Maxton & Maxton (Australia) Pty Ltd v Port Village Accommodation Pty Ltd (Receivers and Managers Appointed)
[2014] WASC 93
•26 MARCH 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: MAXTON & MAXTON (AUSTRALIA) PTY LTD -v- PORT VILLAGE ACCOMMODATION PTY LTD (Receivers and Managers Appointed) [2014] WASC 93
CORAM: CHANEY J
HEARD: 27 FEBRUARY 2014
DELIVERED : 26 MARCH 2014
FILE NO/S: CIV 2898 of 2013
BETWEEN: MAXTON & MAXTON (AUSTRALIA) PTY LTD
Plaintiff
AND
PORT VILLAGE ACCOMMODATION PTY LTD (Receivers and Managers Appointed)
First DefendantREGISTRAR OF TITLES
Second Defendant
Catchwords:
Caveat - Application for extension of caveat - Balance of convenience - Unregistered charge - Meaning of fraud in s 68 and s 134 of the Transfer of Land Act 1893 (WA) - No evidence to support plaintiff's allegations of fraud
Legislation:
Transfer of Land Act 1893 (WA)
Result:
Plaintiff's application to extend caveat dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr A P Rumsley
First Defendant : Mr S Vandongen SC
Second Defendant : No Appearance
Solicitors:
Plaintiff: Allan Rumsley
First Defendant : King & Wood Mallesons
Second Defendant : No appearance
Cases referred to in judgment:
Achatz v De Reuver [1971] SASR 240
Bahr v Nicolay (No 2) (1988) 164 CLR 604
Barnes v Addy (1874) LR 9 Ch App 244
Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27
Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Farah Constructions Pty Ltd v Say‑Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Friedman v Barrett; Ex Parte Friedman [1962] Qd R 498
J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546
Maxton & Maxton Australia Pty Ltd v Prt Village Accommodation Pty ltd (No 2) [2012] FMCA 359
Mills v Stokman (1967) 116 CLR 61
Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95; (2009) 40 WAR 150
Oertel v Hordern (1902) 2 SR (NSW) Eq 37
RM Hosking Properties Pty Ltd v Barnes [1971] SASR 100
Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1925] AC 101
Westpac Banking Corporation v Murray Riverside Pty Ltd [2013] WASC 433
Wicks v Bennett (1921) 30 CLR 80
CHANEY J: By an originating summons, filed on 17 December 2013, the plaintiff applied for an order extending the operation of a caveat bearing registered dealing number M079187301952 until further order. The land in respect of which the caveat was lodged is situated at 2 Great Northern Highway Port Hedland and is known as the Port Hedland Caravan Park (the land). The land is owned by Port Village Accommodation Pty Ltd (PVA). The plaintiff carried out certain building works on the land under two building contracts (the construction contracts). The caveat the subject of these proceedings was registered on 18 October 2012. The interest in the land sought to be protected by the caveats arose by reason of a charge over the land, granted under the construction contracts, to secure monies payable to the plaintiff for carrying out the works the subject of the construction contracts.
Monies were unpaid by PVA for work done under the construction contracts, and in April 2012, the plaintiff commenced proceedings to recover the outstanding amount in this Court. Eventually, it obtained a judgment on 16 February 2013 on an amount of $430,299.19 plus interest and costs.
Prior to registration by the plaintiff of its caveat, BHP Billiton Iron Ore Pty Ltd (BHPBIO) entered into arrangements with PVA for PVA to provide accommodation over an extended period to workers engaged in a joint venture in which BHPBIO was a participant. The arrangements involved the provision of finance by BHPBIO to PVA. In order to enable BHPBIO to obtain a first ranking security, the arrangements included BHPBIO advancing funds to discharge PVA's liability to the then existing first mortgagees of the land. Pursuant to those arrangements, PVA executed a mortgage over the land on 20 April 2012 which was registered on 11 May 2012. Between 16 March 2012 and 5 July 2012, BHPBIO advanced to PVA a total of $53,040,000.00 in five tranches. One of those tranches was a $30,250,000.00 advance on 9 May 2012, from which sum the previous mortgagees of the land were paid out.
PVA was subsequently placed into liquidation and the receivers and managers have now contracted to sell the land. Settlement was due to take place on 28 February 2014, two days after the present application was argued. The plaintiff sought to extend the caveat pending resolution of a claim that its charge under the construction contracts should take priority over the registered interest of BHPBIO. It was not in issue that the proceeds of sale of the land by the receivers would not be sufficient to discharge the first defendant's liability to BHPBIO. Thus, unless the plaintiff's unregistered charge is given priority over the registered mortgage in favour of BHPBIO, the plaintiff stands no prospect of receiving payment of its judgment debt from the proceeds of sale of the land.
