Navarac Pty Ltd v Moondancer Holdings Pty Ltd - [2009] WASCA 95

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE COURT OF APPEAL (WA)

CITATION: NAVARAC PTY LTD -v- MOONDANCER HOLDINGS PTY LTD [2009] WASCA 95

CORAM: PULLIN JA
MILLER JA
NEWNES JA

HEARD: 13 MAY 2009

DELIVERED : 29 MAY 2009

FILE NO/S: CACV 25 of 2009

BETWEEN: NAVARAC PTY LTD (ACN 071 456 212)
Appellant
AND
MOONDANCER HOLDINGS PTY LTD (ACN 126 519 908)
First Respondent
REGISTRAR OF TITLES
Second Respondent

ON APPEAL FROM:
Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA
Coram  :TEMPLEMAN J
Citation  :NAVARAC PTY LTD -v- MOONDANCER HOLDINGS PTY LTD [2009] WASC 68
File No  :CIV 1262 of 2009

Catchwords:

Real property - Torrens system - Caveat - Removal of caveat - Significance of balance of convenience - Unit trust - Unit holder lodging caveat - Trustee of unit trust exercising power of sale - Whether caveat should be removed

Legislation:

Transfer of Land Act 1893 (WA), s 138(2)

Result:

Appeal allowed subject to a condition

Category: A

Representation:

Counsel:

Appellant:     Mr G R Donaldson SC & Ms C H Thompson
First Respondent           :     Mr N C Dillon
Second Respondent      :     No appearance

Solicitors:

Appellant:     Fairweather & Lemonis
First Respondent           :     Metaxas & Hager
Second Respondent      :     No appearance

Case(s) referred to in judgment(s):

Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14
Custom Credit Corporation v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Eng Mee Yong v Letchumanan [1980] AC 331
House v The King [1936] HCA 40; (1936) 55 CLR 499
Interview Holdings Pty Ltd v Registrar of Titles [2008] WASC 144
Lewenberg v Direct Acceptance Corporation Ltd [1981] VR 344

