Nexus Mortgage Securities v Starmaker (No 51) Pty Ltd No. Scgrg-97-364 Judgment No. 6347 Number of Pages 10 Conveyancing

[1997] SASC 6347

IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA

DOYLE, CJ, MATHESON AND BLEBY JJ

Conveyancing - land titles under the torrens system - caveats against dealings - removal of caveat - caveator lodged caveat claiming equitable mortgage over second respondent's land - application for extension of time for removal of caveat - principles upon which extension granted - whether serious question to be tried - whether balance of convenience favoured extension of time for removal of caveat. Real Property Act, 1886 (SA) s191VII, referred to. Galvasteel Pty Ltd v Monterey Building Pty Ltd (1974) 10 SASR 176; Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198, applied. Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, discussed. Eng Mee Yong v Letchumanan [1980] AC 331; Holt v Anchorage Management Ltd [1987] 1 NZLR 108; BP Oil New Zealand Ltd v Van Beers Motors Ltd [1992] 1 NZLR 211; Re Burman's Caveat [1994] 1 QdR 123; Kingstone Constructions v Crispel (1991) 5 BPR 11,987, considered.

ADELAIDE, 6 August 1997 (hearing), 5 September 1997 (decision)

#DATE 5:9:1997

#ADD 8:9:1997

Appellant:

Counsel: Mr W J Wells QC with Mr G Dart

Solicitors: Ward & Partners

Respondent :

Counsel: Mr D E Clayton QC with Mr M Deller

Solicitors: Deller & Co

Respondent Mawson KLM Holdings Pty Ltd:

No Attendance

Order: appeal allowed

DOYLE CJ

Introduction

A judge of this Court refused to make an order under s191VII of the RealProperty Act, 1886 (SA) ("the Act"), to extend the time for removal of a caveat. The caveat was lodged by the plaintiff, Nexus Mortgage Securities Pty Ltd ("Nexus"). Nexus has appealed against that decision.

A memorandum of the caveat had been entered in respect of land of which Mawson KLM Holdings Pty Ltd ("Mawson") was, at the time of lodgment, the registered proprietor. Mawson is no longer the registered proprietor and has not appeared in these proceedings. The order sought by Nexus was successfully resisted by Starmaker (No 51) Pty Ltd ("Starmaker"). Starmaker is now the registered proprietor of the land in question, the caveat having been a permissive caveat and the transfer from Mawson to Starmaker having been expressed to be subject to the caveat.

When leave was given to appeal to this Court, an order was made extending the time for removal of the caveat.

The issues

The outcome of the appeal turns on three issues.

First, is Nexus able to show that there is a serious question to be tried as to the existence of the interest in the land that Nexus relies upon to support its caveat?

Secondly, on an application such as that made by Nexus, is it appropriate to consider whether the balance of convenience favours the extension of the time for removal of the caveat, once a serious question in the above sense has been demonstrated?

Thirdly, if the last question is answered in the affirmative, did the judge err in his approach to that issue? In particular, was there delay on the part of Nexus such that it entitled the judge to conclude, as he did, that its delay had "... the inevitable consequence that it is not entitled to the order extending the operation of its caveat."?

The facts

On 1 July 1996 Nexus wrote to Mawson offering a loan to Mawson. The offer was apparently in response to an application made by Mawson to Nexus. The amount offered by way of loan was a substantial amount, and was offered on terms set out in the letter. It appears that the lender was not to be Nexus but a third party. Nexus was acting as what was described as a "mortgage broker". It appears that Mawson sought the loan in connection with its purchase of the land which is now the subject of the caveat in dispute.

One of the conditions of the offer was that, upon acceptance, Mawson was to become liable to pay to Nexus "... on demand all costs, charges and expenses paid or incurred by it in relation (sic) the proposed loan, and that such liability shall not be in any way affected by the fact that the proposed loan does not proceed ..."

On 1 July 1996 Mawson accepted the offer by signing an acceptance at the end of the letter. The acceptance was in the following terms:

"I/We hereby accept the above offer of finance and agree to the terms and conditions set out above and hereby charge my interest in the said security to secure any costs payable hereunder."

The letter required that acceptance be indicated by returning the signed letter to Nexus with a bank cheque for $3,000 being an "application fee" of $2,000 and a deposit on legal and other fees of $1,000.

