Lawrence and Hanson Group Pty Ltd v John Stanley Young and Mary Anne Young
[2015] VSCA 284
•21 October 2015
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2015 0059
| LAWRENCE & HANSON GROUP PTY LTD | Applicant |
| v | |
| JOHN STANLEY YOUNG and MARY ANNE YOUNG | Respondents |
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| JUDGES: | KYROU JA and GINNANE AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 21 October 2015 |
| DATE OF JUDGMENT: | 21 October 2015 |
| MEDIUM NEUTRAL CITATION: | [2015] VSCA 284 |
| JUDGMENT APPEALED FROM: | Young v Lawrence & Hanson Group Pty Ltd (Unreported, Supreme Court of Victoria, Rush J, 9 June 2015) |
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LAND — Caveat — One of two joint proprietors of land executed a charge in respect of his interest in the land — Chargee lodged a caveat prohibiting ‘absolutely’ the registration of any instrument affecting its estate or interest under the charge — Whether the judge erred in deciding that the caveat impermissibly affected the interest of the joint proprietor who did not execute the charge and that the balance of convenience favoured the removal of the caveat — Sections 89(1), 90(3) of the Transfer of Land Act 1958.
APPLICATION FOR LEAVE TO APPEAL — Whether the chargee had a real prospect of succeeding on appeal — Leave granted.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr D G Robertson QC with Mr M T Lapirow | Davies Moloney Solicitors |
| For the Respondents | Mr A Herskope | Kalus Kenny Intelex |
KYROU JA
GINNANE AJA
This is an application for leave to appeal against orders 2 and 3 made by a judge of the Trial Division on 9 June 2015. Those orders — which we will refer to as ‘the impugned orders’ — were as follows:
Pursuant to s 103(1) of the Transfer of Land Act 1958, Caveat Number AL421236E recorded on Certificate of Title Volume 08190 Folio 033 be removed forthwith by the Registrar of Titles.
The Defendant pay the Plaintiffs' costs of and incidental to the application and Originating Motion on a standard basis.
In order to obtain leave to appeal, the applicant, Lawrence & Hanson Group Pty Ltd (‘L&H’), must establish that it has a real prospect of succeeding on appeal.[1]
[1]Kennedy v Shire of Campaspe [2015] VSCA 47, [13], [19].
His Honour was exercising the discretion conferred by s 90(3) of the Transfer of Land Act 1958 (‘TLA’) to order the removal of a caveat. In order to succeed on appeal, L&H would have to establish an error in the exercise of that discretion of a class stated in House v The King.[2]
[2](1936) 55 CLR 499, 504–5.
Background
The respondents John and Mary Young (collectively ‘the Youngs') were at the time of the hearing below the joint proprietors of a property situated in Eltham ('Eltham property'). It is their family home.
On 8 April 2014, Railway Works Products & Service Pty Ltd ('Railway Works') of which Mr Young was a director applied to L&H for the supply of electrical trade goods to it by way of an ‘Application for Credit’.
On the same day, Mr Young as a director of Railway Works gave a guarantee and indemnity to L&H, such guarantee and indemnity being part of the Application for Credit (‘guarantee and indemnity agreement’). The guarantee and indemnity agreement contained a charge over all of his real and personal property.
On 14 October 2014, L & H lodged a caveat over the title to the Eltham property ('the L&H caveat').
The L&H caveat
The L&H caveat contained the following statement:
CAVEAT
The caveator claims the estate or interest specified in the land described on the grounds set out. This caveat forbids the registration of any instrument affecting the estate or interest to the extent specified.
The land that was subject to the caveat was identified by volume and folio numbers. Six titles were listed, including the title to the Eltham property.
The name of the caveator was listed as L&H.
The grounds of the claim were listed as:
Charge contained in an agreement with the following Parties and Date.
Parties
JOHN STANLEY YOUNG
Date
08/04/2014
The estate or interest claimed was ‘Interest as Chargee’.
The prohibition specified was ‘Absolutely’.
The Eltham property was subject to two mortgages: a first mortgage to Morlend Finance Corporation (Vic) Pty Ltd (‘Morlend’) registered on 5 January 2012 and transferred to Morlend on 17 November 2014; and a second mortgage to Morlend registered on 16 April 2014; and two caveats. Further caveats were lodged at later times.
Railway Works was wound up on 11 December 2014 by a resolution of its creditors.