PULLIN JA: The appellant (Navarac) appeals against the judgment of Justice Templeman. His Honour dismissed Navarac's originating summons, seeking an order pursuant to s 138(2) of the Transfer of Land Act 1893 (WA), directing the first respondent (Moondancer) to remove a caveat it had lodged over certain properties of which Navarac was the registered proprietor.
The facts set out below are drawn from Templeman J's reasons for decision or from affidavits filed in the proceedings. Where a fact asserted is in dispute, I will indicate this. Navarac is the trustee of the Car Child Unit Trust (Car Child Trust). Two directors of Navarac are Maddeleine Caratti and Aaron Caratti. Two units have issued. One unit has been held since the settlement of the Car Child Trust by Venetian Nominees Pty Ltd, as trustee for the JMC Child Trust (JMC Trust). The JMC Trust is a trust for the children of John Michael Caratti, who is Maddeleine Caratti's son. When the Car Child Trust was established, the other unit holder was Tosman Pty Ltd (Tosman). Tosman was the trustee of the ABC Child Trust (ABC Trust). The beneficiaries of the ABC Trust are the children of Allen Bruce Caratti, who is John Caratti's brother. Moondancer claims to be the successor in title to Tosman's unit in the Car Child Trust. Allen Caratti, who is the sole director of Moondancer, deposes in an affidavit that by a deed dated 18 July 2007 and stamped 21 September 2007, Tosman retired as trustee of the ABC Trust and Moondancer was appointed as trustee of that trust. This is denied by Navarac. Allen Caratti also asserts that he is a director of Navarac, which is a fact in dispute.
On 5 October 2007, soon after Moondancer claimed it had become a unit holder, Moondancer lodged caveat K367668 over various pieces of land of which Navarac was the registered proprietor, including land which is defined as the 'Bertram land' in the next paragraph, claiming an interest 'as a beneficiary of a trust against land registered in the name of the trustee for the trust'.
Navarac owns a considerable amount of land. Part of Navarac's present business involves the development and sale of land and it is the owner, relevantly, of a parcel of 5.2607 hectares of land at Bertram in the southern suburbs of Perth, which was formerly Lot 9009 on deposited plan 48905 and being the whole of the land in certificate of title vol 2636 folio 264 (Bertram land).
Between 1999 and 2008, Navarac undertook a staged development of the Bertram land for the purpose of residential subdivision and the sale of subdivided lots to purchasers. In 2003, Navarac mortgaged certain parcels of its land, including the Bertram land, to the National Australia Bank (NAB). The mortgage was registered at the Office of Titles (I378717) on 10 February 2003. As part of the process of developing the Bertram land, on or about 7 January 2009, Landgate issued, on Navarac's application, 81 new certificates of title for residential lots located within the Bertram land areas (Residential Lots). Moondancer's caveat prevented any dealing with the Bertram land and would have prevented the issue of the 81 new titles. However, Moondancer agreed to lift the caveat so that Landgate could issue the 81 new titles. Navarac then offered the 81 Residential Lots for sale on the open market. Maddeleine Caratti deposes in an affidavit placed before Templeman J that the Residential Lots have been particularly marketed to first home buyers who were able to utilise government grants of up to $21,000 to assist in their purchase. As at the date of Maddeleine Caratti's affidavit sworn 30 January 2009, five of the Residential Lots were the subject of unconditional contracts for sale by way of offer and acceptance (Sold Lots). In addition to the five Sold Lots, there were a further 14 lots which were the subject of offers to sell, each of which were conditional offers, mainly subject to finance approval. The remaining lots (in excess of 60) were unsold and are being actively marketed by Navarac.
On 9 February 2009, in proceedings pursuant to the originating summons which later came before Templeman J, Moondancer consented to an order of the court (made by Newnes J, as his Honour then was), lifting the caveat in relation to the five Sold Lots, and one other lot, to allow settlement to take place. Each of those sales was a sale of land free of encumbrances and in each case NAB discharged the mortgage in return for receipt of the purchase moneys paid by the purchasers.
As previously mentioned, the parties are in dispute about Moondancer's contention that Moondancer is the trustee of the ABC Trust. They are also in dispute about whether Allen Caratti is a director of Navarac. Allen Caratti and Moondancer contend that there have been various breaches of trust by Navarac. The proceedings between the parties are as follows:
(a)On 18 January 2008, in Supreme Court action CIV 1061 of 2008, Moondancer sued Navarac and other parties and their directors. In these proceedings, Moondancer seeks relief, including an order for an inquiry by a master as to loss allegedly suffered by the Car Child Trust, an order that the Car Child Trust vest; and an order that a receiver be appointed to get in the assets and distribute them to the beneficiaries.