In the proceedings before the Judge below a solicitor filed an affidavit on information and belief. He deposed that he was informed by an employee of Nexus that on 2 July 1996 she agreed, in a telephone conversation, with a representative of Mawson, to vary "the terms of acceptance of the offer of facilities ...". The affidavit states that it was agreed "... that [Mawson] would pay $1,000 of the fees due upon acceptance of the offer with the balance of the fees to be paid when the facilities were drawn down." Mawson executed a mortgage on about 5 July, but that was cancelled when, presumably at about that time also, Mawson decided not to take up the loan offered by Nexus.

Apparently Starmaker provided the necessary funds. On 9 July 1996 Mawson executed a mortgage in favour of Starmaker, and on that day a transfer of the land to Mawson was lodged for registration, as was the mortgage to Starmaker. On that same day Mawson and Starmaker entered into an agreement under which Starmaker acquired an option to purchase the land.

There is no evidence before the court about dealings between Nexus and Mawson in relation to payment of the fees referred to in the letter offering to lend money. On 5 August 1996 Nexus lodged for registration a caveat over the land acquired by Mawson. Nexus claimed "an estate or interest as chargee" relying upon the agreement constituted by Mawson's acceptance of the letter of offer of 1 July 1996.

Starmaker became aware of the Nexus caveat on 24 October 1996.

In the period October-November 1996 Starmaker acquired the land from Mawson, pursuant to the exercise of the option agreement but as varied by a joint venture agreement entered into on 1 November 1997. Mawson executed a transfer of the land in favour of Starmaker, but then got an injunction restraining the Registrar General from registering the transfer to Starmaker.

On 12 February 1997 an order was made that the injunction be dissolved, subject to Starmaker providing a guarantee. Although the guarantee was not provided until 12 March 1997, on 14 February 1997 Starmaker applied to the Registrar General under s191V of the Act to have the caveat removed. While Starmaker could have taken action under s191IV of the Act to remove the caveat before then, my impression is that until then its main concern was Mawson's injunction.

On 5 March 1997 Nexus made application to the court for an extension of time for the removal of the caveat.

Although Starmaker had lodged the transfer in its favour on 12 November 1996, it was not registered as proprietor until 17 March 1997.

The other fact that should be mentioned is that the caveat protects an interest of Nexus as chargee for the amount of $4,386.12. One can only wonder why it is that legal costs, which must on each side be well in excess of the amount in issue, have been incurred over such an amount. However, the matter is before the court and must be resolved.

The legislation

Section 191 of the Act makes provision for the lodging of a caveat by a person claiming to be interested in land. Subparagraph V permits a caveatee to make application to the Registrar General to remove the caveat. The caveat is to be removed after the lapse of twenty-one days from notification to the caveator of the application for removal, or within such extended time as the court may order: subparagraph VI. The application before the court was made by Nexus under subparagraph VII for an order extending that time. The provision provides that the court:

"... may ... upon such evidence as the Court may require, make such order in the premises, either ex parte or otherwise, as shall seem just."

Serious question

It was common ground that Nexus must justify the maintenance of the caveat. There is no real doubt about that proposition. I put to one side the position when removal of the caveat is sought by order of the Court by some person claiming an estate or interest in the land, under subparagraph IV: see Eng Mee Yong v Letchumanan [1980] AC 331 at 336.

As is well-known, it is usually neither convenient nor appropriate on an application, such as that made to the court, to determine finally the entitlement of the caveator to the interest in the subject land upon the basis of which it lodged its caveat: see Galvasteel Pty Ltd v Monterey Building Pty Ltd (1974) 10 SASR 176 and Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198. The reasons for this are obvious. An application under subparagraph VII has been treated as, in substance, an application to preserve the status quo, and thus the caveat, while the rights of the parties are finally determined. Applications under subparagraph VII are usually dealt with relatively expeditiously. As a matter of practice in this court, and I believe other courts, they are dealt with in a manner which is not appropriate for the resolution of disputed facts or difficult questions of law. Such applications are usually dealt with expeditiously, and upon the basis that there will follow later a full trial of the issues upon which the claim to a caveat depends.

It is in that context that various expressions have been used to describe the extent to which the caveator must go to establish its right to maintain the caveat either until the caveator obtains an injunction to protect its position or until the issue of the caveator's entitlement has been finally determined. In Whallin v Bailbart Investments Pty Ltd (supra) Cox J held that, in appropriate cases and on appropriate terms, the court may extend the time for removal of the caveat pending trial of the issues between the parties. I see no reason to doubt the correctness of his decision in that respect.

The various expressions used to describe the onus that lies upon the caveator have been collected in Lindsay, Caveats Against Dealings in Australia and New Zealand (The Federation Press, 1995) pp181-182. All of the terms will be familiar to lawyers. I am content to adopt the expression used by Cox J in Whallin v Bailbart Investments Pty Ltd (supra) at 204 - that there is a serious question to be tried. I consider that there is no significant difference between that expression and the other expressions used in other cases in this context.

