Epic Feast Pty Ltd v Starmaker (No 51) Pty Ltd and Mawson KLM Holdings Pty Ltd No. Scgrg-97-393 Judgment No. 6212 Number of Pages 5 Conveyancing

[1997] SASC 6212

IN THE SUPREME COURT OF SOUTH AUSTRALIA

DEBELLE J

Conveyancing - land titles under the torrens system - caveats against dealings - removal of caveat - caveator lodged caveat claiming equitable mortgage over second defendants land - caveatee warns caveat - application for extension of time for operation of caveat until the issue of equitable mortgage is decided - a serious matter to be tried - balance of convenience - order extending operation of caveat. Real Property Act 1886 191, referred to. ex parte Muston (1903) SR (NSW) 663; in re The Kauri Timber Co Ltd (1889) 7 NZLR 452; Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198; Tierney v Loxton (1891)12 LR NSW 308; Municipal District of Concord v Coles (1905) 3 CLR
96; Woodberry v Gilbert (1907) 3 Tas. LR 7; re a Caveat; ex parte The Canowie Pastoral Co Pty Ltd [1931] SASR 502; Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129; re Caveat of Clara Elizabeth Dixon (1922) 39 WN (NSW)89, applied.

ADELAIDE, 16 April 1997 (hearing), 19 June 1997 (decision)

#DATE 19:6:1997

#ADD 4:7:1997

Appearances:

Plaintiff:

Counsel: Mr N Strawbridge

Solicitors: Minter Ellison

Defendant Starmaker (No 51) Pty Ltd:

Counsel: Mr D Clayton QC with Mr Deller

Solicitors: Mr Matthew Deller

Defendant Mawson KLM Holdings Pty Ltd:

Represented by: Mr K Bowling, Director

Order:

DEBELLE J

This is an application for an order to extend the operation of a caveat.

On 25 October 1996 the second defendant, Mawson KLM Holdings Pty Ltd ("Mawson") was registered as the proprietor of certain land at Tennyson comprised and described in what is now Certificate of Title Register Book Volume 5333 Folio 830 ("the land"). On 25 October 1996 Epic Feast Pty Ltd ("Epic Feast") lodged a caveat forbidding the registration of any dealing with the estate or interest in the land unless such dealing was subject to the claim of Epic Feast. Epic Feast described the interest it claimed to protect in these terms:

"An Estate and Interest as Equitable Mortgagee under and by virtue of a Loan Agreement dated 13 September 1996 between the said Caveator and said Caveatee in the sum of $400,000 (Four Hundred Thousands Dollars) plus interest, costs and other charges."

In early November 1996, Mawson entered into certain arrangements with the first defendant Starmaker (No 51) Pty Ltd ("Starmaker") in respect of the land at Tennyson. It is unnecessary for present purposes to examine the detail of those arrangements. It is sufficient to note that Starmaker held a registered mortgage in respect of the land. The mortgage had been registered on 19 July 1996. On 1 November 1996 Mawson executed a joint venture agreement with Starmaker and on 12 November 1996 Mawson executed a transfer of the land to Starmaker. Starmaker lodged the transfer for registration. The transfer was executed pursuant to the joint venture agreement and not pursuant to the mortgage. The transfer to Starmaker expressly noted what it described as three encumbrances. One of those so-called encumbrances is the caveat lodged by Epic Feast. The transfer is expressed to be subject to the three encumbrances. The transfer is, therefore, subject to the caveat.

The Register-General has registered the transfer. He was entitled to do so since by virtue of s191 of the Real Property Act, 1886 he may register a dealing which is expressed to be subject to the claim of the caveator. Starmaker has by virtue of the registration of the transfer become the registered proprietor and is, therefore, a caveatee as defined by s3 of the Real Property Act. Starmaker therefore had standing to apply to the Registrar-General to have the caveat removed.

By application dated 14 February 1997 Starmaker applied to the Registrar-General to have the caveat removed. The Registrar-General acted on the application and by notice dated 18 February 1997 issued pursuant to section 191V of the Real Property Act gave notice to Epic Feast of the application and of his intention to remove the caveat within 21 days unless he was previously served with an order of this Court. On 10 March 1997 Epic Feast applied to this Court for an order extending the operation of the caveat and on the same day, an interim order was made extending the operation of the caveat pending full argument of the issues.

The task for this Court on this application is not to determine the question of title, that is to say, whether Epic Feast as caveator was entitled to lodge the caveat: ex parte Muston

(1903) 3 SR (NSW) 663, unless the parties have agreed to a summary determination of that issue: in re The Kauri Timber Co Ltd (1889) 7 NZLR 452. Instead, this Court must determine whether there is a serious question to be tried and whether, on the balance of convenience an order extending the operation of the caveat should be made, the caveator proffering an undertaking as damages in the same way as on an application for an interlocutary injunction: Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198 at 203. The parties have not agreed to a summary determination of the question of title.

