Skymation Pty Ltd v Als342 Pty Ltd
[2021] VSC 386
•20 July 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2021 01633
| SKYMATION PTY LTD (ACN 009 948 099) | Plaintiff |
| v | |
| ALS342 PTY LTD (ACN 643 815 945) | First Defendant |
| THE REGISTRAR OF TITLES | Second Defendant |
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JUDGE: | Daly AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 24 June 2021 |
DATE OF JUDGMENT: | 20 July 2021 |
CASE MAY BE CITED AS: | Skymation Pty Ltd v ALS342 Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 386 |
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REAL PROPERTY – Caveats – Application for removal of a caveat under s 90(3) of the Transfer of Land Act 1958 (Vic) – Whether there is a prima facie case to be tried – BCA Asset Management Group Pty Ltd v Sand Solutions Pty Ltd [2021] VSC 177, referred to – Whether caveator has a caveatable interest by reason of a loan agreement – Whether the caveator was a party to the proposed loan by reason of a nomination clause – Salter v Gilbertson (2003) 6 VR 466, referred to – ACN 096 278 483 Pty Ltd v Vercorp Pty Ltd [2011] QCA 189, referred to – Finding that caveator has established a prima facie case to be tried – Whether the balance of convenience favours removal – Where the secured sum is relatively modest – Finding that there is real doubt whether the secured sum is payable to the caveator – Finding that the balance of convenience favours removal of the caveat – Application granted.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M A Black | Wisewould Mahony |
| For the First Defendant | Mr B J Parker | Summer Lawyers Pty Ltd |
HER HONOUR:
Introduction and background
This proceeding, which seeks to remove a caveat over a residential property in Maple Grove, Toorak (‘property’), was commenced on 18 May 2021. The plaintiff, Skymation Pty Ltd (‘Skymation’), is the trustee of a trust established by Mr Emil Negri in 2002, and is the registered proprietor of the property.
The first defendant is a company within a corporate group headed by Assetline Investments Pty Ltd (‘Assetline’), a Sydney-based company in the business of providing loan finance.
In September 2020, Mr Negri made inquiries with Assetline about Skymation borrowing the sum of $400,000.00, to be secured by the property (‘proposed loan’). On 18 September 2020, he received a formal letter of offer from Assetline (‘Letter of Offer’). On the same day, he executed the Borrower Declaration included in the Letter of Offer, and returned it to Assetline together with a non-refundable payment of $2,860.00.
On 25 September 20, Summer Lawyers Pty Ltd, the solicitors for Assetline (‘Summer Lawyers’), sent Wisewould Mahony, the solicitors for Skymation and Mr Negri, a letter and annexed documents (‘security documents’). This letter described the lender as ALS342 Pty Ltd (‘Lender’). The Lender is the first defendant in this proceeding. The letter also enclosed a document headed “Checklist of required settlement documents” (‘checklist’).
One of the items on the checklist was as follows:
A statutory declaration from Richard Griffiths Negri enclosing:
(a)a certified copy of the executed Company Minutes of Meeting resolving that Richard Griffiths Negri has resigned from the Company; and
(b) a Resignation Letter executed and dated by Richard Griffiths Negri.
Richard Negri is Mr Negri’s estranged son. They are in dispute about the control of Skymation and the beneficial ownership of the property. In February 2020 Richard Negri lodged a caveat over the title of the property, which was ultimately removed following an order of this Court on 15 September 2020. However, in circumstances not necessary to detail further here, in December 2019 Richard Negri filed documents with ASIC appointing himself as the director and secretary of Skymation. While he has been subsequently removed, he did not resign, and, by reason of the ongoing disputation between father and son, it was practically impossible for Skymation to provide a resignation letter from Richard Negri. Despite correspondence between the solicitors over the course of October and November 2020, the parties reached an impasse, and the proposed loan did not proceed. How the negotiations between the parties’ solicitors concluded is not entirely clear from the correspondence in evidence.
On 30 September 2020 (while the solicitors for the parties were engaged in the correspondence referred to above), the Lender lodged a caveat over the title to the property imposing an absolute prohibition on any dealings with the property. The interest claimed in the caveat was an interest as chargee pursuant to an agreement dated 18 September 2020.
