Tannous v Abdo
[2017] VCC 304
•31 March 2017
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-15-04272
| ELIA TANNOUS and DALIDA ASMAR | Plaintiffs |
| v | |
| ROUBA ABDO | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 March 2017 | |
DATE OF JUDGMENT: | 31 March 2017 | |
CASE MAY BE CITED AS: | Tannous and Anor v Abdo | |
MEDIUM NEUTRAL CITATION: | [2017] VCC 304 | |
REASONS FOR JUDGMENT
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Subject:COMMERCIAL LAW; CAVEATS
Catchwords: Loan; moneys had and received; application for freezing order; interim settlement agreement; lodgement of caveat; nature of interest; whether interim agreement created a caveatable interest; whether caveat valid
Legislation Cited: s89, s89A Transfer of Land Act 1958; Order 37A Magistrates’ Court General Civil Procedure Rules 2010
Cases Cited:Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Municipal District of Concord v Coles (1905) 3 CLR 96; Avco Financial Services Ltd v White [1977] VR 561; Crampton v French (1995) V ConvR 54–529; Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447; Classic Heights Pty Ltd v Black Hole Enterprises Pty Ltd (1994) V ConvR 54–506; Hewitt v Court (1983) 149 CLR 639; Troncone v Aliperti (1994) NSW ConvR 55–703; Aravanis & Roy (Trustees) in the matter of Destanovic (Bankrupt) v Destanovic [2016] FCA 388; Taleb v National Australia Bank (2011) 82 NSWLR 489; Murphy v Wright (1992) NSW ConvR 55–652; Jackson v Sterling Industries Ltd (1987) 162 CLR 612; Yaran Holdings Pty Ltd v Goldsmith 7 Pty Ltd [2014] WASC 171; Above All Rigging & Site Modifications Pty Ltd v Lang [2015] WASC 414; Redglove Projects v Ngummawal Local Aboriginal Council [2004] NSWSC 880
Judgment: (1) Proceeding dismissed (2) Costs reserved
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr C A Connor | Aloe & Co Pty Ltd Barristers and Solicitors |
| For the Defendant | Mr S L Freire | Zeno Lawyers |
HIS HONOUR:
Background
1 According to the plaintiffs, Mr Tannous and his wife Ms Asmar, they agreed with Mr Bassan Abdo, the husband of the defendant in this proceeding, that they would purchase a 50 per cent interest in his bakery business known as Flat Bread Bakery, in Footscray, for a price of $200,000. This agreement was said to have been made by word of mouth and to be conditional upon the plaintiffs obtaining a bank loan of $200,000. The plaintiffs said they paid some $85,546 to Mr Abdo toward the purchase price, with the last instalment of three, being $20,000, paid in cash on or about 18 July 2014. The plaintiffs alleged, and Mrs Abdo denied, that this $20,000 was used by her in part-purchase of a property at 16 Allan Street, Altona North, which is the subject matter of this proceeding. The Bank of Melbourne and ANZ Bank having been approached for finance, declined to make the loan of $200,000 sought, and therefore, according to the plaintiffs, with the finance condition precedent to performance not being satisfied, the contract lapsed.
