Rockcliffe Limited Company No 54530 v Wirrina Corporation Pty Ltd - [2012] SASC 200

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ROCKCLIFFE LIMITED COMPANY NO 54530 v WIRRINA CORPORATION PTY LTD
[2012] SASC 200
Reasons of Judge Burley a Master of the Supreme Court
25 October 2012
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - FORM OF CAVEAT - GENERALLY
Real Property Act - caveat over mortgages - application to extend caveat - whether release/discharge of obligations/rights in respect of prior mortgages - whether subsequent mortgage now highest ranking - terms of Deed of Assignment and Deed of Release.
Real Property Act 1886 (SA) s 191, referred to.
Whallin v Bailbart Investments Pty Ltd (1987) 47 SASR 198; ABC v O'Neill (2006) 227 CLR 57; Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd (2004) 206 ALR 69, applied.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd & Ors (2004) 219 CLR 165; Dovuro Pty Ltd v Wilkins (2000) 182 ALR 481; Lewenberg & Pryles v Direct Acceptance Corporation Ltd [1981] VR 344; Inglis & Anor v Commonwealth Trading Bank of Australia (1972) 126 CLR 161, considered.

ROCKCLIFFE LIMITED COMPANY NO 54530 v WIRRINA CORPORATION PTY LTD
[2012] SASC 200

JUDGE BURLEY. This is an application by the plaintiff for an interlocutory order extending the time for removal of caveats numbered 11689291-11689295. The caveats purport to be in respect of mortgages numbered 10018695-10018699, which have been registered over some forty-two titles. The land the subject of the proceedings may be conveniently described as the Wirrina Resort located on the Fleurieu Peninsula south of Adelaide.
Annexure “A” to the caveat sets out the nature of the plaintiff’s claim as follows:
An estate or interest in the land in priority to all charges, mortgages and other interests in the land as first mortgagee pursuant to Memorandum of Mortgage registered No:10840227 dated the 27^TH day of September 2007 as made between AET STRUCTURED FINANCE SERVICES PTY LTD (AET) and the registered owner of the freehold wherein the registered owner mortgaged all of its estate and interest in the said land in favour of AET as security for the repayment of all moneys now owing or payable or hereafter to become owing or payable to AET and the Caveator, having purchased the said Mortgage from AET pursuant to a Deed of Assignment dated 13^th day of November 2011 is entitled to claim all or any of the rights which the said AET had pursuant to its Mortgage and the Caveator’s claims are further established as a consequence of the execution of a Deed of Release by OPI Pacific Investment Pty Ltd (OPI) as Releaser and the Registered Proprietor, ICA (South Australia) Pty Ltd as the Releasee dated 18 September, 2008 whereby the Registered Proprietor was released from all or any of its obligations under Mortgages 10018695, 10018696, 10018697, 10018698, 10018699, 10018704, 10018705, 10018706, 10018707 and 10018708, the said Deed of Release either having predated or signed contemporaneously with the Transfer of Mortgages No.11057314 (Mortgage No 10018695), 11057315 (Mortgage No:10018696), 1057316 (Mortgage No:10018697), 1057317 (Mortgage No 10018698), 11057318 (Mortgage No:10018699), … all dated 23^rd September 2008 and registered on 24^th October 2008) in favour of Wirrina First Mortgagee Pty Ltd, entitling the Caveator to become the First Mortgagee over the Lands in Annexure B.
The defendant is the ultimate transferee and therefore the legal owner of mortgages numbered 10018695-10018699. I shall refer to those mortgages as the defendant’s mortgages.
In essence the plaintiff contends that the mortgagor named in the defendant’s mortgages was released from its obligations under the mortgage so that the relevant land ceased to be security for the repayment of the debt evidenced by the mortgages prior to the time that the release took place. It was on this basis that the plaintiff in the caveat claimed “[a]n estate or interest in the land in priority to all charges, mortgages and other interests in the land as first mortgagee pursuant to Memorandum of Mortgage registered No:10840227 dated the 27^TH day of September 2007 …”.
