Lawrence & Hanson Group Pty Ltd v Young
[2017] VSCA 172
•30 June 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2015 0059
| LAWRENCE & HANSON GROUP PTY LTD | Appellant |
| v | |
| JOHN STANLEY YOUNG & MARY ANNE YOUNG | Respondents |
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| JUDGES: | REDLICH and KYROU JJA and KEOGH AJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 1 June 2017 |
| DATE OF JUDGMENT: | 30 June 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 172 |
| JUDGMENT APPEALED FROM: | Young vLawrence & 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 – Appeal allowed – Sections 89(1), 90(3) of the Transfer of Land Act 1958.
PRACTICE AND PROCEDURE – Standing to sue – Whether a discrepancy in the name of the limited partner of a limited partnership of which the appellant was the general partner affected the appellant’s entitlement to lodge a caveat – Effect of conclusive certificate under s 58 of the Partnership Act 1958.
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| APPEARANCES: | Counsel | Solicitors |
| For the appellant | Mr D G Robertson QC with Mr M T Lapirow | Davies Moloney |
| No appearance for the first respondent | ||
| For the second respondent | Mr A Herskope | Kalus Kenny Intelex |
REDLICH JA
KYROU JA
KEOGH AJA:
Introduction and summary
This is an appeal against an order made by a judge of the Trial Division on 9 June 2015 requiring the removal of a caveat lodged by the appellant on 14 October 2014 (‘Caveat’) against land in Eltham that was then jointly owned by the respondents, John and Mary Young (‘Land’).[1] The appeal is brought pursuant to leave granted by this Court on 21 October 2015.[2]
[1]Young vLawrence & Hanson Group Pty Ltd (Unreported, Supreme Court of Victoria, Rush J, 9 June 2015) (‘Ruling’).
[2]Lawrence & Hanson Group Pty Ltd v Young [2015] VSCA 284.
In the Caveat, the appellant claimed an interest as chargee under an agreement with Mr Young dated 8 April 2014. The Caveat prohibited the registration of any instrument affecting that interest ‘Absolutely’.
The Caveat was lodged pursuant to s 89(1) of the Transfer of Land Act 1958 (‘TLA’) which provides that ‘[a]ny person claiming any estate or interest in land under any unregistered instrument … may lodge … a caveat in an appropriate approved form forbidding the registration of any … instrument affecting such estate or interest either absolutely or conditionally’.
The order for the removal of the Caveat was made pursuant to s 90(3) of the TLA on the application of Mr and Mrs Young. Section 90(3) provides that ‘[a]ny person who is adversely affected by any … caveat may bring proceedings in a court against the caveator for the removal of the caveat and the court may make such order as the court thinks fit’.
The trial judge decided that the Caveat should be removed because it was too broad, in that the absolute prohibition of registration of any instrument improperly restricted Mrs Young’s ability to deal with her interest in the Land and that, in any event, the balance of convenience favoured removal of the Caveat.
The appellant’s grounds of appeal allege that the judge misconstrued the Caveat and that his finding regarding the balance of convenience was erroneous.
For the reasons that follow, the appeal will be allowed.
Facts
In 2014, Mr Young was a director of Railway Works Products & Service Pty Ltd (‘Railway Works’). On 8 April 2014, he applied to the ‘L & H Group’, on behalf of Railway Works, for the supply of electrical goods on credit. The application was made by Mr Young signing an ‘Application for Credit with L & H Group’ (‘Agreement’) in the presence of Mrs Young who signed the Agreement as a witness.
The Agreement referred to the ‘Applicant’ and to the ‘Seller’. It defined the ‘Applicant’ to mean the party applying for credit, namely Railway Works, and stated that references to the ‘Seller’ are to ‘L & H Group (ABN 19 730 781 473), a Limited Partnership carried on by Lawrence & Hanson Group Pty Ltd (ABN 69 080 350 812) and Carlow S.A.S. (ARBN 134 333 113), a limited liability company incorporated in France’. As will become apparent later in these reasons, the above description of the partners of the L & H Group limited partnership was erroneous: at all relevant times, the appellant was the general partner and Sonepar Asia Pacific Ltd (‘Sonepar’) was the limited partner.
The final clause of the Agreement was entitled ‘Guarantee and Indemnity’. Pursuant to that clause, Mr Young guaranteed the debts of Railway Works under the Agreement. The clause also contained a charging provision ‘[f]or the purpose of securing any credit facilities provided to the Applicant’. Pursuant to that provision, Mr Young charged ‘all real and personal property owned by [him], for an amount equal to any amount that the Applicant owes to the Seller from time to time under the credit facility or otherwise’ (‘Charge’).
As Mr Young had an interest as a joint proprietor of the Land, that interest became subject to the Charge. The Youngs’ family home is located on the Land.
The Caveat described the Land, named the appellant as caveator and contained the following further relevant details:
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.
…
Grounds of claim:
Charge contained in an agreement with the following Parties and Date.
Parties
JOHN STANLEY YOUNG
Date
08/04/2014Estate or Interest claimed:
Interest as Chargee
Prohibition:
Absolutely
At the time the Caveat was lodged on 14 October 2014, the Registrar of Titles had approved a printed form of caveat (‘Approved Printed Form’) and an online version (‘Approved Online Form’). The Approved Printed Form stated ‘ABSOLUTELY’ under the heading ‘Extent of prohibition’ but also stated ‘(if not ABSOLUTELY delete and insert desired text)’. The Approved Online Form listed the following options under the heading ‘Prohibition’: ‘Absolutely’, ‘Transfer of land’, ‘Unless an instrument is expressed to be subject to my/our claim’, ‘Unless I/we consent in writing’ and ‘Any instrument that affects my/our interest’. The appellant used the Approved Online Form.
At the time the Caveat was lodged on 14 October 2014, the Land was subject to the following encumbrances:
(a)A first mortgage to Morlend Finance Corporation (Vic) Pty Ltd (‘Morlend’) registered on 5 January 2012, that mortgage having been transferred by the Westpac Bank to Morlend on 17 November 2014.
(b)A second mortgage to Morlend registered on 16 April 2014.
(c)A caveat lodged by Archiclad Pty Ltd on 22 August 2014, on the basis of a charge contained in an agreement with Mr Young dated 14 April 2014.
(d)A caveat lodged by Carolyn Helen Grimshaw and others on 3 September 2014, on the basis of a charge granted by Mr Young dated 8 July 2014.
The following further caveats were lodged between 14 October 2014 and 1 April 2015:
(a)A caveat lodged by Actrol Parts Pty Ltd on 23 October 2014 on the basis of a charge contained in an agreement with Mr Young dated 5 May 2014.
(b)A caveat lodged by Onsite Rental Group Operations Pty Ltd on 30 October 2014 on the basis of a charge granted by Mr Young on 7 April 2014.
