered instrument, document or writing'.
'Charge' is defined in s 4(1) and that definition is to be adopted 'except where the subject or context or the other provisions hereof require a different construction'. The definition of 'charge' in s 4(1) is plainly appropriate in the context of a provision such as s 105. However, the subject or context of s 137, in my view, requires a construction that differs from the use of the word 'charge' in its more narrowly defined sense under s 4(1).
The ordinary meaning of a charge is a right held by one person over the property of another person to secure a liability or debt.[7] Put in more technical terms, a charge is a hypothecation creating a security interest in respect of property without transfer of either title or possession, which creates a proprietary interest, conferring rights in rem: IMF (Aus) Ltd v Meadow Springs Fairway Resort Ltd.[8]
[7] LexisNexis Australian Legal Dictionary (2^nd ed, 2016) 'charge'.
[8] IMF (Aus) Ltd v Meadow Springs Fairway Resort Ltd (2008) 253 ALR 240 [57].
Under s 4, an 'instrument' includes a document for the charge of freehold land. If the Buyer Covenant constitutes a charge over the defendants' land, then it is encompassed by the meaning of 'instrument'.
The terms 'estate' and 'interest' are not defined in the TLA. Section 5 of the Interpretation Act 1984 (WA) provides that in a written law, an estate, in relation to land, includes any legal or equitable estate or interest, easement, right, title, claim, demand, charge, lien, or encumbrance in, over, to, or in respect of the land.

That definition might suggest that something less than a proprietary interest in land is sufficient to support a caveat. That conclusion has been advanced and noted in some cases and academic works.[9] Nevertheless, it is well established that a caveat can only be lodged to protect a proprietary interest in land.[10] That is, a caveatable interest must be a proprietary interest in land.[11] A mere contractual or personal right does not confer an interest in land.
[9] Boyle S, 'Caveatable Interests: The Common Lore Distinguished' (1995) 69 Australian Law Journal 237; Edgeworth B, Butt's Land Law (7^th ed, 2017) [12.990] footnote 711; Moore A, Grattan S & Griggs L, Australian Real Property Law (7^th ed, 2020) [5.35] p 299; Beneficial Finance Corp Ltd v Multiple Constructions Pty Ltd(1995) 36 NSWLR 510, 532; Midland Brick Pty Ltd v Welsh [2002] WASC 248 [35] (Midland Brick).
[10] Midland Brick [141]; Edgeworth B, Butt's Land Law (7^th ed, 2017) [12.990]; Moore A, Grattan S & Griggs L, Australian Real Property Law (7^th ed, 2020) [5.35].
[11] Custom Credit Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50; Bashford v Bashford [42]; Midland Brick.
An agreement to charge land with payment of a debt, including a future debt, creates a caveatable interest: Butt's Land Law;[12] Nigam v Divjakoski;[13] and Griffith v Hodge.[14] As was observed by this court in Spunter Pty Ltd v Hall, there is no doubt that an equitable charge creates a proprietary interest which is able to be protected by a caveat.[15]
[12] Edgeworth B, Butt's Land Law (7^th ed, 2017) [12.1000].
[13] Nigam v Divjakoski [2010] WASC 185 [6] - [8].
[14] Griffith v Hodge (1979) 2 BPR 9474, 9475-9476.
[15] Spunter Pty Ltd v Hall & Anor [2006] WASC 6 [21] citing Re Charge Card Services Ltd [1987] Ch 150; Avco Financial Services Ltd v White [1877] VR 561; Composite Buyers Ltd v Soong (1995) 38 NSWLR 286.
There is no doubt therefore, and the defendants concede, that the Buyer Covenant creates a caveatable interest in respect of the annual membership fee due from the lot owners to the plaintiff association. However, the defendants complain that a modest debt of that nature does not of itself justify a caveat, less still an absolute caveat, and the other obligations in the Buyer Covenant are non‑monetary obligations. As non-monetary obligations, they cannot be secured by a charge so as to create a caveatable interest. Thus, the defendants contend that the caveat ought not to be maintained, or if it is, it should be altered from an absolute to 'subject to claim' caveat. The only obligation secured by the grant of a proprietary, and therefore a caveatable interest, is the requirement to pay a modest annual fee which of itself cannot justify the caveat, less still an absolute caveat.
The plaintiff responds by pointing to the covenant requiring the lot owner to procure the same covenants from successors in title. The plaintiff contends that the obligations thereby constitute covenants that 'run with the land', thus creating a caveatable interest.