On 8 January 2015, the L&H Group, a limited partnership carried on by L&H and Carlow S.A.S., issued proceedings in the Magistrates' Court against Mr Young as guarantor seeking payment of $70,276.70 for goods sold and delivered to Railway Works. On 23 February 2015, it obtained a judgment in default of defence against Mr Young in the sum of $70,276.70 together with interest of $950.19 and costs of $2,328.20.
On 14 April 2015, Mr Young filed an application in the Magistrates’ Court to set aside the default judgment.
On 6 May 2015, Morlend served notices on the Youngs requiring repayment of the amounts secured over the Eltham property by the Morlend mortgages.
On 7 May 2015, the ANZ Bank offered Advanced Infrastructure Services Pty Ltd (‘AIS’), a Business Mortgage Loan of $975,000 (‘ANZ Facility’). Mrs Young is the sole director and shareholder of AIS. Mr Young is employed by AIS as its general manager. The ANZ Facility was conditional upon the removal of all of the caveats and Mrs Young granting a first registered mortgage over the Eltham property as security.
The ANZ Facility was to be disbursed in repayment of the Morlend mortgages, payments to certain caveators, not including L&H, for ANZ bank fees, for commission, for work on a truck, to settle the purchase of a new truck and to acquire a further truck. The trucks were to produce business income.
On 3 June 2015, the default judgment was set aside in the Magistrates’ Court proceeding. That proceeding has not yet been determined.
On 25 May 2015, the Youngs filed an Originating Motion seeking the removal of the L&H caveat pursuant to s 90(3) of the TLA. They relied on two principal grounds :
(a) the caveat was too wide and it interfered with the right of Mrs Young to deal with the Eltham property in circumstances where she had not given her consent to the continuation of the caveat; and
(b) Mr Young entered into the guarantee and indemnity agreement with L&H (which contained the charging clause) by mistake. He alleged that had he known there was a charging provision, he would not have signed the guarantee and indemnity agreement.
The Youngs sought that the L&H caveat be removed so they could arrange for a refinance of the Eltham property with the ANZ Bank.
The issues before the primary judge were:
(a) whether the L&H caveat was too wide so as to interfere with Mrs Young's interest in the Eltham property in circumstances where she did not execute the guarantee and indemnity agreement;
(b) whether the guarantee and indemnity agreement was executed by Mr Young by mistake; and
(c) whether the L&H caveat should be removed under s 90(3) of the TLA.
The judge applied the accepted approach in exercising the discretion conferred by s 90(3) of the TLA in determining whether a caveat should be removed. First, the caveator had to establish that there was a serious question to be tried concerning the claimed interest in the land. Secondly, the caveator had to establish that the balance of convenience favoured the maintenance of the caveat.[3] His Honour noted that ‘an application for removal of a caveat does not represent a final determination of disputed factual issues.’[4]
[3]Piroshenko v Grojsman (2010) 27 VR 489, 497 [35]–[37] (‘Piroshenko’).
[4]Young v Lawrence & Hanson Group Pty Ltd (Unreported, Supreme Court of Victoria, Rush J, 9 June 2015) 3–4 (‘Reasons’).
His Honour stated:
The caveat lodged by the defendant states it is lodged pursuant to, ‘Charge contained in agreement with John Stanley Young on 8 April 2014.’ The prohibition on dealing with the land indicated by the lodged caveat is absolute. The second plaintiff, Mary Young, did not execute the document said to give rise to a charge over the property. The caveat by its absolute prohibition purports to prohibit all dealings with the property, including dealings by Mary Young concerning her interest in the property.[5]
[5]Reasons, 4.
His Honour noted that there was nothing in the L&H caveat or any other material before the Court to indicate that L&H was not seeking to prohibit Mrs Young dealing with her interest in the Eltham property. His Honour contrasted that with the position in the New South Wales Supreme Court decision in Allen Taylor & Co Pty Ltd v Harrison,[6] on which L&H relied.[7]
[6][2010] NSWSC 1021 (‘Allen Taylor & Co’).
[7]Reasons, 5.
His Honour also stated:
The other submission of [L&H] [was] that the caveat is clear on its face that the only interest sought to be charged is that of the plaintiff, Mr Young. I do not agree. The prohibition notified with the caveat is to prevent dealing in [the] land absolutely. The caveat on its face interferes with the right of Mrs Young to deal with the land.[8]
[8]Reasons, 5.
His Honour then determined that L&H had not established that it had a prima facie case for the retention of the L&H caveat because it interfered with Mrs Young's right to deal with her interest in the Eltham property.[9]
[9]Reasons, 6.