2 The plaintiffs then brought proceedings in the Magistrates’ Court seeking recovery of the sum of $85,546 as money had and received upon a consideration which had totally failed. (Court Book “CB” 49–56) Mr Tannous swore an affidavit in support of this application. (CB 61–72)
3 Solicitors acting for the plaintiffs filed an application under Order 37A of the Magistrates’ Court General Civil Procedure Rules 2010 for a freezing order against Mr Abdo. (CB 49–55) The application sought an order restraining Mr Abdo from removing from Australia or in any way disposing of, dealing with, or diminishing the value of, his assets “up to the unencumbered value of AUD$85,546”. Specifically, it sought relief with respect to “the property known as 16 Allan Street, Altona North, or, if it has been sold, the net proceeds of the sale” as well as the assets of businesses known as Flat Bread Bakery of Footscray and Seaside Lebanese Bakery of Altona North. (CB 51–52)
4 When the application for freezing order came on before Magistrate Mr Braun on 4 September 2014, his Honour ordered that it be adjourned to a date to be fixed with costs reserved. (CB 74) The notice of order shows the plaintiffs represented by Mr Connor of counsel, who represented them on the present application, and Mrs Abdo represented by duty barrister, Mr Joel Silver. The orders were made following signature by the parties and Mrs Abdo of a document headed ‘Terms of Interim Settlement’ under the heading of the proceeding. The operative terms were as follows:
“The respondent and Mrs Abdo undertake as follows:
(a) Not to sell the residence at 16 Allan Street, Altona North, pending further order;
(b) To permit the applicants to lodge a caveat over the property at 16 Allan Street, Altona North, to the value of $85,546.” (CB 73)
5 On 9 September the plaintiffs’ solicitor lodged caveat AL346470N pursuant to s89 of the Transfer of Land Act 1958, claiming on behalf of the plaintiffs “an estate in fee simple” in the Altona North property, stating that the claim was made “pursuant to an agreement in writing made 4 September 2014 between Elia Tannous and Dalida Asmara and Rouba Abdo”. It prohibited dealings in the land “absolutely”. The substantive claim was determined by Magistrate Mr M Smith on 10 July 2015 where his Honour gave judgment for $82,746, interest $7,311.72, and costs of $18,024.48, with a stay of 60 days. His Honour had, whilst sustaining the plaintiffs’ claim, given Mr Abdo credit for some $1,800. The precise basis on which this credit was allowed to him did not emerge clearly in the evidence before me. This judgment remains entirely unsatisfied. On 27 July his Honour dismissed the application for the freezing order. (CB 121)
6 It seems that Mrs Abdo secured issue by the Registrar of Titles of a notice under s89A of the Transfer of Land Act dated 6 August 2015 stating that the plaintiffs’ caveat would “lapse” on 9 September 2015 in the absence of written notice that a proceeding was “on foot” in a court of competent jurisdiction to substantiate the caveators’ claim. As a result, the present proceeding was commenced on 4 September 2015.
Present proceeding
7 In their statement of claim dated 7 December 2015 the plaintiffs referred to the matters recited above, contending that the agreement in writing of 4 September 2015 entailed Mrs Abdo granting “a charge over the land [at 16 Allan Street, Altona North] to secure payment of $85,546.” It sought relief including a declaration that the plaintiffs were entitled to a charge over the land and had a caveatable interest. It sought orders that Mrs Abdo pay the plaintiffs $82,746 together with further relief, including judicial sale of the property.
8 Solicitors acting for Mrs Abdo filed an amended defence dated 7 January 2016 denying the entitlements claimed by the plaintiffs. The plaintiffs’ solicitors filed an amended reply dated 15 September 2016 asserting the validity of the caveat.
9 A defence based upon a lack of independent advice given to Mrs Abdo at the time of execution of the terms of interim settlement was pleaded but not pressed at trial. The plaintiffs alleged that $20,000, being the last tranche of the moneys which the Magistrates’ Court found they had advanced to Mr Abdo, had been used to fund the purchase of the Allan Street property, something which was denied by Mrs Abdo.
10 On 14 December 2016 the plaintiffs withdrew their original caveat and lodged a new caveat in its place (CB 129), which claimed as the relevant estate or interest “an equitable interest as chargee” in lieu of the claim for an estate in fee simple.
Plaintiffs’ contentions
11 Mr Connor referred to the principles for the construction of commercial contracts pronounced by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 [46]–[52]. He noted the Court’s statement that:
“What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.”
12 He noted a general rule pronounced by the Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [57] to the effect that a party was bound by the terms of a written agreement which the party signed, whether or not the party had read the document.
13 Mr Connor conceded that a caveat for its validity must be supported by a legal or equitable estate or interest in the relevant land. He referred to Municipal District of Concord v Coles (1905) 3 CLR 96, 107, per Griffith CJ, who said a person claiming an equitable charge over Torrens Title land is entitled to lodge a caveat. He referred to Avco Financial Services Ltd v White [1977] VR 561, 566. He submitted that the agreement made at the Magistrates’ Court on 4 September 2014 created an equitable charge over the land and therefore a caveatable interest. He submitted:
“…the grant of an authority to lodge a caveat carries with it by implication the grant of such an estate or interest in the land affected by the caveat as is necessary to successfully resist its removal.” (Crampton v French (1995) V ConvR 54–529, 66,290)
14 He referred to Shannon Lindsay, Caveats Against Dealings in Australia and New Zealand (1995) p120, pp80–82, stating:
“It can be inferred from a mere bare right to lodge a caveat, without reference to the right being by way of security, that there is an intention to create a charge.”
