Jayathunaga v Caedmon
[2012] VCC 1209
•21 August 2012
| IN THE COUNTY COURT OF VICTORIA | Revised from a tape recording of reasons given orally Not Restricted |
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-12-02365
| JAYATHUNAGA & ANOR | Plaintiffs |
| v | |
| CAEDMON | Defendant |
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JUDGE: | HER HONOUR JUDGE KENNEDY | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 21 August 2012 | |
DATE OF JUDGMENT: | 21 August 2012 | |
CASE MAY BE CITED AS: | Jayathunaga & Anor v Caedmon | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1209 | |
REASONS FOR JUDGMENT
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Mendis, solicitor (initially) then Mr Twidale (of Counsel) | Mendis & Gibson Lawyers |
| For the Defendant | Mr J Kewley | Le Mercier Legal & Conveyancing |
HER HONOUR:
1 This is the return of the defendant’s application for the removal of a caveat over a property at 8 McNamara Avenue, Airport West (the property) under s90(3) of the Transfer of Land Act 1958.
Background
2 In 1998 the property was purchased by the defendant with his wife, Nimali Hiranthi (the daughter of the plaintiffs). From around 1998 it appears that the plaintiffs occupied the property and paid some amount of money for renovations in relation to the property. There was also an amount of rental paid.
3 In 2001, the defendant and Ms Hiranthi separated with formal orders being made by the Family Court on 30 October 2001 in relation to custody and property. There is a notation to these orders that the husband undertook that upon his wife transferring all her interest in the property he would transfer a one quarter interest in the property to the plaintiffs. However, no such transfer of the quarter interest appears to have been effected.
4 Meanwhile, the plaintiffs continued to reside in the property for many years up until today with nothing done to regularise their position. The defendant’s case is that the plaintiffs paid an amount of rental that was only half the market level, and further that there was an oral statement made by the plaintiffs that they would forego any interest in the property in the light of this reduced rent.
5 In September 2010, the Commonwealth Bank of Australia became registered as mortgagee of the property. The Title shows there were two mortgages registered over the Title in the name of Commonwealth Bank of Australia in September 2010.
6 The defendant subsequently took steps to sell the property in which context the plaintiffs lodged a caveat and issued proceedings in this court on 18 May 2012 to restrain the sale.
7 The proceeding was listed before Her Honour Judge Lewitan on 29 May this year, at which time the matter was stood down to enable the parties to have settlement discussions. In this context, terms of settlement were executed by both parties wherein both counsel and solicitors were present.[1]
[1] Exhibit MW-1 to the affidavit of Mario Webber of 20 August 2012.
8 Clause 5 of the terms provided that the plaintiffs were to withdraw their caveat on the property, which they did on 31 May 2012. Clause 4 stated that the plaintiffs “abandon any further claim of part-ownership of the property or a share of the proceeds of sale of the property, other than that specified in Clause 1 above.” Clause 1 provided that upon settlement of the sale of the property the plaintiffs are to receive the sum of $93,500.00 “from the proceeds of sale at settlement by bank cheque made out to the plaintiffs and provided to the plaintiffs’ solicitors” (emphasis added).
9 The defendant subsequently executed a contract of sale on 2 June 2012 for an amount of $438,000.00.
10 However, the plaintiff again re-lodged a caveat on 27 July. It appears likely, at least on the evidence before me, that the plaintiffs did this because they became aware of the stance of the Commonwealth Bank. Thus, a letter dated 1 August 2012 from the bank’s solicitors, HWL Ebsworth, contains the following statement:
“We are further instructed by our client, as has previously been advised to your client, that as the mortgages registered on title to our client secure a number of facilities the value of which exceed the amount of the proceeds of sale, the total amount of the net proceeds of sale are to be paid to our client. Further the net proceeds of sale are accepted as part payment of the Facilities and without prejudice to our client’s rights.”
11 Thus, there appears to be nothing left of the proceeds of sale to pay the plaintiffs given the Commonwealth bank is to take all of the proceeds of sale. The defendant says that this is because the bank takes the view that the proceeds should not only pay an investment loan, but also to reduce all cross collateralised business loans he holds with the bank. He says he did not factor this in when he signed the terms on 29 May 2012.
12 In any event, by notice of default dated 7 August, the purchasers under the 2 June contract of sale issued a notice of default citing the default as a “failure to settle” due to the ongoing existence of the caveat. That notice of default will take effect tomorrow unless the caveat is removed.
Principles
13 The principles that guide the court in an application of this kind are set out in the decision of Piroshenko v Grojsman & Ors[2], a decision of the Chief Justice.