A Serious Question?

Epic Feast asserts an interest as equitable mortgage under and by virtue by a loan agreement dated 13 September 1996 between itself and Mawson which was then registered proprietor of the land at Tennyson. The agreement is expressed in these terms: "I, Keith Bowling, as agreed have personally and on behalf of my companies loaned from Epic Feast Pty Ltd and Petar Jurkovic the total sum of $400.000.00, (Four Hundred Thousand Dollars), plus any incurred fees and interest.

The repayment of this loan is take the form of the following:

Part 1 $100,000.00 Consultant Fee Incentive payment to Epic Feast Pty Ltd for making the settlement of the Tennyson Development eventuate.

Part 2 $160,000.00 Repayment to Epic Feast Pty Ltd for monies paid to Stockport Civil on behalf of Keith Bowling & Companies NB. The amount originally owed to Stockport Civil by Keith Bowling was $200,000.00. Epic Feast negotiated this down to $160,000.00 due to the fact that the difference was an outstanding amount owed to Epic Feast.

Part 3 $40,000.00 The difference from the Stockport Civil settlement to be paid to Epic Feast Pty Ltd.

Part 4 $50,000.00 Payment to Epic Feast Pty Ltd for the demolition of Escort House plus variations, (at half price), for asbestos removal.

Part 5(a) $50,000.00 Lent by Petar Jurkovic over and above his personal overdraft facility charged at a rate of 20% interest plus establishment fees and other bank charges. Part 5(b) Abovementioned interest, fees and charges accruing and to be calculated at time of settlement of loan.

This loan has a settlement date of no later than the 30th September, 1996.

This loan agreement deals only with the Escort House Development at Tennyson. In the event of Keith Bowling and/or companies reneging on the above loan and incentive repayments there will be no other alternative but to proceed with legal action for the recovery of all monies outstanding."

Mr Bowling was at all material times the only director of Mawson.

It is apparent the agreement has not been prepared by a solicitor. That fact however, has only incidental relevance to the resolution of the issues in this application. What is significant is the fact that the agreement does not invest Epic Feast with an interest in the land at Tennyson. The agreement merely evidences a personal obligation on the part of Keith Bowling and his companies (which include Mawson) to repay Epic Feast and Petar Jurkovic an amount totalling $400,000. That conclusion is reinforced by the concluding words of the agreement. Had the evidence stopped there, it could not be asserted that there was a serious question that Epic Feast held a caveatable interest since only a person who has a legal or equitable interest in land, partaking of the character of an estate in it, or equitable claim to it, is entitled to lodge a caveat: Tierney v Loxton (1891) 12 LR (NSW) 308 at 314-315 approved by Griffiths CJ in Municipal District of Concord v Coles (1905) 3 CLR
96 at 107; see also Woodberry v Gilbert (1907) 3 Tas. LR 7. A claim to enforce a personal obligation to pay a debt or other liquidated amount does not, standing alone, give rise to an estate or interest in land entitling the claimant to lodge a caveat: re a Caveat; ex parte The Canowie Pastoral Co Pty Ltd [1931] SASR 502; Deputy Commissioner of Taxation v Corwest Management Pty Ltd [1978] WAR 129.

However, Epic Feast asserts that there were further dealings between it and Mawson or Bowling on behalf of Mawson which gave rise to an interest in the land at Tennyson. In his affidavit sworn in support of this application, Mr Petar Jurkovic, a director of Epic Feast, says that, when Mr Bowling executed the loan agreement on 13 September 1996, he agreed to arrange for Mawson to consent to a second mortgage over the land at Tennyson. He further says that Mr Bowling agreed on behalf of Mawson that Mawson would execute a loan agreement, mortgage and guarantee to secure the repayment of the monies lent by Epic Feast and referred to in the loan agreement dated 13 September 1996. Mr Jurkovic also says that he instructed the solicitors for Epic Feast, Minter Ellison, to prepare a fresh loan agreement, mortgage, and guarantee. After these documents had been prepared, he handed them to Bowling on 21 September 1996 for execution by Mawson. Mawson has, however, failed to execute the documents. Neither Mawson nor Bowling has returned the documents to Epic Feast. Jurkovic says that Bowling advised him that Mawson has refused to consent to the second mortgage. As a result of the failure of Mawson to execute the second mortgage, Epic Feast instructed its solicitors to lodge a caveat to secure its interest.

