Warden v Mortgage House No 1 Pty Ltd
[2006] NSWSC 1462
•05/10/2006
CITATION: Warden v Mortgage House No 1 Pty Ltd & Anor [2006] NSWSC 1462 HEARING DATE(S): 5 October 2006 JURISDICTION: Equity Division JUDGMENT OF: Brereton J EX TEMPORE JUDGMENT DATE: 10/05/2006 DECISION: Order that caveat be withdrawn CATCHWORDS: REAL PROPERTY - Torrens Title - Caveats against dealings - removal by court order - formal requirements - insufficiency of claim of "equitable interest" - whether application by borrower of funds to pay stamp duty gives lender equitable interest - held it does not - balance of convenience - where equity in property exhausted by higher priority claims LEGISLATION CITED: Real Property Act 1900 (NSW), ss 74L, 74MA
Real Property Regulation 2003 (NSW), reg 47; Sch 3, Item 1CASES CITED: Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd (2006) NSW ConvR 56-143
Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880
Martyn v Glennan [1979] 2 NSWLR 344PARTIES: Raymond Warden (plaintiff)
Mortgage House No 1 Pty Ltd (first defendant)
Insite Property Developments Pty Ltd (second defendant)FILE NUMBER(S): SC 5173/06 COUNSEL: J R Young (plaintiff)
M Southwick (first defendant)
M Sneddon (second defendant)SOLICITORS: Veritas Legal (plaintiff)
Macquarie Lawyers (first defendant)
Barrak Lawyers (second defendant)
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
BRERETON J
Thursday 5 October 2006
5173/06 Warden v Mortgage House No 1 Pty Limited & Anor
JUDGMENT (ex tempore)
1 HIS HONOUR: The defendants Mortgage House No 1 Pty Limited and Insite Property Developments Pty Limited are the registered proprietors of three lots situate at 343-347 Great Western Highway, Wentworthville, on which stands a Hungry Jacks outlet. In December 2004, following a telephone conversation between the plaintiff Raymond Warden and his cousin Raymond Sleiman, Mr Warden had a conversation with one Joseph Abboud, who is the sole director and shareholder of Insite. Mr Abboud was seeking short term funding for the purchase of the Hungry Jacks property at Wentworthville. As a result of the conversation Mr Warden agreed to advance to Mr Abboud the amount required to pay stamp duty on the purchase of the property.
2 On 22 December 2004, Mr Warden purchased a bank cheque in favour of the Office of State Revenue in the sum of $98,446.13. In his cheque book he described it as “Close loan to Joe Abboud”. It appears that stamp duty on the transfer of the Wentworthville properties from Patricia Harmon McDowell to the defendants was paid on 23 December 2004, which is also the date of the two transfers, one of Lot 1 DP 658185 and Lot 9 DP 1037917, and the other of Lot 2 DP 658186, for a total price of $4 million.
3 The advance to Mr Abboud was not repaid in accordance with the terms on which Mr Warden insisted it be repayable. In due course he instructed solicitors who, on 12 October 2005, obtained a search of the properties and discovered that they were registered not in the name of Mr Abboud personally, but in the name of the defendants. On 18 November 2005, Mr Warden lodged a caveat, claiming an “equitable interest” said to arise by virtue of an instrument, unspecified but dated 22 December 2004, between the caveator Raymond Warden as lender, Joseph Abboud as borrower, and the registered proprietors, and by virtue of the fact that “the Caveator lent money to Joseph Abboud who used such monies to pay the stamp duty for the purchase of the property known as Folio Identifier 1/658185 by the Registered Proprietors”. This caveat was registered on the title only of Lot 1 DP 658185, as dealing No AB923895.
4 According to the solicitor acting for Mr Warden, a few days after it was registered a copy was forwarded by facsimile to Mr Abboud, following a telephone call from him. Mr Abboud disputes receipt, but there is at least a seriously arguable case that Mr Abboud was notified of the caveat at that time.
5 On 19 January 2006, Mr Warden instituted proceedings in the District Court at Parramatta against Mr Abboud as first defendant, Mortgage House as second defendant and Insite as third defendant, claiming the sum of $98,446.13, together with interest, and another sum he claims to have advanced to Mr Abboud. He also claimed an order which was presumably intended to be to the effect of a declaration that he had an equitable interest in the Wentworthville properties. The statement of claim in the District Court proceedings asserts an oral agreement made on 22 December 2004 that Mr Warden would lend the $98,000 to Mr Abboud "to be used by the first defendant as payment of stamp duty on the purchase of the land at 347 Great Western Highway, Wentworthville". As against Mortgage House and Insite, the statement of claim asserts that they had “obtained a benefit by advantage or unjust enrichment and are jointly liable to the plaintiff for the loan amount plus interest and costs".