(c)A caveat lodged by CSR Building Products Ltd lodged on 24 February 2015 on the basis of a charge contained in an agreement with Mr Young dated 16 April 2014.
(d)A caveat by A&S Services Australia Pty Ltd lodged on 1 April 2015 on the basis of a mortgage executed by Mr and Mrs Young on 10 October 2014.
Each of the caveats expressed the extent of the prohibition on registration of any instrument as ‘Absolutely’.
On 11 December 2014, Railway Works was wound up by resolution of its creditors.
On 8 January 2015, L & H Group issued a complaint in the Magistrates’ Court against Mr Young as guarantor (‘Complaint’), seeking payment of $70,276.70 for goods sold and delivered to Railway Works pursuant to the Agreement (‘Magistrates’ Court proceeding’). The Complaint described the plaintiff as ‘L & H Group (A Limited Partnership) (ABN 19 730 781 473)’. The statement of claim in the Complaint pleaded the following:
1The Plaintiff is a Limited Partnership registered pursuant to the Partnership … Act … and is capable of suing or being sued.
2On or about 8 April 2014 the Plaintiff entered into an Agreement with [Railway Works] to supply electrical goods.
…
4 On or about 8 April 2014, [Mr Young] … offered to guarantee the debts of [Railway Works] to induce the Plaintiff to give [Railway Works] credit. [Mr Young’s] offer was accepted.
…
9As at the date of issuing this Complaint [Railway Works] is indebted to the Plaintiff in the sum of … $70,276.70.
On 23 February 2015, the appellant obtained judgment in default of defence against Mr Young but that judgment was set aside on 3 June 2015 on the application of Mr Young. Mr Young subsequently filed an amended notice of defence in which he made a number of admissions including that, on or about 8 April 2014, L & H Group entered into an agreement with Railway Works to supply electrical goods and that he signed a document entitled ‘Application for Credit with L & H Group’ dated 8 April 2014. In respect of para 1 of the statement of claim, he pleaded that he ‘does not know and cannot admit paragraph 1’. He relied on a defence of ‘mistake’ which was to the effect that he did not know about the charging provision in the Agreement and that he would not have signed it if he had known about it. He did not admit that Railway Works was indebted to L & H Group and denied that he was indebted to it.
On 6 May 2015, Morlend served notices on the respondents requiring repayment of the amounts secured by Morlend’s mortgages over the Land. The default interest rate was 22 per cent.
On 7 May 2015, the ANZ Bank offered Advanced Infrastructure Services Pty Ltd (‘AIS’), a business mortgage loan of $975,000 (‘ANZ Loan’) with a rate of interest of 5.93 per cent. Mrs Young is the sole director, secretary and shareholder of AIS and Mr Young is employed by AIS as its general manager.
The ANZ Loan was to be used for the following purposes:
(a) Repayment of the Morlend mortgages — approximately $740,000.
(b)Payment to certain caveators (not including the appellant) — $39,268.21.
(c)ANZ Bank fees — $10,819.54.
(d)Commission — $15,100.
(e)Work on truck — $10,000.
(f)Moneys to settle purchase of new truck — $110,000.
(g)Balance available to acquire a further truck — $49,812.25.
The ANZ Loan was conditional upon the removal of the first five caveats on the Land and Mrs Young granting a guarantee and a first registered mortgage over the Land as security.
Following the making of the order for the removal of the Caveat by the Trial Division on 9 June 2015: the Caveat was removed, the ANZ Loan was made, Mr Young transferred his interest in the Land to Mrs Young, and Mrs Young granted a first mortgage to the ANZ Bank. It appears that all mortgages and caveats, other than the Caveat, were removed without the need for a court order.
The Complaint was heard in the Magistrates’ Court on 20 November 2015. The defence of ‘mistake’ was abandoned and no issue was raised about any elements of L & H Group’s claim except its standing to sue Mr Young. The solicitor who appeared for Mr Young put L & H Group to its proof in relation to para 1 of its statement of claim. In response, counsel for L & H Group tendered the following certificates signed by the Commissioner for Corporate Affairs:
(a)A ‘Certificate of Registration of a Limited Partnership’ dated 12 March 2013 which stated that ‘L & H Group was on 30 August 2000 registered as a Limited Partnership pursuant to and subject to the Partnership … Act’ (‘Incorporation Certificate’).
(b)A ‘Certificate of Composition of a Limited Partnership’ dated 12 March 2013 which stated that ‘[a]s at 12 March 2013 the composition of the Limited Partnership known as L & H Group registered under the Partnership … Act was … Lawrence & Hanson Group Pty Ltd … General [Partner] [and] Sonepar Asia Pacific Limited … Limited [Partner]’ (‘Composition Certificate’).
On 26 February 2016, the magistrate dismissed the Complaint on the basis that L & H Group did not have standing to sue Mr Young under the guarantee in the Agreement (‘Magistrate’s Order’). The magistrate held that, as the Agreement stated that the partners of L & H Group were the appellant and Carlow SAS (‘Carlow’), and there was no evidence that Sonepar had assigned its interest to Carlow, L & H Group had failed to prove that it was the partnership referred to in the Agreement. In his reasons, the magistrate relevantly stated:
On or about 8 April 2014 the plaintiff agreed to supply electrical goods to [Railway Works]. In accordance with normal commercial practice the plaintiff provided to that company an Application for Credit. This application was accepted by the plaintiff; integral to this was the giving of a guarantee by [Mr Young] in respect of the liabilities of the company arising in the course of the provision of goods.
No defence is taken as to the validity or enforceability of this guarantee; and in fact no defence to the claim is now maintained including the quantum of the claim, save and except that [Mr Young] disputes the plaintiff’s standing to maintain an action.
…
If Sonepar … ceased to be a partner with Lawrence & Hanson Group Pty Ltd, then until such time as another entity entered into partnership with that company there was no partnership at all. The partnership which entered into the [Agreement] and which obtained the guarantee from [Mr Young] is not an entity whose existence is supported by any certificate of registration as provided for under the [Partnership] Act. It is common ground that there is no evidence of assignment.
[Mr Young’s] position therefore is that the plaintiff cannot establish that at the time the action was commenced the plaintiff had the legal personality to give it standing to sue. Proof of the existence and composition of a limited partnership can be demonstrated only through a certificate provided through the relevant provisions of the [Partnership] Act.
…
In the absence of such proof, the plaintiff as currently styled, has not established that it has standing to maintain the action and the complaint must therefore be dismissed.[3]
[3]L & H Group (A Limited Partnership) v Young (Unreported, Magistrates’ Court of Victoria, Magistrate M Smith, 26 February 2016) [1]–[2], [21]–[22], [25]. (‘Magistrate’s Reasons’).