(b)On 6 June 2008, Allen Caratti commenced Supreme Court action COR 71 of 2008 against Navarac and other companies seeking production of their financial statements.
(c)On 13 August 2008, in Supreme Court action CIV 2006 of 2008, John Caratti sued Allen Caratti and other defendants. John Caratti in this action claims a declaration as to Allen Caratti's entitlement to various shares in various companies as a result of an alleged partnership agreement between Allen Caratti and John Caratti and an alleged deed dated 27 September 2002.
(d)On 1 November 2007, in Supreme Court action CIV 2102 of 2007 Navarac sued Moondancer seeking removal of the caveat in relation to another piece of land.
Reference has already been made above to the fact that NAB holds a registered mortgage over the title to the Bertram land and the 81 Residential Lots which were created out of the Bertram land. An affidavit of Justin Capolicchio, sworn 5 February 2009, deposes that he is a bank officer employed by NAB. His affidavit states that Navarac granted a mortgage and other securities to NAB and that NAB has a registered first mortgage over the Bertram land. The affidavit reads:
8.The Bank has been requested by the Customer to discharge the Mortgage to facilitate the sale of the Residential Lots and in particular, at present, to facilitate the settlement of the sale of five lots known as the Sold Lots.
9.The Bank has agreed to only discharge the Mortgage over the Sold Lots upon the condition that the full proceeds of the sale, after deduction of the usual costs relating to sale, are paid to the Bank, to service and reduce the indebtedness of the Customer to the Bank.
10.Unless the full proceeds of sale of the Residential Lots (less the usual costs of sale) are paid to the Bank upon settlement of each of those lots, the Bank intends to retain the Mortgage over those lots and not allow the sale of any of the Residential Lots to be effected.
11.The Bank will not release the Mortgage over all of the Residential Lots at the same time. The Bank will only release the Mortgage over a Residential Lot at the time of the settlement of its sale and then intends to retain the Mortgage over each of the remaining Residential Lots until that lot is to settle, and then will release its Mortgage only on condition that it receives the full proceeds of the sale of each lot, after deduction of the usual costs relating to sale, at settlement.
12.After discharge of the Mortgage over each of the Residential Lots, at the settlement of the sale of each of those lots, the Bank will retain the Mortgage over any unsold Residential Lots and over the Other Land to secure the indebtedness of the Customer to the Bank.
Neither party gave Templeman J, or this court, evidence as to the current level of the debt secured by the NAB mortgage. There was other affidavit material placed before the court by Moondancer about the bank's position. In one of those affidavits sworn 5 November 2007, filed in action CIV 2102 of 2007, Mr Jeffrey Pontifex deposed that he was a bank officer employed by NAB. He deposed that NAB had provided a commercial bill facility to Navarac and other companies in the Caratti group (some of which are companies in which Moondancer has no interest). A schedule of facilities granted to Navarac showed that the commercial bill facility granted to Navarac was for an approved limit of $51,506,016 (green AB 441) but, as at the date of Mr Pontifex's affidavit $47,396,406 had been drawn (green AB 441). However, Mr Pontifex deposed in another affidavit sworn 1 November 2007, that the total amount of the facility to Navarac and the Caratti Group was in excess of $53 million. Mr Pontifex's affidavit stated:
7.I have reviewed the records of the Bank relevant to the plaintiff. Annexed hereto and marked JP4 is a schedule of facilities granted to the plaintiff by the Bank. The facilities set out in JP4 are supported by securities which the plaintiff has granted the Bank, including the NAB mortgage referred to in My First Affidavit, an Interlocking Company Guarantee and Indemnity dated 15 September 2005 (First Interlocking Guarantee) and a further Company Guarantee and Indemnity (Second Interlocking Guarantee). Annexed hereto and marked JP5 is a true copy of the First Interlocking Guarantee. Annexed hereto and marked JP6 is a true copy of the Second Interlocking Guarantee. Annexed hereto and marked JP7 is a schedule of the securities granted by the plaintiff to the Bank.
8.By reason of clauses 3 and 18 of the First Interlocking Guarantee, clauses 14.1 and 29 of the Second Interlocking Guarantee and clauses 1.1 and 46 of Memorandum J480223 incorporated into the NAB mortgage, the Bank regards the First Interlocking Guarantee, the Second Interlocking Guarantee and the NAB mortgage as securing all liabilities under the NAB mortgage and all liabilities owed to it pursuant to the facilities set out in the schedule which is JP4 to this affidavit.
9.As at the date of swearing this affidavit, the present liability of the plaintiff to the Bank is $47,396,406 in drawn down funds (present liability) and $51,506,016 in terms of the approved limits of all borrowings.