15 He referred to statements by Harper J (as he then was) in Crampton’s case:
“If the clause does no more than authorise the lodgment of a caveat which is not supported by an interest capable of sustaining that caveat, then it has no point. It would give the lender no protection, because the borrower could have the caveat removed.” (Crampton v French (1995) V ConvR 54–529, 66,289)
16 And his Honour’s later statement:
“A caveat cannot be entered against the land unless the caveator has the relevant proprietary interest in the land. It follows that, unless there be evidence of an intention to the contrary, the grant (by a borrower to its creditors) of an authority to lodge a caveat carries with it by implication the grant of such an estate or interest in the land affected by the caveat as is necessary to successfully resist its removal.” (Crampton v French (1995) V ConvR 54–529, 66,290)
17 He submitted that the approach adopted in Crampton’s case was approved by Warren CJ in Schmidt v 28 Myola Street Pty Ltd (2006) 14 VR 447 in preference to the narrower view adopted by Batt J (as he then was) in Classic Heights Pty Ltd v Black Hole Enterprises Pty Ltd (1994) V ConvR 54–506, 65,793. He said that a valid charge over land could arise so as to secure payment of a debt even if the amount was disputed or may not yet have arisen. He referred to Hewitt v Court (1983) 149 CLR 639, 663, per Deane J, and Professor Butt in Land Law 6th edition [20.39], and Halsbury’s Laws of Australia Volume 19 [295-2065] page 53,516, where the learned editors state:
“An agreement for a future charge is not enforceable unless it is given for valuable consideration. It will attach at the time agreed between the parties. A charge securing only future advances cannot operate until an advance is made.”
18 He noted that the form of freezing order application made in the present case “could have been replaced later on by the provision of security”. (CB 54)
19 Mr Connor referred to a decision of the New South Wales Court of Appeal in Troncone v Aliperti (1994) NSW ConvR 55–703 where the Court held that an equitable charge was created by a provision stating:
“The debtor authorises the creditors to lodge a caveat on any property owned by the debtors (sic) to protect his (sic) interest.”
20 Mr Connor referred to the analysis of an equitable charge over land securing a debt as security made by Gillard J in Avco Financial Services Ltd v White [1977] VR 561, 563–4. According to Mr Connor, the use of the word “interim” in the title to the agreement was “predicated on the basis that liability had to be first established for the charge to operate. Indeed, the draftsman of the agreement could not have used the word ‘charge’ as such because it had not at that stage crystallised.” He said by the time the substitute charge had been lodged in December 2016 the charge had crystallised because the Magistrates’ Court had made an order for payment of the debt on 10 July 2015. He submitted that the eventual dismissal of the freezing order was “nothing more than the regularisation of the court register”.
21 He referred to an order for sale out of court as the ultimate remedy which his client sought, referring to the order pronounced by Farrell J in the Federal Court of Australia in Aravanis & Roy (Trustees) in the matter of Destanovic (Bankrupt) v Destanovic [2016] FCA 388.
Defendant’s contentions
22 Mr Freire of counsel, on behalf of the defendant, referred me to a wide range of authorities. His principal submissions were first, that on its proper construction, the interim settlement arrangement did not “create or impose any obligation on the part of Mrs Abdo to be answerable for the debt or default of Mr Abdo”, and secondly that the agreement authorised the lodgement of a caveat over the property and nothing else. He stressed that authorities such as Crampton, relied on by Mr Connor for the plaintiff, were decided in circumstances where the authority to lodge a caveat was given by someone in the relationship of debtor/creditor with the caveator, a situation which Mr Freire submitted did not exist here.
Conclusions
23 In Taleb v National Australia Bank (2011) 82 NSWLR 489, Bryson AJ considered at length the principles and authorities governing the effect of a contractual entitlement to lodge a caveat in the absence of an express charging clause. His Honour observed (para [52]):
“Courts recurringly encounter contractual provisions to similar effects to cl 1.3 by which registered proprietors purportedly authorise other persons to register a caveat. Many times it has been contended that this authorisation impliedly creates an equitable interest in the nature of a charge over the land. There have been many cases at first instance where such documents have been scrutinised and it has been decided that there is or is not an implication that it was intended to create an equitable charge. Appellate decisions are uncommon. Each such case is a decision on the interpretation of the particular contractual provision under consideration.”
24 I respectfully agree with these observations by his Honour. Later in his judgment, his Honour observed (para [60]):
“... In my view the meaning conveyed by a contractual document, including what is conveyed by implication, must be understood by addressing the terms and the whole terms of the document in question, and there is no principle or true principle establishing what implication must be drawn in all cases from authority to lodge a caveat in connection with an obligation to pay money.”
