Gni Enterprises Pty Ltd v Registrar of Titles for Victoria
[2016] VSC 95
•9 March 2016 (revised 21 March 2016)
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE | |
| COMMON LAW DIVISION | |
| PRACTICE COURT |
S CI 2016 00854
| GNI ENTERPRISES PTY LTD | Plaintiff |
| v | |
| THE REGISTRAR OF TITLES FOR VICTORIA and ORS | Defendants |
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JUDGE: | JOHN DIXON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 March 2016 |
DATE OF JUDGMENT: | 9 March 2016 (revised 21 March 2016) |
CASE MAY BE CITED AS: | GNI Enterprises Pty Ltd v Registrar of Titles for Victoria & Ors |
MEDIUM NEUTRAL CITATION: | [2016] VSC 95 |
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CAVEAT – Application for summary removal – Plaintiff contracted for sale of land with consent of registered first mortgagee – Substantial shortfall for first mortgagee – Sale at arm’s length and above valuation – Property subject to a registered second mortgage and four caveats claiming interests as chargees – Second mortgagee entered default judgment against plaintiff and refuses to discharge its mortgage and one caveator refuses to withdraw caveat interests to allow sale to be completed – No power to order summary removal of a registered mortgage – Futile to order summary removal of caveat – s 90(3) Transfer of Land Act 1958 (Vic).
PRACTICE AND PROCEDURE – Stay on execution of warrant for possession sought – r 66.16 Supreme Court (General Civil Procedure) Rules 2005 (Vic).
INJUNCTION – Mandatory injunction for removal of a registered mortgage sought in aid of claim of conspiracy to inflict economic harm on plaintiff – No serious question to be tried – Discretionary considerations – Evidence insufficient to warrant mandatory injunction – Application dismissed and summons on originating motion refused.
EVIDENCE – Correspondence between parties marked "without prejudice" – Whether implied waiver of confidentiality – No exceptions applicable – Evidence of settlement discussions excluded – s 131 Evidence Act 2008 (Vic).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Felkel | S Kourkoulis & Associates. |
| For the second, third and fourth Defendants | Mr E Gisonda | |
| For the first Defendant | No appearance |
HIS HONOUR:
The plaintiff applies for orders under s 90(3) of the Transfer of Land Act1958 (Vic). Its purpose is to enable it to pass clear title to complete a contract to sell property located in Cheltenham Road, Dandenong, more particularly described in Certificate of Title Volume 11027 Folio 303, which I shall refer to as ‘the Cheltenham property’. The second and third defendants are registered proprietors of a second ranking mortgage and the fourth defendant is a caveator claiming an interest as charge. Each has refused to discharge the mortgage or withdraw the caveat to permit the completion of the sale.
The plaintiff also seeks a mandatory injunction requiring the removal of the registered mortgage in aid of a claimed cause of action for conspiracy to inflict economic harm on the plaintiff.
The application is supported by an affidavit of the plaintiff’s solicitor, Mr Kourkoulis, sworn 4 March 2016. The defendants objected to certain items of correspondence that form part of Exhibit SK7 to the affidavit being admitted into evidence on the basis of s 131(1)(a) of the Evidence Act 2008 (Vic) which provides that:
Evidence is not to be adduced of a communication that is made between persons in dispute… in connection with an attempt to negotiate a settlement of the dispute.
These letters from a chain of correspondence in which the parties sought to negotiate a resolution of the issues that had arisen between them. The opening letter in the correspondence, from the defendants’ solicitors, is marked ‘Without prejudice’. The plaintiff’s response to that letter, which is not so marked, demonstrated that the purpose of the communication was properly to resolve the current impasse, and the further response from the defendant is marked ‘Without prejudice’.
The plaintiff submitted that the section did not apply, by reference to the exceptions contained in either s 131(2)(b), or s 131(2)(g). In my view, neither of these exclusions is applicable, and the challenged correspondence clearly falls within the terms of s 131(1)(a) above and will be excluded.
