Dexiosis Properties Benalla Pty Ltd v Beaver 1st Capital Management Pty Ltd

Case •

[2022] NSWSC 1473

•

27 October 2022

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Dexiosis Properties Benalla Pty Ltd v Beaver 1st Capital Management Pty Ltd [2022] NSWSC 1473
Hearing dates: 20 October 2022
Date of orders: 20 October 2022
Decision date: 27 October 2022
Jurisdiction: Equity - Duty List
Before: Henry J
Decision:

See [44]

Catchwords:

LAND LAW – caveats – application for withdrawal of caveats lodged by second defendant over second plaintiff’s properties – where caveats preventing refinance of loan secured by first registered mortgages over properties – whether serious issue to be tried – whether balance of convenience favours withdrawal of caveat – caveats ordered to be withdrawn to facilitate refinance on terms that provide for leave to second defendant to lodge further caveats in identical terms after registration of new mortgages

Legislation Cited:

Real Property Act1900 (NSW)

Cases Cited:

Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39

Buchanan v Crown & Gleeson Business Finance Pty Ltd [2006] NSWSC 1465

George Bevan Pty Ltd v Robert Patrick Pty Ltd (1987) 4 BPR 9457

Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA

In the application of Roderick Mackay Sutherland and Sule Arnautovic [2014] NSWSC 821

Tadrous v Tadrous [2009] NSWSC 407

Category:Procedural rulings
Parties: Dexiosis Properties Benalla Pty Ltd ACN 652 202 778 (First Plaintiff)
Phillip John Purnell (Second Plaintiff)
Michael Cameron (Third Plaintiff)
Beaver 1st Capital Management Pty Ltd ACN 660 941 711 (First Defendant)
BC First 103 Pty Limited ACN 661 882 104 (Second Defendant)
Representation:

Counsel:
Mr Neggo (Plaintiffs)
Mr Meyerowitz-Katz (Defendants)

Solicitors:
Stacks/Southern Highlands Pty Ltd (First, Second and Third Plaintiffs)
Parsons and Partners (First and Second Defendants)
File Number(s): 2022/00312253
Publication restriction: Nil

JUDGMENT

  1. By summons filed on 19 October 2022, the plaintiffs sought interim relief for an order under s 74MA(1) of the Real Property Act1900 (NSW) (Real Property Act) that the second defendant withdraw caveats it had lodged against the title of properties located in Bundanoon and in Bowral in which the second plaintiff has an interest.

  2. The application was brought on urgently in circumstances where the second plaintiff has arranged to refinance a loan the subject of registered mortgages on the Bundanoon and Bowral properties that had to be paid out by 4:00pm on 21 October 2022 to avoid default.

  3. On 20 October 2022, after a contested hearing in the Duty List, I made the interim orders sought in the plaintiffs’ summons for the removal of the two caveats and the grant of leave to the second defendant pursuant to s 74O of the Real Property Act to lodge further caveats on the titles to the Bundanoon and Bowral properties. These are my reasons for making those orders.

  4. In support of their application, the plaintiffs relied on affidavits of Clayton Allen Davis, the solicitor for the plaintiffs, affirmed on 19 and 20 October 2022.

  5. The defendants, who were represented by counsel at the hearing, relied on an affidavit of Samantha Gabrielle Parsons, the solicitor for the defendants, affirmed on 20 October 2022.

Background

  1. The second plaintiff (Mr Purnell) and the third plaintiff (Mr Cameron) are the directors of the first plaintiff, Dexiosis Properties Benalla Pty Ltd (Dexiosis).

  2. The first defendant, Beaver 1st Capital Management Pty Ltd (Beaver Capital) is a lender of private finance. The second defendant, BC First 103 Pty Limited (BC First), appears to be a company related to Beaver Capital.