6 Mr Abboud filed a defence in the District Court proceedings on 28 February 2006, essentially to the effect that the advances made by Mr Warden were not loans as alleged by Mr Warden but in fact repayments of amounts previously due by Mr Warden to Mr Abboud. However, there is at least a serious question to be tried that the $98,000 was a loan as Mr Warden asserts, and not a repayment as Mr Abboud asserts. On 7 August 2006, Mr Abboud swore an affidavit in the District Court proceedings, in which he observed that Mr Warden's pleadings stated that the alleged debt was a loan to him personally, and that the only connection with Mortgage House and Insite was that the advance was utilised for the purpose of paying stamp duty on the Wentworthville properties which they acquired.
7 On 24 August 2006, Mortgage House and Insite entered into a contract for sale of the Wentworthville properties to Renaldo Trust Pty Limited at a price of $4,007,000. According to Mr Abboud, it was after entering into that contract that he first learnt of the existence of a caveat. As I have said, for present purposes I proceed on the basis that it is seriously arguable that he already had notice of it, much earlier.
8 On 8 September 2006, the solicitors acting on the conveyance for Mortgage House and Insite sent a letter to Mr Warden, recording that an agreement for sale had been exchanged on 24 August 2006, with settlement anticipated for Thursday 5 October 2006 - that is, today. The letter noted that Mr Warden had registered a caveat and requested that it be removed in order to facilitate completion, foreshadowing an application to the court if there were not a prompt response. On 11 September 2006, Veritas Legal responded on behalf of Mr Warden, advising that he would agree to provide a withdrawal of caveat "upon payment in full of the amount owing under such loan agreement". The letter described the caveat over the property as being "pursuant to a loan agreement which is currently subject of proceedings in the District Court".
9 On 21 September 2006, the defendant served a lapsing notice which will have the consequence that, unless its operation is extended by order of the court, the caveat will lapse next Thursday, 12 October 2006.
10 Searches of the title disclose that the properties are subject to a first mortgage to the National Australia Bank, a caveat by the Queen (for land tax), a caveat by Tom Wayne Powers (an unregistered second Mortgagee), and (although it does not appear from the evidence), I am informed that there is a third caveat. The caveats by the Queen and by Mr Power predate Mr Warden's caveats. I am further informed, and proceed on the basis, that arrangements have been made acceptable to those caveators which will result in the removal of all caveats other than Mr Warden's upon settlement.
11 The settlement is appointed for 3.30 this afternoon. The settlement sheet indicates that, of the purchase price of $4,007,000, after usual conveyancing adjustments a total of $3,993,470 will be available. This will permit satisfaction in full of the first mortgage to National Australia Bank in the sum of $3,186,632, the outstanding land tax of $67,861, agent’s commission of $69,503, and various legal costs, leaving $672,390 to be paid to Tom Wayne Power, which is some $122,148 less than the total amount outstanding to him. An additional amount to satisfy the outstanding indebtedness to Mr Power is to be contributed by the defendants on settlement. Accordingly, the entirety of the equity in the property will be exhausted by satisfying the first mortgagee, the outstanding land tax, and the second mortgagee.
12 Having given notice to the defendants of his intention to do so sometime last week, Mr Warden approached the court today with an application for an order extending the operation of the caveat. The defendants in turn have brought before the court applications for the withdrawal of the caveat.
13 On each of those applications, the question is the same: as was explained in Martyn v Glennan [1979] 2 NSWLR 344, the court's approach is to inquire whether the caveator would in all the circumstances be entitled to an interim injunction, and, if not, to order that the caveat be withdrawn (or decline to order that its operation be extended). If the caveator makes out a prima facie case for a caveatable interest, then the court considers the question of the balance of convenience. The caveat will be extended only if the usual undertaking as to damages is proffered. Although I have not expressly raised that with Mr Young, I proceed on the basis that it is.
14 Accordingly, it is first necessary to consider whether the caveator has a seriously arguable claim for a caveatable interest in the land.