Evidence may be tendered under the exclusion specified in s 131(2)(b), if there be express or implied consent of all of the persons in the dispute to the disclosure. The plaintiff submitted that because the defendants were all represented by one firm of solicitors, an implied waiver of the confidentiality of these communications was demonstrated and that from that implied waiver, I could infer the defendants’ consent to the disclosure of the correspondence. I reject that submission. There was no evidence of the defendants’ express consent. Given the apparent common interest of the defendants there was no waiver of confidentiality and that circumstance could not support an implication of consent to this disclosure.
Evidence may be tendered under the exclusion in s 131(2)(g) when the court may be misled by enforcement of the privilege. The difficulty facing the plaintiff was that no evidence was adduced in the proceeding, nor was there any available inference from evidence that had been adduced in the proceeding, that was likely to mislead the court unless the evidence of the without prejudice communications was adduced to contradict or qualify that evidence. This exclusion plainly contemplates that the relevant evidence that might mislead the court, is evidence other than the evidence that is the subject of ‘without prejudice’ privilege. As there has been no evidence meeting that description adduced in the proceeding, that exclusion is inapplicable.
For those reasons, I disregarded that correspondence which forms part of Exhibit SK7 when dealing with this application.
On 29 October 2015, the plaintiff contracted to sell the Cheltenham property to a purchaser for $1,468,500 with settlement due 60 days thereafter. Mr Kourkoulis deposed that the sale was an arm's length transaction and this conclusion was not challenged. A sworn valuation of the property prepared as at 7 October 2015 declared the value to be $1.335 million. The contract of sale that was entered some three weeks later, for a price that exceeded this sworn value by more than $100,000, appears on its face to be an appropriate sale of the property. The registered first mortgagee has consented to it.
The plaintiff cannot complete the contract as it cannot make clear title, because the property is subject to a number of encumbrances. In order of registration, they are as follows:
(a) A mortgage registered on 3 October 2007, in favour of the National Australia Bank Limited.
(b) A mortgage registered on 20 May 2015, in favour of the second and third defendants to the proceeding.
In addition, there are four caveats notifying in each case an interest as charge:
(a) The first, in favour of Raymond Michael Wood, was lodged on 25 March 2015.
(b) The second, in favour of the fourth defendant, was lodged on 27 April 2015.
(c) The third, in favour of GET Capital Pty Ltd, was lodged on 22 July 2015; and
(d) The fourth, in favour of Scottish Pacific Business Finance Pty Ltd, was lodged on 29 October 2015, which was the same day of sale under the contract that I have referred to above.
On 15 December 2015, the second and third defendants entered a default judgment for debt and for possession of the Cheltenham property against the plaintiff. Subsequently, those defendants obtained a warrant for possession. The plaintiff asks for a stay of execution of that judgment for possession.
Mr Kourkoulis stated that on 20 November 2015, he provided to the National Australia Bank details of the sale and requested details of a payout and the Bank’s consent to the sale of the Cheltenham property. On 18 January 2016, the Bank responded stating that the plaintiff owed the bank around $2.3 million, but that the Bank would consent to release the property from its mortgage, subject to receiving the full nett proceeds of sale on settlement.
This evidence was challenged by the defendants because of the lack of detail contained in the email exhibited by Mr Kourkoulis. They questioned whether the email properly established precisely what sale the Bank consented to or the approximate amounts of any deficiency on sale. However, when this email is read in the context of Mr Kourkoulis’ evidence about the negotiations with the Bank, I am satisfied, for the purposes of this application, that the Bank had consented to the sale of the Cheltenham property proceeding on the basis that it would provide a discharge of its mortgage in return for receiving the full nett proceeds of sale.
It follows that the shortfall on the sale would be approximately $800,000; and from that fact several consequences flow. First, there would be no surplus equity in the Cheltenham property for the second and third defendants. Secondly, there would be no surplus equity in the Cheltenham property for any of the caveators to satisfy their claimed charges. Thirdly, if the Sheriff acts to take possession pursuant to the warrant, there would be no benefit for the defendants through that process for one of two reasons.
Either the second mortgagee taking possession is likely to provoke the registered first mortgagee into exercising its rights pursuant to its securities; alternatively, if the registered first mortgagee permitted the subsequent mortgagee to auction the property, the second and third defendants would be required to pay the nett proceeds of sale to the Bank in order to pass title to a purchaser. It is plain, as the plaintiff submits, that there is no economic benefit to the defendants from adopting that course.