25 More generally, in the following observation from the joint judgment of French CJ, Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116, their Honours said (para [47]):
“In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.”
26 The relevant clause which led Harper J in Crampton’s case to the conclusions which he reached (which was cited and relied upon by Mr Connor on behalf of the plaintiffs) was as follows:
“In the event that the borrower defaults under this agreement the borrower authorises the lender to lodge any necessary caveat against property known as 28 Portland Street, Mulgrave to better secure the amount outstanding including any interest.”
27 The plaintiffs in Crampton’s case brought the proceeding which sought the removal of the caveat lodged in alleged pursuance of this clause. According to his Honour’s judgment, the background was:
“On 31 May 1991, the parties signed an agreement. By that agreement, the defendant promised to lend $US100,000 to the plaintiffs and to a company associated with the plaintiffs.”
28 In these circumstances, his Honour concluded that to achieve this clause’s purpose one would have to conclude that the land should stand as security for the loan. Mr Freire submitted on behalf of the defendant that his Honour’s recital of the facts indicated an existing relationship of debtor and creditor between the caveator and the land-owner as, according to his Honour’s recital, it would appear that the land-owners were co-borrowers. This stands in contrast with the situation existing here, where the liability said to be charged on Mrs Abdo’s land was not the result of an express loan but, rather, the entitlement which the plaintiffs said they had to recover an amount as moneys had and received upon a consideration which had totally failed, where the money in question was paid to Mr Abdo and not to his wife.
29 Murphy v Wright (1992) NSW ConvR 55–652 is another instance where the New South Wales Court of Appeal reached a similar conclusion to that reached by Harper J in Crampton. There, a clause in a guarantee said:
“In the event of default by the Borrowers in payment of moneys due under the Security Documents or in performance or observance of any covenants therein then the Lender shall in addition to the rights set out herein or in the Security Documents be entitled to attach the debt due to any of the assets of the Guarantor or Guarantors whether such assets be real or personal and further the parties hereto agree that in the event of such default the Lender may register a caveat against any property registered in the name of any or all of the Guarantors until the Moneys Secured are repaid.”
30 Bryson AJ observed in Taleb’s case that there are many other authorities to similar effect.
31 In the present case, I entertain no doubt that there was good consideration for the agreement relied on by the plaintiffs independently of their allegation, which is denied by the defendant, that the last amount of money, $20,000, paid by the plaintiffs to Mr Abdo, was contributed towards the purchase price of the Allan Street house. It may be thought that Mrs Abdo, in attending court with Mr Abdo, was seeking to support him in resisting the making of a freezing order against his assets and could therefore be regarded as giving the undertakings which she did in consideration of the adjournment and deferral of the freezing order application. This interpretation is supported by the provisions in her amended defence dated 7 January 2016 filed in this proceeding. In clause 4(c) of that amended defence, it is stated that she was present during the freezing order application “in support of her partner” and that “the Plaintiffs were seeking a freezing Order, which the Defendant believed would result in her not having access to the bank accounts to make mortgage repayments, and pay for day-to-day living expenses of her family”. I should observe further that if, as Mr Connor submitted, the relevant agreement created a charge, then that charge should be regarded as coming into existence immediately at the time of agreement, rather than “crystallising” at some later date. The right to recover an amount as moneys had and received against Mr Abdo had already occurred.
32 According to Mr Connor’s submission, upon the giving of judgment in favour of the plaintiffs in the Magistrates’ Court, the right to recover moneys had and received upon a consideration which has totally failed is an accrued cause of action which, in the ordinary course of events, existed and had accrued at the time that the plaintiffs commenced their Magistrates’ Court proceeding. It accrued or “crystallised” when the consideration for which the payments had been made failed; that is, when the bakery purchase arrangement fell through because the finance condition was not satisfied.
33 The question for determination here is whether the reasoning in Crampton’s case should be adopted upon the present set of facts. Harper J considered that the contractual right to lodge a caveat in Crampton implied the creation of a charge. Success for the plaintiff in this case, however, requires the implication, not only of the existence of a charge, but also of a guarantee. The relief sought by the plaintiffs here, which entails sale of the subject property out of court and the application of that money and payment to the plaintiffs of an amount equal to the amount for which they recovered judgment in the Magistrates’ Court from the sale of proceeds, requires, as a matter of logic, the entry of a monetary judgment for that amount in this proceeding against Mrs Abdo, which logically requires her to be held liable as guarantor of her husband’s obligation. As the joint judgment in the High Court in Mount Bruce Mining observed, the construction of the relevant agreement requires a consideration both of the words and how they ought be understood in:
“the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.”