On 2 February 2016, Mr Young became a bankrupt pursuant to a sequestration order that was made by the Federal Circuit Court. On 19 April 2016, that Court made orders granting leave to L & H Group to appeal against the Magistrate’s Order and to the appellant to pursue its appeal to this Court pursuant to leave granted on 21 October 2015.[4]
[4]Earlier, on 12 April 2016, this Court granted a stay of the appeal from the orders of the Trial Division judge removing the Caveat pending the determination of the application to the Federal Circuit Court for leave to appeal against the Magistrate’s Order and to pursue the appeal to this Court, and the determination of any appeal against the Magistrate’s Order. See Lawrence & Hanson Group Pty Ltd v Young [2016] VSCA 69.
On 16 June 2016, the appellant was granted leave to appeal against the Magistrate’s Order. On 26 April 2017, an associate judge of the Trial Division held that the magistrate erred in deciding that L & H Group lacked standing to sue Mr Young under the guarantee. This was because s 58(4)(b) of the Partnership Act 1958 (‘PA’) provided that a certificate as to the composition of a limited partnership ‘is (unless the contrary is established) conclusive evidence that the partnership consisted at the relevant time of the general partners and limited partners named in the certificate’.[5] The associate judge said that the effect of s 58(4)(b) was that, in order to displace the conclusive evidence provided by the certificate, Mr Young had to establish that the certificate was erroneous, rather than simply adduce evidence casting some doubt on the correctness of the certificate. She held that Mr Young had failed to discharge his onus of proof and therefore L & H Group had standing in accordance with the conclusive evidence in the Composition Certificate.[6]
[5]Section 58(4) of the PA is set out at [71] below.
[6]L & H Group (A Limited Partnership) v White [2017] VSC 188 [68]–[69].
The associate judge allowed the appeal, set aside the Magistrate’s Order and made the following declarations (‘Associate Judge’s Declarations’):
1)The Court declares that the estate of [Mr Young] is indebted to [L & H Group] in the sum of $67,055.20 together with interest pursuant to statute from 9 January 2015 in the sum of $14,127.81.
2)The Court declares that the estate of [Mr Young] is indebted to [L & H Group] for [L & H Group’s] costs of the proceeding to be taxed on Scale F.
The Associate Judge’s Declarations meant that Mr Young owed a debt to L & H Group which was the subject of the Charge. In turn, this meant that the Charge supported the Caveat and that there was utility in the appellant pursuing its appeal to this Court.
A search of the history of the L & H Group limited partnership dated 23 August 2016 (‘Partnership Search’) disclosed the following:
(a) The appellant has been the general partner since 30 August 2000.
(b)Between 30 August 2000 and 19 December 2012, TEG BV was the sole limited partner.
(c) Sonepar has been the sole limited partner since 19 December 2012.
It follows that, when the Agreement was signed on 8 April 2014, the appellant was the general partner of the L & H Group limited partnership and Sonepar was the limited partner. It also follows that Carlow has never been a limited partner.
Before considering the judge’s reasons for making the order for the removal of the Caveat, we will summarise the principles relating to removal of caveats.
Principles relating to removal of caveats
The relevant provisions of ss 89(1) and 90(3) of the TLA have been set out at [3]–[4] above and the ‘approved form’ for the purposes of s 89(1) is discussed at [13] above.
An application for an order for the removal of a caveat is interlocutory in nature and therefore the outcome of the application does not, at least ordinarily, finally determine any issues in dispute between the parties.[7]
[7]Carbon Black Lab Pty Ltd v Launer [2015] VSCA 126 [38], [41]–[42] (‘Carbon Black’).
In Piroshenko v Grojsman,[8] Warren CJ described in the following terms the two stage test that is applied by courts in considering an application under s 90(3) of the TLA:
[W]hen application is made for [the] removal [of a caveat,] the onus falls on the caveator to satisfy the two-stage test used by the court when deciding whether to exercise its discretion to grant interlocutory injunctive relief. … This two-stage approach requires the caveator to establish that there is a serious question to be tried that they 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 on the Register of Titles until trial.[9]
[8](2010) 27 VR 489 (‘Piroshenko’).
[9]Piroshenko (2010) 27 VR 489, 491 [7] (citations omitted).
Due to the broad wording of s 90(3) of the TLA, Warren CJ noted that any test utilised by the court cannot subsume or restrict the power conferred by the statute. All it can do is ‘inform the ultimate consideration’ of whether to exercise the discretion conferred in any particular case, and if it chooses to do so, what form that exercise should take.[10] She also said that attention must be directed towards the relationship between the caveat which has been lodged, and the interest which is being claimed, by the caveator.[11]
[10]Piroshenko (2010) 27 VR 489, 491–2 [11].
[11]Piroshenko (2010) 27 VR 489, 491 [9] citing Warren CJ’s earlier judgment in Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447 (‘Schmidt’).
Warren CJ’s statements in Piroshenko have been accepted by this Court as setting out the correct approach to the exercise of the discretion in s 90(3).[12] In Carbon Black Lab Pty Ltd v Launer,[13] this Court noted that in CFHW Pty Ltd v Burness[14] Warren CJ expressed a preference for a ‘prima facie case’ test to be used instead of the ‘serious question to be tried’ test, and went on to state that caveators ‘must show that they have a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat.’[15]
[12]63 Buckley Street Pty Ltd v Keeron Nominees Pty Ltd [2011] VSCA 289 [11]; Carbon Black [2015] VSCA 126 [35]–[36].
[13][2015] VSCA 126.
[14][2014] VSC 451 (‘CFHW’).
[15]Carbon Black [2015] VSCA 126 [37] citing CFHW [2014] VSC 451 [17], [20]. See also Piroshenko (2010) 27 VR 489, 494 [21]–[22], 497 [36], 498 [40].
In Piroshenko, Warren CJ reiterated her comments in Schmidt v 28 Myola Street Pty Ltd[16] that ‘a caveat may only be lodged in a form commensurate to the interest it is designed to protect’.[17]
[16](2006) 14 VR 447.
[17]Piroshenko (2010) 27 VR 489, 498 [40].
In Schmidt, Warren CJ declined to remove a caveat notwithstanding uncertainty surrounding the facts in the case. She noted that a practice had developed in Victoria whereby caveators (presumably through their solicitors) immediately opted for an absolute prohibition on dealings with the land, and said that she believed that this was the default position on the form approved by the Registrar of Titles.[18] Warren CJ also stated that a caveator may offer to amend the terms of a caveat in order to avoid having the caveat removed.[19] The Court may make an order permitting an amendment to a caveat pursuant to the broad power contained in s 90(3) of the TLA.
[18]Schmidt (2006) 14 VR 447, 460 [47].
[19]Schmidt (2006) 14 VR 447, 459 [46] citing In re Victorian Farmers’ Loan & Agency Co Ltd (1897) 22 VLR 629 and Midwarren Estates Pty Ltd v Retek [1975] VR 575.