On 27 November 2020, Summer Lawyers issued a letter of demand on behalf of the Lender seeking the sum of $11,828.00 (‘secured sum’) made up of the following:
(a) legal fee: $4,400.00;
(b) 50% establishment fee: $3,358.00; and
(c) cost of funds fee: $4,070.00.
On 21 December 2020, Wisewould Mahony wrote to Summer Lawyers rejecting the Lender’s claim for the secured sum, and demanded that the Lender remove the caveat, to no avail.
The evidence
Skymation’s application to remove the Lender’s caveat was supported by an affidavit sworn by Mr Negri on 6 May 2021, which deposed to the matters referred to in the opening paragraphs of these reasons. Mr Negri’s affidavit also exhibited the following documents:
(a) ASIC searches for Skymation, Assetline and the Lender;
(b) the Letter of Offer;
(c) the letter from Summer Lawyers to Wisewould Mahony dated 25 September 2020 enclosing the security documents;
(d) a title search of the property showing the caveat, along with a copy of the caveat itself;
(e) a copy of Mr Negri’s affidavit sworn on 13 September 2020 in support of Skymation’s application to remove the caveat lodged by Richard Negri. In that affidavit, Mr Negri deposed, in summary, as follows:
(i) the property was purchased by Skymation in 2002 to provide Richard Negri with a place to live;
(ii) after Richard Negri married and had children, Mr Negri and his wife agreed to pay Richard Negri a sum equivalent to Skymation’s equity in the property to assist him to buy another home. After a sum greater than that amount was paid to him, Richard Negri resigned as a director and secretary of Skymation;
(iii) in 2019, Mr Negri and his wife, in their capacity as directors of Skymation, decided to sell the property, but during the conveyancing process, they discovered that they were no longer directors of Skymation, Richard Negri having removed them using Skymation’s ASIC corporate key without their authorisation or consent;
(iv) this issue was rectified, but Richard Negri then lodged a caveat over the property, which caused a proposed sale of the property to fall through; and
(v) Mr Negri deposed as follows:
E A Negri Pty Ltd is a plaintiff in Supreme Court of Victoria proceeding no. S ECI 2018 00012 (‘the Supreme Court Proceeding’). On 14 August 2020, the Honourable Justice Stynes made orders by consent that E A Negri Pty Ltd provide, by no later than 4pm on 20 September 2020, security for the defendant’s costs in the Supreme Court Proceeding by way of:
(a) payment into Court in the amount of $300,000; or
(b)provision to the Court of an unconditional bank guarantee in favour of the defendant from an Australian bank in the amount of $300,000.
…
E A Negri Pty Ltd does not have any real property available to secure funds or a bank guarantee to provide security for costs. The Company has resolved to use the Land[1] as security for the provision of a bank guarantee or borrowed funds in favour of E A Negri Pty Ltd in the amount of $300,000.
[1]The property. There is no evidence as to whether the amount referred to in this affidavit has been paid, and if so, from what source.
(f) the orders made by McMillan J on 15 September 2020 directing Richard Negri to remove his caveat over the title of the property;
(g) the correspondence between Wisewould Mahony and Summer Lawyers between 2 October 2020 and 30 October 2020 regarding Skymation’s inability to provide all of the documents referred to in the checklist, and regarding the ongoing dispute between Mr Negri and Richard Negri;
(h) a copy of the Lender’s letter of demand dated 27 November 2020;
(i) a copy of a letter from Wisewould Mahony to Summer Lawyers dated 21 December 2020. In this letter, Wisewould Mahony disputed the contention that Skymation had withdrawn from the loan, thus triggering the entitlement of the Lender to recover the secured sum, asserting that the Lender’s demand for the resignation letter from Richard Negri was unreasonable. This letter stated as follows:
In Victoria, a registered mortgagee holds an indefeasible title to their estate. Yet, your client insisted the documentation be provided and made it clear to our client the loan would not proceed without it.
