Country Law Services v Duff

[2007] NSWSC 1509

CITATION:	Country Law Services v Duff [2007] NSWSC 1509
HEARING DATE(S):	07/12/07, 11/12/07
JUDGMENT DATE :	12 December 2007
JURISDICTION:	Equity
JUDGMENT OF:	White J
EX TEMPORE JUDGMENT DATE:	12 December 2007
DECISION:	1. Order that the summons be dismissed; 2. Order that the plaintiff pay the defendants’ costs.
CATCHWORDS:	REAL PROPERTY – Torrens title – Caveat – Application to extend caveat – Caveatable interest comprising mortgage granted by defendant to plaintiff – Where director of plaintiff company was defendants’ solicitor at time of entry into mortgage and loan agreement – Solicitor in a position of conflict between duty to defendants and personal interest in lending company – Circumstances requiring that, for consent to be fully informed, defendants would need to have been informed of their rights and obligations under the mortgage and loan as well as related transactions with plaintiff which may have influenced their decision to execute mortgage – Prima facie invalidity of mortgage not rebutted where fully informed consent not given – Application to extend caveat dismissed. - (NSW) Real Property Act 1900, s 74K
LEGISLATION CITED:	Real Property Act 1900 (NSW) Legal Profession Act 1987 (NSW)
CASES CITED:	Maguire v Makaronis (1997) 188 CLR 449 Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495 Latoudis v Casey (1990) 170 CLR 534 Cachia v Hanes (1994) 179 CLR 403 Oshlack v Richmond River Council (1998) 193 CLR 72 Re JJT; Ex parte Victoria Legal Aid (1998) 195 CLR 184 Wentworth v Rogers (2006) 66 NSWLR 474 London Loan and Savings Co of Canada v Brickenden [1934] 3 DLR 465
PARTIES:	Country Law Services Pty Ltd v Mervyn Leslie Duff & 1 Or
FILE NUMBER(S):	SC 5755/07
COUNSEL:	Plaintiff: W Washington Defendants: In person
SOLICITORS:	Plaintiff: Messenger & Messenger Solicitors Defendants: N/A

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

WHITE J

Wednesday, 12 December 2007

5755/07 Country Law Services Pty Ltd v Mervyn Leslie Duff & 1 Or

JUDGMENT

1 HIS HONOUR: This is an application for an order under s 74K of the Real Property Act 1900 (NSW) extending the operation of a caveat. The plaintiff, Country Law Services Pty Limited, is a party to a deed of loan and an unregistered mortgage entered into with the defendants, Mr and Mrs Duff.

2 In the affidavit filed in support of the summons, Mr Messenger, who is the plaintiff’s solicitor, deposes that he was a director of the plaintiff. He deposes to the making of a loan offer to Mr and Mrs Duff and the preparation and execution by them of a mortgage in favour of the plaintiff. He also deposes to the entering into of the deed of loan. He deposes that, pursuant to directions received from Mr and Mrs Duff, he caused the plaintiff to advance, pursuant to the deed of loan of mortgage, amounts totalling $55,000.

3 The deed of loan and mortgage was executed by the defendant on 8 September 2003. On or about 9 February 2006, Mr Messenger caused a firm of law stationers to lodge the mortgage and certificate of title for registration. The Land Titles Office declined to register the mortgage as the second and subsequent pages of the mortgage had not been signed by the defendants.

4 On or about 4 May 2006, a caveat was lodged by the plaintiff claiming an interest under the mortgage. A lapsing notice had been served and was received by the plaintiff on 21 November 2007. Unless extended, the caveat will lapse after today. On the face of the supporting affidavit there is, prima facie, a clear case for extension of the caveat.

5 What does not appear from the evidence filed in support of the summons is that, at the time the deed of loan and mortgage were signed, Mr and Mrs Duff were clients of the firm Messenger and Messenger. Mr Messenger, I was told, was both a director and shareholder of the plaintiff company which is said to have made the advance to Mr and Mrs Duff.

6 The defendants were unrepresented on the application, and the evidence presented, at least initially, a somewhat confused picture. The application came on for hearing on 7 December 2007 in the Duty Judge list pursuant to orders for short service which McDougall J gave on 30 November 2007. No affidavits were sworn by the defendants but, having regard to the shortness of time they had to prepare for the application and the fact that they were not legally represented, I allowed the matter to proceed on the basis of the tender of documents by them, as well as the tender of further documents, and the reading of further affidavits for the plaintiff, and by the giving of oral evidence.

