Hepler v Rosenblum

[2005] NSWSC 179

CITATION:	Hepler v Rosenblum [2005] NSWSC 179
HEARING DATE(S):	2 March 2005
JUDGMENT DATE :	2 March 2005
JURISDICTION:	Equity
JUDGMENT OF:	Campbell J
DECISION:	Caveat not ordered withdrawn

CATCHWORDS:	CONVEYANCING - TORRENS SYSTEM - caveats against dealings - application for caveat to be withdrawn - whether serious question to be tried that there was agreement to give equitable charge over properties caveated - effect of lack of writing - whether estoppel can outflank section 54A Conveyancing Act 1919
LEGISLATION CITED:	Conveyancing Act 1919
CASES CITED:	Whittet v State Bank of New South Wales (1991) 24 NSWLR 146
PARTIES:	Hepler Pty Limited - Plaintiff/Cross-Defendant Rupert George Rosenblum - Defendant/Cross-Claimant
FILE NUMBER(S):	SC 1701/05
COUNSEL:	L J Aitken - Plaintiff/Cross-Defendant M Elliott - Defendant/Cross-Claimant
SOLICITORS:	Summit Law - Plaintiff/Cross-Defendant M Rosenblum & Co - Defendant/Cross-Claimant

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY JUDGE LIST

CAMPBELL J

WEDNESDAY 2 MARCH 2005

1701/05 HEPLER PTY LTD v RUPERT GEORGE ROSENBLUM

JUDGMENT – Ex Tempore (Revised 9 March 2005)

1 HIS HONOUR: This is the return of a summons seeking an order that a caveat be withdrawn. The land over which the caveat exists is stated to be folio identifier 1/1076301 - 6/1076301. Those properties are six properties located at Pidcock Street, Camperdown. In fact one of the properties had been sold, and had been sold before the caveat was lodged, but the caveat is still effective in relation to the remaining five.

2 The interest which the caveat claims is an equitable charge over the properties. The caveator is the executor of the estate of the late Ms Hoolahan. She advanced $50,000 to E-Lawnet.com.au Pty Ltd, on the terms of an investment memorandum dated 23 September 2003. The borrower is a company of which Mr Scott Hepburn is a director. The terms of the advance included that the borrower would only use the funds of $50,000 for property investment purposes “and to be secured by property assets as ELawnet.com.au Pty Ltd being a property holding company.” [Sic]

3 Interest was payable, according to the loan agreement, monthly, at a rate of 11 percent.

4 Ms Hoolahan has died in August 2004.

5 The defendant, as her executor, endeavoured to recover the loan which had been made to E-Lawnet.com.au Pty Ltd. In a letter dated 11 November 2004 Mr Hepburn said that all the interest on the loan had been paid in advance, and as well $9,000 of the principal had been repaid. He said:

“Pat [ie Ms Hoolihan] requested that we roll the balance of the funds into another property, which we had just redeveloped and was completed in August this year and is currently on the market.

6 The property for which E-lawnet Pty Ltd had borrowed the funds was the Star Hotel in Newcastle. That hotel has now been sold, pursuant to a contract entered in February 2004, which settled in June 2004. Once that sale had occurred, E-Lawnet.com.au had no remaining property assets in its own name, and was in a position to be wound up. There has been some evidence this morning, orally, from Mr Hepburn that at the time E-lawnet.com.au had the benefit of an option to acquire some property in Newcastle, but in November 2004 that option had not been exercised.

7 Mr Hepburn's letter, went on,

“We confirm that the above company is in the process of being wound up voluntarily as it was only being used as an investment vehicle for a property. We confirm the balance owed to Pat is $41,000.
This will be repaid on the sale of the property currently being handled by Mr Mark Tonelli of LJ Hooker Lane Cove.”

8 There is evidence, given by Mr Hepburn in cross-examination today, that in February 2004 he was a director and shareholder of the plaintiff, and that the plaintiff owned the land at Pidcock Street Camperdown, which it proposed to develop by refurbishment and sale. There is evidence to the effect that the property sale which was being handled by Mr Tonelli was of the Camperdown property.

9 As it happens, on the day before he wrote the letter of 11 November 2004, Mr Hepburn resigned the positions he held as a director and shareholder of the plaintiff. Currently, pursuant to a Power of Attorney dated 26 February 2005 given to him by the plaintiff, he can in practice discharge the obligations of a director concerning the plaintiff.