  3. Mr Purnell is the registered proprietor of land at Bundanoon, being Lot 218 in DP1266143 (Bundanoon property), and the registered proprietor, as a joint tenant with his wife (Stephanie Purnell), of land at Bowral, being Lot 1 in DP1006329 (Bowral property). A report dated 16 April 2021 assesses the market value of the Bundanoon property to be $1.2 million. A report dated 29 August 2022 values the Bowral property at $6.5 million.

  4. Mr Purnell is also the director of, Ironlaw Pty Ltd (Ironlaw), which is the registered proprietor of land at Bargo, being Lot 1 in DP996286 (Bargo property). A report dated 29 August 2022 assessed the market value of the Bargo property at $5 million.

  5. In about August 2022, Dexiosis engaged Michael Sullivan of MOS Capital to make enquiries regarding finance to purchase property in Mansfield, Victoria. The inquiries led to an offer of finance being made by Beaver Capital to Dexiosis on 6 September 2022, the terms of which were set out in a “Term Sheet” of that date (Term Sheet).

  6. The Term Sheet provided for a loan of $5,542,937.85 to Dexiosis to be guaranteed by Mr Purnell and Mr Cameron (in addition to any directors of Dexiosis or any parent companies of it) on terms that included the following:

  1. the offer of finance was available for acceptance until 12am on 7 September 2022, and if not accepted by that time, the offer would lapse;

  2. if the offer was accepted, a $5,500 acceptance fee was payable to the Lender’s bank account;

  3. if the Borrower chose not to proceed with the loan, it would be liable to pay within seven days the Establishment Fee ($121,944.63), Facilitation Fee ($121,944.63), Legal Fees and Disbursements ($5,500) and interest at the Base Interest Rate for a period of 1 month; and

  4. the Borrower and Guarantors understand that by accepting the offer, they “hereby grant to the Lender a charge over any and all real property owned now or in the future as a well as a PPSR Personal Property charged over all personal property by way of security for the payment of the Costs set out above”.

  1. On 8 September 2022, Mr Purnell and Mr Cameron executed a version of the 6 September Term Sheet on behalf of Dexiosis as Borrower and themselves as Guarantors which had been amended by hand. The amendments changed the “Prepaid Interest” amount, the “Available Funds” amount and the date for the acceptance of the Term Sheet from “12 am on 7 September” to “12 am on 8 September 2002”. The executed Term Sheet was forwarded by Mr Purnell to Mr O’Sullivan at 6:40pm on 8 September 2022 and by Mr O’Sullivan to Matthew Hower at 8:26pm that day.

  2. According to Ms Parsons’ evidence, on or about 8 September 2022, a representative of FFC Commercial (the finance firm that represented Beaver Capital) had a conversation with Mr Hower (who is described as the broker of the plaintiffs, a description that was not accepted by the plaintiffs at the hearing) and told him that the Term Sheet with the handwritten changes was accepted and to “please pay the acceptance fee”. She also gives evidence that the acceptance fee of $5,500 was paid by the plaintiffs into the defendants’ bank account on 9 September 2022, with a payment description of “Dexiosis Benalla”.

  3. On 21 September 2022, loan and security documents for two loans from BC First to Dexiosis (one in the amount of $4,524,745.76, the other for $1,019,515.15) were sent to the solicitors retained by the plaintiffs for execution. As events transpired, they were not executed, the solicitor for the plaintiffs having communicated to BC First’s solicitor on 30 September that the “client does not anticipate being in a position to draw down on the funds for quite some time”.

  4. On or about 30 September 2022, BC First lodged Caveat AS508603 on the title to the Bundanoon property and Caveat AS508604 on the title to the Bowral property (together, the Purnell Caveats). The Purnell Caveats each claim an equitable interest in the properties as a chargee pursuant to an agreement dated 6 September 2022 between BC First and Mr Purnell.

