Knights of Australia Pty Ltd v Dutton Terrace Pty Ltd

[2022] SADC 129

District Court of South Australia

(Civil: Application)

KNIGHTS OF AUSTRALIA PTY LTD v DUTTON TERRACE PTY LTD

[2022] SADC 129

Reasons for Decision of his Honour Judge Durrant  

24 October 2022

conveyancing - land titles under the torrens system - caveats against dealings

EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INTERLOCUTORY INJUNCTIONS - INJUNCTIONS TO PRESERVE STATUS QUO OR PROPERTY PENDING DETERMINATION OF RIGHTS

equity - equitable remedies - injunctions - interlocutory injunctions - prima facie case to be tried

A mortgage presented for registration executed by the applicant as mortgagee and the respondent as mortgagor was not registered because the description of the mortgagee was incomplete. The mortgagees agent added to the description to record another as the mortgagee and the mortgage was registered. Five months after the applicant instructed the mortgage be released and discharged. Three years later the applicant claimed by caveat an equitable mortgage.

The applicant applied to extend the time for the removal of the caveat or alternatively to restrain the respondent from dealing with the land. The principles governing the exercise of the discretion to grant an interlocutory injunction apply to applications made to extend the time for removal of caveats. The applicant must demonstrate a prima facie case to be tried and that the balance of convenience favours extension.

Held:

(1)     By execution of the mortgage the parties expressed the intention to confer a legal mortgage and established an equitable mortgage as claimed in the caveat.

(2)     A prima facie case to be tried had not been demonstrated as the equitable mortgage had been released and discharged.

(3)     By delaying lodgement of the caveat for three years the applicant had so conducted itself that the balance of convenience did not favour extension of the caveat.

(4)     The application to extend the time for removal of the caveat or alternatively to restrain the respondent from dealing with the land is dismissed.

Real Property Act 1886 (SA) ss 67, 128(5), 191, referred to.
McInnes v Davies (2014) 121 SASR 219; Australian Broadcasting Corporation v O'Neill [2006] HCA 46; Cini & Ors v Pets Paradise Franchising (SA) Pty Ltd & Ors [2008] SASC 287; Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] SASC 311, considered.

KNIGHTS OF AUSTRALIA PTY LTD v DUTTON TERRACE PTY LTD
[2022] SADC 129

Introduction

1. The applicant caveator, Knights of Australia Pty Ltd, has applied to extend until further order the time for removal of a caveat lodged over land owned by the respondent Dutton Terrace Pty Ltd (the land).[1] Alternatively, the applicant seeks an order by way of interlocutory injunction to restrain the respondent from dealing with, transferring, mortgaging, charging, or encumbering the land.[2]

   [1]    Real Property Act 1886, s 191(1); Originating Application, (FDN 1).

   [2]    Amended Originating Application, (FDN21).

2. The claimed interest is recorded in the caveat as: [3]

   An equitable estate or interest as mortgagee over the whole of the land described pursuant to an agreement (or mortgage) made between the caveator and the caveatee dated 22 November 2018.

   [3]  Affidavit of Nicola Minicozzi sworn 8 August 2022 (FDN3), Exhibit NM4- Caveat no. 13833113 Certificate of Title Volume 6128 Folio 380.

3. No action has yet been brought by the applicant to establish the validity of the claim on which the caveat is based.[4] To obtain an extension of time, the applicant must demonstrate a prima facie case to be tried and that the balance of convenience favours the extension of time sought.[5] 

   [4]    Real Property Act 1886, s 191(1)(fa).

   [5]    McInnes v Davies (2014) 121 SASR 219, [20].

   Established Facts

4. For the purpose of this application, I have found the following facts.

5. Norman Waterhouse Lawyers, on behalf of the applicant, prepared a loan facility agreement between the applicant as lender and the respondent as borrower and a mortgage in respect of the land between the respondent as mortgagor and ‘Knights of Australia’ ACN 630 291 968 as mortgagee.