Charges and non-monetary obligations

As noted above, in support of their contention that a charge cannot secure a non‑monetary obligation, counsel for the defendants referred to Ralph Symonds. Counsel for the defendants referred also to the text Caveats Against Dealings in Australia and New Zealand which states '[i]t [the charge] may go beyond securing the payment of money, and secure the performance of a contract'.[16]
[16] Lindsay S, Caveats Against Dealings in Australia and New Zealand (1995) 118.
In support of the proposition that a charge supporting a caveat may go beyond securing a payment of money, footnote [248] in the text cites Kingstone Constructions Pty Ltd,[17] and then refers to Ralph Symonds by comparison. The comparative element of Ralph Symonds would appear to be the passage referred to at [25] above on which the defendants rely. As well as placing reliance on Ralph Symonds, counsel for the defendants submitted that the proposition was not supported by Kingstone Constructions. On that basis, the defendants submit that I should not accept the proposition that a charge may go beyond securing the payment of money and secure the performance of a contract or a 'non-pecuniary' obligation.
[17] Kingstone Constructions Pty Ltd v Crispel Pty Ltd (1991) 5 BPR 11,987 (Kingstone Constructions).
I think it is correct that in Kingstone Constructions, Young J did not expressly articulate a proposition that a caveat may be supported by a charge which secures the performance of non‑monetary contractual obligations. Indeed, the case was not concerned with security for non‑pecuniary obligations per se.
In Kingstone Constructions, Young J considered an agreement between the caveator (a builder/developer) and the registered proprietor of a property for the development of that property. The agreement provided for various obligations in respect of the development, including specified sums of money to paid by the parties to each other, and a formula for the sharing of the income from the sale of the development. The agreement included a provision, in effect, that '[i]t is acknowledged by the registered proprietor that the caveator will have a caveatable interest in the property'.[18] As in this case, the caveator sought an extension of the caveat and bore the onus of demonstrating that the caveat 'has or may have substance'. The question for the court was whether the agreement on its proper construction created an equitable charge over the property and the nature of any such charge.
[18] Kingstone Constructions 11,988.
Young J concluded that it was strongly arguable that the instrument upon which the caveat rested was an equitable charge. His Honour then turned to the question: what did the equitable charge secure? His Honour's observations were then directed to the question of whether the charge would encompass damages that flowed from a breach of obligations under the contract. Young J concluded '[i]f there is an equitable charge to secure rights under a contract, the charge may well also secure damages for breach'.[19] Thus, the case was not so much concerned with the proposition, per se, of whether a charge could secure a non-pecuniary obligation. Rather, Young J's comments were concerned with whether a charge that secured performance of a contract generally, could secure not only liquidated sums payable under the contract, but whether the charge would also extend to the damages that would flow from a breach in the performance of the contract's obligations. Young J concluded that the charge was indeed likely to encompass such a liability.
[19] Kingstone Constructions 11,989.
Thus, properly understood, Kingstone Constructions does indeed stand for the proposition that a charge 'may go beyond securing the payment of money and secure the performance of a contract'. In general terms, the scope of a charge is to be determined on a proper construction of the relevant instrument. Yet, Kingstone Constructions is authority for the proposition that a charge which broadly secures performance of a contract may well operate as a charge not only in respect of sums expressly payable under the contract. It may also operate as a charge that secures damages that flow from a breach of performance.
In my view, the proposition in Kingstone Constructions is not undermined by descriptions of charges as securing obligations to pay a sum of money. For example, in Weston v Metro Apartments, Einstein J considered the interest of an equitable charge claimed under a caveat.[20] His Honour observed: [21]
A charge involves the notion of monetary obligation due from one party to another, where the chargee may have recourse to some asset of the chargor to obtain satisfaction in the event of non-payment of an obligation.
[20] Weston v Metro Apartments [2002] NSWSC 876.
[21] Weston v Metro Apartments [18].
Contrary to what appeared to be the sentiment reflected in the defendants' position, such a description of a charge does not mean that a charge cannot secure performance of contractual terms that are not expressed as an obligation to pay a sum of money. The conclusion in Kingstone Constructions was, in effect, that a monetary obligation due from one party to another can arise under the contract in the form of an obligation to pay damages for failure to perform the contract. In that sense, a charge that secures performance of the contract can encompass obligations that are not expressed as an obligation to pay money.
Quite independently of the issue of damages flowing from a failure to perform a contractual obligation, the question of whether a charge can secure non‑monetary obligations was considered in two decisions in the same proceedings; first by Robson J in West Coast Developments Pty Ltd v Lehmann,[22] and then by McMillan J in West Coast Developments Pty Ltd v Lehmann.[23]