  5. Around this time, BC First also lodged caveats on properties located in Mansfield and Maribyrnong, Victoria (Victorian Caveats). The Victorian Caveats are not in evidence but the material on the application suggests that they claim an interest in the Victorian properties on the same basis as that claimed in the Purnell Caveats. There are no details of who owns the Victorian properties although presumably they are owned by Mr Cameron or Dexiosis.

  6. At the time the Purnell Caveats were lodged, the Bundanoon and Bowral properties were subject to first registered mortgages on title (numbers AR373275 and AR373274 respectively) in favour of ALS394 Pty Ltd (ALS394). These mortgages secured a loan from ALS394 to Ironlaw with a facility limit of $6,019,022 that had been guaranteed by Mr and Mrs Purnell (ALS394 Loan). The Bargo property was also subject to a first registered mortgage in favour of ALS394 (number AR377297) that secured the ALS394 Loan.

  7. Prior to becoming aware of the Caveats lodged by BC First, Mr Purnell had arranged for Ironlaw to enter into a loan with ALS478 Pty Ltd (ALS478) that would enable Ironlaw to payout the ALS394 Loan and obtain additional finance of approximately $887,811 (ALS478 Loan), and for Mr Purnell to obtain a loan in his name from MOS Capital Partners with a facility limit in the amount of $720,000 (MOS Capital Loan). The funds from these loans are intended to be used to enable Ironlaw to pay for the development costs relating to a six-lot residential subdivision of a property it owns in Moss Vale.

  8. The documents for the ALS478 Loan have been executed by Ironlaw and Mr and Mrs Purnell, as guarantors of the loan. The ALS478 Loan documentation provides for a loan facility limit of $6,949,352.50 to be secured by a first registered mortgage in favour of ALS478 over the Bowral and Bargo properties, as well as unregistered security provided by Mr and Mrs Purnell over all their other assets, which would include the Bundanoon property.

  9. The documents for the MOS Capital Loan have been executed by Mr Purnell, as borrower, and Ironlaw, as guarantor of the loan. The MOS Capital Loan documentation provides for a loan amount of $720,000 for a loan period of 12 months, with an interest rate of 14% per annum (and a discount rate of 10% per annum), a pre-paid interest period of six months, and security to be provided by a first registered mortgage in favour of MOS Capital over the Bundanoon property.

  10. On 7 October 2022, the plaintiffs’ solicitor wrote to BC First’s solicitor and requested that BC First withdraw the Purnell and Victorian Caveats, which BC First refused to do notwithstanding the threat of legal proceedings. On 14 October 2022, the plaintiff’s solicitor again requested that the Purnell and Victorian Caveats be withdrawn and advised they needed to be removed to allow two refinancing settlements to complete in the week of 17 October 2022.

  11. The ALS478 Loan was scheduled to settle on Monday, 17 October 2022. The MOS Capital Loan was scheduled to settle on Tuesday, 18 October 2022. Neither completed due to the Purnell Caveats on title.

  12. According to an email in evidence, if the ALS394 Loan is not paid out by 4:00pm on Friday, 21 October 2022, Ironlaw would be in default of the ALS394 Loan and the default interest rate of 18.5% per annum would apply (which is double the current interest rate) and would accrue from 27 August 2022.

Consideration and determination

  1. The legal principles that apply on an application for withdrawal of a caveat under s 74MA of the Real Property Act were not in dispute.

  2. BC First, as the caveator, has the onus of establishing that there is a serious issue to be tried as to the existence of the interest claimed in the caveat. Once BC First discharges that onus, the continuation or removal of the Purnell Caveats depends on the Court’s assessment of the balance of convenience. Relevant to that question is the strength of BC First’s claim to an interest in the Bundanoon and Bowral properties. That is consistent with the well-established principle that the apparent strength of each party’s case is a material factor in assessing the balance of convenience on an application for an interim injunction: Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [77], [79] and [82] (Hanson Construction Materials v Roberts); Tadrous v Tadrous [2009] NSWSC 407 at [6] (Tadrous v Tadrous).