His Honour said that given this finding, it was not necessary to consider the balance of convenience. However, he went on to state that he would have determined that the balance of convenience favoured the removal of the L&H caveat because obtaining the ANZ Facility was critical to the Youngs remaining in business, paying their debts and retaining the family home.[10]
[10]Reasons, 6–7.
His Honour did not consider whether Mr Young had given the charge by mistake because that was a matter to be determined in the Magistrates' Court proceeding. His Honour then ordered the removal of the L&H caveat.
At the hearing of the application for leave to appeal, the Court was informed by the parties that, in accordance with the impugned orders, the L&H caveat was removed and that since that removal two significant events had occurred. First, Mr Young’s interest in the Eltham property had been transferred to Mrs Young and as a result she is now the sole registered proprietor. Secondly, the refinancing of debt and the granting of a first mortgage to the ANZ Bank had occurred.
Issues between the parties
L&H contended and the Youngs disputed that:
(a) the L&H caveat did not interfere with Mrs Young’s interest in the Eltham property;
(b) the use of the word ‘Absolutely’ did not make the L&H caveat too wide; and
(c) the balance of convenience did not favour the removal of the L&H caveat.
Submissions on leave application
Applicant's submissions
On the hearing of the application for leave to appeal, L&H submitted that the judge erred in finding that the L&H caveat interfered with Mrs Young's interest in the Eltham property and ought to have found that the L&H caveat claimed only an interest under a charge created by Mr Young, over his interest. There was nothing in the caveat that would affect Mrs Young's interest in the Eltham property.
L&H contended that the judge erred in finding that the L&H caveat was too wide because it prohibited dealings with the Eltham property absolutely. His Honour should have found that the L&H caveat forbade only the registration of any instrument affecting L&H's interest under the charge created by Mr Young. If carefully scrutinised, whilst the caveat absolutely prohibited the registration of any instrument affecting the Eltham property, it only did so in respect of Mr Young's interest in the Eltham property.
L&H also submitted that the judge ought to have found that the balance of convenience favoured the retention of the L&H caveat. L&H argued that the proposed ANZ Facility involved an increase of the first mortgage debt which would satisfy the existing first and second mortgages, together with a caveat lodged prior to the L&H caveat and caveats lodged after the L&H caveat, but it would not satisfy the L&H debt. Accordingly, it contended that, upon the removal of the L&H caveat and registration of the proposed first mortgage to the ANZ Bank, its security would be completely destroyed.
L&H relied on the decision in Schmidt v 28 Myola Street Pty Ltd[11] to establish that the use of the word ‘absolutely’ in the caveat was common practice even when not all the registered proprietors were intended to be affected by the caveat.
[11](2006) 14 VR 447 (‘Schmidt’).
L&H submitted that despite Mrs Young now being the sole registered proprietor of the Eltham property, an appeal, if leave were granted, would not be futile. This was said to be because, if L&H were to succeed on appeal, it would be able to lodge a new caveat (which course is currently prohibited by s 91(4) of the TLA) on the basis of Mr Young’s interest in the Eltham property which had been transferred to Mrs Young with notice of L&H’s interest.
L&H also submitted that as the changes in the interests in the Eltham property followed upon the making of the impugned orders, L&H should not be deprived of the opportunity to seek to restore its position, as best as possible, if it succeeds in setting aside the impugned orders.
Respondents’ submissions
The Youngs contended that his Honour did not err in finding that the L&H caveat interfered with Mrs Young's interest in the Eltham property. The interest claimed by L&H was pursuant to a '[c]harge contained in an agreement with … John Stanley Young' and the prohibition specified by L&H in the caveat was ‘Absolutely’. The prohibition completely restricted Mrs Young's ability to deal with her interest in the Eltham property even though she was not a party to the guarantee and indemnity agreement.
The Youngs relied on the following statement of Slattery J in Allen Taylor & Co:
Where a caveat on its face interferes with the right of the other co-owner to deal with the land and where it has not been demonstrated that the other co-owner consents to the continuation of the caveat, then the caveat cannot stand.[12]
[12]Allen Taylor & Co [2010] NSWSC 1021, [34].
The Youngs distinguished Schmidt[13] as being concerned with whether the interests of the parties gave rise to a caveatable interest, and if so, whether the interest asserted in the caveat was too broad.
[13](2006) 14 VR 447.
In reliance on Piroshenko,[14] they contended that a caveat may only be lodged in a form commensurate with the interest it is designed to protect. They submitted that the L&H caveat claimed an 'absolute’ interest in the Eltham property and interfered with Mrs Young's proprietary rights.