15 As I have indicated in the course of argument, in my view the caveat is manifestly defective. As Campbell J explained in Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880, a caveat that merely claims "an equitable interest" is inadequate to specify the interest claimed by the caveator, as required by Real Property Regulation 2003 (NSW), reg 47; Sch 3, Item 1 [see also Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd (2006) NSW ConvR 56-143]. Mr Warden's caveat provides, as the particulars of the nature of the estate or interest in land claimed, only "equitable interest", and for the reasons explained in those two cases, that is insufficient. This is not a mere formal requirement; it goes to the heart of the operation of the caveat provisions of the Real Property Act 1900 (NSW), and is not susceptible of being cured under s 74L. Nor is the defect overcome by the statement of the facts said to support the claim, because at the very least, those facts admit of the possibility of a range of different types of "equitable interest": for example, it might be a security interest, in the nature of a third party mortgage from the registered proprietors, securing the advance; or it might be by way of a resulting trust, arising from contributions to the purchase money; or it might be some equitable interest arising from the alleged "unjust enrichment". In short, the nature of the "equitable interest" claimed is entirely elusive.
16 Accordingly, on that ground alone, I would order that the caveat be withdrawn. However, if I thought on the evidence that the caveator had made good an arguable claim to a caveatable interest, I would be inclined to grant leave to lodge a further caveat under s 74O, subject to any question of the balance of convenience.
17 Mr Young, for the caveator, has put the claim as one for an equitable interest arising by way of unjust enrichment, in circumstances where the registered proprietors are said to have received the benefit of moneys lent to Mr Abboud on terms that those moneys would be used to pay stamp duty on the purchase of property in his own name. There are numerous difficulties with this argument.
18 The first is that, so far as the evidence shows, there was no express term that the property would be purchased in the personal name of Mr Abboud (as distinct from in the name of a company of which he was the sole shareholder and director), nor that it would be purchased by him alone (as distinct from by him and/or his company, jointly or in common with someone else).
19 Secondly, although it is correct that the prevailing view is that, when evaluating the beneficial interests in property of persons who have contributed to the purchase money in shares different to those in which title is taken, it is relevant to have regard to payments towards the costs of acquisition, as well as to the purchase price itself, it does not follow that a loan of money for the purpose of paying stamp duty has the consequence that a beneficial interest in the property acquired results. Ultimately, that will depend on the intention of the parties, actual or implied.
20 In this case, the evidence, so far as it goes, does not suggest that in the event that Mr Abboud purchased the property, even in his own name, the advance of moneys for the purpose of funding stamp duty was to result in Mr Warden obtaining an equitable interest in the land. The moneys were advanced, not as a contribution to the purchase price (including costs of purchase), but as a loan repayable on terms. A loan does not give the lender an interest in land acquired with the advance, unless it is a secured loan. When money is advanced as a loan, as distinct from as a contribution to purchase price, generally speaking the moneys, once received by the borrower, become the property of the borrower and can be used by the borrower however the borrower pleases. That is so, even if a particular purpose has been contemplated when the loan was applied for - although, where the loan contract contains a term that the proceeds be used only for a particular purpose, to apply them for another purpose may be a breach of the loan contract. Here, there does not appear to have been any express term that the loan moneys were to be used only for the contemplated purpose, but even if there were, and there were a breach of that term, that would be a breach of contract, but not a basis for finding an equitable interest enforceable against third parties such as the registered proprietors.
21 For those reasons, I am not satisfied that the caveator has a seriously arguable claim to an equitable interest of any kind in the land the subject of the caveat.
22 If I were wrong in that conclusion, I would nonetheless refuse to extend the operation of the caveat having regard to the balance of convenience. The evidence clearly shows that there is no remaining equity in the subject property. Mr Young concedes, I think with respect quite correctly, that the caveator could not sustain a claim for priority over the first mortgagee or the second mortgagee, Mr Power, who has lodged an earlier caveat. Nor do I think there is any reasonable prospect of his sustaining a claim for priority over the Crown's land tax claim, but it is not necessary to go so far. The result is that, out of the proceeds of sale, there will be insufficient to pay out even the second mortgagee, let alone the other prior caveators. In those circumstances it is the practice of the court to order the withdrawal of the caveat, because on the balance of convenience those having higher priority claims are entitled to have them satisfied, and the subsequent caveator has no entitlement to prevent them from doing so.
23 My orders are:-
1. Order that the claim for relief in paragraph 5 of the plaintiff's notice of motion filed 5 October 2006 be dismissed.
2. Order, pursuant to Real Property Act , s 74MA, that the plaintiff, Raymond Warden, withdraw caveat AB923895 in respect of the property comprised in Folio Identifier 1/658185 by 2pm today.
3. Order that the summons and the cross claims be otherwise dismissed.
5. Direct that these orders be entered forthwith.4. Order that the plaintiff pay the defendants' costs.
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