  3. On such an application, it is not necessary for the Court to make a final determination as to the interest claimed by BC First or the priority that it may or may not have over competing interests. If no interlocutory injunction would be granted to the caveator to protect their claimed interest, the caveat should be ordered to be withdrawn: Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39 at [20].

  4. BC First’s equitable interest in the Bundanoon and Bowral properties rely on the charge it says arose by virtue of the agreement between Dexiosis, Mr Purnell and Mr Cameron as set out in the Term Sheet dated 6 September 2022, as amended on 8 September 2022, and accepted by BC First that day. It contended that the Purnell Caveats secure payment of the “Non Proceeding Costs” for which Dexiosis and the guarantors are liable as Dexiosis chose not to proceed with the loan. The amount of the Non-Proceedings Costs that BC First claims is secured by the charges is $305,557.15, comprising the Establishment Fee, Facilitation Fee, Legal Fees ($5,500), Disbursements ($738.51) and one-month of interest at the base rate ($55,429.38).

  5. At the hearing, the plaintiffs took issue with BC First’s claim of a caveatable interest. They argued that there was no agreement between BC First and Dexiosis as the offer contained in the Term Sheet was not accepted by Dexiosis before it lapsed, noting that the executed amended Term Sheet was sent late on 8 September 2022, the Term Sheet had provided for the offer of finance to lapse if it was not accepted by 12am on 7 September 2022 and the amended Term Sheet provided for the offer to lapse if not accepted by 12am on 8 September 2022. They also identified five discrepancies between the terms contained in the executed varied Term Sheet and the loan and security documents subsequently provided as indicative of there being no concluded agreement.

  6. In my view, it was seriously arguable that a contract had been concluded on the terms of the executed and amended Term Sheet dated 6 September 2022 having regard to the communication by FFC Corporation (on behalf of BC First) of acceptance of the varied Terms proffered by Dexiosis, the payment of the acceptance fee by Dexiosis the following day (which the evidence does not suggest was rejected), and the subsequent provision to Dexiosis and the guarantors of loan and security documents, notwithstanding the discrepancies in the documents that were identified by the plaintiffs. I was not persuaded that these variances entirely negated the defendants’ arguable claim that an agreement had been reached on the terms of the amended Term Sheet dated 6 September 2022, although I accepted it raised a question about the strength of that claim.

  7. There was no dispute, and I was satisfied, that it was seriously arguable that the terms of the amended Term Sheet provided for a charge that would extend to Mr Purnell’s Bundanoon and Bowral properties by way of security for payment of the “Costs”, which would include the “Non Proceedings Costs” claimed by BC First. Nor was any submission advanced that the details in the Purnell Caveats were ambiguous.

  8. Accordingly, based on the evidence on the application, I was satisfied that there was a serious issue to be tried as to the existence of the interest claimed by BC First in the Purnell Caveats.

  9. On the balance of convenience, the plaintiffs contended that BC First would not be prejudiced as there would be sufficient equity in the Bowral, Bundanoon and Bargo properties if it was required to withdraw the Purnell Caveats to allow the discharge of the ALS394 Loan and register the mortgages to secure the ALS478 and MOS Capital Loans as their combined value was $12,700,000 and the combined total of the loans to be registered is approximately $7,669,352.50. Reference was made to the approach of the Court in George Bevan Pty Ltd v Robert Patrick Pty Ltd (1987) 4 BPR 9457; Buchanan v Crown & Gleeson Business Finance Pty Ltd [2006] NSWSC 1465; and Tadrous v Tadrous, cases in which the Court ordered the removal of caveats to enable transactions to proceed having concluded that the removal would not prejudice the interest of the existing caveator and on terms, similar to those proposed on this application, that provided for leave to lodge a further caveat in the same terms.

  10. The plaintiffs also submitted that they would be prejudiced if the orders sought were not made given the default interest that would begin to run under the ALS394 Loan if the refinance did not occur that Friday.

