Commonwealth Bank of Australia v Psevdos - [2015] SASC 66

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
COMMONWEALTH BANK OF AUSTRALIA v PSEVDOS
[2015] SASC 66
Judgment of The Honourable Justice Parker
30 April 2015
REAL PROPERTY - TORRENS TITLE - UNREGISTERED INTERESTS - EQUITABLE ESTATES AND INTERESTS - PRIORITY BETWEEN EQUITABLE INTERESTS - EFFECT OF CAVEAT OR ABSENCE THEREOF
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - PURPOSE AND EFFECT OF CAVEAT - GENERALLY
EQUITY - GENERAL PRINCIPLES - PRIORITY AND NOTICE - PRIORITY - POSTPONEMENT OF PRIOR EQUITY
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - ORDER FOR COSTS ON INDEMNITY BASIS
The plaintiff (CBA) seeks a declaration that its equitable interest in land has priority over any equitable interest in the land held by the defendant (Mr Psevdos). CBA made a loan to the registered proprietor (Schutara) of the land. Schutara granted a mortgage over the land to CBA as security. Subsequently, Mr Psevdos made a loan to Schutara and Schutara granted Mr Psevdos a mortgage in registrable form as the agreed security. Mr Psevdos then lodged a caveat claiming an equitable interest as mortgagee over the land. CBA became aware of the caveat and the CBA mortgage was amended to be expressly made subject to Mr Psevdos’ caveat so as to enable registration. The CBA mortgage was then registered subject to the caveat.
The trial took five days, with four to five days of evidence. On the last day, Mr Psevdos abandoned over half of his defence and sought not to challenge the evidence of CBA. Legal submissions took less than half a day.
Whether the Psevdos mortgage has priority over the CBA mortgage by reason of the latter being registered expressly subject to the caveat claiming the former. Whether costs of the trial and costs thrown away should be awarded on an indemnity basis.
Held (Parker J):
1. The CBA mortgage has priority over the Psevdos mortgage. The better equity lies with CBA. The lodgement of the caveat and registration of the CBA mortgage subject to the caveat do not disturb that priority.
2. Costs of the trial and costs thrown away by reason of the amendments to the defence are to be paid by Mr Psevdos on an indemnity basis.
Real Property Act 1886 s 69, s 191, s 249, referred to.
Andrews v South Australian Superannuation Fund Investment Trust (1985) 124 LSJS 153; Leros Pty Ltd v Terara Pty Ltd (1992) 174 CLR 407, discussed.
Castle Constructions v Sahab Holdings Pty Ltd (2013) 247 CLR 149; AVCO Financial Services Ltd v Fishman [1993] 1 VR 90; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326, considered.

COMMONWEALTH BANK OF AUSTRALIA v PSEVDOS
[2015] SASC 66
Civil

PARKER J: This action concerns competing equitable interests in real property. The plaintiff, Commonwealth Bank of Australia (“CBA”), seeks a declaration that its equitable interest has priority over any equitable interest held by the defendant, Mr Spiros Psevdos, acting as trustee of the Orio Investment Trust. For the reasons set out below I have found in favour of the plaintiff.
Background
In mid 2009, Schutara Pty Ltd was the registered proprietor of five parcels of land comprised and described in Certificates of Title Register Book Volume 5866 Folios 988 to 992 (“the land”) and located at Bugle Ranges. Provident Capital Limited held a first registered mortgage over the land.
On 5 June 2009, Schutara entered into a written loan agreement with CBA in the amount of $2,550,200. Security for the loan included a mortgage over the land which Schutara executed and delivered to CBA on the same day. Settlement occurred on 19 June 2009. CBA advanced $2,521,062.70 to Provident Capital in exchange for an executed discharge of mortgage and the original certificates of title. In substance, CBA replaced Provident Capital as the lender to Schutara.