Against that background, the first defendant concedes that the plaintiff has established an arguable case that it has a caveatable interest in the land. The issue arising for determination is whether the balance of convenience favours an extension of the caveat.
At the conclusion of argument at the hearing of this matter, I declined to extend the operation of the caveat and advised the parties that I would provide full reasons in writing for that decision. These are those reasons.
The legal principles
There was little disagreement between the parties as to the applicable legal principles.
The Court may make orders in extending the operation of the caveat if it satisfied that the caveator's claim 'may have substance', and if not so satisfied then shall dismiss the application for extension: s 138C(2) of the Transfer of Land Act 1893 (WA) (TLA).
A caveat is a form of statutory injunction preventing registration of a dealing against land until the caveator has been given a reasonable opportunity to justify the caveat by pursuing such remedies as he or she may have: J & H Just (Holdings) Pty Ltd v Bank of New South Wales[1]; Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd[2].
[1] J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546, 552 (Barwick CJ), 557 (McTiernan J agreeing with Barwick CJ), 558 (Windeyer J), 559 (Owen J agreeing with Barwick CJ).
[2] Brogue Tableau Pty Ltd v Binningup Nominees Pty Ltd [2007] WASCA 179; (2007) 35 WAR 27 [68] (Buss JA).
On an application for an extension, the onus is on the caveator to demonstrate that there is a serious question to be tried as to whether a caveatable interest exists: Custom Credit Corp Ltd v Ravi Nominees Pty Ltd[3].
[3] Custom Credit Corp Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50.
The plaintiff submitted that interlocutory removal of a caveat will be unusual where an arguable case as to the existence of a caveatable interest has been demonstrated, citing Custom Credit as authority for that proposition. However, as Beech J pointed out in Westpac Banking Corporation v Murray Riverside Pty Ltd[4], what was said in Custom Credit must be understood in light of what has been subsequently said by the Court of Appeal in Navarac Pty Ltd v Moondancer Holdings Pty Ltd[5]. In Navarac at [22], Pullin JA (with whom Miller and Newnes JJA agreed) said:
It is true that experience shows that parties are most commonly in dispute about the existence of a caveatable interest. Balance of convenience issues are usually of little or no significance where the caveator claims an estate in fee simple or a leasehold estate. In those fairly common cases, it is 'unusual', as Owen J states, that once an arguable case is made out by the caveator that there is such a caveatable interest, that balance of convenience issues will result in removal. However, if for example the interest claimed by the caveator is a security interest or an interest in competition with another claimant against the registered proprietor, then balance of convenience issues may become decisive.
[4] Westpac Banking Corporation v Murray Riverside Pty Ltd [2013] WASC 433 [63].
[5] Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95; (2009) 40 WAR 150.
Pullin JA then referred to the example, given by Owen J in Custom Credit, of the case where validity of the interests of two security holders was not in dispute, but where the holder of a registered mortgage had an unquestionably superior interest in the land, the case could only have been about the balance of convenience.
Caveatable interest
As observed above, the first defendant does not dispute that the evidence adduced by the plaintiff supports, at least, an arguable case as the existence of a caveatable interest arising by reason of the charges contained within the construction contracts. The dispute is as to whether BHPBIO's registered interest takes priority over the plaintiff's unregistered charge. This is thus a case of whether the discretion to extend the caveat should be exercised in favour of the caveator having regard to the balance of convenience.
The balance of convenience issue
There was no issue that, if the mortgage to BHPBIO takes priority over the plaintiff's unregistered charge, BHPBIO is entitled to the whole of the proceeds of the sale of the land and the plaintiff's charge is effectively worthless. In that event, the balance of convenience lies clearly in favour of allowing the caveat to lapse and thus allowing BHPBIO the benefit of its security. The plaintiff contends, however, that it has an arguable case that its charge should be afforded priority over BHPBIO registered mortgage.
Is the plaintiff's charge entitled to priority?
As the plaintiff acknowledges, an interest in land registered on the title to that land takes priority over any unregistered interests by virtue of s 68 of the TLA. The plaintiff also acknowledges, correctly, that, by reason of s 134 of the TLA, a registered interest holder is not 'affected by notice actual or constructive of any ... unregistered interest' and that 'knowledge that any such ... unregistered interest in its inexistence shall not of itself be imputed as fraud'. The plaintiff relies, however, on the exception to both s 68 and s 134 to the effect that those provisions do not apply in cases where the registered interest holder is guilty of fraud. It contends that there is an arguable case that the fraud exception applies in this case.