So much was not really in issue between the parties.

In my opinion, in the present case there was a serious question to be tried. The acceptance of the offer of 1 July was an agreement by Nexus in writing to charge its interest in the land in question, and was given for valuable consideration. I mention in passing that a difficulty was created by the fact that another part of the letter identified "security" as meaning the second mortgage to be given by Mawson to Nexus. However, treating the charge as being over the proposed mortgage would render the agreement to give a charge as nonsensical, and I consider it likely that a court would interpret the agreement to give a charge as referring to a charge over the land in question. I also mention in passing an argument advanced by Starmaker that the agreement to give a charge was ineffective because Mawson was not, at the time, the registered proprietor of the land. In my opinion that argument has no substance, the agreement being for value and Mawson having subsequently become the registered proprietor of the land. Doubts were also raised about the meaning of an agreement to charge an interest in land: see Sykes, The Law of Securities (The Law Book Company Limited, 5th ed, 1993) p331. In my opinion that doubt is properly to be resolved at trial, and is not such that there is no serious question to be tried.

The judge below concluded that there was no serious question to be tried because of the oral variation referred to above. He took the view that the variation was to the effect that part of the costs were to be paid upon acceptance, with the balance being paid when the loan was drawn down by Mawson. He said that no provision was made for payment in the event that occurred, acceptance by Mawson but Mawson not proceeding to draw down the funds.

From the point of view of Nexus, the affidavit is unfortunately expressed. However, in my opinion it is arguable that the conversation should be treated as not affecting liability to make payment, but only the time at which payment is to be made. In my opinion the conversation may well be interpreted as meaning that the liability to pay the full amount upon demand continues to exist, but that payment of a lesser sum upon acceptance and the balance upon draw down will be accepted by Nexus.

I therefore, with all respect, consider that the judge erred on this point.

There was another point taken on appeal. It was that when Starmaker made application to the Registrar General it was not the registered proprietor of the land. The transfer of the land to Starmaker had been lodged for registration, but was not registered until 17 March 1997. The appellant thus argued that Starmaker's application to the Registrar-General under sub-paragraph V of s191 of the Act was incompetent.

It is "the caveatee" who may make application in writing to the Registrar General under subparagraph V. "Caveatee" is defined to mean "... any person against whose application for any purpose a caveat has been lodged, and shall include the registered proprietor of any land in respect of which a caveat has been lodged"

If the point is soundly taken, the result is that if Starmaker wished to take action before 17 March 1997, Starmaker should have proceeded under subparagraph IV by summons calling upon the caveator to show cause why the caveat should not be removed. Had such an application been made to the court, the court would have the same power as it has in the present proceedings, to make such order "as shall seem just". Bearing in mind that the very same issue would then arise, and bearing in mind that Starmaker is now the registered proprietor, it seems to be convenient to decide the case without deciding whether the application that Starmaker made to the Registrar General was a competent application.

Balance of convenience

It was argued for Nexus that the question of the balance of convenience, in the sense in which that expression is used in relation to the grant of interlocutory injunctions, is rarely if ever a relevant consideration on an application made under subparagraph VII. It was submitted that if it were shown that there was a serious question to be tried in relation to the existence of the interest that would support the caveat, the time for the removal of the caveat should be extended, more or less as of course, until proceedings to establish that interest were finalised. It was submitted that the very purpose of a caveat was to protect interests that, when challenged, often could be established only by litigation. Accordingly, the only real issue was whether there was a serious question to be tried as to the existence of the relevant interest. It was further submitted that if delay was relevant, it was relevant as an independent matter and not as an aspect of the balance of convenience. It was submitted that the only delay that was relevant was delay in lodging the caveat. The submission was that once the caveat had been lodged the caveator had, in a sense, done all that the caveator need do unless and until the caveat was challenged using one of the procedures under the Act.

I do not consider that it is necessary to deal with the submission that questions of the balance of convenience are not relevant, in this case. I say that because, in my opinion, the balance of convenience in any event favours the making of the order that Nexus sought. That being so, there is no point in undertaking a review of the numerous authorities in this State and elsewhere that proceed on the basis that the balance of convenience is a relevant consideration in deciding whether to extend the time for the removal of a caveat. I would take some persuading that that practice should be departed from.