On 29 June 2009, Schutara and others entered into a written loan agreement with Mr Psevdos, as trustee for Orio Investment Trust, in the amount of $378,000. The agreed security for the loan included a mortgage over the land. On the same day, Schutara executed a mortgage in registrable form over the land in favour of Mr Psevdos. The funds were then advanced to Schutara. On 10 July 2009, Mr Psevdos lodged a caveat claiming an equitable interest as mortgagee over the land.
The Psevdos mortgage was expressly made subject to the Provident Capital mortgage. Mr Psevdos did not require or take the certificates of title. Evidence was adduced that Mr Psevdos knew by at least 29 June 2009 that the Provident Capital loan had been refinanced with CBA as the incoming mortgagee. He knew that Provident Capital was still the registered mortgagee and the CBA mortgage was yet to be registered. He also knew that that remained the case when the caveat was lodged. That evidence was ultimately not contradicted by Mr Psevdos.
On about 6 August 2009, CBA became aware that Mr Psevdos had lodged a caveat on the title to the land. The CBA mortgage was amended to be subject to the Psevdos caveat so as to enable its registration. The amended mortgage and discharge of mortgage by Provident Capital were lodged with the Registrar-General on 15 September 2009 and registered on 2 October 2009. The CBA mortgage was registered subject to the caveat.
Issues
CBA contended that distinct from its registered mortgage it had acquired an equitable mortgage over the land on 5 June 2009 when it obtained Schutara’s agreement to provide a mortgage for valuable consideration under the loan agreement entered into on the same day. Meanwhile, Mr Psevdos did not have an equitable interest in the land until 29 June 2009 when Schutara agreed to grant him a mortgage over the land.
CBA contended further that, putting aside the registration of the mortgage and lodgement of the caveat, its equitable interest would have priority over that of Mr Psevdos. The basis for that contention was that CBA’s equitable mortgage was first in time, there was no postponing conduct on the part of CBA and Mr Psevdos had notice of CBA’s mortgage when he agreed to make the loan and execute the mortgage.
Those contentions were not ultimately challenged by Mr Psevdos. Mr Psevdos sought to rely on the fact that his caveat was lodged before the registration of the CBA mortgage and the latter was registered expressly subject to the former.
Real Property Act
Section 191 of the Real Property Act 1886 provides:
... any person claiming to be interested at law or in equity, whether under an agreement, or under an unregistered instrument, or otherwise howsoever in any land, may lodge a caveat with the Registrar-General forbidding the registration of any dealing with such land, either absolutely or unless such dealing shall be expressed to be subject to the claim of the caveator, or to any conditions conformable to law expressed therein ...
Section 191(c) provides that the Registrar-General is not to register any dealing with the land in respect of which such a caveat has been lodged (unless the former instrument is lodged before the receipt of the caveat).
Section 69 provides that “title of every registered proprietor of land shall, subject to such encumbrances, liens, estates, or interests as may be notified on the original certificate of such land, be absolute and indefeasible” subject to certain qualifications.
This does not have the effect of abolishing equitable interests. Section 249 provides:
249—Equities not abolished
(1) Nothing contained in this Act shall affect the jurisdiction of the Courts of law and equity in cases of actual fraud or over contracts or agreements for the sale or other disposition of land or over equities generally.
(2) And the intention of this Act is that, notwithstanding the provisions herein contained for preventing the particulars of any trusts being entered in the Register Book, and without prejudice to the powers of disposition or other powers conferred by this Act on proprietors of land, all contracts and other rights arising from unregistered transactions may be enforced against such proprietors in respect of their estate and interest therein, in the same manner as such contracts or rights may be enforced against proprietors in respect of land not under the provisions of this Act: Provided that no unregistered estate, interest, contract, or agreement shall prevail against the title of any bona fide subsequent transferee, mortgagee, lessee, or encumbrancee, for valuable consideration, duly registered under this Act.
Effect of registration subject to caveat
Counsel for Mr Psevdos submitted that the registration of the CBA mortgage subject to the caveat meant that CBA’s interest was postponed to Mr Psevdos’ mortgage, provided that the latter is valid and enforceable. CBA has not sought in this matter to challenge the validity of Mr Psevdos’ mortgage.