Had our client known about your client’s requirement for documentation from Mr Richard Negri, being a former director of the company who has no interest in the Property, our client would never have dealt with your client. Clearly, your client failed to advise our client of the requirement for documentation from Mr Richard Negri after completing its due diligence and before instructing your firm to prepare the loan documentation.
We draw your attention to page 1 of the Letter of Offer which states that the Lender will instruct the solicitor to prepare and issue loan documents after the valuation and the due diligence are completed. We fail to understand why your client instructed you to proceed with the preparation of loan documents if it was not satisfied with the due diligence it had completed at our client’s cost.
It is not our client who has withdrawn from the loan, rather your client’s decision not to provide it. Our client was ready, willing and able to proceed with the loan. The loan did not proceed because of your client’s insistence that our client have Mr Richard Negri sign and complete documentation relating to the Caveat he had lodged and subsequently withdrawn over the Property.
When we advised you that our client was not in a position to obtain the requested documentation from Mr Negri, your client made a decision not to advance the money. We cannot compel your client to loan money to our client. However, your client cannot decide not to lend the money then charge our client $11,828.00 for the experience. This is, we might add, in addition to the amount of $2,860 already paid to the Lender.
Our client’s director and the proposed guarantor of the loan is an elderly gentleman who is distressed by your client’s conduct in demanding payment of $11,828.00 from him. He regrets ever becoming involved with. your client and wants nothing more to do with them. Unfortunately, he must now deal with the caveat that your firm has lodged on the Property title. Your client appears to have lodged the caveat as security for payment of the amount demanded in your letter dated 27 November 2020.
Your client has no proper basis for lodging or maintaining a caveat over our client’s Property.
Our client will not be complying with your letter of demand dated 27 November 2020. There is no amount payable to your client under clause 22 of the Letter of Offer or otherwise.
This letter concluded with a demand that the caveat be removed by 4.00pm on 5 January 2021.
The Lender relied upon an affidavit sworn by Mr Nicholas Raphaely, a director of Assetline and the Lender. Mr Raphaely deposed as to the terms of the Letter of Offer, and exhibited a copy of the Letter of Offer executed by him, another director of the Lender, and by Mr Negri in his capacity as the director of Skymation, and in Mr Negri’s capacity as the guarantor of the proposed loan.
Mr Raphaely deposed that at no time prior to Mr Negri signing the Letter of Offer did he ask any questions about the matters referred to in the Letter of Offer, or seek to negotiate the terms of the proposed loan. Upon receipt of the executed Letter of Offer, he instructed Summer Lawyers to prepare the loan and security documents for the proposed loan.
Mr Raphaely deposed that the proposed loan did not proceed, not only by reason of the matters referred to in the correspondence between Wisewould Mahony and Summer Lawyers in October 2020, but because the security documents were not executed by Skymation and Mr Negri.
Mr Raphaely concluded by deposing as to the prejudice the Lender would suffer were the caveat to be removed, as follows:
(a) [Skymation] would be free to register:
(i)any dealings relating to the Land which may defeat [the Lender’s] equitable interest as chargee claimed in the Caveat.
(ii)any instrument purporting to transfer, deal with or otherwise affect [Skymation’s] estate or interest in the Land in respect of which the Caveat is lodged.
(b)[the Lender’s] equitable interest as chargee of the Land will not be protected.
(c)anyone who searches the Register of land will not be aware and have notice of [the Lender’s] equitable interest as chargee of the Land (a matter relevant to the determination of the priority of competing equitable interests). A caveat will operate as an interim measure to preserve the status quo (if lodged before the registration of a competing interest) and allows parties the time to seek judicial determination or enforcement of the caveator’s claimed interest in the land.
On 15 June 2021, Skymation filed and secured a further affidavit sworn by Mr Negri that day. Mr Negri deposed as follows:
The Company wishes to sell the Maple Grove property.
On 26 May 2021, I attended the Maple Grove property to meet with real estate agent Nick Gatacre from Belle Property - South Yarra, and his associate Joe Eason. At that meeting, I advised Mr Gatacre that the Company appointed him as agent to advertise and sell the Maple Grove property by private sale or auction as soon as the Caveat is removed.