34 The first and obvious point to make is that there is nothing in the language of the contract which expressly creates a charge, much less a guarantee. Accepting that there is no magic set of words required to constitute a guarantee, nevertheless there is no language which, in a general sense, would have that effect. As to the circumstances, Mr Abdo, with the support of his wife, the present defendant, was resisting an application to freeze his assets generally. Rule 37A.05 would have authorised the Magistrates’ Court to make a freezing order relative to that property against Mrs Abdo, herself, if the court were satisfied that a process was available whereby she might be “obliged to disgorge” the house or part of its value “towards satisfying the ... prospective order” against her husband. That rule had not been invoked in the freezing order application. Mr Abdo had the advantage of advice from a member of the Victorian Bar acting as a duty lawyer, who may be supposed to have been aware of the existence of this rule.
35 As Mr Freire correctly observed, the purpose of freezing orders, or their predecessors, ‘Mareva’ orders, is to prevent a defendant from disposing of assets so as to frustrate the processes of the court by depriving the plaintiff of the fruits of any judgment obtained. They are not intended to transmute a judgment creditor or prospective judgment creditor from an unsecured to a secured creditor: Jackson v Sterling Industries Ltd (1987) 162 CLR 612, 619, per Wilson and Dawson JJ. The giving of a contractual right to lodge a caveat in a context such as that carries with it no implication of the grant of a security.
36 In the course of concluding that a clause in a deed of acknowledgment of debt stating “the debtor will grant to the creditor the right to register a caveat over the debtor’s interest in property located at ...” did not create a charge over that land, Bryson AJ observed in Taleb’s case (para [63]):
“My experience with commercial documents has shown that the advantage sought by provisions such as these is not always the advantage of owning an equitable interest such as a charge; there are real advantages in having a caveat on the register and impeding the registered proprietor’s dealings in that way, whether or not one owns an interest in the land; once a caveat is lodged it is a complicating factor and an impediment for the registered proprietor’s dealings, and getting rid of the caveat involves a certain amount of difficulty. The conclusion that contractual authorisation to lodge a caveat means what it says and no more is not irrational at all. Registered proprietors may agree to put up with an inconvenience as a term of their dealings, and in my experience from time to time they do.”
37 The thought that this agreement should be regarded as creating no more than an impediment to dealings with the Allan Street property is entirely consistent with the context in which this agreement was entered into. Other examples where a right to lodge a caveat has not been regarded as carrying with it an implied charge are Yaran Holdings Pty Ltd v Goldsmith 7 Pty Ltd [2014] WASC 171 and Above All Rigging & Site Modifications Pty Ltd v Lang [2015] WASC 414. The thought that the agreement is for a limited “freezing” purpose rather than for the substantive purpose of creating a secured guarantee in favour of the plaintiffs is reinforced by the presence of the word “interim” in the heading to the agreement. In Above All Rigging, Mitchell J declined to find that there was a charge created by an authority to lodge a caveat contained in a guarantee. His Honour was influenced by the rule that guarantees should be strictly construed against the creditor: [2015] WASC 414 [18]. Here, the case against there being a guarantee charge created is all the stronger in the absence of any express words of guarantee at all.
38 In Troncone v Aliperti (1994) NSW ConvR 55–703, Mahoney JA, as he then was, declined to set aside a caveat on the basis that an express or implied negative covenant to restrain a dealing with land could be regarded as a caveatable interest. In Redglove Projects v Ngummawal Local Aboriginal Council [2004] NSWSC 880, White J reached the opposite conclusion. I respectively adopt the reasoning of White J in Redglove that the statement by Mahoney JA in Troncone should not be regarded as part of the ratio of that case.
39 For the reasons already given, I believe that the agreement between the plaintiffs and the defendant and her husband creates at best a negative covenant not to deal with the Allan Street property. Accepting Redglove Projects as being correctly decided, this would lead to the conclusion that the plaintiffs have no caveatable interest. At the very least, however, the conclusions that I have reached negate any finding of the existence of an equitable charge in favour of the plaintiffs and therefore any entitlement to either a judgment for a money sum or an order for sale of the relevant property. My findings also negate the existence of any implied guarantee by the defendant of the obligations of her husband under the Magistrates’ Court judgment.
Relief
40 The proceeding should be dismissed.
41 The costs will be reserved.
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