[22] West Coast Developments Pty Ltd v Lehmann [2013] VSC 617 (West Coast Developments Pty Ltd v Lehmann [2013]).
[23] West Coast Developments Pty Ltd v Lehmann [2014] VSC 293.
The cases concerned an agreement whereby the defendant vendors sold parts of their farmland to a builder/developer (West Coast) for industrial development. The agreement between the vendors and West Coast also imposed obligations on West Coast to 'design the sewerage, stormwater and environmental treatment systems' on the land it purchased from the vendors to a particular specification.[24] This was important to the vendors because it impacted on the future development potential of lands retained by the vendors. Clause 5.3 of the special conditions to the agreement provided that 'to secure [West Coast]'s performance of its obligations under this contract… [West Coast] charges its interest in the Property in favour of the [v]endor'.[25]
[24] West Coast Developments Pty Ltd v Lehmann [2013] [17].
[25] West Coast Developments Pty Ltd v Lehmann [2013] [18].
The vendors lodged a caveat over the property it had sold to West Coast claiming an interest as chargee on the strength of the charge embodied in cl 5.3.
The registered proprietor, West Coast, sought removal of the caveat on the basis, inter alia, that it was not supported by a caveatable interest. Robson J observed (with case citations omitted):
West Coast contends that the charge does not support a debt or other pecuniary obligation. The issue arose, therefore, whether what was described as a charge gave rise to an equitable interest that could be the subject of a caveat.
In Colbran and Jackson's Caveats, the learned authors state:
A charge is a form of security for payment of a debt or performance of an obligation whereby the creditor has a right to receive payment out of a specified fund or proceeds of sale of specific property. Where the charge is created for the purpose of securing payment of an annuity, rent charge, or sum of money other than a debt a caveatable interest arises.[26]
[26] Colbran S and Jackson S, Caveats (1996) [5.20].
This issue, having only substantially arisen during the course of oral argument, I gave leave for brief further written submissions to be filed.
On this question, both parties referred to the judgment of Millett LJ in Re Cosslett (Contractors) Ltd, where his Honour said:
It is of the essence of a charge that a particular asset or class of assets is appropriated to the satisfaction of a debt or other obligation of the chargor or a third party, so that the chargee is entitled to look to the asset and its proceeds for the discharge of the liability.
The vendor's submissions emphasised the words 'debt or other obligation', while West Coast submitted that the chargee's right 'to look to the asset and its proceeds for the discharge of the liability' necessarily implies the existence of a pecuniary obligation which can be discharged against the property, by a judicial order if needs be.
The vendors' written submissions make reference to a number of authorities, in which — in their submission — it has been held that a charge was found to secure some other, non-monetary, obligation. The vendors also referred to cases concerning equitable liens, which they submit provide a useful analogy in relation to non-monetary obligations. The vendors also rely upon High Court of Australia authority holding that a mortgage can be security for payment of a debt or the discharge of 'any kind of obligation'; the vendors submit these statements are relevantly indistinguishable from their submission regarding charges for non-monetary obligations.
In E Sykes and S Walker's The Law of Securities, the learned authors begin their work by stating:
The general concept of security involves a transaction whereby a person to whom an obligation is owed by another person called the 'debtor' is afforded, in addition to the personal promise of the debtor to discharge the obligation, rights exercisable against some property of the debtor in order to enforce discharge of the obligation.[27]
In a footnote to the reference to 'the personal promise of the debtor' the learned authors say that:
It must be remembered, however, that in the case of some securities, e.g. a charge created by a will, there is often no accompanying obligation at all between security-holder and person bound. Academically speaking, such a position is possible in some types of mortgage. There is no requirement, for example, that a mortgage of land which is not under the Torrens system should be in respect of a loan or other enforceable pecuniary obligation.[28]
The last observation raises the inference that under the Torrens system there may be a requirement that a mortgage of land should be in respect of a loan or other enforceable pecuniary obligation.
There is intuitive appeal and some merit in West Coast's submission that there is no caveatable interest in the absence of a charge supported by a pecuniary obligation. However, on balance, the [v]endors have prima facie satisfied me that a non-pecuniary interest might, in certain circumstances, give rise to a charge capable of supporting a caveat. The general statements of principle by the High Court identified by the [v]endors, together with some case law suggesting that a right of caveat or charge itself may constitute part of the consideration for an agreement, go towards my being so satisfied. This is obviously a question where the law is not certain. This application, however, is not the proper context to attempt to resolve the question. In any event, it is not necessary for me to go any further on this issue as I have decided to order the removal of the caveat on other grounds.[29]