It is clear that the second, third and fourth defendants, are refusing to withdraw their respective securities or caveats, in order to permit the sale to proceed, in the hope that the plaintiff can find funds elsewhere to negotiate with them for a discharge of the mortgage. The plaintiff's counsel informed me from the Bar table that agreements had been reached with the remaining caveators that their caveats will be withdrawn to permit the settlement to proceed.
I was also informed that the Bank has placed a deadline of Friday, 17 March 2016 on the plaintiff to resolve whether the sale is to be completed.
The plaintiff's application raises a number of different considerations. Although the application is framed as an originating motion between parties seeking orders under s 90(3) of the Transfer of Land Act, the court’s jurisdiction under that section is limited to the summary removal of a caveat. The section says nothing and provides no jurisdiction or power in the court, to remove a registered proprietary interest, such as a mortgage, from the title. I will return to this point.
The plaintiff also applies by this originating motion for a stay of execution of the judgment for possession, an application that must be brought either pursuant to the inherent jurisdiction of the court, or pursuant to r 66.16 of the Supreme Court (General Civil Procedure) Rules 2015. Notwithstanding the procedural irregularity, I will consider the application.
It is not in dispute that the court has power to stay the execution of a judgment. The discretion reposing in the court under the Rule is a wide one, and the court is required to take into account all of the circumstances that are relevant. The authorities make it plain that the starting point is that a party, who has obtained a judgment, is entitled to have it enforced, without delay. The circumstances that might go to justify a stay, are limited to circumstances relating to the enforcement of the judgment. Circumstances that affect the validity or the correctness of the judgment, that is, matters that ought to have been raised in defence of the application for the judgment, before it was granted, cannot be raised on an application for a stay.
Further, there is some uncertainty as to whether what must be shown by the applicant for the stay is some special or exceptional circumstances. There are a number of authorities of this court, particularly in relation to the similarly worded r 64.39 that allows a stay of execution pending an appeal, which require the applicant for a stay to show special or exceptional circumstances. The rule does not, by examination of its plain text, indicate that the discretion is so constrained. It is unnecessary to enter into this debate.
One relevant consideration that would affect the exercise of the discretion is whether it would be futile to grant a stay of execution. In the circumstances, the plaintiff’s primary difficulty is that while the second and third defendants have an order for possession based on default under a registered second mortgage, the plaintiff is in default under a registered first mortgage. With a substantial shortfall in prospect, any competition in respect of equity in the property is between the registered mortgagees.
Returning to the question of whether the plaintiff can make clear title by persuading the court to order the removal of all encumbrances, in the present circumstances the court does not have any power under the Transfer of Land Act, absent proven fraud in the registration of the second mortgage on the title, either to direct that it be removed or to require that it be discharged. The power for summary removal under s 90(3) is limited to caveats and inapposite in the present circumstances. To meet this impediment to the relief it seeks, the plaintiff submitted that there is a prima facie case that the defendants have combined together to inflict economic loss on the plaintiff, and that the plaintiff’s position pending trial of that claim should be preserved by a mandatory interlocutory injunction requiring the surrender of the second mortgagee’s registered interest.
The plaintiff needs to establish that it has a prima facie case against the second and third defendants to succeed at trial for the relief that it seeks by the injunction. In this sense, a prima facie case is a serious question to be tried in relation to the relief or remedy to be sought that is sufficient to justify that relief being given on an interlocutory basis pending trial. If a prima facie case can be identified, then the court must consider whether damages would be an adequate remedy and where the balance of convenience lies, in the sense that the court should take whichever course appears to carry the lower risk of injustice if the court should turn out to have been wrong in its interlocutory order.
There is a relationship between the strength of the case in establishing a serious question to be tried, and the extent to which the applicant for interlocutory relief must establish that the balance of convenience favours it. The stronger the case in establishing that serious question, the more readily the balance of convenience might be satisfied. It must be noted here that the interlocutory relief that the plaintiff seeks is a mandatory injunction against intentional infliction of economic harm by the second and third defendants against the plaintiff, by requiring the second and third defendants to do all things necessary to remove and/or discharge the registered mortgage.
I will not grant this injunction for the following reasons.