During the course of argument, Mr Dal Cin, counsel for the plaintiff, provided me with a diagram setting out an outline of the history of the mortgages the subject of the application. It discloses that originally the registered proprietor, ICA (South Australia) Pty Ltd, gave mortgages to various companies. A group of five mortgages, four of which were given to the company described as “Perpetual” and one of which was given to the company referred to as “MFS Pacific”, were grouped together and treated as a combined first mortgage. There was a sixth mortgage, referred to as the “Paridian Mortgage”, which, subject to a Deed of Priority, had a priority which ranked after the first five mortgages referred to. By way of various transfers the defendant, in consideration of the payment of $10.5 million, ultimately became the owner of the first five mortgages. By way of transfer the plaintiff became the owner of the sixth mortgage.
The plaintiff’s case, expressed in the above terms, is that the first five mortgages no longer exist as a security for the various loans because the mortgagor was released from its obligations as a mortgagor pursuant to the Deed of Release dated 18 September 2008. If there had been such a release, there was no basis upon which the defendant, as the owner of the mortgages, could proceed to exercise a power of sale because no relevant default could arise under the mortgage giving rise to the exercise of a power of sale. In that manner the plaintiff said that it was effectively the first mortgagee.
It was also put by Mr Dal Cin that, because the mortgages held by the defendant were no longer effective, all that the defendant received in exchange for the payment of $10.5 million was an assignment of unsecured loans. If that were the case, the Deed of Release, according to the plaintiff, acted as a release only in respect of the mortgages, whereas the relevant clause[1] refers to “the loan” the plural form of which is defined in the Deed of Release[2] (and the Deed of Assignment) as “the loans from the Assignor to the Borrower secured by the Loan Security Documentation and described in Schedule 1 of the Deed of Assignment”. By clause 1.2(a), “[t]he singular includes the plural and the converse”. How, then, it can be said that the Deed of Release constitutes a release only in respect of the mortgages escapes me.
[1] Set out at paras [17] and [18] below.
[2] Clause 1.1.
The defendant disputes that it was at any time in any relevant way precluded from exercising its rights under the mortgages now held by it. Accordingly, it was contended, the defendant had the right to exercise its powers as the first mortgagee and, where there was default, to proceed to a sale of the relevant land so that the proceeds of sale could be applied either to a reduction or a discharge of the relevant amounts owing. It was accepted by the defendant that it had (a theoretical) obligation to account to the plaintiff in respect of any excess monies realized by way of mortgagee sale. The defendant denied, however, that it had to account to the plaintiff in respect of the proceeds of sale so as to give the plaintiff first priority.
At the hearing of the application the following affidavits were admitted:
(a)Affidavit of Cherise Daina Bannister filed on 25 September 2012 (FDN 3).
(b)Affidavit of Jacqueline Suzanne Kemp filed on 28 September 2012 (FDN 7).
(c)Affidavit of John Grant Burton Somerville filed on 28 September 2012 (FDN 8).
(d)Affidavit of Regis Michael Amalraj filed on 28 September 2012 (FDN 9).
(e)Affidavit of Elizabeth Katherine Christopher filed on 28 September 2012 (FDN 10).
(f)Affidavit of Leon Norman Stephan filed on 2 October 2012 (FDN 11).
(g)Affidavit of Cherise Daina Bannister filed on 3 October 2012 (FDN 12).
(h)Affidavit of Leon Norman Stephan filed on 4 October 2012 (FDN 13).
(i)Affidavit of Elizabeth Katherine Christopher filed on 5 October 2012 (FDN 14).
(j)Affidavit of John Grant Burton Somerville filed on 5 October 2012 (FDN 16).
(k)Affidavit of Cherise Daina Bannister filed on 8 October 2012 (FDN 17).
(l)Affidavit of Leon Norman Stephan sworn on 8 October 2012.
Counsel accepted, correctly in my view, that the application was to be dealt with in essentially the same manner as an application for an interlocutory injunction. This practice commenced some time ago with a decision of Cox J in Whallin v Bailbart Investments Pty Ltd[3]. Those principles applicable to an injunction application are to be found in the decision of the High Court in ABC v O’Neill[4]. The applicant, in this case, for an extension of the time for the removal of the caveats, must show a sufficient prima facie case and that the balance of convenience favours the making of an order.
[3] (1987) 47 SASR 198.
[4] (2006) 227 CLR 57.
In Pua Hor Ong v Wu You Yang Pty Ltd[5], Kourakis J (as he then was) said that to establish a prima facie case, an applicant does not need to show that it is more probable than not that it will succeed at trial. It is sufficient to show “sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial”.
[5] (2008) 103 SASR 9, at [3].