7 The hearing had to be adjourned from 7 December 2007 because Mr Duff collapsed and was unable to continue. The matter was adjourned to yesterday. During yesterday’s hearing Mr Duff was in evident physical distress from time to time and was ultimately prevailed upon not himself to give evidence. He insisted on cross-examining Mr Messenger. I make no criticism of that. I do not suggest any cross-examination was unnecessary or unwarranted, but it caused further stress for him and he had a further collapse yesterday.

8 Nonetheless, despite the difficulties which accompanied the presentation of the evidence, the issues ultimately emerged with reasonable clarity.

9 The defendants’ contentions, as they were opened on the first day, were that, as a result of the defendants’ lack of success in litigation between them and Esanda Finance Corporation Limited in 2002, they were liable to pay Esanda the sum of approximately $55,000. Mr Duff was already a plaintiff in certain litigation in the Common Law Division of this court as a result of what counsel described as “closed head injury” suffered by him.

10 At the time of settlement with Esanda, it was anticipated, or hoped, that the debt payable to Esanda could be paid from a successful outcome of the common law proceedings in this court. A settlement was reached in those proceedings on 29 July 2003. The proceedings were settled on terms that there be verdicts for the defendants, but the first, second and fourth defendants in those proceedings agreed to pay the plaintiff’s costs, that is Mr Duff’s costs, in the sum of $150,000.

11 It was the defendants’ contention that an agreement had been reached between them and Mr Messenger that, first, moneys would be provided by Mr Messenger to pay the Esanda debt and that Mr Messenger had agreed to lend the defendants money to do that, but that that payment would be recouped by Mr Messenger from the $150,000 he was to receive as costs on the settlement of the common law action.

12 The position of Mr Messenger was that the two transactions were separate. It was his position that, pursuant to the settlement of the common law proceedings which had the defendants’ consent, he was entitled to receive $150,000 in payment of costs including payment for disbursements incurred by his firm, but he was under no obligation to apply any part of it in discharging the debt owed by the defendants to Esanda, or to repay a debt for moneys lent by the plaintiff to Mr and Mrs Duff.

13 It was put strongly by counsel for the plaintiff that any agreement to the effect contended for by the defendants would have been a fraud on the defendants in the common law proceedings who thought, and were entitled to think, the full amount of $150,000 represented costs properly incurred and payable by Mr Duff in the common law proceedings.

14 It was also said that it was not contemplated that any part of the moneys paid could be characterised as recovery of damages by Mr Duff because, were he to receive such damages, he would forfeit his right to all future workers’ compensation benefits as well as having to pay such amount to the workers’ compensation insurer in reimbursement of workers’ compensation benefits received to that time.

15 Mr Messenger deposed that, as the debt owed to Esanda which was payable by 7 June 2004, carried an interest rate of 8.5% from 7 June 2003 he agreed, at Mr Duff’s request, to obtain finance for Mr and Mrs Duff to enable them to pay out the Esanda finance at a cheaper rate of interest.

16 On 6 June 2002, Mr Duff entered into a costs agreement described as an “Amended Conditional Costs Agreement” with Messenger and Messenger. That agreement was entered into pursuant to s 186 of the Legal Profession Act 1987 (NSW) which provided that:

“ 186 Conditional costs agreements

(1) A barrister or solicitor may make a costs agreement under which the payment of all of the barrister’s or solicitor’s costs is contingent on the successful outcome of the matter in which the barrister or solicitor provides the legal services.
(2) Any such costs agreement is called a conditional costs agreement.
(3) A conditional costs agreement may relate to proceedings in a court or tribunal, except criminal proceedings.
(4) A conditional costs agreement must set out the circumstances constituting the successful outcome of the matter.
(5) A conditional costs agreement may exclude disbursements from the costs that are payable only on the successful outcome of the matter. ”

17 The costs agreement described the work to be done as being, in general terms, the prosecution of a claim for injuries as a result of an accident suffered by Mr Duff on 5 December 1998. Clause 2 provided:

“ Successful outcome
We will charge you legal costs and disbursements only if you are successful in obtaining a settlement or verdict in your favour or this agreement is terminated in accordance with Clause 6 .”

18 The reference to cl 6 should have been a reference to cl 13 but nothing turns on that clause in any event.

19 The agreement provided the basis upon which the work would be charged. It was to be charged at an hourly rate depending upon the person in the firm carrying out the work. Provision would be made for recovery of expenses.