That was the approach taken by Cox J, after a careful review of decisions in this State, in Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198. It may be that the particular submission now made was not made to Cox J, but the basis upon which an order extending the time for the removal of a caveat should be made was certainly a matter considered by him with some care. Moreover, decisions in New South Wales, Victoria and Queensland have proceeded upon a similar basis. A number of relevant decisions are reviewed by Owen J in Custom Credit Corporation Limited v Ravi Nominees Pty Ltd (1992) 8 WAR 42. It may be that the approach taken to the relevance of the balance of convenience is different in Western Australia. In the case just referred to the other members of the court concurred in the judgment of Owen J. On the point at issue, having reviewed authorities in other States, he concluded as follows (at 50):

"... the review does demonstrate that although considerations relevant to an interim injunction are applicable, they may not necessarily be used in the same way. In relation to a caveat the question has to be decided bearing in mind the peculiar statutory context.

In my opinion, the balance of convenience is a factor to be considered in an application under section 138. However, it seems to me that interlocutory removal of a caveat where an arguable case as to the existence of the caveatable interest has been demonstrated, will be unusual."

He went on to say that the purpose of a caveat is to restrain dealings with land that would defeat or derogate from the proprietary interest the subject of the caveat, that removal of the caveat would in many cases destroy the benefit of the relevant proprietary interest for all practical purposes, and that for that reason a court would ordinarily extend the time for removal of a caveat once an arguable case as to the existence of the interest had been demonstrated.

In my respectful opinion there is some force in what Owen J says, and in the analysis which he makes of the cases to which he refers. However, to my mind the points that he makes are capable of being subsumed as aspects of the consideration of the balance of convenience.

Be that as it may, as I have already indicated, in this case it is not necessary to resolve the point, notwithstanding the submissions made by counsel for Nexus. For the sake of completeness I mention that we were referred also to the decision of the Privy Council in Eng Mee Yong v Letchumanan [1980] AC 331, which appears to favour taking account of the balance of convenience. We were also referred to decisions of the courts of New Zealand, in particular Holt v Anchorage Management Limited [1987] 1 NZLR
108 and BP Oil New Zealand Limited v Van Beers Motors Limited [1992] 1 NZLR
211 on this issue. Finally, although not referred to in argument, I note that in Re Burman's Caveat [1994] 1 QdR 123 the Court of Appeal of the Supreme Court of Queensland declined to depart from what it considered to be an established practice of taking into account the balance of convenience.

For those reasons I am content for present purposes to adopt the approach taken by Cox J in Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198, and to consider the balance of convenience. In so doing I consider the competing interests of Nexus and of Starmaker. In doing so it is necessary to remember that the court is exercising a statutory discretion under s191VII, and not its equitable jurisdiction. This may, in some cases, have some practical significance: see Kingstone Constructions v Crispel (1991) 5 BPR

11,987.

With all respect to the judge below, I consider that the balance of convenience clearly favours the making of the order sought by Nexus, and I consider that the judge below erred.

To begin with, there is a serious question to be tried as to the existence of the interest in support of which the charge is claimed. If the time for the caveat is not extended, Nexus will lose its security. It was common ground that there was no real prospect of recovery from Mawson of the monies owed to it, if the charge could not be enforced.

In deciding that the balance of convenience was against the grant of the order sought by Nexus, the judge below relied upon three matters in particular.

First, the fact that the amount for which the charge claimed was small. It is a small amount, and as I have already observed, I find it odd that the parties should have incurred such costs over such an amount. But, to the extent that the size of the amount at stake is relevant, it can be said by way of a counter that if Nexus has a right to a charge, its right exists irrespective of the amount for which the charge is claimed. It can also be said that, if this matter is relevant, Starmaker could easily have paid into court the amount at issue, there having been no suggestion that Starmaker would have any difficulty in doing so. There are cases in which valid caveats have been removed upon the registered proprietors putting up adequate security: see Kingstone Constructions v Crispel (supra) at 11,991. In that context, I mention that Starmaker acquired the land for an amount in excess of $1,000,000. In the end, I consider that the smallness of the amount is not relevant to the balance of convenience. If it is, it is neutral.

The second matter relied upon by the judge was delay by Nexus after it lodged its caveat on 2nd August 1996. The judge said that Nexus did not tender a charge to Mawson for signature, and took no action to enforce its claim for payment and its charge. Indeed, proceedings by Nexus to enforce its claim were not begun until 29 May 1997, after the decision by the judge below.

However, the first point to be made in answer to that is that in my opinion there was no significant delay in lodging the caveat. The caveat was lodged just over one month after Mawson accepted the offer made to it. In my opinion it was reasonable to refrain from lodging the caveat until it appeared likely that Mawson would not pay the monies owed.