It was submitted by Mr Roberts, counsel for the defendant, that the onus was on the plaintiff to establish the relevant prima facie case. I do not understand this contention to have been contested, but in any event I would follow what was said by Doyle CJ in Nexus Mortgage Securities Pty Ltd v Mawson KLM Holdings Pty Ltd[6] when he said that “[t]here is no real doubt about” such a proposition.
[6] (1997) 193 LSJS 474, at 476.
In his written submission, on this topic, Mr Roberts referred to the decision of Bleby J in Cini & Ors v Pets Paradise Franchising (SA) Pty Ltd & Ors[7].His Honour said:
[7] [2009] SASC 7, at [17] – [20].
[17] In Australian Broadcasting Corporation v O’Neill[8] there was a discussion by the High Court as to the meaning and application of the phrase “serious question to be tried”. In their joint judgment Gummow and Hayne JJ said:
[8] (2006) 227 CLR 57.
The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd.[9] This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued:[10]
[9] (1968) 118 CLR 618.
[10] Ibid 622 – 623.
“The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief … The second inquiry is … whether the inconvenience or injury which the plaintiff would likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted”
By using the phrase “prima facie case”, their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial.[11]
[11] (2006) 227 CLR 57, 81-82; [2006] HCA 46, [65].
[18] Their honours then discussed the apparent difference between that approach and the approach of the House of Lords in American Cyanamid Co v Ethicon Ltd[12] and continued:
When Beecham and American Cyanamid are read with an understanding of the issues for determination and an appreciation of the similarity in outcome, much of the assumed disparity in principle between them loses its force. There is then no objection to the use of the phrase “serious question” if it is understood as conveying the notion that the seriousness of the question, like the strength of the probability referred to in Beecham, depends upon the considerations emphasised in Beecham.[13]
[19] In their joint judgment Gleeson CJ and Crennan J, when discussing the principles governing the granting of interlocutory injunctions, said:
We agree with the explanation of these organising principles in the reasons of Gummow and Hayne JJ, and their reiteration that the doctrine of the Court established in Beecham Group Ltd v Bristol Laboratories Pty Ltd should be followed.[14]
[20] In establishing whether there is a serious question to be tried in this case, the question must be addressed on the assumption that the evidence remains as it is. The Court is not in a position to anticipate what other evidence might be led at the ultimate trial by one of the parties. Pets Paradise must show a sufficient likelihood of success to justify, on the present state of the evidence, the preservation of its right to a caveatable interest in order to preserve that status quo pending the trial.
[12] [1975] AC 396.
[13] (2006) 227 CLR 57, 83; [2006] HCA 46, [70].
[14] Ibid 68, [19]. See also Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 217-218; [2001] HCA 63, [13] where Gleeson CJ cites with approval a similar statement by Mason A-CJ in Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148, 153.
The above passage sets out the approach to be taken by the Court when addressing the question of whether a prima facie case has been established on the application by the plaintiff. I would point out that at [20] reference is made to the evidence remaining as it is. In this case the state of the evidence is not crucial to determining whether or not a prima facie case has been made out, because that question is largely determined by whether or not, and if so, the extent to which, the relevant contractual provisions are capable of bearing the meaning contended for by the plaintiff. In other words, if as a matter of proper construction, the release provision may be said to be capable of bearing the meaning contended for by the plaintiff to the extent that there is a justification, in the circumstances, for the Court to interfere and preserve the status quo pending the trial, the plaintiff has made out a prima facie case.
I now turn to the question of whether or not a prima facie case has been established by the plaintiff. It is based on the interpretation of the Deed of Release. According to Mr Stephan[15], a director of the plaintiff:
… by reason of the Deed of Release the defendant’s mortgages have been released and that the plaintiff has therefore been elevated to first registered mortgagee ranking ahead in priority to all other dealings.
[15] Affidavit sworn on 23 September 2012 at para 58.
The execution of a Deed of Release[16] was contemplated within the provisions of the Deed of Assignment[17].
[16] A copy of this document is Exhibit “LNS05” to the affidavit of Mr Stephan.
[17] Exhibit “LNS04”.