The plaintiff puts its argument in relation to the fraud exception in the following way. It contends that PVA was guilty of dishonest or fraudulent conduct by granting an interest by way of mortgage to BHPBIO which would have the effect of defeating the plaintiff's charge against the property. The facts relied upon to support that conclusion are that:
(i)The plaintiff had a history of difficulties in obtaining payments for work which it did for PVA on the land;
(ii)On 19 April 2011, Mr Boni, a director of the plaintiff emailed PVA's representative, Mr Cornish, in relation to payment for outstanding works performed under the contracts. On 23 April 2011, Mr Cornish replied saying '$150K was transferred on Thursday. I would like to meet this week to confirm close‑out scope and agreed schedule of payments.'
(iii)PVA was aware from 7 December 2010 that the plaintiff had a charge against the property by reason of the provision to that effect in the construction contracts;
(iv)On 28 June 2011, PVA was aware that the plaintiff had commenced proceedings to recover an amount of $430,299.19 in the Federal Magistrates Court of Australia;
(v)The amount $430,299.19 was awarded in the judgment against PVA on 16 February 2013;
(vi)PVA was aware of the matters set out above when its office has executed the mortgage in favour of BHPBIO on 20 April 2012. The mortgage secured a facility of a $100,000,000.00, and advances of $53,040,000.00 were eventually made, secured against a property which PVA had purchased for $7,500,000.00 on 31 March 2010. Thus, it is argued, PVA must have known that it was depriving the plaintiff of its security by granting the mortgage to BHPBIO, and in doing so, it acted, in the relevant sense, fraudulently.
The facts relied upon by the plaintiff are not capable of amounting to fraud.
The fraud referred to in s 68 and s 134 of TLA is actual fraud, involving some act of dishonesty on the part of the person whose title is sought to be impeached.[6]
[6] Bahr v Nicolay (No 2) (1988) 164 CLR 604, 630 (Wilson & Toohey JJ).
Put at its very highest, the plaintiff's case appears to be that PVA breached an implied term of the construction contracts that they would not interfere with the enjoyment by the plaintiff of its rights under the construction contracts, and in particular its security interest, that it did so intentionally, and thus acted dishonestly.
In Bahr v Nicolay,[7] Wilson and Toohey JJ, at 630 ‑ 631, referred to the decision of the Privy Council in Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd,[8] where the judicial committee said:
If the designed object of a transfer be to cheat a man of a known existing right, that is fraudulent, and also fraud may be established by deliberate and dishonest trick causing an interest not to be registered and thus fraudulently keeping the register clear. It is not, however, necessary or wise to give abstract illustration of what might constitute fraud in hypothetical conditions, for each case must depend upon its own circumstances. The act must be dishonest, and dishonesty must not be assumed solely by reason of knowledge of an unregistered interest.
[7] Bahr v Nicolay (No 2) (1988) 164 CLR 604.
[8] Waimiha Sawmilling Co Ltd v Waione Timber Co Ltd [1925] AC 101, 106 ‑ 107.
The first difficulty with the plaintiff's argument (assuming for present purposes that it can establish the relevant implied term) is that a breach of contract does not, of itself, amount to dishonesty. To establish fraud on the part of PVA, the plaintiff must establish that PVA set out to defeat the plaintiff's charge, or reduce the value of its security, by granting a mortgage to BHPBIO, and thereby acted fraudulently. The plaintiff seeks to infer dishonesty from the fact that PVA knew of the existence of the charge, and knew of the existence of a claim in respect of unpaid monies, and yet proceeded to grant the mortgage to BHPBIO to secure a debt in excess of the value of the land.
According to Mr Vincent Smith, one of the joint and several receivers of PVA, the mortgage to BHPBIO was registered shortly after the third tranche of funds were provided to PVA. The third tranche was for an amount of $30,250,000.00. Those funds were used to discharge the existing first mortgage over the property to St George Finance Ltd and St George Bank. The evidence before me does not make it clear how much of that $30,250,000.00 was applied to pay out the previous first ranking mortgage. It may well be, therefore, that the amount owing to St George Bank and St George Finance Ltd by PVA secured by that mortgage exceeded the value of the land. If that were the case, replacement of the previous mortgage by the mortgage to BHPBIO would have had no effect on the value of the plaintiff's unregistered charge. In that event, there would not appear to be any foundation for the allegation of a breach of the alleged implied term by PVA, because the transaction could not have diminished the benefit of the contractual charge held by PVA. The plaintiff has adduced no evidence to establish whether the value of its charge was affected by the replacement of the St George Bank mortgage with the BHPBIO mortgage.