[2] [2010] 27 VR 489
14 Critically, the onus falls on the caveator to satisfy a two-stage test which has been used by the court when deciding whether to exercise its discretion to grant interlocutory relief. The two-stage approach involves an examination as to whether there is a serious question to be tried that the plaintiffs have the estate or interest which they claim in the land in question and, having done so, to establish that the balance of convenience favours the maintenance of the caveat.[3]
[3]Piroshenko at [7]
15 Her Honour elaborates on the first limb of the test[4], and further states that the onus which the caveator must discharge “is an onus with respect to an interest or rights in land”.[5] Caveats are not ‘bargaining chips.’ It is not sufficient for a caveator to establish a prima facie case that they have contractual, equitable or statutory rights against the caveatee; their interest or rights must attach to the property with respect to which the caveat has been lodged.
[4] See Piroshenko at [18] and [22]
[5]Piroshenko at [23]
First Limb
16 Counsel, Mr Twidale, appeared to assist the court this afternoon after brief submissions were initially made by Mr Mendis, solicitor, who appeared at 2.15pm.
17 In terms of the first limb, Mr Twidale made various submissions, citing passages in Bradbrook[6], which suggest that the dividing lines between what is and what is not a proprietary interest is sometimes blurred.[7] Further, that if a charge over land is given to secure the performance of a contractual obligation, the charge may give rise to an equitable interest.[8]
[6] Bradbrook, MacCallum and Moore (eds), Australian Real Property Law (4th ed, 2007)
[7] Bradbrook, 181
[8] Bradbrook, 183
18 However, I consider that the caveators have not discharged their onus when regard is given to the plain meaning of clauses 1 and 4 of the terms of settlement.
19 Thus, Clause 1 appears to give an interest but the interest appears directly referable to the moneys representing “the proceeds of sale”, rather than in the land itself.
20 In Fisher & Lightwood[9] the authors also cited Jackson v Richards[10] where White J said as follows:
“An agreement between a debtor and his creditor that the debt owing shall be paid out of a specific fund coming to the debtor will create a valid equitable charge upon the fund and operate as an equitable assignment of it. However, for this principle to apply, there must be a specific fund from which the debt owing is to be paid” (emphasis added).[11]
[9]Tyler, Young and Croft (eds), Fisher and Lightwood’s Law of Mortgage (2nd ed, 2005), 50
[10] [2005] NSWSC 630
[11]Jackson v Richards at 754
21 I consider this passage to be applicable to the present case. Thus, the charge, if it exists, appears to be a charge on the fund constituted by the proceeds of sale, rather than a charge over the land.
22 Mr Twidale did avert to extrinsic evidence potentially assisting the court but, in the result, no such evidence was provided. I accept that the application was considered in circumstances of great urgency, but the court cannot act on speculation in relation to a matter such as this.
23 The plaintiff has, therefore, not satisfied me that there is a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat.
Second Limb
24 It is unnecessary in such circumstances to consider the balance of convenience, but I nevertheless do so in deference to Counsel’s submissions.
25 There has been some delay in bringing this application, which was not completely explained, although Counsel for the defendant suggested that negotiations had been ongoing and, further, that there had been some liquidity issues.
26 The plaintiffs also made reference to another property registered in the name of the defendant. However, this does not assist the plaintiffs, who have no interest at all in the proceeds of sale of this different property.
27 Ultimately, the difficulty for the plaintiffs is that the retention of the caveat appears to achieve nothing.
28 Thus, if the caveat is retained the sale to the present purchaser appears to be likely to be thwarted. In such circumstances, the interests of a third party, who appears to be a bona fide purchaser for value without notice, will be adversely affected. Moreover, the solicitor for the defendant, Anne-Marie Caderamanpulle, gave oral evidence on oath before me. This evidence was to the effect that she has been advised by representatives from the bank that the Commonwealth Bank would, in such circumstances, move to take possession in any event. I accept such evidence, which means that the caveat will serve no purpose.
29 If, on the other hand, the caveat is removed, the bank will be entitled to the entire proceeds of the existing sale without the need for the discharge of the sale to the third party purchaser. There will also be no need for the bank to issue possession proceedings and arrange a further (mortgagee) sale, with all the associated cost and inconvenience of such an action.
30 Taking all these factors into account, the plaintiffs are also unable to establish that the balance of convenience favours the maintenance of the caveat.
31 It follows that the caveat should be removed though, given the urgency involved, I will hear from the parties as to the precise form of order.
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