[14](2010) 27 VR 489.
The Youngs submitted that his Honour did not err in finding that the balance of convenience favoured the removal of the caveat for the following reasons:
(a) the Youngs were in default of their mortgage facilities with Morlend and had been issued with a Notice of Default in the sum of $726,779.96. The interest charged was 22% p.a;
(b) on 26 May 2015, the Youngs were served with a writ seeking possession of the Eltham property; and
(c) the ANZ Facility was in the sum of $975,000 and it charged a much lower rate of interest, being 6% p.a.
The Youngs submitted that an appeal would be futile not least because Mr Young, who had granted the charge, was no longer a joint proprietor of the Eltham property.
Consideration of submissions
Section 89(1) of the TLA permits a person claiming any estate or interest in land to lodge a caveat in the approved form forbidding the registration of ‘any instrument affecting such estate or interest either absolutely or conditionally’.
His Honour placed particular emphasis on the terms of the caveat lodged by L&H and placed importance on the prohibition contained in the caveat which was expressed as ‘Absolutely’.
The estate or interest claimed by L&H was ‘Interest as Chargee’. The grounds of the claim were: ‘Charge contained in an agreement with … John Stanley Young [dated] 08/04/2014’. The caveat does not refer to Mrs Young or her interest in the Eltham property.
As we have previously noted, the caveat contained the following statement:
The caveator claims the estate or interest specified in the land described on the grounds set out. This caveat forbids the registration of any instrument affecting the estate or interest to the extent specified.
In Schmidt,[15] Warren CJ noted the practice of caveators of ‘immediately opt[ing] for an absolute prohibition on dealings with the land’ and that that was the default position on the form provided by the Registrar of Titles.[16]
[15](2006) 14 VR 447.
[16]Schmidt (2006) 14 VR 447, 460 [47].
In Awadallah v Hymix Australia Pty Ltd,[17] McDougall J considered the different situations presented by the terms of the caveats in Allen Taylor & Co[18] (which the primary judge distinguished) and Andrews v Wilcox.[19] His Honour stated:
What is prohibited is the recording of a dealing that affects the estate or interest claimed by the caveator. The estate or interest claimed by the caveator, Hymix, is not an interest against the property overall, or against the registered proprietors. It is an estate or interest claimed as equitable mortgagee of the interest of Mr Awadallah in that property.[20]
[17][2015] NSWSC 117 (‘Awadallah’).
[18][2010] NSWSC 1021.
[19][2008] NSWSC 280.
[20]Awadallah [2015] NSWSC 117, [46].
There are at least two differences between the New South Wales cases and the present case. There, because of the form used to lodge a caveat, the registered proprietors were named. Secondly, the actions prohibited by the caveats were:
The recording in the Register of any dealing other than a plan affecting the estate or interest claimed by the caveator …
In our opinion, the question whether the L&H caveat should be read as protecting anything more than L&H’s interest under the charge raises issues which give L&H a real prospect of succeeding on appeal. In Awadallah, McDougall J stated:
The nature of joint tenancy is that … a charge of one joint tenant’s interest will, of necessity, affect the whole of the land held in joint tenancy. It is a charge over the whole of the land, but only to the extent of the chargor/joint tenant’s interest in it. Such a charge does not affect the whole of the legal interests in that land where only one of the joint tenants is the chargor. This metaphysical distinction may be difficult to grasp, but it does seem to me to be important for the present case.[21]
[21]Awadallah [2015] NSWSC 117, [48].
In considering the New South Wales authorities, it is necessary to bear in mind not only the approved form of caveat in use in Victoria but also the terms of s 89(1) of the TLA. The approved form of caveat reflects the wording of s 89(1). In that section, the restraint on registration of instruments is expressed to relate only to the estate or interest claimed in the relevant land and the word ‘absolutely’ is used in contradistinction to ‘conditionally’. L&H’s submissions about the scope of the L&H caveat must be considered in this statutory context.
We are also of the opinion that the question of whether, when considering the balance of convenience, his Honour sufficiently balanced the effect on L&H of losing the priority of its security interest in the Eltham property — and possibly the interest itself — if the caveat was removed, is a ground for granting L&H leave to appeal.
In relation to the futility argument, we do not consider that, in the event that L&H succeeds on appeal, its ability to lodge a new caveat and derive a real benefit from doing so can be described as fanciful.
Conclusion
For the above reasons, we will grant L&H leave to appeal against the impugned orders.
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