[27] Sykes E and Walker S, The Law of Securities (5^th ed, 1993).
[28] Sykes E and Walker S, The Law of Securities (5^th ed, 1993).
[29] West Coast Developments Pty Ltd v Lehmann [2013] [34] - [41].
Following Robson J's decision, the vendors lodged fresh caveats. An application to remove those caveats was the subject of the decision of McMillan J. The caveats also claimed the same interest as equitable chargee under cl 5.3 of the contract.
McMillan J cited the passage from the judgment of Robson J above in full. After consideration of some further authorities, her Honour concluded as follows at [22]:
In my view, the defendants have established there is a serious question to be tried as to whether they have the equitable interest in the land that they claim. As Robson J noted, the law in this area is unsettled. However, in the contract, the plaintiffs have expressly undertaken that the land will be charged in favour of the defendants. That language is not accidental. They intend to create some right referrable to the land. Indeed, if no right against the land was intended to be created, it is difficult to see what operation cl 5.3 actually has. The plaintiffs have obligations owing to the defendants under the contract, and have expressly undertaken that to secure the performance of those obligations, the land will be charged. A court in its equitable jurisdiction, acting in personam, would not treat such an express undertaking lightly. If they have failed in those obligations, as is alleged by the defendants in their counter-claim in these proceedings, it would appear to me that the Lot A land is under cl 5.3 available for a court to award a form of specific performance against. To my mind, that is a sufficient interest.
Although in the West Coast decisions, the 'non-pecuniary' obligations related, at least in part, to the caveated land itself, having regard to the general observations in those decisions, in my view a serious question to be tried exists as to whether a charge over land can secure non‑monetary obligations in a contract. A serious question arises therefore as to whether the charge over the defendants' land secures not only the annual membership fee payable to the plaintiff, but also the other obligations contained in the Buyer Covenant.
Moreover, the analyses in the West Coast decisions do not appear to have engaged with the issue identified by Young J in Kingstone Constructions as to whether the charge of apparent 'non‑monetary' obligations operate to secure damages that may flow from the failure to perform those obligations.
Independently of the issues raised by Kingstone Constructions and the West Coast decisions, the position adopted by the defendants overlooks a significant aspect of the Buyer Covenant. While accepting that the Buyer Covenant creates a charge and thereby a caveatable interest in respect of the annual membership fee, the defendants' submissions focused solely on that aspect of the monetary obligation arising under the Buyer Covenant. That may be because cl 2 of the Buyer Covenant refers expressly to the 'Annual Fees'. Clause 2, however, imposes an obligation to comply with the Rules more generally. The reference to 'Annual Fees' is prefaced by the words 'in particular but without limitation'.
The Rules which bind the defendants contain monetary obligations beyond the payment of annual membership fees. Rule 21.1 empowers the plaintiff's committee of management to impose 'any type of special fee or fees if it deems it reasonable or necessary without further consultation with the Members'. The Rules do not stipulate any limit to the quantum of special fees. Potentially they could be significant if the plaintiff found itself in financial difficulty. Such fees would be in addition to the annual membership fees. There would appear to be no reason why the charge created by cl 5 of the Buyer Covenant would not secure additional 'special fees' properly imposed by the committee of management.
For that reason, in my view, it is not correct to limit the operation of the charge to the annual membership fees. The security would extend to potentially significant further fees.
It follows that I do not accept the defendants' contention that the charge in the Buyer Covenant is limited to the plaintiff's annual membership fee which would limit the security to a very modest sum, that, may in turn render the maintenance of the caveat, inappropriate.
It follows that in my view, the claim of an estate or interest in the land the subject of the caveat has or may have substance. That is so because for the reasons I have explained:
(a)the charge in the Buyer Covenant secures the annual membership fees and also potentially significant additional or 'special' fees imposed under the Rules;
(b)the charge may legitimately secure the 'non-monetary' obligations in the Buyer Covenant against the defendants' property; and
(c)in any event, I consider it is at least arguable that the charge operates to secure damages that may flow from a failure to perform the obligations under the Buyer Covenant that are not expressed in terms of an obligation to pay a monetary sum.
This conclusion is fortified by the express provision in the Buyer Covenant whereby the defendants authorised the plaintiff association to lodge an absolute caveat over their lot in order to protect the rights and interests of the plaintiff association and secure the performance of the defendants' obligations under the Buyer Covenant.