It is important to note that Tosman was a party and signatory to both the First Interlocking Guarantee and the Second Interlocking Guarantee. Thus, since 2005 the trustee of the ABC Trust has been aware of the arrangement Navarac had with the bank.
In action CIV 2102 of 2007 the bank indicated that it had agreed with Navarac to discharge its mortgage over the property the subject of those proceedings (not the Bertram land) in reduction of Navarac's and the Caratti Group's liability to the bank, being approximately $26 million. In those proceedings, an order was made on 2 November 2007 by Acting Master Chapman (as he then was), ordering the caveat to be lifted as a result of which, it may be inferred that $26 million was paid to NAB.
Allen Caratti, in his affidavit in action CIV 2102 of 2007 (which was placed before Templeman J), exhibited a copy of Navarac's accounts for the year ended June 2006, indicating that at that stage Navarac was indebted to NAB to the extent of approximately $7 million. As mentioned previously, it is not possible to say what the position was concerning the balance of the NAB facility at the time the hearing took place before Templeman J. Allen Caratti's affidavit, referred to above, refers to land sold by Navarac since 1996. His affidavit states that he estimates that over the last 11 years, Navarac has sold land worth in excess of $50 million. Allen Caratti contends in his affidavit that notwithstanding those sales, Tosman never received any distributions from the Car Child Trust. His affidavit concludes:
I am apprehensive that unless restrained, Navarac, acting under the control of my brother John and my mother will act to disperse the proceeds from the sale of the land for John's benefit and to my detriment.
He says that he refers to and relies upon his affidavit sworn 13 May 2004 and filed in CIV 1546 of 2004 and his affidavits sworn 17 and 25 March 2004 in CIV 1348 of 2004. Those affidavits were not reproduced in the appeal book or shown to the court.
Finally, it is important to refer to some email correspondence between the solicitors for the parties shortly before the order was made by Justice Newnes lifting the caveat to allow the settlement in relation to the five unconditional sales and one other. The series of correspondence begins with an email letter from Martella & Co (solicitors for Navarac) dated 12 January 2009 to Metaxas & Hager (solicitors for Moondancer). It referred to the issue of the 81 new titles on 7 January 2009. It stated Navarac had sold 16 lots; three sales were unconditional; and to allow settlement of the lots to proceed without the necessity for incurring the expense of issuing notices 'we ask that your client would agree to provide withdrawals of the caveat K367668 in relation to the Lots'. On 14 January 2009 Metaxas & Hager responded to this in an email to Martella & Co which read, after referring to their email:
My client will do what is necessary for the unconditional sales to be effected provided your clients send us the 2007 and 2008 accounts we have been chasing for the last year or so. I am sure you can provide them without any difficulty.
Martella & Co responded to this by an email letter dated 23 January 2009. The email directed to Metaxas & Hager read:
We confirm that we have served on your client Moondancer Holdings Pty Ltd five notices of Intended Registration in relation to the unconditional sales of lots …
We confirm that we also sent copies of these notices directly to you.
We have received instructions to issue an Originating summons for your client to show cause why caveat number K367668 [should] not be removed.
We ask that you please advise us by midday on Tuesday 27 January 2009 that your client will remove the caveat without the necessity of issuing the summons.
Metaxas & Hager responded to this on the same day with a one sentence email reading:
I repeat, send me the accounts and you will have a withdrawal.
On 5 February 2009, Navarac commenced proceedings under s 138(2) of the Transfer of Land Act 1893, requiring Moondancer to show cause why its caveat should not be removed. This application resulted in the consent order for removal of the caveat made by Newnes J and the order of Templeman J which is under appeal. Both parties relied upon affidavits filed in the other proceedings; only Justin Capolicchio's (a bank officer of NAB) affidavit was sworn specifically for the purpose of the proceedings before Templeman J. Allen Caratti's affidavit (referred to above), sworn 1 November 2007, in action CIV 2102 of 2007, concerning other land the subject of the caveat, stated:
Moondancer does not seek to impede settlement under the contract for the sale of the land [not the Bertram land but land the subject of these proceedings] provided that the proceeds of sale after payment of the secured liability to the NAB as recorded in the Accounts is paid into an interest bearing trust account at the NAB until further order.
The reference to the 'Accounts' is a reference to the Caratti Group accounts for the year ended 30 June 2006.