In Hedley v Roberts,[20] a Victorian case which concerned an encumbrance in the form of an easement, Harris J held as follows:
[A] joint tenant, or a tenant in common, can encumber his interest in the land so as to compel his co-owner to submit to the encumbrance if the encumbrance does not interfere with the right of that co-owner to his right to possession of the land and his other rights with respect to the land.[21]
[20][1977] VR 282 (‘Hedley’).
[21]Hedley [1977] VR 282, 288.
Three New South Wales cases — which we discuss below — are relevant to this appeal. Those cases were decided in the context of the Real Property Act 1990 (NSW) (‘NSW Act’) which governs the lodgement and removal of caveats in that State. Relevantly, a caveat may be lodged in New South Wales pursuant to s 74F of the NSW Act which provides as follows:
(1)Any person who, by virtue of any unregistered dealing … claims to be entitled to a legal or equitable estate or interest in land under the provisions of this Act may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled.
…
(5)A caveat lodged under this section must:
(a)be in the approved form,
(b)specify:
(i)the name of the caveator,
…
(iv)unless the Registrar-General dispenses with those particulars — the name and address of the registered proprietor concerned,
(v)the prescribed particulars of the legal or equitable estate or interest … to which the caveator claims to be entitled,
…
In Andrews v Wilcox,[22] a caveat had been lodged by a person claiming under an equitable mortgage from only one of two joint tenants. Hammerschlag J ordered that the caveat be withdrawn because on its face, the caveat extended, and was recorded as extending, to affecting a dealing by the other joint proprietor with her interest.[23] This was so notwithstanding that only the mortgagor was described on the caveat as registered proprietor.[24]
[22][2008] NSWSC 280 (‘Andrews’).
[23]Andrews [2008] NSWSC 280 [25]. Hammerschlag J cited Hedley [1977] VR 282, 288 (see [41] above).
[24]Andrews [2008] NSWSC 280 [26].
Allen Taylor & Co Pty Ltd v Harrison[25] involved an application under the NSW Act to extend a caveat in circumstances where the property in question was jointly owned by the chargor and his wife. Slattery J stated as follows:
A co-owner (whether joint tenant or tenant in common) may grant an interest over or encumber his or her own interest in the land; and, the other co-owner must submit to the grant or encumbrance, unless it improperly interferes with that co-owner’s rights to the land, including the right to possession … 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 …[26]
[25](2010) 15 BPR 28,505 (‘Allen Taylor’).
[26]Allen Taylor (2010) 15 BPR 28,505, 28,516 [34] (citations omitted). Slattery J referred to Hedley [1977] VR 282, 288 (see [41] above).
Slattery J held that the caveat in that case was not defective on the grounds that it was lodged in respect of the interest of only one of the two joint tenants of the relevant property. He described the caveat as ‘carefully drawn’ to achieve the purpose of identifying and affecting only the interest in the land held by the chargor and not the interest held by his wife with him as joint tenant.[27] In that case: only the chargor’s name was entered against the description ‘registered proprietor’ in the caveat; instead of an absolute prohibition, the prohibition specified in the caveat was ‘against the recording in the Register of any dealing … affecting the estate or interest claimed by the caveator’; and the interest claimed was described in the caveat as ‘over the freehold interest of the registered proprietor’.[28]
[27]Allen Taylor (2010) 15 BPR 28,505, 28,515 [28].
[28]Allen Taylor (2010) 15 BPR 28,505, 28,515 [28].
Slattery J distinguished the facts of Allen Taylor from those in Andrews. According to Slattery J, the distinguishing factor between the two cases was that in Allen Taylor, the caveators made clear by the form of drafting of the caveats that they did not seek to prohibit the other registered proprietor dealing with her interest in the property.[29]
[29]Allen Taylor (2010) 15 BPR 28,505, 28,516 [33].
In Awadallah v Hymix Australia Pty Ltd,[30] McDougall J stated that in order to determine if a caveat is attempting to restrict the rights of a joint tenant, one must return to the precise wording of the caveat[31] and agreed with Slattery J’s analysis in Allen Taylor.[32] On the facts in Awadallah, McDougall J stated the following:
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 both the registered proprietors. It is an estate or interest claimed as equitable mortgagee of the interest of Mr Awadallah in that property.
…
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 one only 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.[33]
[30](2015) 17 BPR 33,953 (‘Awadallah’).
[31]Awadallah (2015) 17 BPR 33,953, 33,957 [44].
[32]Awadallah (2015) 17 BPR 33,953, 33,957 [43].
[33]Awadallah (2015) 17 BPR 33,953, 33,958 [46], [48].
Proceeding in Trial Division for removal of Caveat and judge’s ruling
On 25 May 2015, the respondents commenced a proceeding in the Trial Division seeking an order pursuant to s 90(3) of the TLA for the removal of the Caveat. The respondents relied on two principal arguments in support of the proposed order. The first argument was that the Caveat was too wide and interfered with the right of Mrs Young to deal with the Land in circumstances where she had not given any security to L & H Group. The second argument was that the Charge was not enforceable because Mr Young signed the Agreement under a mistake. The respondents also contended that the balance of convenience favoured the discharge of the Caveat, because unless this occurred, the ANZ Loan would not be provided.
During the hearing, the solicitor appearing for the respondents raised a further argument. He drew attention to the definition of ‘Seller’ in the Agreement and referred to the fact that the appellant was one of the two partners in the L & H Group limited partnership within that definition.[34] He submitted that the Caveat ‘is bad because [it was] lodged by only one of the two entities to which the alleged charge was granted’.[35] In response, counsel for the appellant submitted that the matter was of no substance and told the judge that the appellant was the general partner, ‘a European incorporated company’ was the limited partner, and that, as a member of the partnership, the appellant was entitled to the security and therefore had a caveatable interest.[36]
[34]Transcript of Proceedings, Young v Lawrence & Hanson Group Pty Ltd (Supreme Court of Victoria, SCI 2015 02645, Rush J, 2 June 2015) 6–7 (‘Trial Transcript’).
[35]Trial Transcript 17.
[36]Trial Transcript 7, 40–1.
On 9 June 2015, the judge ordered that the Caveat be removed.[37] He did not consider the question whether Mr Young had granted the Charge by mistake because that was a matter to be determined in the Magistrates’ Court proceeding, which had not yet been heard. He also did not consider the additional argument raised by the respondents that, as only one of two partners in the L & H Group limited partnership, the appellant did not have standing to lodge the Caveat.
[37]His order is relevantly set out at [55] below.