20 Clause 4 provided as follows:

“ Present estimate
We estimate that our charges for completing the Work,
up to and including preparation for hearing or
settlement in the matter will be about $42,000.00
We expect to complete the Work by June 2002.
To that point, we estimate the expenses that we
will incur on your behalf will total about $38,260.00
$80,260.00

We will charge a premium of 20% on all of our charges
and expenses the payment of which is conditional
upon the successful outcome of work – approximately. $16,052.00
$176,572.00 (sic)

We will advise you of any additional work required beyond the point indicated and of its costs.

This is not a quote but a guide only and may not prove to be correct. We will advise you as soon as practicable, in writing, of any significant change in the estimate.”

21 Clause 7 provided that the bill would be sent to Mr Duff when the work was completed and that Messenger and Messenger would assume the authority was given for any judgment or settlement moneys to be paid directly to the firm’s trust account, and that they should have authority to pay themselves from the money immediately after sending Mr Duff a bill of costs.

22 Reliance has been placed by the plaintiff on cl 15. It provided:

“ Party and Party Costs
If, in the proceeding to which this agreement relates, an order is made, requiring another party to pay your costs of the proceedings, that order will not affect your liability to pay our charges and expenses under this agreement, but the amount recovered (if any) may be applied towards satisfaction of our charges and expenses or returned to you. ”

23 It will be apparent that the estimate of $176,572 in cl 4 was the sum of the four figures stated in that clause of $42,000, $38,260, $80,260, $16,052. However, that estimate involved doubling up of the sum of $80,260. Notwithstanding this doubling up, the plaintiff submits that the stated estimate in the costs agreement of $176,572 was relied upon by Mr Messenger as being an accurate assessment of the costs to which his firm would be entitled when the matter came to a hearing and, I infer, when settlement discussions were entered into with the defendants in those proceedings.

24 I will return later in these reasons to the question as to whether the amount agreed in the common law proceedings of $150,000 could properly have been payable to Messenger and Messenger having regard to the terms of cl 2 of the costs agreement unless that agreement were varied.

25 There can be no dispute as to the reasonableness of the rate of interest provided for in the loan from the plaintiff to the defendants. The stated interest was the rate published in the Australian Financial Review as the authorised bank dealers’ rate from time to time. There was no added margin to that rate, and the rate as last published in 2004 was 5.57% per annum. The deed of loan itself contained some onerous terms in relation to the appointment of the plaintiff as the borrower’s attorney, but there has been no attempted exercise of power as the borrower’s attorney.

26 In arranging for the plaintiff, on the face of the documents, to advance money to the defendants who were Mr Messenger’s clients, when Mr Messenger was a shareholder and director of the lender, Mr Messenger was placed in a position of conflict between his duty to his clients and his personal interest in the lending company.

27 The mortgage and the contract of loan would be voidable as a result of that conflict unless the transaction were entered into by the defendants with informed consent on their part to Mr Messenger’s acting with a divided loyalty. In Maguire v Makaronis (1997) 188 CLR 449, Brennan CJ, Gaudron, McHugh and Gummow JJ said (at 466-467):

“ What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party. ”

28 For consent to be fully informed a principal must be fully informed of his or her rights and the full facts and circumstances of the case. It is not enough that the solicitor merely discloses he has an interest in the lending company.

29 In Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 the Court of Appeal said at (171):

“ A conflict of interest which is avoidable, and ought to be avoided, is that which arises from a deliberate proposal of the solicitor that his client deal with him. If, for example, a client seeks aid or advice from a solicitor concerning lending or borrowing, or the acquisition or disposal or dealing with assets, the solicitor will disregard his primary duty as a solicitor referred to so trenchantly by Lord Westbury, [in Tyrrell v Bank of London (1862) 10 HLC 26] if he uses the occasion to become the party who deals with his client. It can make no difference if he is not a party directly, but the transaction is with a company in which he has an interest. Even the tender of advice to his client to have independent legal advice, although of importance, does not really overcome the objection to the solicitor having proposed, invited or encouraged the client to deal with him or his company in the proposed transaction. ”

30 In the present case, Mr Messenger deposes that, after being contacted and asked by Mr Duff to obtain finance, he attended on Mr and Mrs Duff in his office in Orange on 3 September 2003. He deposes he gave to each of them a copy of a loan offer document and said to them:

“ As I am your solicitor and have an interest in the company which is to be the lender to you, you should get independent legal advice as to the effect of this document which is the offer of loan and sets out the term of loan, the security and the method of calculation of interest. You should take these documents with you and take such advice as you need and come back here on the eighth when the mortgage and deed of loan will be ready for signature. ”