The reasons of Templeman J

Counsel for Navarac conceded, for the purpose of the proceedings, that Moondancer had a caveatable interest because of its claim to be the unit holder of the Car Child Trust. The only issue concerned whether or not the balance of convenience favoured an order lifting the caveat. At [50] of his Honour's reasons, he said:
In relation to the balance of convenience, Navarac points to the fact that as a result of interim orders made by Newnes J on this application, and as a result of certain consents on the part of Moondancer, the caveat has been lifted to enable the purchasers of a number of the newly created lots in the Bertram subdivision to obtain a clear title on settlement. That being so, Navarac now seeks the removal of the caveat in relation to only 11 lots which are the subject of conditional contracts for sale and 63 lots, as yet unsold, which, it is said, are being 'actively marketed'.
Navarac relied on the decision of Interview Holdings Pty Ltd v Registrar of Titles [2008] WASC 144 where the caveat had been lodged after a first mortgage had been registered. His Honour distinguished Interview Holdings on the basis that the application for removal was made by the mortgagee, not the mortgagor. His Honour noted that in this case NAB was not seeking to exercise its power of sale. It was only seeking to exercise its rights not to release the land from the mortgage unless it received the proceeds of sale. His Honour recorded the fact that counsel for Moondancer told him that it did not wish to impede sales and noted that Moondancer had already consented to lift its caveat to the extent necessary to enable the sale of some of the land to take place. Moondancer submitted, and his Honour recorded, that Moondancer could not see any way of safeguarding the proceeds of sale and ensuring that they were not applied in breach of trust other than maintaining its caveat. His Honour noted that this 'is or may be' a 'self‑harming approach' since on its case, Moondancer stood to suffer half of any loss resulting from Navarac's inability to carry on its business [58]. Navarac advanced a further balance of convenience argument, submitting that even if the caveat was removed, it would remain over large tracts of land held by Navarac which were valued at some $11 million in 2003. His Honour noted however, that there was no evidence as to the present value of that land. The order proposed by Moondancer that the application be dismissed unless, within 21 days, Navarac provided Moondancer with Navarac's accounts for 2007 and 2008, along with details of Navarac's indebtedness or facilities entered into with its bankers and details of how Navarac proposed to deal with the proceeds of the sale of the land at Bertram was also noted. His Honour stated that he would not make the order because it would pre‑empt the discovery issue in action CIV 1061 of 2008 and would amount to final relief, at least against Navarac in COR 71 of 2008. His Honour concluded:
As I have noted above, the approach which I am bound to take, having regard to the decision of the Full Court in Custom Credit, is that, because an arguable case as to the existence of Moondancer's caveatable interest has been demonstrated, the caveat must remain unless the circumstances are so unusual as to justify its removal.
Although I have had regard to all of the circumstances relied on by Navarac, I am not persuaded that they are sufficient to justify a departure from the normal rule [67] [68].