The Maple Grove property was previously sold by Mr Gatacre in 2019 when he was working for Hocking Stuart. However, the contract of sale was rescinded by the purchaser for the reasons set out in the affidavit sworn by me on 13 September 2020 in the First Supreme Court Proceeding ...
I am concerned that if the Caveat remains on the Register of Titles it may turn away prospective purchasers and ultimately result in a lower sale price for the Maple Grove property.
...
Relevant legal principles
Recently, in Hazelwood v Mercurio,[2] I referred to the summary of the relevant principles governing applications of the current kind in the decision of Derham AsJ in BCA Asset Management Group Pty Ltd v Sand Solutions (Vic) Pty Ltd,[3] as follows:
[2][2021] VSC 362.
[3][2021] VSC 177.
(a)under s 89(1) of the Transfer of Land Act 1958 (Vic) (‘TLA’), a caveat can only be lodged by a person claiming an estate or interest in the Land. The estate or interest must be established to the requisite standard by the person who lodged the caveat, if the caveat is challenged;
(b)the plaintiff’s application is made pursuant to s 90(3) of the TLA, where any person adversely affected by a caveat lodged under s 89 of the TLA is permitted to ‘bring proceedings in a court against the Caveator for the removal of the caveat’;
(c)section 90(3) of the TLA empowers a court to ‘make such order as the court thinks fit’, and thus gives the Court a discretion. The application is in the nature of a summary procedure analogous to the determination of interlocutory injunctions. The procedure is consequently interlocutory in substance, even though it may give rise to a final order;
(d)the principles applicable were dealt with by Warren CJ in Piroshenko v Grojsman. They are well settled. The authorities establish the following:
(i) the Court’s power under s 90(3) of the TLA is discretionary;
(ii)the Caveator bears the onus of establishing that there is a prima facie case to be tried that it does have the estate or interest in land as claimed;
(iii)if the Caveator establishes a prima facie case to be tried in relation to the estate or interest claimed, the Caveator must further establish that the balance of convenience favours the maintenance of the caveat until trial; and
(iv)there is a relationship between the strength of the case in establishing a prima facie case to be tried and the extent to which the Caveator must establish the balance of convenience favours the Caveator; the stronger the prima facie case, the more readily the balance of convenience might be satisfied. It is sufficient that the Caveator show a sufficient likelihood of success that, in the circumstances, justifies the practical effect which the caveat will have on the ability of the registered proprietor to deal with the Land in question in accordance with its normal proprietary rights.[4]
[4]Ibid [9].
His Honour referred to the references in the authorities to the “prima facie case” test, and the “serious question to be tried” test, which are used interchangeably. He preferred the former, stating that:
The Caveator must establish that they have a prima facie case with sufficient likelihood of success to justify the maintenance of the caveat, and the preservation of the status quo pending trial.[5]
[5]Ibid.
Derham AsJ went on to refer to the two-step process undertaken in applications of the current kind, as follows:
First, the Caveator must establish that there is a prima facie case – that there is a probability on the evidence before the Court that the Caveator will be found to have the asserted legal or equitable rights or interest in the land. Second, having done so, the Caveator must establish that the balance of convenience favours the maintenance of the Caveat on the title until trial and that the probability of success is sufficient to justify the practical effect which the caveat has on the ability of the registered proprietor to deal with the property in question in accordance with their normal proprietary rights.[6]
[6]Ibid.
Finally, his Honour reaffirmed that a caveat is not available as a bargaining chip, observing as follows:
The lodging of a caveat is a serious business. It has the potential to affect commercial transactions and the lives and financial interests of others.[7]
[7]Ibid.