Counsel referred to Castle Constructions v Sahab Holdings Pty Ltd where the High Court said:[1]
It is of fundamental importance to recognise that the Torrens system of registered title, of which the [Real Property Act] is a form, “is not a system of registration of title but a system of title by registration”. “Together with the information appearing on the relevant folio, the registration of dealings manifests the scheme of the Torrens system to provide third parties with the information necessary to comprehend the extent or state of the registered title to the land in question”. (References omitted.)
[1] [2013] HCA 11 at [20]; (2013) 247 CLR 149.
Counsel also relied on the statement of Olsson J in Andrews v South Australian Superannuation Fund Investment Trust that:[2]
My researches have failed to reveal the existence of any authority as to the effect of registration of a transfer expressed to be subject to an existing valid caveat. However it seems to me that the words used in s 191 of the Real Property Act quite clearly contemplate that, if this is done, then the effect is to preserve the rights of caveator. To that extent the apparently absolute provisions of s 69 must be read down in light of s 191 and the concepts expressed in s 249 of the Real Property Act apply. I note that this is the view expressed by the learned authors in R Sackville and M A Neave, Property Law: Cases and Materials (3^rd ed, 1981) at 722.
Such an approach is consistent with comments contained in authorities such as Friedman v Barrett; Ex parte Friedman (1962) Qd R 498 in which Mansfield CJ stressed that the rights there held to have been defeated could readily have been protected by caveat. In my opinion s 191 of the Real Property Act clearly envisages a situation in which a transferee may well opt to take a transfer without prior removal of an existing caveat and on the consequent basis of an express concession that the interest protected shall be preserved as against that transferee.
[2] (1985) 124 LSJS 153 at 163 – 164.
That statement was approved by Bollen J (with whom Jacobs J substantially agreed) in Coles KMA Ltd v Sword Nominees Pty Ltd[3] and later by the High Court in Leros Pty Ltd v Terara Pty Ltd.[4] Counsel for Mr Psevdos submitted that that line of authority supports the conclusion that where CBA chose not to take steps to remove Mr Psevdos’ caveat but instead registered its mortgage subject to the caveat, its interest must be subject to the interest claimed in the caveat, ie the Psevdos mortgage. However, for the reasons that follow, I consider this submission to be based upon an incomplete reading of the authorities.
[3] (1986) 44 SASR 120 at 128 – 129.
[4] [1992] HCA 22 at [23]; (1992) 174 CLR 407 at 420.
The statement in Andrews referred to by counsel for Mr Psevdos was not made without qualification. Olsson J said further that:[5]
Under s 191 a transferee, accepting a transfer subject to the claim of a caveator, in terms, takes the estate and interest transferred subject to any sustainable right which the caveator may have against the transferor and there is thus a defeasance of the absolute estate and interest the subject of the transfer to the extent of that right. (Emphasis added.)
[5] (1985) 124 LSJS 153 at 165.
In Leros, Mason CJ, Dawson and McHugh JJ held:[6]
[23] ... a caveator may lodge a “subject to claims” caveat, or “permissive” caveat as it is known in South Australia, instead of a caveat forbidding the registration of dealings. If, in conformity with such a caveat, an instrument of transfer, expressed to be subject to the caveat, is registered, the title of the transferee is subject to the rights of the caveator. In South Australia, that view has been taken by Olsson J in Andrews v South Australian Superannuation Fund Investment Trust, where his Honour, referring to the effect of registration of a transfer expressed to be subject to “an existing valid caveat”, stated that “the effect is to preserve the rights of the caveator”. In Coles KMA Ltd v Sword Nominees Pty Ltd, Bollen J (with whose judgment Jacobs J expressed his substantial agreement) cited those remarks with approval.
[24] However, the effect of the registration of such a transfer is not to validate the estate or interest claimed by the caveat. All that registration in that form, in conformity with the caveat, achieves is to prevent the registration from destroying or defeating the prior unregistered interest claimed by the caveator, assuming it to be valid and enforceable. Whether the interest so claimed is valid and enforceable remains a matter for resolution after registration. The “subject to claims” caveat and registration is a procedure which enables resolution of that question to occur after, if not before, registration. The registered proprietor takes, under such a transfer, subject to the caveat, that is, subject to the claim made by the caveator; the proprietor does not take subject to the interest claimed by the caveator. The form of the registration in the present case illustrates the point. It is the caveat that is noted in the memorandum of encumbrances. ...