10 In my view, there is a serious question to be tried about whether Ms Hoolahan has an equitable charge over the five properties at Pidcock Street which remain unsold. It is clear that the initial loan was on the basis that it would be secured by property assets. The account given by Mr Hepburn of the agreement in February 2004 to roll the balance of the funds into another property is one which, when a court ultimately comes to consider the matter, might be held to be one which contemplates a continuation of security, but on a different property. There is, it seems to me, in the circumstances where there does not seem to have been any other property which could have been referred to in the conversation which Mr Hepburn gives an account of in his letter of 11 November 2004, a serious question to be tried about whether it was the Pidcock Street properties which were being referred to as the ones into which the funds would be rolled. When Mr Hepburn was a director of the plaintiff at the time, there is a serious question to be tried about whether his conversation with Ms Hoolahan binds the plaintiff.

11 It has been submitted that the agreement is one which is insufficiently certain, and pointed out that it seems extravagant to have security over six separate suburban properties as security for a debt of $41,000. I do not agree that it is clear that it is unarguable that the agreement is too uncertain. Equity regularly will impose an equitable charge over property where the intention of the parties, expressed to each other, is that there will be security for a particular loan. This can happen even though the parties are extremely parsimonious in identifying the terms of the loan, or of the security.

12 It was also submitted that there was no writing to support the agreement or to support any agreement to give a charge over the Pidcock Street properties. Mr Elliott, for the caveator, gives two answers to that. He says that Mr Hepburn's signature on the original investment memorandum is sufficient. I am not very impressed by that argument as, even though he may have been a director of the plaintiff at the time, he was not purporting to act in that capacity.

13 The situation is different it seems to me concerning the conversation in February 2004. Mr Elliott says that the plaintiff is estopped from relying on section 54A Conveyancing Act 1919, concerning this February conversation. There will be some argument, as discussed by Rolfe J in Whittet v State Bank of New South Wales (1991) 24 NSWLR 146, about whether it is appropriate for estoppel to outflank the requirements of section 54A Conveyancing Act. However, it seems to me that, at the least, there is a serious question to be tried about whether that is so, and whether the elements of an estoppel are made out, on the basis that Ms Hoolahan did not seek repayment of her loan even though the initial security for it was sold.

14 There is a third basis upon which Mr Elliott seeks to support the caveat, which is that as a tracing remedy consequent on breach of a Quistclose trust which attached to the money in the hands of E-Lawnet.com.au Pty Ltd. In circumstance where it seems to me that one basis for a caveatable interest is sufficiently made out I need not consider that argument further.

15 Finally I should mention that Mr Aitken points out that the loan is not presently repayable. While that is true, there can be an equitable charge over land to secure the repayment of money even though the loan is not presently repayable.

16 There was no dispute that, if there was a serious question to be tried about the existence of the caveatable interest, the balance of convenience favoured retention of the caveat.

17 For these reasons, I decline to order that the caveat be withdrawn.

18 I shall grant leave to the defendant to file a cross-claim, in a form which I initial and date today’s date.

19 In this matter the defendant applies for costs. It seeks all the costs of the summons, on the basis that the summons sought only removal of the caveat, and that question has now been disposed of. The questions which will need to be decided on a final basis to decide the rights of the parties are ones which will arise on the cross-claim.

20 Yesterday an application for adjournment was made, because the matter had been brought on at very short notice to deal with urgency which was said by the plaintiff to exist concerning the need for re-financing. The defendant had, prior to yesterday, said it would not stand in the way of a re-financing.

21 Indeed, the day before yesterday, application was made to me to grant relief on an ex parte basis, removing the caveat without hearing from the defendant, on the ground that the defendant's case was so hopeless that nothing could possibly be said in favour of it. It was only when that application for summary disposal was rejected that the matter was fixed for the next day. In the circumstances, and particularly when the defendant had said it would not stand in the way of a re-financing, the urgency was objectively not as great as the plaintiff made out.

22 It is appropriate for the plaintiff to pay the costs of the defendant incurred to date, insofar as those costs ultimately prove to have been thrown away. I so order. It may be that affidavits which have been prepared and filed so far will be of use on a final hearing, and if that happens it is more appropriate that the costs of preparing those affidavits be decided by the judge who ultimately disposes of the cross-claim, or by an assessor who decides what costs to date have actually been thrown away.

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