It is well established that a contractual authorisation to lodge a caveat does not of itself, create a caveatable interest. It is not enough for the parties to agree that a caveat may be lodged. In Graham v Chappell, this court dealt with a caveat lodged on the strength of a contract which provided: [30]
The Owner irrevocably authorises and consents to the Builder lodging an absolute caveat in respect of the Site to protect the Builder's interests herein.
[30] Graham v Chappell (1993) 9 WAR 157, 158.
The contract did not otherwise provide for a charge over the land to secure any obligation. The court dismissed the application to extend the caveat, observing that cl 6 did not create a charge or any other relevant interest, and a caveat (or the authorisation to lodge a caveat) in itself, does not confer an interest in land.
Nevertheless, as the learned author of Butt's Land Law observed: [31]
Where the parties to a contract have agreed that one party may lodge a caveat over the land of another party, the courts have appeared ready to construe the contract as granting a proprietary interest to support the caveat.
[31] Edgeworth B, Butt's Land Law (7^th ed, 2017) [12.1000].
That issue arose for consideration by the New South Wales Court of Appeal in Aged Care Services Pty Ltd v Kanning Services Pty Ltd.[32] Gleeson JA (with whom Meagher and Leeming JJA agreed) concluded that there is no overriding principle establishing what implication must be drawn in all cases from the authority to lodge a caveat in connection with an obligation to pay money.[33] The terms of the particular contract are to be examined to discover what is meant by expression and by implication.[34] Nevertheless, the court in Aged Care Services approved the observation of McLelland CJ in Eq in Coleman v Bone:[35]
…if in a contract between A and B, A grants B authority to lodge a caveat in respect of property of A, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised. Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money.[36]
[32] Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393; 86 NSWLR 174 (Aged Care Services).
[33] Aged Care Services [82].
[34] Aged Care Services [82].
[35] Coleman v Bone (1996) 9 BPR 16,235, 16,239.
[36] Troncone v Aliperti (1994) 6 BPR 13,291, 13,293-4.
A similar approach was taken in Murphy v Wright[37] and was adopted by this in court in Midland Brick.[38]
[37] Murphy v Wright (1992) NSW Conv R 55-652.
[38] Midland Brick [300] - [301].
To the extent that there is some doubt in respect of the scope and reach of the charge, in my view, the express authority given to the plaintiff association to lodge an absolute caveat in order to protect the rights and interests of the association and secure the performance of the defendants' obligations under the Buyer Covenant, supports a broader construction. That fortifies the conclusion that the proprietary interest created by the charge in the Buyer Covenant may well secure not only the annual and other (including special) fees of the plaintiff association but also the other obligations, including any financial liability that may arise through the failure to perform the obligations the Buyer Covenant.