The plaintiff claims[18] that the first mortgages held by the defendant do not secure any remaining liabilities because the mortgagor was released from its obligations under those securities by the provisions of clause 2(ii) of the Deed of Release. Sub-clause (ii) is as follows:
(ii)The parties mutually and jointly and severally release and forever discharge each of the other parties to this Deed including their officers, employees and related Bodies Corporate from and against all claims, entitlements, loss, damage, actions, liabilities or suits whatsoever (whether actual or contingent) that the parties had, have or may have against any of the other parties to this Deed in relation to the Loan, the Loan Security Documentation, the Facility, the Asset Sale Agreement, the South Australian Supreme Court Action, the Queensland Supreme Court Action and the conduct of the Facility.
[18] At para 8 of plaintiff’s outline of submissions.
This sub-clause is immediately preceded by the following:
2.Release
(i) In consideration of Completion occurring and the parties entering into this Deed the parties to this Deed with effect from Completion accept this Deed in full and final settlement of all actual or potential claims each of them has had, has or may have against any of the other parties including their officers, employees and related bodies corporate relating in any way to the Loan, the Loan Security Documentation, the Facility, the Asset Sale Agreement, the South Australian Supreme Court Action, the Queensland Supreme Court Action and the conduct of the Facility by the Released Parties.
For the sake of completeness I mention a matter, not raised in argument but which, perhaps, should be addressed. It might be said that the correct characterisation of clause 2, in relation to the mortgages held by the defendant, is that, on the plaintiff’s argument, the mortgagor was not so much released from its obligations under the mortgage but, rather, that the defendant’s right to exercise a power of sale was discharged. For the purposes of this application, the distinction is probably not material. I will continue to refer to the concept of “release” rather than “discharge”.
The parties to the Deed of Assignment are OPI Pacific Investment Pty Ltd (the assignor) and Wirrina First Mortgagee Pty Ltd (the assignee). Wirrina First Mortgagee Pty Ltd was a former name of the defendant. By clause 2.1 of the assignment, the agreement to transfer and assign was subject to and conditional upon the assignee providing the assignor with a lawfully executed Deed of Release. The Deed of Release is defined in the assignment as “a deed substantially in the form of the document in Schedule 2”.
Another definition in clause 1.1 is of the word “Completion”. That means “the payment by the Assignee to the Assignor of the Consideration on the Consideration Date and the delivery of the documentation described in clause 3.2 by the Assignor to the Assignee”. Included within that documentation was the documentation referred to as “the Loan Security Documentation”. The word “Completion” is used in clause 2(i) of the Release and in the Release that word is defined in the definition section of the Release as having “the same meaning in the Deed of Assignment”.
Sub-clauses 2(i) and (ii) of the Release are respectively directed at “claims” and “claims, entitlements, loss, damage, actions, liabilities or suits”, “each of them has had, has or may have against any of the other parties” to the Deed of Release.
The form of release contained within clause 2(i) of the Deed of Release takes effect after “Completion” because the release contained within sub-clause (i) is said to be “[i]n consideration of Completion occurring”. It is correct to say, as pointed out in the plaintiff’s submissions, that sub-clause 2(ii) is not specific as to when the form of release contained in that sub-clause takes effect. The plaintiff has seized upon this so-called gap in the terms of the Deed of Release and has made it the central plank of its contention that the mortgagor was released by the mortgagee (the assignor in the assignment) prior to the time at which the assignor assigned the mortgage to the defendant.
If the plaintiff’s interpretation of sub-clause 2(ii) is correct, it would mean that the release contained in sub-clause 2(i) takes effect after completion of the assignment, whereas the release contained in clause 2(ii) takes effect before completion in circumstances where the defendant is not a party to the Deed of Release. In other words, by virtue of an agreement (the Deed of Release) the assignor of the mortgages releases the mortgagor from its obligation under those mortgages and then, in the next moment, assigns to the defendant the mortgage husk.

I consider that the decision of the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd & Ors[19] provides the correct approach to the proper construction of the Deed of Release. The Court said[20]:
… It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
[19] (2004) 219 CLR 165.
[20] (at [40]).
This means that the proper construction of commercial contracts such as the assignment and the release is ascertained by reference to what a reasonable business person in the position of the parties would have taken the relevant clause to mean[21].
[21] Dovuro Pty Ltd v Wilkins (2000) 182 ALR 481 at 494.