The parties’ submissions
After referring to the factual background to the proceeding and the legal principles applicable to the current application, Skymation submitted that the Lender’s claim that it has a caveatable interest in the property should be rejected on the following grounds:
(a) Skymation accepts that clause 25 of the terms annexed to the Letter of Offer (‘Offer Terms’) would be sufficient to grant a caveatable interest in the property;
(b) however, the Lender is not a party to, and was not identified in, the Letter of Offer, and there is no evidence of any nomination of the Lender by Assetline or any communication of that nomination to Skymation; and
(c) further, Skymation does not owe the Lender the secured sum, by reason of the following matters:
(vi) the legal fees relate to the preparation of the security documents, which were prepared prematurely, that is, before the Lender completed its due diligence, as provided for by the Letter of Offer;
(vii) the Establishment Fee and the Costs Of Funds fee should not have been levied in circumstances where the Lender had not completed its due diligence, and where the Lender, not Skymation, had withdrawn from the proposed loan;
(viii) accordingly, the Lender is not able to establish that it has a prima facie case that it has the interest claimed in the caveat; and
(ix)even if the Lender was able to establish a prima facie case to support the caveat, its case is a weak case, and the balance of convenience supports the removal of the caveat. The secured sum is a modest amount compared with the value of the property, and given that Mr Negri, the guarantor of Skymation’s obligations under the Letter of Offer, is a man of considerable means.
Skymation submitted as follows:
It is not appropriate to interfere with [Skymation’s] rights to deal with the [property] by holding up or imperilling [Skymation’s] sale of the [property], for the minor amount of money to which the Lender says it is entitled.
The authorities make it clear that, in applications of the current kind, the caveator bears the onus of establishing that it has a prima facie case that it is has an interest in the relevant property capable of being protected by a caveat. The Lender submitted, in summary, as follows:
(a) the Lender is Assetline’s designated nominee, and is thus a party to the agreement evidenced by the Letter of Offer and the Offer Terms;
(b) the Lender was nominated by Assetline in the letter from Summer Lawyers to Wisewould Mahony dated 25 September 2020, and the Lender is also identified by name in the security documents;
(c) Skymation never objected to the nomination of the Lender, and, by its conduct, accepted Assetline’s nomination of the Lender; and
(d) the Lender relies upon various clauses of the Offer Terms to support its claim that Skymation is indebted to it for the secured sum.
The Lender submitted as follows:
If the Court is of the view that the nomination of ALS342 created a novated contract between ALS342 and Skymation which arose on the date of the nomination, namely 25 September 2020, then ALS342 seeks leave to amend the Caveat to reflect the date of its interest as being 25 September 2020.
Alternatively, if the Court holds that ALS342 did not acquire any rights under the Offer, and that at all times the rights vested with Assetline Investment Ply Ltd, then ALS342 seeks leave to amend the Caveat to name Assetline Investments Ply Ltd (ACN 619 252 210) as the Caveator.
As for the balance of convenience, the Lender submitted that the balance of convenience favours the maintenance of the caveat, as the evidence relied upon by Skymation with respect to its plans to sell the property, and the impact of the presence of the caveat upon the likely sale price for the property is conclusionary, and, in parts, inadmissible. The Lender submitted that if the caveat was removed, Skymation and third parties would be free to register dealings on the title to the property, which may defeat the Lender’s interest as chargee, and third parties would not have any notice of the Lender’s interest as chargee.
The Lender’s written submissions concluded with an open offer made by the Lender that day, being three days prior to the hearing of the application, as follows:
1The Plaintiff pays $11,828 into the trust account of Wisewould Mahony (Trust Account) to be held by Wisewould Mahony (WM) on trust for the Plaintiff and the First Defendant and invested in an interest bearing account.
2WM is not to pay $11,828 together with any accretions in the Trust Account to either the Plaintiff or the First Defendant unless it is with the written agreement of the Plaintiff and the First Defendant or an order of the Court.
3The First Defendant withdraws Caveat Dealing Number AT650609R on receipt of satisfactory evidence that the Plaintiff has paid $11,828 into the Trust Account.
4The Plaintiff and the First Defendant consent to orders that:
(a)the Proceedings are dismissed with a right of reinstatement to the Plaintiff and the First Defendant;
(b)costs reserved.
Accordingly, there are four issues for consideration in the current application, being:
(a) whether the Lender has a prima facie case that it has become a party to the loan contract by reason of the nomination clause in the Letter of Offer and Offer Terms (‘nomination clause’);
(b) whether the Lender is entitled to be paid the secured sum or any part of it;
(c) if yes to (a) and (b), is it required to apply to amend the caveat, and if so, should that application be granted; and
(d) if the Lender is found to have a prima facie case that it has a caveatable interest in the property, where does the balance of convenience lie?