In considering delay by Nexus after that time, it is pertinent to bear in mind that Starmaker was aware of the caveat from October 1996.

No prejudice has been pointed to by Starmaker as flowing from delay by Nexus in bringing proceedings to enforce its rights. I note that the agreement under which Starmaker acquired the land was, while related to the option acquired by Starmaker before it knew of the caveat, entered into by Starmaker with knowledge of the caveat.

In saying this I do not suggest that Nexus was entitled to sit on its rights. I consider that Nexus has been guilty of delay. But the absence of any apparent prejudice to Starmaker, or any pointed to by it, means that the delay is not of great significance when considering the balance of convenience.

For what it is worth, I consider that some slight weight can also be given to the fact that Starmaker made no move to deal with the caveat until February 1997. Granted, until then it had no particular reason to warn the caveat, because it was not the registered proprietor, and had other things to worry about. But the fact remains that it could have taken action under s191IV to remove the remove the caveat, but did not do so.

For all those reasons, in my opinion the delay by Nexus was not such as to tip the scales on the balance of convenience against its application. The judge below said that the delay by Nexus "... has the inevitable consequence that it is not entitled to the order extending the operation of its caveat." I respectfully disagree. I consider that usually the significance of delay will be in the prejudice that it produces or in the impression it creates that rights are not to be insisted upon. Mere delay, of itself, is not so significant.

The third matter relied upon by the judge below was the fact that the remedy sought by Starmaker was equitable in nature. I agree that if the interest sought to be protected by the caveat depended upon the grant of equitable relief, such as the specific performance of a contract for the sale of land, delay in the seeking of that relief might be of particular significance. But this is not such a case. This is a simple claim to enforce a charge over land, and if the necessary facts were made out one would expect an order for the execution of the charge more or less as of course.

In my opinion it follows that the balance of convenience clearly favoured the grant of the relief that Nexus sought. If delay falls to be considered independently of the question of balance of convenience, I would come to the conclusion that the delay by Nexus was not a ground for the refusing of relief.

In my opinion, the judge below should have extended the time for removal of the caveat, subject to a condition requiring that Nexus proceed promptly with proceedings to enforce the charge. On the appeal before us counsel for Starmaker indicated that such a condition was not now sought, Nexus having instituted the relevant proceedings and those proceedings being well advanced.

In my opinion, subject to one matter the appeal should be allowed, the order of the judge below should be set aside, and an order should be made extending the time for removal of the caveat until further order.

There is one outstanding question that was not dealt with in submissions before us. That is the question of whether the making of that order should be conditional upon the giving by Nexus of an undertaking as to damages: as to that see Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198 in particular at 203-204. I would wish to hear from the parties on that point.

MATHESON J

I agree that the appeal should be allowed for the reasons given by Doyle CJ.

BLEBY J

I agree with what the Chief Justice has written as to the existence of a serious question to be tried concerning Nexus' alleged interest in the land. The learned trial judge considered that the serious question evaporated with the affidavit of the plaintiff's solicitor on information and belief deposing to the variation of the agreement to pay fees. That variation was "that the first defendant would pay $1,000 of the fees due upon acceptance of the offer with the balance of the fees to be paid when the facilities were drawn down". The $1,000 was paid, and the facilities were never drawn down. There was therefore, so it was said, no outstanding debt and therefore no charge.

Even taking the affidavit in its terms and applying it to the agreement, it still leaves open the possible interpretation that the fees were payable by Mawson on demand, and that the supposed variation only related to when the demand would be made during the period that it was open to Mawson to draw down the loan, without compromising the liability of Mawson if it walked away from the agreement to accept the loan. That and other issues as to the existence of the charge will need to be dealt with at the trial in the proceedings instituted by Nexus.

My greatest concern was whether the balance of convenience favoured Starmaker by virtue of the delay by Nexus in either seeking to recover its alleged debt from Mawson or in seeking to enforce its alleged charge over the land. Whilst Nexus can be criticised for that delay, I am persuaded that it was not a relevant delay for the purposes of weighing the balance of convenience.

Delay by Nexus in enforcing its charge, short of delay constituting abandonment or delay beyond a statutory limitation period, does not affect the validity of either the Mawson debt or of the charge, if they exist. This is to be contrasted with delay in lodging the caveat or in seeking an equitable remedy such as specific performance. As the Chief Justice has pointed out, there was no evidence of Starmaker being prejudiced by the delay, such as would affect the balance of convenience.

I agree that the appeal should be allowed and with the orders proposed by the Chief Justice.