6. Under the loan facility agreement, the applicant agreed to make available to the respondent a loan facility not exceeding $400,000. To secure its obligations as borrower, the respondent agreed to grant to the applicant security over the land by way of ‘a second mortgage registered’[6] and do all things necessary to assist or otherwise permit the applicant to lodge the mortgage.[7]

   [6]    Affidavit of Nicola Minicozzi sworn 8 August 2022; Exhibit NM8 (FDN3), Loan Facility Agreement cl 1, 6.

   [7]    Ibid, cl 1 and 10.

7. On 22 November 2018, the applicant as lender and the respondent as borrower executed the loan facility agreement. The applicant as mortgagee by its agent Norman Waterhouse and the respondent as mortgagor executed the mortgage.[8] 

   [8]    Affidavit of Nicola Minicozzi dated 20 September 2022 (FDN30), Exhibit NM 10 and 11.

8. On 23 November 2003, the applicant advanced to the respondent the sum of $300,000 pursuant to the loan agreement.[9]

   [9]    Affidavit of Nicola Minicozzi sworn 8 August 2022; Exhibit NM8 (FDN3), Loan Facility Agreement, cl 1, 2, Schedule 2.

9. Norman Waterhouse lodged the executed mortgage for registration on the title of the land.[10] The land titles office noted to Norman Waterhouse that the name of the mortgagee was incomplete and provided an ASIC search which showed that the company Knights of Australia Consultancy Pty Ltd held ACN 630 291 968.[11]

   [10] Real Property Act 1886, ss 67, 128(5).

   [11]  Affidavit of Nicola Minicozzi dated 20 September 2022 (FDN30), Exhibit NM 10 and 11.

10. Thereafter, Norman Waterhouse amended the mortgage by addition of the words ‘Consultancy Pty Ltd’ after ‘Knights of Australia’.[12] The mortgage in that form was relodged by Norman Waterhouse and registered on the land on 3 December 2018.[13] On 11 April 2019, the applicant instructed Norman Waterhouse to discharge and release the mortgage. On 12 April 2019, a discharge was filed and on 17 April 2019, the mortgage was removed from the title of the land.[14] 

    [12]  Ibid.

    [13]  Ibid.

    [14]  Affidavit of George Charalabidis sworn 8 August 2022 (FDN2) [7]; Affidavit of Franco Antonio Lepore sworn 18 August 2022, (FDN11) [57]-[75].

    Submissions of the parties

11. The applicant submitted it had established on several bases a prima facie case of an ‘equitable estate or interest as mortgagee over the whole of the land described pursuant to an agreement (or mortgage) made between the caveator and the caveatee dated 22 November 2018’.[15]

    [15] Affidavit of Nicola Minicozzi sworn 8 August 2022 (FDN3), Exhibit NM4- Caveat no. 13833113 Certificate of Title Volume 6128 Folio 380.

12. First, by the signing of the loan agreement to which the grant of mortgage was attached. Second, by the signing of the mortgage. Third, by the advance of $300,000 to the respondent under the loan agreement, which remained in part or in whole outstanding. Last, by the ‘entitle[ment] pursuant to clause 15.1(b) of the mortgage to require the [r]espondent now to perfect the security’.[16]

    [16]  Written Submissions of Applicant, (FDN 31), 26 September 2022.

13. The respondent submitted the monies advanced had been repaid in full and no borrower obligation remained to be secured. Further, in any event, the respondent submitted the mortgage in respect of which the interest was claimed had been discharged.

    Discussion

14. The applicant has applied to extend the time for the removal of the caveat lodged over the land.[17] Alternatively, the applicant sought an order by way of interlocutory injunction to restrain the respondent from dealing with, transferring, mortgaging, charging, or encumbering the land.[18]

    [17]  Real Property Act 1886, s 191(1); Originating Application, (FDN1).

    [18]  Amended Originating Application, (FDN21).

15. The principles governing the exercise of the discretion to grant an interlocutory injunction apply to applications to extend the time for removal of caveats.[19]

    [19]  Australian Broadcasting Corporation v O’Neill [2006] HCA 46, (2006) 227 CLR 57; Cini & Ors v Pets Paradise Franchising (SA) Pty Ltd & Ors [2008] SASC 287, [48], [2008] SASC 287; (2008) 102 SASR 177 at 192; Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd [2009] SASC 311, [113]- [116].