In summary, my conclusions in relation to the questions above are as follows:
(a) the Lender does have a prima facie case that it is a party to the proposed loan by reason of the nomination clause, and as such, has assumed the rights and obligations of Assetline under the Offer Terms;
(b) however, there is a real doubt as to whether Skymation is indebted to the Lender for the secured sum, or part of it;
(c) should it have been necessary to decide, I would have granted the Lender leave to amend the caveat to substitute the date of 25 September 2020 as the date of the agreement referred to in the caveat; and
(d) however, it is, strictly speaking, not necessary for me to determine whether the Lender’s application to amend the caveat should be granted, as, in my view, the balance of convenience favours the removal of the caveat.
My reasons follow.
The nomination issue
The Lender submitted that it has a prima facie case that it was a party to the proposed loan, thus entitling it to lodge a caveat to protect the security interest conferred upon the Lender by clause 25 of the Offer Terms. The Lender rejected the contention that there was no evidence of any nomination by Assetline, or any effective communication of that nomination to Skymation. The Lender relied upon the letter from Summer Lawyers to Wisewould Mahony of 25 September 2020, in which the Lender was referred to in both the cover letter and the security documents. The Lender also submitted that at no time during the course of the dealings between the parties did Mr Negri or Skymation’s solicitors query or express concern about the identity of the Lender. That is unsurprising, as a borrower in the position of Skymation would ordinarily be unconcerned about the exact identity of the lender: the availability of credit and the terms upon which the advance would be made would be of far greater significance to Skymation.
Skymation relied upon the decision of the Court of Appeal in Salter v Gilbertson[8] as authority for the proposition that where a contract permits one party to the contract to nominate another party in substitution for the original contracting party, the substituted party does not acquire the rights and obligations of the original contracting party in the absence of “compelling language” in the relevant agreement. In that decision, the Court of Appeal held that the reference to “and/or nominee” in a contract for the sale and purchase of shares did not permit the substitution of another person as a purchaser of the relevant shares. This clause did no more than entitle the nominee to a subsequent transfer of the shares from the purchaser. Phillips JA stated as follows:
... although it must be so if the context so demands, it is a strong thing to regard the words “or nominee” as authorising B, unilaterally and in his or her own absolute discretion, to nominate a purchaser to stand in the place of B, with all the attendant consequences for A. For such a construction “compelling language” is required ...[9]
[8](2003) 6 VR 466.
[9]Ibid [17].
His Honour went on to say as follows, referring to the decision in Parland Pty Ltd v Mariposa Pty Ltd:[10]
Obviously every case must turn upon its own facts. It is possible, as I have said, for the language of the contract as a whole to dictate that the power to nominate be taken to mean that a new party can be put in place of the original party who is given the power unilaterally to nominate another to stand in his or her shoes. But very clear language is required to achieve such a result ... In the case now under appeal, clause 1 does not, after mentioning a nominee, incorporate the nominee in any definition of “the purchaser” and there are other indications that the parties to the settlement had in contemplation only the ordinary course of nomination, and not the rather special situation in which nomination results in the substitution of the purchaser.[11]
[10](1995) 5 Tas R 121.
[11](2003) 6 VR 466 [18].
There are, however, examples of where a nomination clause within the relevant contract has been construed as enabling a party to unilaterally substitute a nominee as the party to the relevant agreement, that is, to effect a novation of the original agreement. In ACN 096 278 483 Pty Ltd v Vercorp Pty Ltd,[12] the Queensland Court of Appeal held that a nominee of a party to a contract for the purchase of land was bound by the covenants made by the original purchasers in circumstances where the evidence showed that the vendor of the land knew of the intended nominee prior to its entry into the contract. The Court noted the requirement for clear words, or compelling language, to establish an agreement to the effect that, upon the original purchaser’s nomination, the nominee would become a party to a contract with the vendor. The Court referred to the following statement in Parland Pty Ltd v Mariposa Pty Ltd:[13]
... it must be kept in mind that every case must be determined on the basis of the circumstances and terms of the particular contract under consideration.[14]
[12][2011] QCA 189.