  11. The defendants argued that the balance of convenience was in their favour and the Court should refuse to order the withdrawal of the Purnell Caveats. They submitted that the refinance would prejudice BC First’s claim as it would result in the equity available to BC First from the Bundanoon and Bowral properties to be reduced. It was submitted that the remaining equity might not be sufficient to meet BC First’s claim for the Non-Proceeding Costs if the value of the Bundanoon property was less than $1.2 million (noting that this was based on an April 2021 valuation) and taking account of pre-paid interest and other costs under the MOS Capital Loan and the fact that the Bundanoon property was security for the ALS478 Loan.

  12. The Court retains a discretion, based on the balance of convenience, as to whether it will maintain a caveat or require its withdrawal. The language of s 74MA is very broad and accommodates the removal of the Purnell Caveats even accepting that BC First has a seriously arguable or undisputable caveatable interest in the relevant properties: Hanson Construction Materials v Roberts at [60]; Tadrous v Tadrous at [6] and the cases there cited.

  13. The circumstances in which a caveat may be ordered to be withdrawn where the balance of convenience favours that course include where the existence of the caveat prevents a registered proprietor from legitimately exercising a right in respect of the land, including a proper sale or refinance. This usually occurs where the registered proprietor can point to other interests in the land superior to that of the caveator, such as a first mortgagee where the caveator is a subsequent encumbrance. Where a registered proprietor wishes to refinance an existing first mortgage, there may be a strong case on the balance of convenience to permit it to do so where that course will not prejudice or derogate from the caveators claim, although it would be rare to remove a valid caveat for reasons of balance convenience if it would have an adverse effect on the priority of the caveator’s claim: Tadrous v Tadrous at [7]-[8].

  14. Having regard to these principles and the evidence on this application, and although somewhat finely balanced, I concluded that the balance of convenience favoured the withdrawal of the Purnell Caveats on the terms proposed by the plaintiffs.

  15. The position at the hearing was that the Bundanoon and Bowral properties were valued at about $7.7 million and subject to first registered mortgages securing the ALS394 Loan of just over $6 million, although that loan was also secured by the Bargo property worth $5 million. After the refinance, the Bowral and Bargo properties would be subject to first registered mortgages securing the ALS478 Loan of $6,949,352.50, whereas the Bundanoon property would be subject to a first registered mortgage in favour of MOS Capital of only $720,000. The overall net equity position in respect of the Bowral and Bundanoon properties taken together may have been reduced after the refinance. However, the position was that there would be sufficient equity remaining in the Bundanoon property (of $480,000) to satisfy BC First’s claim. Prima facie, BC First’s position in relation to the Bundanoon property would be improved when the first registered mortgage to MOS Capital is compared to the existing first registered mortgage in favour of ALS394, which secures a loan in excess of $6 million.

  1. I did not accept the defendants’ submission that I should take judicial notice of the reduction in Sydney property prices over the past 12 months and assume that Bundanoon property is worth less than $1.2 million, noting that the reduction in property prices might not extend to rural properties in the Southern Highlands. However, even if I were to assume that there had been some reduction in value to that property and considering that the MOS Capital Loan may increase due to the payment of six months interest in advance (which I calculate to be around $36,000, assuming the discount rate of 10% per annum applies), it seemed to me that there would be a sufficient equity buffer in the Bundanoon property to meet BC First’s claim of $305,557.15 plus some interest and costs.

  2. I was also unpersuaded by the defendants’ submission that the priority of BC First’s caveatable interest in Bundanoon property might be adversely affected by the ALS478 Loan. There was no reason to think, and the defendant did not point to any matter to suggest, that any unregistered security interest created by the ALS478 Loan would provide a better equity and rank ahead in priority to an earlier charge in favour of BC First, particularly where that charge was and would again be subject to a caveat registered on title to protect BC First’s claimed equitable interest in the Bundanoon property: In the application of Roderick Mackay Sutherland and Sule Arnautovic [2014] NSWSC 821 at [94]–[96] and the cases there cited.