31 Mrs Duff denied such a conversation took place. She said that she and her husband were not in Orange, and could not have attended Mr Messenger’s office on 3 September, as they had only been invited to attend on him by letter dated 1 September. The precise date of such a meeting is not really to the point. What is relevant is that Mr and Mrs Duff did not obtain independent legal advice, and Mr Messenger knew they had not. The loan offer document contained boxes, one of which was to be completed by the borrower. The box signed by Mr and Mrs Duff stated that they had been given the opportunity to obtain legal advice on the nature and effect of the document but had chosen not to do so, that they understood the nature and effect of the document, obligations and risks involved in signing the document, and signed the document fairly, voluntarily and without pressure from any person.

32 I have serious doubts as to whether Mr and Mrs Duff would have been capable of understanding the purport of those matters; but it does not really matter whether they did or did not.

33 A solicitor’s duty in such a transaction is not simply to advise the client to obtain independent advice. As the High Court said in Maguire v Makaronis, a fiduciary’s duty is breached where he is placed in a position of conflict between duty and interest and proceeds with the transaction without the client’s informed consent. The breach is not in failing to obtain informed consent, but in acting, when placed in such a position of conflict, where the client does not give informed consent.

34 Mr Messenger knew that independent advice had not been obtained.

35 As the cases show, there was a heavy burden on him to show that the defendants gave their informed consent to the transaction. For such consent to be informed the clients would have had to have known all the material facts, and their rights, and have given consent to the solicitor acting with a divided loyalty. The entry into the deed of loan and mortgage cannot be separate, as the plaintiff would have it, from the settlement of the common law proceedings, and the receipt by Mr Messenger of $150,000 as costs of those proceedings. That is because it would be material to any decision the defendants made as to whether to enter into the loan and mortgage with the plaintiff, that they be informed and understand whether they had any rights, or even whether it was arguable that they had rights, against Mr Messenger in relation to that settlement and the receipt of costs. Moreover, and perhaps more simply, if Mr and Mrs Duff believed, as Mrs Duff deposed and as Mr Duff stated from the bar table and in correspondence, that the Esanda debt, whether refinanced with the plaintiff or not, was to be discharged from the moneys paid for costs on settlement of the common law proceedings, then they would not have given informed consent to the loan and the mortgage. The loan and the mortgage contained no such provision.

36 It is not necessary, nor would it be appropriate, to decide whether an agreement was made about the application of the $150,000 paid for legal costs as the defendants deposed to. Counsel for the plaintiff - correctly in my view - did not dispute that the defendants may have had it in their minds at the time of the settlement of common law proceedings that their liability to Esanda would be protected, or discharged, as a result of settlement.

37 There are some objective factors which tend against that view, not the least of those is that no reference to an agreement in those terms is contained in a report of the settlement provided by Mr Rewell SC on 29 July 2003. Against that, it might be said that the question of how, as between Mr Messenger and the present defendants, the sum received by Mr Messenger for costs should be applied was not a matter of direct concern to Mr Rewell.

38 It was not clear precisely when the $150,000 was received but, on 18 August 2003, Mr Messenger delivered a letter to the solicitors for the defendants and enclosed a tax invoice in the sum of $75,000. (The tax invoice forwarded to the solicitors for the defendants, (that is, the defendants in the common law proceedings), were not put into evidence). Even if the moneys had not been received by 8 September 2003, the moneys were to be expected at very short notice. There would seem to be no obvious reason as to why a loan contract would be entered into with the plaintiff if there had been a prior agreement with Mr Messenger that the settlement moneys would be applied in discharge of the Esanda loan.

39 However, I do not find it necessary to decide whether there was such an agreement as that which the defendants contended or not. Nor should I decide, as if on a final hearing, the question as to whether the defendants gave informed consent to the contract of loan of mortgage.

40 Nevertheless the strength of the defendants’ position on that case is highly material as to whether the caveat should be extended.

41 Mrs Duff gave evidence and was cross-examined and it appeared to me that she was genuine in her statement of belief as to how the debt of $55,000 was to be paid, that is, from the $150,000.

42 It was submitted for the plaintiff that I should not be satisfied of that matter because it was plain from the terms of the deed of the loan and mortgage that those documents were creating a fresh liability to the plaintiff, and a liability which showed the loan was for an extended term, carried interest, and was to be repaid by the defendants.