16. The purpose of a caveat is to protect the interests in land a caveator claims to ensure that claimed interest is not defeated by the registration of inconsistent dealings with the land.[20] In respect of this application, the applicant must demonstrate a prima facie case to be tried in respect of its claimed interest and that the balance of convenience favours the extension of time sought.[21] 

    [20]  McInnes v Davies, supra, [16]; Real Property Act 1886, s 191.

    [21]  McInnes v Davies, supra, [20].

17. In determining the application, I have had regard to the evidence of the applicant at its strongest and have assumed that will remain unchanged. Particularly, I have assumed that loan monies advanced by the applicant remain outstanding. On that basis, I have considered whether at trial the applicant will establish ‘[a]n equitable estate or interest as mortgagee…pursuant to an agreement (or mortgage) made between the caveator and the caveatee dated 22 November 2018’.[22]

    [22]  Affidavit of Nicola Minicozzi made 8 August 2022, Exhibit NM4 (FDN3).

18. Establishment of a prima facie case does not mean that the applicant must show that it is more probable than not that at trial it will succeed. It is enough for the applicant to show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending a trial.[23] How strong that probability needs to be will depend upon the nature of the rights asserted and the practical consequences likely to flow from the order sought.[24]

    [23]  Australian Broadcasting Corporation v O’Neill [2006] HCA 46, (2006) 227 CLR 57, [81]- [82].

    [24] Ibid.

19. The mortgage as registered was expressed to be between the respondent as mortgagor and Knights of Australia Consultancy Pty Ltd as mortgagee.[25] That legal mortgage secured obligations between Knights of Australia Consultancy Pty Ltd and the respondent.

    [25]  Affidavit of Nicola Minicozzi made 20 September 2022, Exhibit NM10 (FDN 20).

20. I have found though that the parties executed the mortgage in a form that expressed the mortgagee to be ‘Knights of Australia’. Given that, I further find that the parties by their actions intended the mortgage be registered on the title to secure the loan between them, as required by the loan facility agreement.

21. An equitable mortgage may be created when a landowner acts with an intention to create a security in favour of a mortgagee, though the act is insufficient to confer a legal mortgage on the mortgagee.[26] In this case, the mortgage in the form it was executed was insufficient to confer a legal mortgage.

    [26] Fisher and Lightwood’s Law of Mortgage Fifteenth Edition, LexusNexis 2019, [3.1]; Fisher and Lightwood’s Law of Mortgage Third Australian Edition, LexusNexis Butterworts 2014, [1.33].

22. In those circumstances, I am satisfied that the parties by their actions in executing the mortgage expressed the requisite intention to confer a legal mortgage over the land and that accordingly established, on 22 November 2018, an equitable mortgage as claimed in the caveat.

23. That an equitable mortgage as claimed in the caveat was established on 22 November 2018, however, does not determine the application. That is because, on 11 April 2019, the applicant instructed Norman Waterhouse to discharge and release the mortgage.[27] The then sole director of the applicant deposed that he instructed that discharge and release because directors of the respondent had requested he ‘arrange the removal of the second mortgage’[28] and had ‘said words to the effect that as soon as practicable, security would be provided over either the [land] or other properties listed [in another Agreement]’.[29]

    [27] Affidavit of George Charalabidis sworn 8 August 2022 [7]; Affidavit of Franco Antonio Lepore sworn 18 August 2022, [57]-[75].

    [28]  Affidavit of George Charalabidis sworn 23 August 2022, (FDN 16), [29].

    [29]  Ibid.

24. The respondent denied it had said it would provide security over the land after the mortgage was discharged in April 2019 or at all.[30] It explained the discharge as part of a transaction in which the applicant had obtained an interest in the Rob Roy Hotel, with the consequence that the loan was repaid.[31]

    [30]  Affidavit of Nicola Minicozzi dated 20 September 2022, Exhibit NM10-11.

    [31] Affidavit of Frank Alexander Vounasis made 19 August 2022 (FDN12), [4]-[25].

25. Taking the evidence of the applicant at its strongest, I do not consider the applicant has established a sufficient likelihood of success at trial.