Ground of appeal

There is a single ground of appeal which reads:
1.The learned Judge erred in the exercise of his discretion under s 138(2) of the Transfer of Land Act 1893 by not making an order that the Caveat be removed when:
(a)the first respondent's interests are protected by the caveat remaining over the balance of the caveated land and by the proceedings on foot between the parties;
(b)there is no suggestion that the sales were inappropriate or otherwise than in the ordinary course of business;
(c)the retention of the caveat will adversely affect third party rights;
(d)no undertaking as to damages is given;
(e)the Caveat has been maintained used to exert improper pressure on a Navarac so as to obtain by other means relief which is in contest between them in existing proceedings in the CMC List.
Section 138 of the Transfer of Land Act reads:
(1)Upon receipt of such caveat the Registrar shall notify the same to the person against whose application to be registered as proprietor or (as the case may be) to the proprietor against whose title to deal with the estate or interest such caveat has been lodged and the judgment creditor named in any property (seizure and sale) order registered under section 133 in respect of the judgment debtor's saleable interest in such land.
(2)Any such applicant, proprietor or judgment creditor, or any person claiming under any transfer or other instrument signed by the proprietor may if he think fit summon the caveator to attend before the Supreme Court or a judge in chambers to show cause why such caveat should not be removed; and such court or judge may upon proof that such caveator has been summoned make such order in the premises either ex parte or otherwise as to such court or judge may seem fit.
(3)Except in the case of a caveat lodged by or on behalf of a beneficiary claiming under any will or settlement or by the Registrar pursuant to the direction of the Commissioner every caveat lodged against a proprietor shall be deemed to have lapsed as to the land affected by the transfer or other dealing upon the expiration of 14 days after notice served on the caveator that such proprietor has applied for the registration of a transfer or other dealing unless in the meantime such application is withdrawn.
(4)A caveat shall not be renewed by or on behalf of the same person in respect of the same estate or interest except subject to the state of the Register at the time of the renewal of such caveat; but if before the expiration of the said period of 14 days or such further period as shall be specified in any order made under this section the caveator or his agent appears before a judge and gives such undertaking or security or lodges such sum in court as such judge may consider sufficient to indemnify every person against any damage that may be sustained by reason of any disposition of the property being delayed then and in such case such judge may direct the Registrar to delay registering any dealing with the land lease mortgage or charge for a further period to be specified in such order or may make such other order as may be just.
The section confers a statutory discretion on the court. In Custom Credit Corporation v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 48, Owen J (Malcolm CJ and Walsh J agreeing) referred to and quoted Lord Diplock's judgment in Eng Mee Yong v Letchumanan [1980] AC 331 to the effect that the caveator:
[M]ust first satisfy the court that on the evidence presented to it, his claim for an interest in the property does raise a serious question to be tried and having done so, he must go on to show that on the balance of convenience, it would be better to maintain the status quo until the trial of the action by preventing the caveatee from disposing of his land to some third party (337).
Owen J stated that the pronouncement in the Eng Mee Yong case was clearly correct, insofar as it dealt with the onus of demonstrating the existence of a caveatable interest, but that the reference to the balance of convenience required further comment. As to this, after some discussion, Owen J at 50, concluded that the balance of convenience was a factor to be considered in an application under s 138, but that the interlocutory removal of a caveat where an arguable case as to the existence of a caveatable interest has been demonstrated 'will be unusual'.
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. Owen J, at 49 in Custom Credit, gave an example where he referred to Lewenberg v Direct Acceptance Corporation Ltd [1981] VR 344. In that case, the contest was between a registered mortgagee and the holder of an unregistered mortgage. The unregistered mortgagee had lodged a caveat. The registered mortgagee was being prevented by the caveat from passing title under a power of sale which appeared to have been validly exercised. There, the validity of the interest which both contestants had in the land was not in dispute and therefore the holder of the registered mortgage had an unquestionably superior interest in the land. As Owen J said 'but the case was, and could only have been, about the balance of convenience' (49). The Custom Credit case is significantly different from this case, because in Custom Credit the respondent had proceedings on foot seeking to have the appellant's mortgage set aside, to the extent that it contained a charge over the land in question. If the proceedings to set aside the mortgage succeeded, then the respondent would have had an unencumbered interest in the land.
In this case, Navarac concedes that Moondancer has an arguable case that it has a caveatable interest in the Bertram land and the Residential Lots. Moondancer's case is that it is the holder of a unit in the Car Child Trust. Templeman J determined that Moondancer had an equitable proprietary interest in the Bertram land and the Residential Lots. See Binningup Nominees Pty Ltd v Brogue Tableau Pty Ltd [2004] WASC 14 [19] and the authorities there cited. The interest is an interest in each of the assets which comprise the entirety of the Car Child Trust Fund and under the express terms of the Car Child Trust Deed, a unit holder is not entitled to the transfer of any property comprised in the Trust Fund. See Templeman J at [24].
On the other hand, there is no doubt that Navarac is the registered proprietor and therefore the legal owner of the Bertram land and as trustee has express power under the Car Child Trust Deed to sell the Bertram land and the Residential Lots. Furthermore, NAB has an unchallenged registered mortgage over the Bertram land and the Residential Lots. In those circumstances, balance of convenience issues become very important.