43 However, Mrs Duff appeared to be quite genuine in her statement that she asked a Ms Ryan, who witnessed the signatures, why they were being asked to sign the documents, and were told it was just a temporary thing.

44 I think there is a reasonably strong prima facie case that she did not understand the nature of the transaction into which she was entering and, therefore, did not give her informed consent to it.

45 Mr Duff, for reasons I have given, did not give evidence but, in his correspondence, he asserted the same belief.

46 There are additional reasons why, in my view, there is a strong case the defendants did not give their informed consent to the transaction. Under the costs agreement of 6 June 2002 Messenger and Messenger were only entitled to charge Mr Duff legal costs and disbursements if he was successful in obtaining a settlement or verdict in his favour. (I leave aside the question of termination of the agreement because that did not arise.) It was at least arguable that the settlement reached with the defendants, which resulted in a verdict for the defendants and an order for costs in favour of Mr Duff, did not represent a successful outcome of the proceedings for him.

47 The expression “settlement or verdict in your favour” has to be read in the context of s 186 of the Legal Profession Act as meaning a favourable settlement or verdict which amounts to a successful outcome.

48 It was submitted for the plaintiff that the settlement was favourable for Mr Duff because it removed the possibility of an adverse costs order, and preserved Mr Duff’s workers compensation rights.

49 However, what was a successful outcome and “settlement or verdict in your favour” within the meaning of cl 2, is to be construed having regard to the perspective of the client instructing the solicitor to conduct litigation on his behalf. In its natural sense, it requires the plaintiff to be better off as a result of having brought proceedings. The settlement providing for a verdict for the defendants, and hence preserving Mr Duff’s workers compensation rights, and providing for the payment of costs, was not a successful outcome from his perspective. He was no better off than if the proceedings had not been commenced.

50 It was at least arguable that, in the absence of a variation of the costs agreement, Mr Messenger was not entitled to receive $150,000 from the defendants in the common law proceeding, because he was not entitled to charge Mr Duff costs or disbursements.

51 It was submitted by counsel for the plaintiff that this did not follow because, it was said, the costs payable under the agreed orders settling the common law proceedings were party/party costs, and those were a different species of costs from solicitor/client costs. It was only the latter, so it was submitted, which were subject to cl 2. It was submitted there was no nexus in law between party and party costs and solicitor and client costs. It was submitted that such costs are different in nature, and party/party costs are those payable by a third party as reasonable costs of the proceedings. However, that misconceives the position, and runs contrary to the indemnity principle upon which costs orders are based. A plaintiff, having obtained an order for party and party costs is only entitled, as against the defendant liable to pay those costs, to recover the costs which the plaintiff is himself liable to pay to his solicitors (Adams v London Improved Motor Coach Builders Ltd [1921] 1 KB 495 at 498, 499 and 505; Latoudis v Casey (1990) 170 CLR 534 at 543, 563; Cachia v Hanes (1994) 179 CLR 403 at 410; Oshlack v Richmond River Council (1998) 193 CLR 72 at 97, 121; and Re JJT; Ex parte Victoria Legal Aid (1998) 195 CLR 184 at 219). In Wentworth v Rogers (2006) 66 NSWLR 474, Basten JA, held at [153] and following that this indemnity principle was not excluded by the provisions of Div 6 of Pt 11 of the Legal Profession Act, dealing with assessment of costs where the successful party had entered into a conditional costs agreement.

52 Section 208H of the Legal Profession Act provided that in an assessment of party party costs a costs assessor could obtain a copy of and might have regard to a costs agreement, but was not to apply the terms of the costs agreement for the purpose of determining appropriate fair and reasonable costs when assessing costs payable as a result of an order by a court or tribunal.

53 In my view, that section plainly is referring only to an assessment of costs which were payable as a result of an order by a court or tribunal and, if no costs were payable because the successful party was under no liability to his or her solicitor to pay costs, then the section would not justify an assessment of party party costs. Basten JA said [159]:

“ ... it would be remarkable if the restraint imposed by s 208H undercut the basic compensatory purpose of adverse costs orders by removing the need for such costs to be restricted to those for which the successful party was liable to his or her own lawyers. ”

54 Santow JA also considered that the indemnity principle was applicable to assessment of party party costs under the Act, but suggested that it could be applied flexibly rather than as a rigid rule (at [45]-[50]). Hislop J found it unnecessary to express an opinion upon the areas of difference in the views expressed by Santow JA and Basten JA. Nor do I do so. It suffices for present purposes that if Mr and Mrs Duff were to give their fully informed consent to the loan and mortgage, they needed to be advised and to understand that it was at least arguable that Mr Messenger, in the absence of a variation of the costs agreement, was not entitled to receive the party/party costs which had been agreed, because he was not entitled to charge costs to them because there had not been a successful outcome of the proceedings. That was a material matter for them to know because it could affect what they may have been able to negotiate by way of an agreement. Mr Messenger in his narrative submission of costs charged an amount of $90,000 for professional costs, not including disbursements and not including, it would seem, GST, rather than the amount of $42,000 which had been estimated in the costs agreement.