Obligations running with the land

As I have noted above, counsel for the plaintiff put some emphasis on the submission that the obligations in the Buyer Covenant 'ran with the land' and therefore justified the maintenance of the caveat. An issue arises as to whether the maintenance of the caveat is justified on that basis. It is appropriate that I address that aspect of the plaintiff's submissions which concern the benefit to the plaintiff arising from the prohibitive or negative stipulations in the Buyer Covenant.
Negative stipulations that 'run with the land' may often create a caveatable interest, typically in the form of a restrictive covenant. The matter was dealt with at some length in the careful and thorough judgment of Hasluck J in Midland Brick Company Pty Ltd v Welsh.[39]
[39] Midland Brick Company Pty Ltd v Welsh (2006) 32 WAR 287.
A necessary condition for a covenant to 'run with the land' is that the covenant is one 'touching and concerning the land': Gumland Holdings Pty Ltd v Duffy Brothers Fruit Market (Campbelltown) Pty Ltd.[40]
[40] Gumland Holdings Pty Ltd v Duffy Brothers Fruit Market (Campbelltown) Pty Ltd (2008) 234 CLR 237 [67] (Gumland Holdings).
As the Victorian Court of Appeal confirmed in the McDonald's Australia v Bendigo and Adelaide Bank,[41] whether a covenant touches and concerns land is determined by the application of the test stated by Lord Oliver of Aylmerton in P&A Swift Investments (a firm) v Combined English Stores Group.[42]That test includes requirements that the covenant affects the nature, quality, mode of user or value of the land and the covenant is connected with something to be done on, to or in relation to the land. These criteria have been adopted in Australia including in Lang v Asemo[43] and by the High Court in Gumland Holdings.[44]
[41] McDonald's Australia v Bendigo and Adelaide Bank [2014] VSCA 209 [71].
[42] P&A Swift Investments (a firm) v Combined English Stores Group [1989] 1 AC 632, 642 (P&A Swift Investments).
[43] Lang v Asemo [1989] VR 773, 776-9.
[44] Gumland Holdings [74].
On the evidence before the court, it is not apparent that the obligations in the Buyer Covenant meet these requirements. It must be accepted that the ways in which land may be affected or benefited by a covenant are many, and the categories cannot be closed: Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd.[45] However, here, the obligations relate to the owner of the lot in his or her capacity as a member of the plaintiff association and are designed for the benefit of the association. The obligations are merely an incident of ownership of the land. They do not concern the use of the land over which the caveat is lodged and are not connected with something to be done on, to or in relation to the land. There was an unsubstantiated suggestion in the affidavit evidence for the defendants regarding the impact of the Buyer Covenant on the value of members' lots. This suggestion did not amount to evidence and was not relied upon.
[45] Forestview Nominees Pty Ltd v Perpetual Trustees WA Ltd (1996) 70 FCR 328; 141 ALR 687, 699.
In the circumstances, I harbour considerable doubt as to whether the caveat can be maintained on the basis that the obligations in the Buyer Covenant 'run with the land'. For the same reasons, I do not think the obligations in the Buyer Covenant are akin to a restrictive covenant such as was considered in Midland Brick. In addition, as I have noted, it seems to me that the covenants serve the purposes of the plaintiff association itself, rather than for the benefit of the caveator's (i.e. the plaintiff's) land.
The connection between the covenant and the land was also an issue that arose in Ralph Symonds. In that matter, the caveator claimed a caveatable interest pursuant to a charge created by an agreement to lease with the registered proprietor's predecessor in title. The agreement for lease provided for the caveator to lease the land and provided for the construction of a building to be occupied by the caveator. The agreement also provided that certain materials for the construction of the building were to be supplied by the caveator. Under cl 16, the registered proprietor agreed that it would procure the agreement of any purchaser of the property to assume the same obligation for the supply of materials by the caveator, 'to the intent that the [caveator] shall be able to enforce against any such purchaser...an obligation to use timber and materials manufactured by [the caveator] ….and the [the registered proprietor] hereby charges the land...with that obligation'.
The caveator brought an application to extend the caveat. Bryson J considered whether there was a triable issue as to whether the purported charge created a caveatable interest. That required consideration of whether the obligations in cl 16 were 'effectively annexed to the land' so as to constitute an interest in land.
It is not necessary to undertake any further consideration of the analysis and conclusion in Ralph Symonds. In my respectful view it is nevertheless significant to observe that the court concluded that the obligation to source materials from a particular manufacturer entailed, but a faint relationship to the land itself. Applying the test in P&A Swift Investments, Bryson J concluded that the covenant was not sufficiently annexed to the land.
As to whether the charge nevertheless created an arguable caveatable interest, the conclusion of Bryson J may be distinguished from this matter. In contrast to the Buyer Covenant, the covenant to procure the supply of materials from a particular manufacturer did not on its face entail any monetary obligation at all. It was not expressed as a charge to secure performance of the promisor's obligations generally, but was worded in a way that was directed to an 'intent' to permit the promisee to enforce the particular obligation against subsequent purchasers. In addition, no consideration was given in Ralph Symonds to the matter raised in Kingstone Constructions as to whether the charge operated in respect of damages that may flow from the failure to perform the agreement. In addition, in Ralph Symonds there was no authorisation granted to the caveator to lodge any caveat. Those matters appear to me sufficient to distinguish this matter as raising at least a triable issue as to whether the Buyer Covenant created a caveatable interest.