  3. While not determinative, it was also relevant to my decision to make the orders sought by the plaintiffs that the ALS478 Loan was secured by the Bargo property (in addition to the Bowral property) and BC First has also lodged caveats over the Victorian properties in respect of the same claim. While there could be no certainty, it seemed to me not unreasonable to consider that there was a prospect that BC First might be able to recover some equity from the Bowral and Victorian properties, in the unlikely scenario of a deficit in the available equity in the Bundanoon property.

  4. The orders proposed by the plaintiffs provide for them to give the usual undertaking as to damages and an undertaking for seven days after the refinance not to encumber the Bundanoon and Bowral properties beyond the amount of the ALS478 and MOS Capital Loans, and for leave to be granted to BC First to lodge further caveats in the same terms as the Purnell Caveats. In my view, these orders should ensure that BC First’s claimed interest would be protected pending the final determination of its claim.

  5. Finally, I should record that it is agreed that BC First will need to file a cross-claim to assert its right to be paid the “Non Proceeding Costs”. Having regard to the amount that BC First claims, the parties accepted that this is a case that should be transferred to the District Court. That issue can be dealt with on the next occasion or after the pleadings have closed and all remaining issues have been identified.

  6. For these reasons, I made orders in accordance with the plaintiffs’ short minutes of order, as amended at the hearing, which provided for the following:

  1. Upon the plaintiffs, by their counsel, giving to the Court:

  1. the usual undertaking as to damages in the form set out in UCPR r 25.8, pursuant to s 74MA(1) of the Real Property Act 1900 (NSW); and

  2. an undertaking, to expire on the later of 7 days after the registration of the mortgages referred to in [1(f)] below or 28 October 2022, not to encumber the real property located at 5 Buchanan Close, Bundanoon NSW (being Lot 218 in Deposited Plan 1266143) and 1220 Old South Road, Bowral NSW (being Lot 1 in Deposited Plan 1006329) to secure any amount greater than $7,669,352.50,

order pursuant to s 74MA(1) of the Real Property Act that, by 12 noon on 21 October 2022, the second defendant withdraw:

  1. caveat AS508603 registered on the title of real property located at 5 Buchanan Close, Bundanoon NSW, being Lot 218 in Deposited Plan 1266143; and

  2. caveat AS508604 registered on the title of real property located at 1220 Old South Road, Bowral NSW, being Lot 1 in Deposit Plan 1006329

(together, the Properties) in order to facilitate the registration of:

  1. a discharge of registered mortgages AR373275 and AR373274; and

  2. mortgages on the titles of the Properties, to secure loan amounts of up to $7,669,352.50.

  1. Leave be granted pursuant to s 74O of the Real Property Act 1900 (NSW) to the second defendant to lodge on the titles of the Properties further caveats, in identical terms to caveat AS508603 and caveat AS508604 respectively, after the registration of the mortgages referred to in order 1(f) above.

  2. The Court notes that Order 4 is made without any admission by the plaintiffs as to the existence of any caveatable interest of either of the defendants in either of the Properties, and without any prejudice to the plaintiffs' entitlement to seek the final relief sought in the Summons in these proceedings, or any other relief.

  3. The matter be listed for directions in the Equity Registrar's List at 9.30am on 27 October 2022, noting that the parties accept that the matter should proceed by way of pleadings with the defendants to file a cross-claim

  4. These orders be entered forthwith.

  5. Costs reserved.

**********

Decision last updated: 27 October 2022

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Cases Citing This Decision

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Cases Cited

5

Statutory Material Cited

1

Bayblu Holdings Pty Ltd v Capital Finance Australia Ltd [2011] NSWCA 39
Buchanan v Crown & Gleeson Business Finance Pty Ltd [2006] NSWSC 1465
Hanson Construction Materials Pty Ltd v Roberts [2016] NSWCA 240