55 It would have been open to Mr and Mrs Duff to have negotiated on the basis that, if he were to receive the full amount of $150,000 for costs notwithstanding the earlier estimate, he would require their agreement to vary the terms of cl 2 of the costs agreement, and to have negotiated the type of agreement which Mr and Mrs Duff say they made.

56 I am not persuaded such an agreement would have involved a fraud on the defendants in the common law proceedings. Rather, it would have been an agreement between the present defendants and their solicitors as to the consideration the solicitors would be asked to provide as the price for their agreement to receive what, I presume to be, a proper amount of costs as assessed on the hourly charges estimated in the agreement. I say “presume to be” because it is a matter of some concern that such calculation may not have been made, but rather the misstatement of the estimate in the costs agreement was simply used as the basis for stating the amount recoverable as party/party costs.

57 It is also submitted for the plaintiff that, in any event, the settlement of 29 July 2003, which provided for the payment of party party costs of $150,000, was entered into on the instructions of Mr Duff. He therefore either expressly, or by necessary implication, accepted that he had a liability to his legal advisers in that amount, which liability was to be indemnified, or at least partially indemnified, by the payment to be made by the defendants in those proceedings. It was submitted it was disingenuous for Mr Duff to repudiate that arrangement. He had provided instructions to effect settlement and he is now estopped from denying the underpinning which enlivened party and party costs obligations.

58 The difficulty with that submission is that there is no evidence that Mr Duff was informed of his rights, or what were arguably his rights, at the time he gave his consent to settlement of the proceedings.

59 In the absence of informed consent at that time, his earlier agreement to settlement cannot estop him from relying on these matters to deny he gave informed consent to the deed of loan in the mortgage.

60 It was submitted for the plaintiff that, even if the deed of loan or mortgage were entered into where Mr Messenger was in a position of conflict between his interest and his duty, and even if the present defendants did not give their informed consent to the transaction, nonetheless the plaintiff would not be deprived of its security by way of mortgage unless the defendants repaid the advance with a reasonable rate of interest. The difficulty with that submission is twofold. First, there remains a serious question to be tried as to the terms of the agreement between Mr Messenger and Mr and Mrs Duff and whether, as Mr and Mrs Duff contend, Mr Messenger was required to apply the moneys he received in discharge of the debt. Secondly, even if no agreement were made as contended for by Mr and Mrs Duff, in my view, it is not clear that, in order to do equity, they would necessarily be required to pay the sum of $55,000 and interest. That is because, had they been given the information as to their rights, or information as to what rights they arguably had, they may have been able to negotiate a different deal from the one expressed in the deed of loan and mortgage. The plaintiff and Mr Messenger may well be in the position that they cannot be heard to contend that disclosure of information as to their rights or possible rights would not have altered the defendants’ decision to proceed with the transaction (London Loan and Savings Co of Canada v Brickenden [1934] 3 DLR 465 at 469).

61 It is not enough, in order for a caveator to obtain an order extending the operation of a caveat, to demonstrate a caveatable interest in the land. The power to make an order extending the operation of the caveat is a discretionary power. The circumstances which affect the exercise of the discretion are various, but the same principles as those on which interlocutory injunctions are granted or refused are generally applied.

62 Whilst I accept that the plaintiff has an interest as an unregistered mortgagee of the land, and hence has a caveatable interest, I do not accept that it has a strong case for being able to maintain the validity of that mortgage. To the contrary, on the material before me, I do not consider that the prima facie invalidity of that mortgage has been rebutted. Nor, in the circumstances, am I satisfied that the defendants ought to be required to provide some other form of security if they are to resist the application for extension of the caveat.

63 My view is the absence of informed consent to the transaction concerning settlement of the common law proceedings and the entering into the loan and mortgage strike fundamentally at any such claim for security. For these reasons I order the summons be dismissed.

64 I order the plaintiff pay the defendants’ costs.

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