Whatever other questions might exist as to the use which may be made of the preparation of the fresh loan agreement, mortgage and guarantee or of the handing of them to Bowling for execution by Mawson, there is a significant discrepancy as to the amount of the loan between the documents prepared by Minter Ellison and the loan agreement dated 13 September 1996. The loan agreement as prepared by Minter Ellison states that the principal is $600,000. However, the loan agreement dated 13 September 1996 states the total amount of the borrowings to be $400,000. Mr Jurkovic seeks to explain the discrepancy in a second affidavit sworn in support of the application. It is sufficient to dispose of this matter to note only the claim by Epic Feast that Mr Bowling agreed on behalf of Mawson that Mawson would execute a second mortgage. If Epic Feast establishes that fact, it will have shown that it had an interest in the land at Tennyson entitling it to lodge the caveat: in re the Caveat of Clara Elizabeth Dixon (1922) 39 WN (NSW) 89. It is, therefore, unnecessary to make any finding concerning the increase in sum alleged to be due to Epic Feast. It is also unnecessary to make any findings concerning the evidence relating to the preparation of the documents by Minter Ellison and the proffering of them for execution by Mawson.

Mr Clayton QC, who appeared for Starmaker, pointed to a number of shortcomings in the evidence of Epic Feast. As he said, there may be questions as to who in fact was the creditor, who was the debtor, whether Epic Feast is entitled to required Mawson to execute a second mortgage, and as to the principal sum secured by the mortgage. Notwithstanding the force of his criticisms, there is I think a serious question of fact to be tried, namely, whether the loans were made by Epic Feast to Mawson and whether Bowling on behalf of Mawson agreed to execute a mortgage to secure repayment of the loans allegedly made by Epic Feast. Given this conclusion, I do not think it appropriate to comment any further upon the criticisms made by Mr Clayton QC and the answers to those criticism made by Mr Strawbridge who appeared as counsel for Epic Feast. The issues they raise may be matters for the trial judge to decide.

Mr Clayton QC also objected to parts of the affidavit of Mr Jurkovic contending that they asserted conclusions of law. I do not agree. Instead, it is Mr Jurkovic's summary of the factual situation as he asserts it to be. The assertions made by Mr Jurkovic will be matters for later determination.

Mr Clayton also submitted that the caveat does not refer to an oral agreement to execute a mortgage as security for repayment of the sum of $400,000. There may be considerable force in this criticism. However, the question whether the description of the interest claimed was sufficient or whether Mawson had agreed to execute a mortgage are questions of fact for later determination. It will also be necessary to determine later whether it is necessary to amend the caveat and whether it is both lawful and appropriate to do so.

The Balance of Convenience

Mr Clayton QC submitted that Starmaker wishes to deal in the land. He said that a person who lodges a caveat should promptly take appropriate proceedings to protect and enforce its interests. Epic Feast had, he said, been so dilatory in prosecuting its claim that Mawson had agreed to execute an equitable mortgage that it should not be permitted to sustain the caveat and so deny Starmaker the ability to deal in the land. Epic Feast has not instituted proceedings notwithstanding that it lodged the caveat some six months ago.

Despite the force of Mr Clayton's criticism, the fact remains that, if Epic Feast succeeds in proving its claim that Mawson had agreed to execute a mortgage as security for repayment of the loan to it of $400,000, the refusal to extend the caveat would have very severe commercial consequences for Epic Feast. The evidence demonstrates that the land at Tennyson has a market value substantially in excess of $400,000. The evidence also points to the conclusion that the value of the land at Tennyson might be in excess of $2,000,000 which would exceed the price paid by Starmaker for the land ($1,470,000) and the principal sum alleged to be due to Epic Feast. There is also evidence that Bowling is bankrupt and that the land at Tennyson is the only substantial asset of Mawson. If the court did not extend the operation of the caveat, Epic Feast would have no remedy other than its claims to recover the debt against either Bowling or Mawson, claims which would be valueless. The balance of convenience, therefore, plainly favours an order extending the operation of the caveat.

In Whallin v Bailbart Investments Pty Ltd (supra) at 203, Cox J suggested that the caveator seeking to extend the operation of the caveat should be required to give an undertaking as damages. Given the terms of paragraph X of s191 of the Real Property Act there may be questions as whether a caveator can be required to proffer such an undertaking. It is, however, unnecessary to determine that question as Mr Strawbridge proffers an undertaking as to damages on behalf of Epic Feast.

Conclusion

For these reasons, there will be an order extending the operation of the caveat. The order will be made until further order. Epic Feast must promptly prosecute an action to determine the question whether it was entitled to lodge its caveat. There will be liberty to

apply. I envisage that, if Epic Feast does not promptly prosecute its action, Starmaker may apply for discharge of the order. I will hear the parties as to the terms of the order.