The judge referred to the principles in Piroshenko, and, in particular, to the two-stage test that the caveator must satisfy.[38] He also referred to the passage from Allen Taylor set out at [44] above. He noted the following about the present case: the prohibition on dealing with the Land indicated by the Caveat is absolute and thereby purports to prohibit all dealings with the Land including dealings by Mrs Young concerning her interest in the Land; Mrs Young had not executed any documents that would permit the appellant to lodge a caveat over her interest in the Land and in particular Mrs Young had not executed the document giving rise to the Charge; and there was nothing in the Caveat or any other material before the Court to indicate that the appellant was not seeking to prohibit Mrs Young from dealing with her interest in the Land. The judge said this position could be contrasted with the factual scenario in Allen Taylor.[39]
[38]Ruling 4. See [36] above.
[39]Ruling 4–5.
In response to the appellant’s submission that it was questionable whether Allen Taylor applied in Victoria, the judge noted that Slattery J referred to Harris J’s judgment in Hedley which concerned one co-owner creating an encumbrance over land where the encumbrance is not the creation of both co-owners.
The judge rejected the appellant’s submission that it was clear on the face of the Caveat that the only interest sought to be charged was that of Mr Young. He concluded as follows:
The prohibition notified with the caveat is to prevent dealing in land absolutely. The caveat on its face interferes with the right of Mrs Young to deal with the land.
The reference in the caveat to Mr Young as the party to the agreement said to give rise to the charge does not derogate or change the absolute prohibition on dealing with the property, a prohibition that denies the interest of Mrs Young.
The [appellant] has not satisfied me it has a prima facie case for retention of the caveat because the caveat interferes with the right of Mrs Young to deal with the land. On a prima facie basis it seems to me that the caveat cannot stand.[40]
[40]Ruling 5–6.
The judge held that, in the light of his conclusion that the appellant had not established a prima facie entitlement to maintain the Caveat, it was not necessary for him to decide the issue of balance of convenience. However, he went on to say the following about that issue:
Finally on the materials before me, if it were necessary, I would find that the balance of convenience favours the [respondents]. Removal of the caveat would mean the [respondents] would secure the ANZ loan referred to. As a consequence [Morlend] will be paid out in full and will not act on an order for possession of the family home. Other caveators will be paid out … Mr Young will apparently be able to conduct a business and earn income.
[Counsel for the appellant] … submitted [Mr Young] had not provided alternative security to the [appellant].
… If I was required to exercise my discretion I would exercise it in the [respondents’] favour on the balance of convenience. I would find that it favours the [respondents] and find that the loan from the ANZ Bank is critical to the prospects of the [respondents] remaining in business, paying debts and retaining the family home. I consider these factors of the highest importance in weighing up the competing interests in the exercise of that discretion.[41]
[41]Ruling 6–7.
The judge’s order (‘Rush J’s order’) was relevantly in the following terms:
…
2Pursuant to s l03(1) of the [TLA], [the Caveat] be removed forthwith by the Registrar of Titles.
3The [appellant] pay the [respondents’] costs of and incidental to the application and the Originating Motion on a standard basis.
…
The judge directed the appellant to deliver to the respondents’ solicitors by 4.00pm on 10 June 2015 a withdrawal of caveat in registrable form in respect of the Caveat. The appellant complied with this direction.
Grounds of appeal and informal notice of contention
The appellant relies on the following grounds of appeal:
1The learned Judge erred in finding that the [Caveat] interfered with [Mrs Young’s] interest in the land and ought to have found that the [Caveat] claimed only an interest under a charge created by [Mr Young].
2The learned Judge erred in finding that the [Caveat] was too wide because (according to the learned judge) it prohibited dealings absolutely and ought to have found that the [Caveat] forbade only the registration of any instrument affecting the [appellant’s] interest under the charge created by [Mr Young].
3The learned judge ought to have found that the balance of convenience favoured the retention of the [Caveat].
On the hearing of the appeal, Mrs Young was represented by counsel. There was no appearance on behalf of the trustees of Mr Young’s bankrupt estate.
Mrs Young sought leave to uphold the judge’s decision on a ground that was not decided by him, namely, that the appellant did not have standing to lodge the Caveat. She also sought an extension of time within which to apply for leave. The appellant did not oppose leave being granted to Mrs Young to pursue this argument which, in effect, amounted to a notice of contention. In the circumstances, we have decided to grant the leave sought by Mrs Young.
The informal notice of contention raises a threshold issue of standing which, if successful, will result in the appeal being dismissed even if the appellant’s grounds of appeal are upheld. Accordingly, we will consider it first.
Informal notice of contention: Standing issue
Mrs Young submitted that there is a threshold issue not overcome by the appellant which is that an interest in land cannot be granted to a non-existent entity. She contended that the fact that the Agreement referred to a limited partnership carried on by the appellant and Carlow, and that no such limited partnership existed because the limited partner was in fact Sonepar, meant that the Charge was ineffective. Accordingly, so it was said, neither L & H Group nor the appellant had standing to lodge the Caveat.
Mrs Young argued that a charge could only have been given to the members of the limited partnership as they were at the time of the Agreement but this was not done: the Charge was given to two entities, only one of whom (the appellant) was a member of the partnership. According to Mrs Young, it was not sufficient that one partner remained the same throughout the dealings between the limited partnership and Mr Young because the appellant alone did not constitute the limited partnership.
Mrs Young submitted that the determination of the appeal in the Magistrates’ Court proceeding does not impact upon this point because the associate judge did not consider the issue in the context of a caveat. According to Mrs Young, this issue also did not arise for consideration before the trial judge because he was told erroneously by counsel for the appellant below that Carlow was the minor partner in the limited partnership. Further, so it was said, the Incorporation Certificate and the Composition Certificate only emerged during the course of the Magistrates’ Court proceeding and accordingly were not available at the time of the hearing before the judge.
The appellant submitted that at all material times, the limited partnership consisted of the appellant and Sonepar, so that there was never an assignment of rights from one limited partner to another. According to the appellant, the erroneous statement about the composition of the limited partnership in the Agreement was ‘a mere matter of misdescription’[42] and did not affect the rights created by the Agreement.
[42]Transcript of Proceedings, Lawrence & Hanson Group Pty Ltd v Young (Supreme Court of Victoria Court of Appeal, S APCI 2015 0059, Redlich and Kyrou JJA and Keogh AJA, 1 June 2017) 92 (‘Appeal Transcript’).
The appellant submitted that as a general and trite proposition of law, a partnership consisting of one or more legal persons is a group of legal entities each of whom jointly own the partnership property and any one of whom, in terms of ordinary propositions of property law, can assert a proprietary interest in the property of the partnership. According to the appellant, that is enough to confer a right in any partner to lodge a caveat.
The appellant further submitted that in the case of limited partnerships, the general partner must be able to assert and seek to protect its interest in partnership property because s 67 of the PA provides that a limited partner must not take part in the management of the business of the limited partnership and does not have power to bind the limited partnership.