[13](1995) 5 Tas R 121.
[14]Ibid, 128.
Similarly, in Avzur Hotels Pty Ltd v Ivanhoe Entertainment Pty Ltd,[15] Finkelstein J acknowledged the requirement for “clear language” for a nomination clause to have the effect of substituting a nominee for the original purchaser of a business, but the relevant contract, it was clear that the nominee was intended to be a substitute purchaser with the same rights and obligations as the original purchaser.
[15](2009) 257 ALR 498.
A similar result occurred in Leveraged Equities Ltd v Goodridge,[16] where the Full Federal Court held that a purchaser of a bank’s margin lending business was entitled to rely upon the nominee provisions in the original margin loan agreement with the bank’s customer to enforce the margin call provisions in the loan contract. The Court also held that the sending of a letter notifying the customer of the assignment of the original loan agreement was sufficient for the assignment to be effective under the New South Wales equivalent of s 134 of the Property Law Act 1958 (Vic),[17] notwithstanding the evidence of the customer that he had not received the letter. The Court held that the terms of the relevant contract contained the prospective consent of the customer to the novation of the margin loan agreement to any third party who was prepared to assume the obligations of the lender.
[16](2011) 191 FCR 71.
[17]Section 12 of the Conveyancing Act 1919 (NSW).
Accordingly, while I accept that, in order for Assetline to be able to substitute the Lender as the lender under the proposed loan contract, the language of the relevant clauses of the Offer Terms must be clear, it is also apparent from the authorities that the enquiry is a very fact-specific enquiry, and the focus must be on the proper construction of the particular agreement at hand. Also, evidence of common commercial practice in a particular industry or sector may also be relevant to the proper construction of the nomination clause.
Turning now to the contract at hand, and the context in which it was made, the Letter of Offer commences as follows:
Assetline Investments Pty Ltd and/or its designated nominee (Assetline or Lender) are pleased to advise you that your application for finance has been approved on the terms detailed within this Offer Sheet and the attached Offer Terms (Offer).
Please note that our offer will expire after 7 days of the date of offer.
(emphasis added)
The section under the heading “Parties” includes the following:
Lender(s)Assetline Investments Pty Ltd and/or its designated nominee.
Under the heading “Loan Details”, the following appears:
Retained Interest 12 months interest in the amount of $30,484 will be returned by the Lender(s) and deducted from the Principal Amount.
Under the heading “Security”, the following appears:
Other Security Such agreements, certificates and acknowledgements, securities and other documents as we or our solicitors may reasonably require.
(emphasis added)
The Offer Terms provide, among other things:
3. Any reference to “we”, “us” and “our” means the Lender.
The remainder of the Offer Terms use the first person plural to describe the Lender throughout.
I note that the Letter of Offer does make reference to Assetline in the singular tense, under the heading of “Insurance”. However, the reference to Assetline’s “designated nominee”, and the repeated references to the Lender’s obligations and rights being made using the first person plural, indicate that the Lender’s assertion that it was entitled to be substituted for Assetline under the proposed loan agreement is at least a solid argument, at least for the purpose of supporting a caveatable interest in the property. That argument is capable of being bolstered further by evidence of general commercial practice in the finance industry, and the nature of the transaction is such that it is difficult to see how the identity of the lender would be of much moment to a borrower in the position of Skymation.
Further, I agree with the Lender that there is evidence which supports the Lender’s contention that Skymation was informed by the substitution of the Lender for Assetline, and evidence from which it can be inferred that Skymation consented to the nomination and substitution of the Lender.
The secured sum
I agree with the submissions advanced on behalf of Skymation that there is a real question mark over whether it owes the Lender the secured sum. I would not go so far as to say that the secured sum is not owed, but agree that, first, the instructions by the Lender to Summer Lawyers to prepare the security documents may well have been issued prematurely, and secondly, it is at least arguable that the Lender withdrew from the proposed loan.