Type of caveat

I turn now to the defendants' submission that an absolute caveat is not warranted and that only a subject to claim caveat should be maintained.
For reasons I have already explained, I do not accept the defendants' position that the charge the subject of the Buyer Covenant cannot extend beyond the obligation to pay the plaintiff association's fairly modest annual membership fee. The charge secures performance of all the defendants' obligations including potentially significant special fees, and would appear, on its face, to secure any liability that flows from a failure to fulfil those obligations. The obligations include a covenant to ensure that any transferee of the lot assumes the same obligations. As I have noted, the plaintiff contends that this arrangement is critical to the maintenance of the plaintiff's viability. Given the apparent centrality of this obligation to the continuity and viability of the plaintiff and the express terms of the Buyer Covenant authorising the lodging of an absolute caveat, I am not prepared to conclude that the caveat goes beyond what is reasonably necessary for the protection of the plaintiff's interests. If the lot is transferred to a third party albeit subject to the plaintiff's claim (as a subject to claim caveat may permit), the plaintiff's interests may well be diminished.
I should add that in my respectful view, it is going too far to say as the defendants appear to submit, that an interest as chargee can never justify an absolute caveat. I doubt that was intended by the observation in Kalx Capital referred to above on which the defendants rely. It will often, if not usually, be the case that the interests of a chargee can be adequately preserved by a subject to claim caveat. But for the reasons I have explained, the particular circumstances of this matter are different.

Balance of convenience

Finally, I am required to consider the balance of convenience. I have already referred to the defendants' contention that the liability secured by the charge is modest, particularly when considered against the value of the property itself. As Beech J explained in Bashford v Bashford: [46]
The plaintiff's claim is, at best, a claim to somewhere between 6% and 16% of the sale proceeds of the Property. The size or extent of the caveator's claim is relevant to the balance of convenience.
[46] Bashford v Bashford [101] citing Kingstone Constructions 11,991.
However, as I have explained, the defendants' submission is premised on the contention that the charge cannot extend beyond the plaintiff association's annual membership. I have also explained why I do not accept that premise.
Perhaps most importantly, the plaintiff contends that it may be significantly prejudiced in the manner I have explained if the caveat is not maintained. In contrast, the defendants do not suffer any immediate prejudice beyond the maintenance of the covenant that has been on the property for some years and to which they gave their express consent. The defendants have not entered any transaction which is being jeopardised or delayed by the caveat. The plaintiff also pointed to the affidavit evidence of the first defendant that the defendants' tenant continues to utilise the facilities made available by the plaintiff. That too weighs against any inconvenience to the defendants.
I am satisfied in the circumstances that the balance of convenience favours the maintenance of the caveat.

Further proceedings

Ordinarily, where the court finds there is at least a triable issue, the extension of the caveat would be made subject to the prosecution of substantive proceedings to resolve the matter on a substantive final basis. This matter is somewhat different. The defendants in this application have not sought to impugn the validity or efficacy of the Buyer Covenant and have accepted that the plaintiff has a caveatable interest at least in respect of the charge to secure the defendants' liability for the plaintiff association's annual fees. There can be little doubt that the charge (and therefore the proprietary interest) also extends to any special fees.
Counsel for the defendants explained that consideration was being given to further proceedings to address the underlying grievances of the defendants and those of some other owners of lots. Counsel advised however that this was a matter 'further down the track'. Counsel for the defendants accepted that members who had a grievance against the plaintiff association would have to commence any such proceedings.
In the circumstances, I am not presently minded to condition the extension of the caveat on the prosecution of other proceedings. I shall simply make an order extending the caveat until further order of the court.

Costs

I shall hear from the parties in relation to costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
NW
Associate to Justice Solomon
12 JANUARY 2022