26. Just as the equitable interest as mortgagee had been created in writing, it had been discharged in writing. The actions of the applicant released and discharged both the legal mortgage and the equitable mortgage.[32] The intention of the applicant was to discharge the mortgage given by the respondent.

    [32] Fisher and Lightwood’s Law of Mortgage Fifteenth Edition, LexusNexis 2019, [3.1]; Fisher and Lightwood’s Law of Mortgage Third Australian Edition, LexusNexis Butterworts 2014, [1.33].

27. That the respondent told the applicant that ‘as soon as practicable, security would be provided over either the [land] or other properties…’ did not create a new equitable interest as mortgagee in the land. An equitable mortgage may be created only when a landowner acts in writing with an intention to create a security in favour of a mortgagee and the act is insufficient to confer a legal mortgage on the mortgagee, or where the title of the land is provided to the mortgagee.[33]

    [33]  Ibid.

28. The loan facility agreement did not of itself create an equitable mortgage.[34] That agreement required the respondent to give a mortgage and it did so. There was no insufficiency in respect of the loan; the insufficiency arose by the inadequate description of the mortgagee in the mortgage. The respondent did all things necessary to assist or otherwise permit the applicant to lodge the mortgage as required by the loan facility agreement.[35] There was no evidence that the respondent or applicant were aware of the insufficiency.

    [34] Affidavit of Nicola Minicozzi sworn 8 August 2022 (FDN3), Exhibit NM4, Loan Facility Agreement, cl 1.

    [35]  Affidavit of Nicola Minicozzi sworn 8 August 2022(FDN3), Exhibit NM4, Loan Facility Agreement, cl 1, 10.

29. Finally, any reliance on clause 15.1(b) required the released and discharged mortgage to have remained operative.[36]

    [36] Ibid, cl 15.1(b).

30. I have further considered the balance of convenience.

31. If a refusal to extend a caveat will have the practical effect of destroying the claimed equity in the land, the caveat ought to be extended if the consequence of failing to do so would deny an effective right to a trial on the merits of the claim, unless it can be demonstrated that the caveator has so conducted itself in acting to protect the claimed equity in the land that a court can conclude that the balance of convenience does not favour extension.[37] Considerable delay on the part of the caveator to act to protect its claimed equity might present such a circumstance.[38]

    [37]  McInnes, supra, [21].

    [38] Ibid

32. The respondent submitted the applicant had delayed in lodging the caveat and that had impeded its efforts to refinance and further borrow against the land.[39] The applicant disputed that any failure to refinance and further borrow related to the caveat.

    [39] Affidavit of Franco Antonio Lepore sworn 18 August 2022, [68]- [71].

33. The sole director of the applicant instructed Norman Waterhouse ‘to arrange the removal of the second mortgage’ on 11 April 2019.[40] From that time, the applicant knew no second mortgage secured its loan. There was no evidence after that about the replacement security over either the land or other property which the applicant said the respondent said would be provided.[41] Notwithstanding no repayment had been made in respect of the loan since 15 July 2019- following a request by the applicant to the guarantors of the loan to ‘close off the loan’ by payment of $18,000- the applicant did not lodge the caveat until nearly three years after on 14 July 2022.[42]

    [40] Affidavit of George Charalabidis sworn 23 August 2022, (FDN 16), [7], [29].

    [41] Affidavit of Franco Antonio Lepore sworn 18 August 2022, [3.1] (in respect of that paragraph the reference to year ‘2018’ is an obvious typo and properly a reference to 2019).

    [42] Affidavit of George Charalabidis sworn 8 August 2022, [14], Exhibit GC6; Affidavit of Franco Antonio Lepore sworn 18 August 2022, [35]- [37].

34. Given that considerable delay and that the purpose of the caveat is to protect against dealing in the land, I consider the applicant has so conducted itself in acting to protect the claimed equity in the land that the balance of convenience does not favour the extension of the caveat.[43]

    [43]  Supra, McInnes, [20].

    Conclusion

35. For these reasons, the application to extend the caveat or alternatively restrain dealing in the land is dismissed. I will hear the parties, if necessary, as to the form of any orders required and as to costs.