The appellant submitted that, in any event, any doubt in relation to the standing issue is foreclosed by the result of the Magistrates’ Court proceeding and the appeal to the associate judge in that proceeding. According to the appellant:
(a)the Associate Judge’s Declarations constitute a ‘binding determination in the sense of res judicata that Mr Young is indebted to the L & H Group’;[43] and
(b)based on Mr Young’s admissions in the Magistrates’ Court proceeding, it ‘is a matter of issue estoppel … that there was a guarantee between Mr Young and L & H Group [which] contained the very charge about which this case is concerned [and] that charge is in favour of L & H Group’.[44]
[43]Appeal Transcript 96.
[44]Appeal Transcript 96.
In our opinion, there is no substance to the informal notice of contention.
Having regard to the fact that a proceeding for the removal of a caveat is interlocutory in nature, and the caveator is only required to establish that there is a serious question to be tried that it has a caveatable interest in the land,[45] it is not necessary for the appellant to establish its standing on the balance of probabilities. Rather, it is sufficient for the appellant to establish all matters relating to its entitlement to lodge the Caveat, including its standing, on a prima facie basis. As will become apparent, we are satisfied that the appellant has established all such matters on a prima facie basis. While it is not necessary for us to be satisfied that the appellant has established all such matters on the balance of probabilities, for the reasons that follow, we are so satisfied.
[45]See [35]–[36] above.
At the outset it is useful to consider some of the provisions of pt 3 of the PA which deals with limited partnerships. Section 54(2) provides that an application for registration of a limited partnership must include the name of each partner and whether that partner is a general partner or a limited partner. Section 56(1) requires a limited partnership to lodge with the Director[46] any change to its registered particulars within seven days after the change occurs. Section 57 provides that the Director must keep a register of limited partnerships and make the information recorded in the register available for public inspection during ordinary business hours.
[46]Section 49(1) of the PA defines ‘Director’ as the ‘Director within the meaning of the Australian Consumer Law and Fair Trading Act 2012’.
Section 58(1) of the PA requires the Director to issue to the general partners a certificate as to the formation and composition of the limited partnership at the time of registering it or of recording a change in its composition. Section 58(2) provides that the Director may, on application, issue to the applicant a certificate as to the formation and composition of a limited partnership or as to any other particulars recorded in the register. Section 58(4) provides as follows:
A certificate under this section—
(a)as to the formation of a limited partnership, is conclusive evidence that the limited partnership was formed on the date of registration referred to in the certificate; and
(b)as to the composition of a limited partnership, is (unless the contrary is established) conclusive evidence that the partnership consisted at the relevant time of the general partners and limited partners named in the certificate; and
(c)as to any other particular of a limited partnership recorded in the Register, is (unless the contrary is established) conclusive evidence of that particular.
In the present case, at all relevant times:
(a)in accordance with the Incorporation Certificate described at [25] above, as supported by the Partnership Search described at [31] above, there was a limited partnership called ‘L & H Group’; and
(b)in accordance with the Composition Certificate described at [25] above, as supported by the Partnership Search, the limited partnership was comprised of the appellant as general partner and Sonepar as the limited partner.
There was never any doubt that the parties to the Agreement were Railway Works as ‘Applicant’ and ‘L & H Group (ABN 19 730 781 473), a Limited Partnership’ as ‘Seller’. Had the Agreement not included the additional words ‘carried on by Lawrence & Hanson Group Pty Ltd (ABN 69 080 350 812) and Carlow S.A.S (ARBN 134 333 113), a limited liability company incorporated in France’, it could not have been argued that there was any uncertainty about the contracting parties or that the Agreement was incomplete or unenforceable. It follows that the inclusion of the additional words was unnecessary and therefore the error in the name of the limited partner within those words could have no bearing on the legal efficacy of the Agreement.
Similarly, there was never any need for counsel for the appellant to tender the Composition Certificate in the Magistrates’ Court proceeding to prove the allegation in para 1 of the Complaint that ‘[t]he Plaintiff is a Limited Partnership registered pursuant to the Partnership … Act … and is capable of suing or being sued’. Had counsel tendered only the Incorporation Certificate, it could not have been argued that the allegation in para 1 had not been proved.
The associate judge correctly analysed the effect of a certificate under s 58(4) of the PA.[47] The Incorporation Certificate was conclusive evidence that the L & H Group was formed as a limited partnership on 30 August 2000 and there was never any evidence which cast any doubt on this. The Composition Certificate was conclusive evidence that the L & H Group limited partnership consisted of the appellant as the general partner and Sonepar as the limited partner. The misdescription of the limited partner in the Agreement cast some doubt on the accuracy of the Composition Certificate but did not ‘establish’ that the certificate was inaccurate. In order to impugn the Composition Certificate, Mr Young had the onus of proving on the balance of probabilities that the certificate was inaccurate. He did not discharge that onus. The mere fact that the misdescription in the Agreement raised a doubt about the accuracy of the Composition Certificate did not have the effect of imposing any onus on a person relying on the certificate to prove that it was accurate.
[47]See [28] above.
In any event, as we have stated at [73] above, the misdescription in the Agreement is inconsequential and there was never any need for L & H Group to rely on the Composition Certificate in establishing its standing to sue Mr Young in the Magistrates’ Court proceeding.
It is not necessary for us to deal with the appellant’s submissions based on the principles of res judicata and issue estoppel. This is because those principles can only affect the rights of the parties to previous proceedings or their ‘privies’.[48] While those principles affect Mr Young and his trustees in bankruptcy, it is by no means clear that they affect the rights of Mrs Young who was never a party to the Agreement, the Magistrates’ Court proceeding or the appeal to this Court from the Magistrate’s Order, and against whom no relief was granted in those proceedings. It is not sufficient to establish a privity of interest that Mrs Young had an economic or financial interest in the outcome of the previous proceedings.[49]
[48]Blair v Curran (1939) 62 CLR 464, 531–2; Ramsay v Pigram (1968) 118 CLR 271, 276, 279; Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (recs and mgrs apptd) (in liq) (1993) 43 FCR 510, 525-6 (‘Effem Foods’).
[49]Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (1992) 36 FCR 406, 413–14 (affirmed Effem Foods (1993) 43 FCR 510).
As the appellant was a partner in the L & H Group limited partnership, it had a proprietary interest in the assets of the partnership, including any security interest in land. It follows that if L & H Group had a caveatable interest in the Land, so did the appellant.
Grounds of appeal 1 and 2: Construction of Caveat
The appellant accepted that since the power under s 90(3) of the TLA is discretionary in nature, to succeed on appeal, it must establish an error of the kind identified in House v The King.[50]
[50](1936) 55 CLR 499. See Carbon Black [2015] VSCA 126 [39].
The appellant submitted that it is within the power of one of a number of joint proprietors of land to create a charge over his or her individual interest,[51] and that that is what was done by the Agreement which was explicitly identified in the Caveat as the basis for the appellant’s caveatable interest.
[51]The appellant cited Hedley [1977] VR 282.