The contentions of the plaintiff have only to be stated in the manner referred to above to reveal the artificiality of the interpretation. In circumstances where the assignment itself refers to an assignment of the mortgage documentation; where the defendant pays $10.5 million for the assignment; and where, on a reading of both the assignment and the release, all of the major terms of both deeds indicate that the defendant is to have transferred to it the benefits of the mortgages being assigned, the plaintiff is only able to point to the absence of a specific direction as to when the terms of clause 2(ii) of the Deed of Release are to take effect to support the contention that sub-clause (ii) takes effect prior to the act of assignment.
Whatever might be said about the use of the terms “prima facie case” and “serious questions to be tried” and how such terms are related and indeed properly directed to setting a requirement to be fulfilled by an applicant for injunctive relief (or for an extension of a caveat), it is clear, in my view, that the plaintiff has failed to satisfy this aspect of the test by a large measure. It follows that the caveats should not remain on the titles in respect of which they have been lodged. In case I am wrong in the conclusions to which I have come, I propose briefly to deal with the question of the balance of convenience.
For the purposes of considering the balance of convenience, I assume that the plaintiff has established a sufficient prima facie case to justify the Court’s intervention. To adopt the language of the majority in Beecham Group Limited v Bristol Laboratories Pty Ltd[22], cited with approval by Gummow and Hayne JJ in ABC v O’Neill[23], I assume that “there is a probability that at the trial of the action the plaintiff will be held entitled to relief …”.
[22] (1968) 118 CLR 618 at 622-623.
[23] (supra), at [65].
A number of factors need to be taken into account when assessing the balance of convenience. First, if the caveats are extended, the defendant will effectively be precluded from engaging in negotiations for the sale of the properties because of the presence of the caveats on the titles[24]. On the other hand, if the caveats are removed, the plaintiff will effectively be shut out of the realization process.
[24] Lewenberg & Pryles v Direct Acceptance Corporation Ltd [1981] VR 344 at 348 per O’Bryan J.
Next, the defendant contends that the plaintiff has been guilty of “manifest delay” in asserting its rights to sell the properties in priority to the mortgages held by the defendant. Mr Stephan, a director of the plaintiff, has been aware that the defendant has been in possession of the relevant land since May 2009. The caveats were not lodged until December 2011, but the plaintiff has failed to commence the proceedings necessary to establish its alleged rights and even now, wishes to commence those proceedings in the Supreme Court of Queensland. I take into account that, because the notice from the Lands Titles Office bringing the caveats to the attention of the defendant was served at its former registered office, it was not until the middle of this year that the defendant took action to have the caveats removed.
In the meantime the defendant has expended a considerable amount of money, in excess of $657,000.00, in order to sell the properties as a going concern. This amount consists of approximately $35,000.00 per week by way of loss in keeping the Wirrina resort running. Even though the defendant expects there to be a shortfall, the losses are endured in order to sell the properties at their maximum values.
As against this, the plaintiff has made no offer to provide any security in relation to its undertaking as to damages. What evidence there is from the plaintiff about its assets is incomplete and sketchy at best. On the basis of such limited information, I have no confidence that the undertaking as to damages proffered by the plaintiff has sufficient substance that the circumstances of this case referred to above require.
The defendant also contended that the plaintiff should be required to pay into Court the mortgage debt in accordance with the principles in Inglis & Anor v Commonwealth Trading Bank of Australia[25].The decision in Inglis v Commonwealth and other cases of a like nature were discussed by Besanko J in Andrew Garrett Wine Resorts Pty Ltd & Anor v National Australia Bank Ltd[26].In brief, I think it is appropriate to follow the approach taken by his Honour[27] when he said that where the enforceability of the mortgage was in question the Inglis requirement does not apply.
[25] (1972) 126 CLR 161.
[26] (2004) 206 ALR 69.
[27] (at [50]).
When all of these factors are considered together, even where it is assumed that, on the evidence as it stands, there is a probability that the plaintiff will succeed, the balance of convenience nevertheless requires the application to be refused. If the failure by the plaintiff over a long period of time to bring substantive proceedings to establish its alleged entitlements is viewed as against the fact that over that period of time the defendant has sustained considerable losses with a view to selling the properties at maximum value and there is very little advanced by the plaintiff to offset the possible damage suffered by the defendant if the caveats were to remain on the titles, there is a strong indication that the balance of convenience favours the defendant.
For the above reasons, the caveats should be removed from the titles. At the completion of argument, the time for the removal of the caveats was extended “until further order” but only for such time as it took for a decision to be handed down. That order should now be discharged.
I will hear the parties as to costs.