The following important facts and matters were known to Templeman J when he came to make his decision. First, Moondancer facilitated the progress of the subdivision project by agreeing to lift the caveat to allow the en globo land to be converted into the 81 Residential Lots. Secondly, Navarac is the registered proprietor of the Bertram land and Residential Lots and has power under the Car Child Trust Deed to sell the Residential Lots. Thirdly, Moondancer consented to orders lifting the caveat to allow six sales of the Residential Lots to settle. Fourthly, Moondancer's counsel informed Templeman J, that it did not wish to impede sales. Fifthly, Moondancer implied, via its solicitors Metaxas & Hager, that it wanted to use the existence of the caveat to obtain financial statements from Navarac, in circumstances where there is on foot a dispute between Navarac and Moondancer about whether or not Moondancer in entitled to those financial statements. Sixthly, in relation to other land, Moondancer consented to the lifting of the caveat in order to effect settlement of a sale of land to permit a substantial sum of money, namely $26 million to be paid to the NAB to reduce indebtedness to the bank. Seventhly, NAB has a mortgage over the 81 Residential Lots and if any lot is sold while the debt secured by the mortgage is undischarged, NAB is in a position to require the proceeds of sale to be paid to it in return for a discharge of the mortgage. Finally Tosman, Moondancer's predecessor, knew about the interlocking guarantees, referred to in Mr Pontifex's affidavit, since 2005 and Moondancer has not advanced any evidence that it did not know about the arrangement with the bank. These factors would all have contributed to and encouraged Navarac to market the Residential Lots, to exercise its power of sale and to pay proceeds to the bank. These are all factors which, when considering the balance of convenience, strongly favour removal of the caveat.
There is only one factor which would weigh against the lifting of the caveat. It is the submission by Moondancer that it is concerned because of the interlocking guarantees, that the payment of purchase moneys to the bank may be reducing indebtedness of other companies in the Caratti group in which Moondancer has no interest. However, it was not Moondancer's concern when it permitted the lifting of the caveat in relation to the sale of other land which resulted in a very large payment to NAB; it was not a concern offered as a reason for refusing to lift the caveat when Metaxas & Hager corresponded with Navarac's lawyers; it was not its concern when it agreed to lift the caveat to allow the issue of the 81 titles; and it was not its concern when it consented to the orders made by Newnes J. In addition, there is the critical evidence that Tosman, Moondancer's predecessor, was a party to the interlocking guarantees and Moondancer has not advanced any evidence that it did not know about the interlocking guarantees. Furthermore, Moondancer has not made any claim that the bank's mortgage should be set aside and in the absence of any such claim then the bank is in a position to insist that the proceeds of the sale of Residential Lots be paid to it, until the secured debt is discharged.
Templeman J's decision was a decision made in the exercise of the discretion conferred by s 138. If the appeal is to succeed, Navarac must demonstrate on the principles set out in House v The King [1936] HCA 40; (1936) 55 CLR 499 that his Honour erred in the exercise of that discretion. Navarac submitted, in effect, that his Honour's decision was, upon the facts, unreasonable or plainly unjust.
In my opinion, it does not appear how his Honour reached the result that he did. His Honour referred to what was said by Owen J in Custom Credit and then simply concluded that this was not one of those unusual cases in which the balance of convenience favoured the lifting of the caveat. In view of the factors set out above, this is, in my opinion, one of those cases where there are overwhelming factors which favour a lifting of the caveat. As stated above, this case is one where balance of convenience factors are of very great importance. In addition to the factors mentioned above, the caveat has the effect of prejudicing third parties who have entered into contracts to purchase land free of encumbrances, in circumstances where, up until recently, Navarac was encouraged by Moondancer's conduct to assume that the caveat would be lifted to permit settlement with third party purchasers. Further, the decision adversely affects Navarac and ultimately the two unit holders (including Moondancer, if it is held to be a unit holder). They will suffer financially if trust assets are diminished by damages which may be awarded to purchasers if settlements do not take place and interest that Navarac will have to pay purchasers for delays in settlement. As a result, his Honour failed to properly exercise the discretion conferred by s 138 because the decision is, with respect, unreasonable and unjust. As a result of that error, the judgment should be set aside.
In addition, although there is no ground of appeal to this effect, it appears that his Honour also erred by acting on wrong principle. His Honour treated what was said by Owen J in the Custom Credit case as the test to be applied under s 138 in deciding whether to make an order removing the caveat. His Honour seemed to envisage a two‑step process in which once the caveator made out an arguable case for a caveatable interest, it must be shown that the 'circumstances are so unusual' that the caveat should be removed. That is not required by the statute and the comment of Owen J, previously referred to, that it would be 'unusual' to discharge a caveat, is not a proposition of law but simply a general observation as a matter of fact.
If the judgment of Templeman J is set aside, it is then necessary to exercise the discretion anew. In the exercise of that discretion and taking into account the factors referred to above, there should be an order that the caveat be lifted in relation to the remaining Residential Lots. That conclusion is reached because, notwithstanding Moondancer's allegations about breach of trust, all the other factors mentioned overwhelmingly favour an order that the caveat be removed. However, the order should be made the subject of a condition that moneys paid by the purchasers should be paid to NAB, only insofar as such payment is necessary to reduce any debt secured by the NAB mortgage over the Bertram land and if any payment or part payment completely discharges the bank's debt, then the proceeds should be paid into an interest‑bearing account pending resolution of the disputes between the parties.
Navarac also contended in support of the appeal, that there was ample evidence before his Honour to show that even if Moondancer succeeded in its claims, there would be sufficient money available to satisfy Moondancer's claims. It is impossible to reach that conclusion because the quantum of Moondancer's claims are not known and the