The appellant contended that it is clear that the interest claimed by it was a charge over Mr Young’s interest only. According to the appellant, Mr Young was entitled to, and did, charge his interest in the Land and could not, and did not, charge Mrs Young’s interest as joint proprietor. The appellant contended that there is nothing in the Caveat to suggest that it affects Mrs Young’s interest in the Land. The appellant emphasised that the identification of the interest claimed as an ‘interest as chargee’ arising from a charge contained in an agreement with Mr Young was not a claim to an interest in Mrs Young’s interest in the Land. Accordingly, so it was said, the Caveat does not interfere with Mrs Young’s interest in the Land.
The appellant submitted that New South Wales cases must be viewed with caution because that jurisdiction uses different forms for caveats. Notwithstanding that, the appellant contended that those cases emphasise the need to look carefully at the words used in each caveat.[52] The appellant referred to Hammerschlag J’s decision in Andrews and noted that the correctness of Hammerschlag J’s finding that the terms of the caveat as extending to the joint proprietor’s interest is ‘open to doubt’ and was distinguished by Slattery J in Allen Taylor.
[52]The appellant referred to Allen Taylor (2010) 15 BPR 28,505, 28,514 [27] and Awadallah (2015) 17 BPR 33,953, 33,957 [44] in this regard.
The appellant submitted that it is ‘fundamental’ to observe that the Caveat does not purport to forbid absolutely all dealings with the Land. The appellant contended that the words of the Caveat expressly forbid ‘the registration of any instrument affecting the estate or interest [claimed in the Caveat] to the extent specified.’ According to the appellant, although the extent specified is ‘absolutely’, this prohibition relates only to instruments affecting the caveator’s ‘interest as chargee’. The appellant submitted that in relation to that class of instrument, the prohibition is not too wide since the registration of such an instrument would, by reason of the indefeasibility provisions of the TLA, destroy or, depending on the circumstances, at least take priority over, the interest claimed in the Caveat.
The appellant also referred to Warren CJ’s comments in Schmidt referred to at [39]–[40] above, noting that the absolute form of prohibition is the one commonly used by solicitors, as well as being the default position on the approved caveat form.
Initially, Mrs Young contended that the submissions that the appellant had made on the proper construction of the Caveat had not been made before the judge. Ultimately, however, she did not argue that those submissions were so different from the way the appellant had conducted its case before the judge that it could not rely upon them on the appeal.
Mrs Young submitted that the judge did not err in finding that the Caveat interfered with her interest because: the interest claimed by the appellant in the Caveat is pursuant to the Agreement; the prohibition on registration is ‘Absolutely’; and the prohibition completely restricted her ability to deal with her interest in the Land in a situation where she was not a party to the Charge.
Mrs Young relied on the authorities discussed at [34]–[47] above and sought to distinguish Allen Taylor on the basis that the prohibition claimed by the appellant in the Caveat is ‘Absolutely’ and the Caveat thereby interferes with her right to deal with the Land in circumstances where she did not given her consent.
According to Mrs Young, the judge correctly examined the precise wording of the Caveat in accordance with Awadallah and applied the reasoning of Slattery J in Allen Taylor.
Mrs Young submitted that the facts in Schmidt can be distinguished from the present case. According to Mrs Young, Schmidt was primarily concerned with whether the interests of the parties gave rise to a caveatable interest and if, as a result, the interest stated in the caveat was described too broadly. In contrast, so it was said, in the present case there is no such uncertainty as to the appellant’s caveatable interest and the appellant has not attempted to restrict the Caveat in a form commensurate with the interest it was attempting to protect.
Mrs Young also submitted that it had been open to the appellant to seek leave from the judge to amend the prohibition contained in the Caveat to give clarity to it and to ensure that it only related to the interests of Mr Young. Mrs Young relied on Warren CJ’s statement in Schmidt that such an approach is permissible.[53] On the hearing of this appeal, counsel for Mrs Young suggested in response to a question from the Bench that the prohibition in the Caveat could have been amended to read ‘Absolutely only as to the interest of John Young in the land’. Mrs Young submitted that the appellant ought to have sought leave to amend the Caveat and that if it had done so, the problem with the Caveat identified by the judge would have been avoided, leaving only the balance of convenience issue for determination.
[53]See [40] above.
In a supplementary written submission dated 8 June 2017, Mrs Young submitted that, as the Approved Printed Form enabled a caveator to state precisely the extent of the prohibition on the registration of instruments, the appellant should have used that form and inserted words such as ‘Absolutely, only as to the interest of John Young in the land’ rather than the word ‘Absolutely’ on its own.
In our opinion, Grounds 1 and 2 are made out.
Contrary to the judge’s finding, the Caveat on its face did not impose any restriction on dealings with Mrs Young’s interest in the Land. This is because the express words of the Caveat set out at [12] above made it clear that the appellant, as caveator, claimed an interest in the Land as chargee under the Agreement and that the Caveat prohibited absolutely the registration of any instrument affecting that interest.
With respect to the judge, he misconstrued the meaning and effect of the word ‘Absolutely’ in the Caveat. That word did not mean that the Caveat sought to prohibit absolutely the registration of any instrument dealing with the Land. Rather, the word was included in the Caveat in compliance with the requirement in s 89(1) of the TLA that the Caveat must specify whether the prohibition on the registration of any instrument affecting the interest claimed by the caveator is either absolute or conditional. The inclusion of the word ‘Absolutely’ rather than ‘Conditionally’ in the Caveat meant that no instrument affecting the appellant’s interest as chargee under the Agreement could be registered.
The critical words of the Caveat were ‘This caveat forbids the registration of any instrument affecting the estate or interest to the extent specified’. The ‘estate or interest’ is clearly ‘the estate or interest specified in the land’ which ‘[t]he caveator claims’. The statement in the Caveat that the appellant claimed an interest in the Land as chargee under the Agreement signed by Mr Young made it clear that the Caveat applied only to instruments dealing with the appellant’s security interest under the Charge, namely, instruments dealing with Mr Young’s interest in the Land. Accordingly, the Caveat on its face applied only to that interest in the Land rather than the Land in general.
Further, it is clear from the Caveat read as a whole that the word ‘Absolutely’ under the heading ‘Prohibition’ related back to the words ‘to the extent specified’ and meant that the registration of any instrument affecting the appellant’s interest as chargee under the Agreement was prohibited absolutely. It follows from this analysis that the Caveat was drafted carefully to limit its operation to Mr Young’s interest in the Land and could not be construed as encompassing any interest of Mrs Young.
Our conclusion at [95] above follows inexorably from the wording of the Caveat construed in the context of s 89(1) of the TLA. Our conclusion is consistent with the analysis in Piroshenko, Schmidt and Hedley. There is nothing in Andrews, Allen Taylor or Awadallah which detracts from our conclusion. In any event, the latter cases are based on the wording of the relevant provisions of the NSW Act which is not identical with the wording of the TLA.