It can also be noted that at the time the mortgage was assigned on behalf of PVA, the plaintiff's claim, which had originally been commenced in the Federal Magistrates Court, had been dismissed by that Court for want of jurisdiction. It is apparent from the decision on costs in the Federal Magistrates Court[9] that PVA had defended those proceedings and counterclaimed. The day before PVA executed the mortgage, the plaintiff commenced the action in this Court which ultimately led to the judgment in February 2013 in its favour. The fact that PVA was resisting its liability to pay the amounts claimed by the plaintiff undermines the plaintiff's contention that PVA embarked upon a course of conduct designed to defeat the charge in the context of an acknowledged and undisputed debt.
[9] Maxton & Maxton Australia Pty Ltd v Prt Village Accommodation Pty ltd (No 2) [2012] FMCA 359.
The allegation of dishonest intent is entirely based on inference. The inference cannot be drawn simply on the basis that PVA knew of the charge and knew that the plaintiff was claiming monies for work done under the construction contracts.
In all the circumstances, the evidence adduced by the plaintiff is insufficient to support any allegation of fraud on the part of PVA.
The allegation of fraud on the part of BHPBIO
As I understand the plaintiff's contention, it is that BHPBIO is fixed with liability for the fraud of PVA on the basis of the second limb of Barnes v Addy,[10] namely that BHPBIO is liable because it assisted PVA to defeat the plaintiff's security with knowledge of a dishonest and fraudulent design on the part of PVA.
[10] Barnes v Addy (1874) LR 9 Ch App 244.
This basis of liability obviously falls away as a result of my conclusion that there is no evidence to support a finding of fraud on the part of PVA. In any event, the authorities establish that simply to acquire land with notice of an unregistered interest and then to refuse to acknowledge the existence of the interest is not itself fraud.[11] In Bahr, Wilson and Toohey JJ noted the statement by Kitto J in Mills v Stokman,[12] where he said that 'merely to take a transfer with notice or even actual knowledge that its registration will defeat an existing unregistered interest is not fraud'. That position is reinforced by s 134 of the TLA which specifically provides that actual or constructive notice of any unregistered interest on the part of a person registering an interest 'shall not of itself be imputed as fraud'.
[11] Bahr v Nicolay (No 2) (1988) 164 CLR 604, 630 (Wilson & Toohey JJ). See Oertel v Hordern (1902) 2 SR (NSW) Eq 37; Wicks v Bennett (1921) 30 CLR 80; Friedman v Barrett; Ex Parte Friedman [1962] Qd R 498; RM Hosking Properties Pty Ltd v Barnes [1971] SASR 100; and Achatz v De Reuver [1971] SASR 240.
[12] Mills v Stokman (1967) 116 CLR 61, 78.
The only evidence as to the actual knowledge of an officer of BHPBIO of the plaintiff's claim is that provided by a supply manager of BHPBIO, Mr Michael Buzzard. He deposed to the fact that BHPBIO procured a report entitled 'Detailed financial and performance assessment ‑ Port Village Accommodation Pty Ltd' prior to entering into the financial arrangements with PVA. That report included a reference to a claim by the plaintiff in relation to construction works, noted that the contract was terminated for non‑performance in April 2011, that a replacement contract or was brought in to finish the works, and that there was a counterclaim made by PVA. The report identified a maximum loss as $430,299.19 'with no impact on operational performance', and a counterclaim maximum gain of $290,000.00.
The plaintiff asserts that, with that knowledge, BHPBIO should have been put on notice that:
(i)there may have been a charge of the nature contained in the construction contracts between PVA and the plaintiff; and
(ii)taking security over the land might defeat that charge.
The plaintiff argues that, in those circumstances, BHPBIO was required to make enquiries as to the existence of any charge and, presumably, whether PVA was engaging in some dishonest or fraudulent activity to defeat that charge. Its failure to do so, the plaintiff argues, makes it liable to a finding that it participated in PVA's fraud.
In Farah Constructions Pty Ltd v Say‑Dee Pty Ltd,[13] the Court identified that the requirement of knowledge in the second limb of Barnes v Addy could be made out in four circumstances, namely:
(i)actual knowledge;
(ii)wilfully shutting one's eyes to the obvious;
(iii)wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; and
(iv)knowledge of circumstances which would indicate the facts to an honest and reasonable man.
[13] Farah Constructions Pty Ltd v Say‑Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89.
It is not reasonably arguable that mere knowledge of the existence of a claim for a contractual sum, even if it might be possible that that contractual sum was secured by an unregistered interest in land, is sufficient to conclude that BHPBIO knew of circumstances which would indicate some fraudulent conduct on the part PVA, even if, contrary to my earlier conclusion, PVA's conduct could be considered to be fraudulent.
The highest the plaintiff's case could be put is that BHPBIO had some constructive notice of the existence of the plaintiff's unregistered charge but proceeded to register its own security. Even if that contention could be made out (which is by no means certain) BHPBIO is entitled to the benefit of s 134 of the TLA.
It was for those reasons that I refused to extend the caveat.
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