In submissions, the plaintiff referred me to the statement by Hely J in Australian Wool Innovation Limited v. Newkirk[1] of the key elements that are necessary to establish such a cause of action.
[1] [2005] FCA 290, [59]-[64].
First, the evidence before the court fell well short of establishing a prima facie case to the requisite standard to warrant the relief being sought; that is, a mandatory injunction. I would go further. There is no serious question for trial. In particular, the injunction sought the removal of a registered mortgage, which is a substantial interference with the proprietary rights of a defendant. The plaintiff submits that properly understood, the rights of the defendant, pursuant to the registered mortgage, are illusory, because of the significant shortfall between the sum secured for the benefit of the registered first mortgagee and, either, the value of the property or the purchase price to be paid under the uncompleted contract of sale. I do not agree. There is a significant distinction between the rights that arise from the mortgage and the fact of its registration and the value of those rights. Fundamentally, the latter issue is irrelevant.
There is no evidence before the court of a combination or agreement between two or more individuals. There is no evidence of an intention to injure, nor is there evidence to show to the requisite standard of a prima facie case, as I have discussed, that the intent to injure was the sole or predominant purpose. I am not persuaded to find a serious question exists that there was an express agreement to further a common intention to inflict economic loss upon the plaintiff. Rather, it seems equally open on the material before the court, that the defendants are simply acting to avoid suffering a greater economic loss themselves in the circumstances of the plaintiff's insolvency.
I was not referred by counsel to any authority and I am not aware of any authority that a court would grant relief in a common law action for conspiracy to inflict economic loss in the form of a mandatory injunction removing a registered interest from the title of property. That is an equitable remedy and it is highly probable that a trial court on the trial of an economic tort would conclude that damages are the appropriate remedy.
The facts disclosed to the court show nothing more than a robust commercial negotiation between a debtor and a creditor.
What is also revealed is that the plaintiff's position is somewhat dire. As I said, the probabilities are that there will be a shortfall of approximately $800,000 on the sale of the property. I cannot say whether the Bank is protected by collateral securities, or whether the plaintiff in the circumstances is seeking to protect its equity in collateral securities, through maximising its payout to the Bank through the sale. Likewise, the full extent of the financial dealings between the plaintiff and the defendants is not the subject of evidence.
If the mortgage is not discharged prior to or at settlement, it seems clear enough that a prudent purchaser would refuse to complete the contract and would rescind it for the plaintiff's failure to show good title. Whether or not the defendants move to recover possession of the property pursuant to their judgment would not seem to matter because of the position of the registered first mortgagee, which may intend to proceed to exercise its rights after Friday 17 March 2016.
For these reasons I am not persuaded that there is a prima facie case that would warrant a mandatory injunction. In any event, even if I were wrong in that conclusion, I am satisfied that damages would be an adequate remedy. Further, and for the reasons that I have already given, I consider that the course which carries the lower risk of injustice if it should turn out to have been wrong is to refuse a mandatory injunction in the circumstances.
Having concluded that I will not remove the second and third defendants’ registered second mortgage from the title, it would be futile to grant the plaintiffs a stay of execution of the warrant for possession, for reasons that I have already given.
Further, although the fourth defendant's caveat is apparently valid and notified an interest that the fourth defendant was entitled to protect by a caveat at the time that the caveat was lodged, there is no residual equity in the property that places any value in that caveat. 70 Pitt Street Sydney v McGirk,[2] is authority for the proposition that a court might in such circumstances order the removal of a caveat. However, it is well-established that the court's power to act under s 90(3) of the Transfer of Land Act is discretionary.[3] Having regard to the futility of the plaintiff's position once the mandatory injunction for the removal of the registered mortgage is refused, in my view, there is a strong discretionary consideration to refuse to remove this caveat at present. Circumstances would be different if the second and third defendants agreed to discharge their mortgage.
[2](2004) 11 BPR 21, 643, [15].
[3]See for example, Piroshenko v Grojsman (2010) 27 VR 489.
For these reasons, the application by the plaintiff by the summons on originating motion will be refused. The judgment of the court is that the originating motion filed 8 March 2016 is dismissed. The plaintiff is to pay the costs of the second, third and fourth defendants.
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