present value of properties owned by Navarac are not known to the court and were not known to Templeman J. The information about assets owned by Navarac and the value put on some of those assets was information to be gathered from the 2006 Navarac accounts. There has been a serious economic decline since 2006 and valuation evidence would be necessary before any conclusion could be reached about the value of Navarac's assets and there of course remains a question about whether or not the assets shown in Navarac's accounts in 2006 are the assets that it now owns. Furthermore, there is no up‑to‑date information about the liabilities of Navarac.

Finally, there was an application made by Navarac to adduce further evidence via two affidavits. The first was an affidavit of Phatcha Mintie Tantiprasut sworn 11 May 2009, which exhibited a further exchange of correspondence between the solicitors for the parties, which contained a proposal in a letter from Navarac's lawyers that Navarac would discover the 2007 and 2008 accounts. Both parties wish to rely upon that affidavit and so it should be received. The contents of the affidavit do not influence the decision which I have already reached.
The second affidavit was an affidavit of Melissa Anne Rodgers sworn 11 May 2009. Ms Rodgers is a conveyancer handling the settlements of the Residential Lots. The affidavit reveals a notice of default and 'ready, willing and able' letters to some of the sales. The application to adduce this evidence was opposed. I would admit the affidavit. However, it does not influence the decision that I have reached. It contains information about the type of events which the court could have inferred from evidence already before the court about what would be likely to happen.
The result is that the appeal should be allowed, the trial judge's order dismissing Navarac's application should be set aside and in lieu there should be an order removing the caveat in relation to the remaining Residential Lots, but subject to the condition referred to above.
MILLER JA: I agree with Pullin JA.
NEWNES JA: I agree with Pullin JA.