[6] [1992] HCA 22 at [23] – [24]; (1992) 174 CLR 407 at 420 – 421.
Counsel for CBA submitted that lodgement of a caveat ensures that the registration of a subsequent dealing will not of itself defeat the interest claimed in the caveat but does not go as high as to provide quasi indefeasibility to that interest. Andrews and Leros provide clear authority in support of that submission.
This is not a case where there had been an equitable interest, in respect of which a caveat had been lodged, and a subsequent inconsistent dealing was registered subject to the caveat. Here CBA held an earlier equitable interest and Mr Psevdos a later inconsistent equitable interest, a caveat was lodged in respect of the latter and the earlier dealing was then registered subject to the caveat.
In those circumstances, the lodgement of the caveat would allow for any superior right of Mr Psevdos to be preserved if it could be said that Mr Psevdos had a sustainable right against CBA. The caveat alone could not have given Mr Psevdos a superior equitable interest to that of CBA. The mere fact that CBA subsequently registered a mortgage subject to the caveat does not elevate Mr Psevdos’ interest. In other words, the lodgement of the caveat does not disturb the priorities as between the parties’ competing equities. It simply preserves the parties’ rights to the extent that it preserves the competition between the equities.
Priorities
For the reasons just stated, the lodgement of Mr Psevdos’ caveat and the registration of the CBA mortgage subject to the caveat do not bear upon the priorities as between the parties’ competing equities. As I referred to above, CBA contended that its equitable interest as mortgagee is superior to that of Mr Psevdos. Mr Psevdos did not ultimately challenge that contention, relying instead on the registration argument.
In any event I am satisfied that the CBA mortgage has priority over the Psevdos mortgage. The CBA mortgage was first in time and Mr Psevdos was unable to establish any act or neglect on the part of CBA such as to make it inequitable for it to retain its priority.[7] The failure by CBA to lodge a caveat did not of itself constitute postponing conduct.[8] CBA’s position is strengthened by the fact that Mr Psevdos had notice of CBA’s prior equitable interest when he entered into the loan agreement and executed the mortgage.[9] I am satisfied that the better equity lies with CBA.
[7] Lapin v Abigail [1930] HCA 6; (1930) 44 CLR 166 at 204 (Dixon J).
[8] J & H Just (Holdings) Pty Ltd v Bank of New South Wales [1971] HCA 57 at [12]; (1971) 125 CLR 546 at 554 (Barwick CJ).
[9] AVCO Financial Services Ltd v Fishman [1993] 1 VR 90 at 93; Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30 at [3]; (1983) 154 CLR 326 at 339 (Mason and Deane JJ).
Costs
The trial was heard over the course of five days. The trial was commenced on the basis that a number of central factual issues concerning the making of the Psevdos loan and mortgage and lodgement of the caveat were in dispute. The trial was protracted by about four days hearing evidence in relation to those matters. On the fifth day, during cross-examination, Mr Psevdos abandoned more than half of his defence and sought not to challenge the evidence of CBA. CBA sought the costs of the trial and all of the costs thrown away by reason of the amendments to the defence to be paid on an indemnity basis. Mr Psevdos did not oppose an order for indemnity costs.
In the circumstances, I consider that this is an appropriate case to order costs on an indemnity basis. The issues for determination in this trial were of a strictly legal nature. The legal submissions of both parties took less than half a day in total. Had Mr Psevdos initially taken the position that he ultimately took there would have been no need for four to five days of evidence. I would grant the costs orders sought by CBA.
Conclusion
The Court finds in favour of the plaintiff and orders that costs of the trial and costs thrown away by reason of the amendments to the defence be paid by the defendant on an indemnity basis. I would hear the parties as to the form of orders