In relation to the first issue, upon reviewing the checklist, the checklist includes documents which might ordinarily be required as part of a due diligence process, including, but not limited to, the statutory declarations and resignation letters from Richard Negri. For example, the checklist required the provision of a certificate from a doctor to the effect that Mr Negri was mentally competent to make financial decisions, the absence of which, given Mr Negri’s age, would presumably have caused the Lender not to proceed with the proposed loan. That said, the terms of clause 14.1 of the Offer Terms may amount to Skymation’s agreement to immediately authorise the Lender to instruct its solicitors to prepare the security documents prior to the completion of the due diligence. In short, the issue of whether Skymation was liable to pay the legal fees is contestable.
In relation to the second matter, the Offer Terms contemplate either of the Lender or Skymation “withdrawing” from the proposed loan. The Offer Terms provide that, if the Lender withdraws from the proposed loan, the Lender is absolved from any liability to Skymation as a consequence of the withdrawal (clause 21 of the Offer Terms), but does not impose any liability upon Skymation to pay the Lender the secured sum. That liability only arises if Skymation withdraws from the proposed loan, and this is the liability to which the charging clause (clause 25 of the Offer Terms) attaches. In other words, in the absence of any liability of Skymation to pay the secured sum, there is no entitlement to lodge a caveat.
While it is not necessary to finally decide the point for present purposes, it seems to me to be at least strongly arguable that the Lender, not Skymation, withdrew from the proposed loan. That matter in turn affects the evaluation of the question of whether the probability that the Lender has a charge over the property which is sufficient to justify the interference in Skymation’s ordinary proprietary rights with respect to the property. It may well be that further evidence is required to conclusively determine that issue.
The balance of convenience
In most circumstances, notwithstanding my doubts about whether the Lender is entitled to recover the secured sum, or part of it, from Skymation by reason of, in particular, the real possibility that it would be held that the Lender was the party with withdrew from the proposed loan, the balance of convenience would favour dismissing the application. After all, the Offer Terms expressly contemplate the Lender lodging a caveat over any property owned by Skymation or Mr Negri to secure any amounts owed to it pursuant to the Offer Terms. I have found that the Lender has a prima facie case that it was a party to the proposed loan, and as such, was entitled to lodge the caveat. I also agree that the evidence of Mr Negri regarding his intention to sell the property does not indicate that any sale of the property is imminent. Further, I accept that removing the caveat would, at least to some extent, undermine the Lender’s ability to speedily recover the secured sum if it is in fact owed to the Lender.
However, the particular circumstances in the current case tilt the balance towards the removal of the caveat. First, I have no reason to disbelieve Mr Negri’s evidence that he intends to sell the property. Secondly, while I accept the Lender’s criticisms of Mr Negri’s evidence regarding the impact of the caveat upon his ability to sell the property, it can be readily inferred that the existence of a caveat on the title to the property would deter arms-length buyers from entering into a contract of sale, such that the continued maintenance of the caveat would cause Skymation prejudice.
However, the most compelling agreement for the removal of the caveat is the relatively modest value of the secured sum, in circumstances where the evidence shows that Mr Negri, the guarantor under the loan contract, is a man of considerable means, and in circumstances where there is real doubt as to whether the secured sum, or part of it, is in fact payable to the Lender. It seems highly unlikely that, if Skymation is found to be liable to pay the secured sum, that Mr Negri would not have the capacity to pay the secured sum, particularly in the circumstances where clause 25 of the Offer Terms permits the Lender to lodge a caveat to secure its interest as chargee over any real property owned by him: that is, the charging clause does not prevent the Lender from lodging a caveat over any other property owned by Skymation and/or Mr Negri. Accordingly, the prejudice to the Lender of removing the caveat is not of any great moment.
In the circumstances, it is not necessary to consider and determine the Lender’s application to amend the caveat, save to say that, if I had granted the Lender’s application to amend the caveat, it would be to amend the date of the agreement referred to in the caveat to 25 September 2020, being the date the security documents were sent to Skymation’s solicitors.
Accordingly, I will grant the application to remove the caveat, and hear further from the parties on the question of costs.
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