It follows from the above analysis that the appellant correctly used the Approved Online Form and its selection of the word ‘Absolutely’ did not mean that the prohibition on the registration of instruments extended beyond Mr Young’s interest in the Land to also encompass Mrs Young’s interest. It was not necessary for the appellant to use the Approved Printed Form or to insert words such as ‘Absolutely, only as to the interest of John Young in the land’.
As we have concluded that there was no ambiguity as to whether the Caveat imposed any restriction on the registration of instruments dealing with Mrs Young’s interest in the Land, we reject her contention that the appellant should have sought leave from the judge to amend the Caveat to expressly state that it did not impose any such restriction.
Ground of appeal 3: Balance of convenience
The appellant submitted that the judge’s conclusion that the balance of convenience favoured the removal of the Caveat was not open to him because there was no relevant matter of convenience favouring the respondents. According to the appellant, it is an inevitable consequence of joint proprietorship of land that the refusal or inability of one of the joint proprietors to participate in a dealing proposed by the others will preclude that dealing if it is one which requires the involvement of all of them. The appellant noted that if one of a number of joint proprietors charges or otherwise encumbers his or her share in the land, it is to that extent no longer within that person’s power to deal with his or her share free of the encumbrance. According to the appellant, this is not a factor affecting the assessment of the balance of convenience, it is a recognition that persons can only deal with land to the extent that they are free to do so having regard to proprietary interests in the land which are owned by persons other than themselves.
The appellant accepted that in some cases, courts have removed a caveat where its retention would preclude the refinancing of a first mortgage debt in circumstances where the holders of all subsequent interests would be better off because of the reduction of that first mortgage debt. However, according to the appellant, the dealing proposed by the respondents involved the following: a new first mortgage for $975,000; $740,000 to repay the Morlend mortgages; $6,768.21 to satisfy a caveat prior to the Caveat; $32,540 to satisfy caveats subsequent to the Caveat; no amount provided for the Caveat; and new advances secured by the new first mortgage totalling $169,812.25 for the benefit of AIS.
The appellant submitted that upon the removal of the Caveat and the registration of the new first mortgage, the appellant’s security would be completely destroyed. Further, so it was said, the mortgage transaction would be preceded by the outright transfer of the fee simple estate in the Land from both respondents to Mrs Young only. The appellant contended that the judge erred because he failed to take into account these adverse effects of the removal of the Caveat and, in essence, disregarded its security interest when considering the balance of convenience. According to the appellant, it was not open to the judge to do so and, in doing so, he erred in law.
Mrs Young submitted that a number of factors support the judge’s finding that the balance of convenience favoured the removal of the Caveat. Those factors included the following:
(a)The respondents were in default of the Morlend facilities and Morlend had issued a writ against them seeking possession of the Land.
(b)It was proposed that the ANZ Loan would be used to repay the Morlend facilities in full; obtain withdrawals of the other caveats; and enable AIS to generate income for it to survive.
(c)The Caveat was preventing settlement of the ANZ Loan and repayment of the Morlend facilities.
(d)Having regard to the writ, if the Caveat was not removed, the ANZ Bank would not have provided its loan and Morlend would have obtained possession of the Land.
(e)If an order for possession was made, the respondents would have been without a home and the penalty interest of 22 per cent which was accruing on the Morlend facilities would have wiped out the limited equity in the Land.
The respondents submitted that, in these circumstances, the removal of the Caveat to allow them to refinance with the ANZ Bank carried the lower risk of injustice to the parties and therefore the judge had correctly concluded that the balance of convenience favoured the removal.
Our conclusions in relation to the informal notice of contention and Grounds 1 and 2 mean that the Caveat was valid. In accordance with the Associate Judge’s Declarations, the Caveat protected a security interest in the Land which was for an amount exceeding $80,000.[54]
[54]See [29] above.
Before turning to the balance of convenience, we wish to note that there is a real issue as to whether, in a case such as the present, there can be a proper basis for the discretion in s 90(3) of the TLA to be exercised in a manner which gives priority to interests arising after the genuine and substantial proprietary interest of the caveator and has the result of completely destroying that interest. This is particularly so having regard to the fact that the overall transaction in the present case involves a disposal of the chargor’s interest to his wife, the registration of a new first ranking mortgage and the paying out of some caveats with lower priority than the Caveat. However, it is not necessary for us to express final views on these matters, as we are firmly of the view that the judge erred in determining that the balance of convenience favoured the removal of the Caveat.
In considering the balance of convenience, the judge was required to balance the prejudice to the respondents arising from the non-removal of the Caveat against the prejudice to the appellant arising from the removal of the Caveat.
The judge correctly concluded that the respondents would suffer significant prejudice if the Caveat were not removed. The continuation of the Caveat would prevent the ANZ Loan from proceeding, resulting in Morlend selling the Land and thus jeopardising the viability of the respondents’ business undertakings. However, the judge did not balance against this prejudice the impact that removal of the Caveat would have on the appellant’s security interest. That impact was the complete extinguishment of the security interest because the ANZ Loan involved Mr Young transferring his interest in the Land to Mrs Young and Mrs Young granting a first registered mortgage to the ANZ Bank.
Furthermore, the judge failed to consider other obvious options that were available to him that would have protected the interests of all parties. One obvious option was to order the removal of the Caveat on condition that the security interest of the appellant was paid out from the proceeds of the ANZ Loan or that alternative security be provided pending the outcome of the Magistrates’ Court proceeding. We note that the security interests of most of the other caveators were paid out from the ANZ Loan. It is not clear why it was considered appropriate to treat the security interest of the appellant differently.
The approach adopted by the judge involved accommodating all of the respondents’ preferred uses of the ANZ Loan funds while totally sacrificing the proprietary interest of the appellant. It was open to the judge, in the exercise of his discretion, to closely examine the proposed uses of those funds as set out at [22] above and to require that any proposed payments which were not for the purpose of discharging security interests or paying fees incidental to the ANZ Loan (such as moneys to be spent on trucks), be reduced in order to enable the appellant’s security interest to be paid out. In this regard, we note that, initially, an amount of $89,081.00 had been earmarked as the balance available to acquire a new truck and that this amount was ultimately reduced to $49,812.25 in order to enable the interests of some caveators to be paid out.
In summary, the judge adopted an erroneous approach on the issue of balance of convenience because, instead of identifying and weighing up the prejudice to the interests of the parties depending on whether the Caveat was or was not removed, the judge focused almost exclusively on the prejudice that the respondents would suffer if the Caveat was not removed. Had the judge adopted the correct approach, the only conclusion that would have been open to him is that the balance of convenience favoured the non-removal of the Caveat.
It follows that Ground 3 is made out.
Conclusion
For the above reasons, the appeal will be allowed.
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