Yaran Holdings Pty Ltd v Goldsmith 7 Pty Ltd
[2014] WASC 171
•16 MAY 2014
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: YARAN HOLDINGS PTY LTD -v- GOLDSMITH 7 PTY LTD [2014] WASC 171
CORAM: ALLANSON J
HEARD: 23 APRIL 2014
DELIVERED : 16 MAY 2014
FILE NO/S: CIV 1143 of 2014
MATTER :An application pursuant to Section 138B of the Transfer of Land Act in relation to Caveats M479141, M479139, M479142, M479140, M479137 and M479138
BETWEEN: YARAN HOLDINGS PTY LTD
Plaintiff
AND
GOLDSMITH 7 PTY LTD
First DefendantSPRING 13 PTY LTD
Second DefendantMORGAN 1 PTY LTD
Third DefendantBULLFINCH 67 PTY LTD
Fourth DefendantWROXTON 21 PTY LTD
Fifth DefendantHOOLEY 43 PTY LTD
Sixth DefendantTHE REGISTRAR OF TITLES
Seventh Defendant
Catchwords:
Caveats - Application to extend operation of caveats - Whether agreements grant equitable interest and charge land - Whether there is a serious question to be tried - Turns on own facts
Rectification - Application to rectify agreement
Legislation:
Transfer of Land Act 1893 (WA), s 137(1), s 138B
Result:
Application dismissed
Category: B
Representation:
Counsel:
Plaintiff: Mr P A Tottle & Ms G Sammon
First Defendant : Mr A J Power
Second Defendant : Mr A J Power
Third Defendant : Mr A J Power
Fourth Defendant : Mr A J Power
Fifth Defendant : Mr A J Power
Sixth Defendant : Mr A J Power
Seventh Defendant : No appearance
Solicitors:
Plaintiff: Tottle Partners
First Defendant : David McDonald Legal
Second Defendant : David McDonald Legal
Third Defendant : David McDonald Legal
Fourth Defendant : David McDonald Legal
Fifth Defendant : David McDonald Legal
Sixth Defendant : David McDonald Legal
Seventh Defendant : No appearance
Case(s) referred to in judgment(s):
Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393
Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Complex Scaffolding Solutions Pty Ltd v Doueihi [2014] NSWSC 230
Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Dodds v Kennedy [No 2] [2011] WASCA 131; (2011) 42 WAR 16
EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23
Montagu v Earl of Sandwich (1886) 32 Ch D 525
Murphy v Wright (1992) 5 BPR 11,734
National Provincial & Union Bank of England Ltd v Charnley [1924] 1 KB 431
Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95
Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
Smith v Chadwick (1882) 20 Ch D 27
Smith v Chadwick (1884) 9 App Cas 187
Southern Wine Corporation Pty Ltd (In liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162
Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584
Taleb v National Australia Bank Ltd [2011] NSWSC 1562; (2011) 82 NSWLR 489
Troncone v Aliperti (1994) 6 BPR 13,291
ALLANSON J: Each of the first six defendants was set up as a vehicle to carry out a particular land development. Each is the trustee of a unit trust and, as trustee, is the registered proprietor of the lots created in the particular development.
Finance for the developments was provided by Crest Capital Asia Pte Ltd (Crest), pursuant to agreements between the plaintiff, the defendants, and Crest.
On 29 November 2013, the plaintiff lodged caveats against the titles of land held by the defendants. On the application of the defendants, the Registrar of Titles (the seventh defendant) sent notices to the plaintiff under s 138B of the Transfer of Land Act 1893 (WA). The plaintiff has applied by originating summons to extend the operation of each caveat so that it does not lapse by operation of s 138B(2).
On 4 February 2014, Prichard J made orders by consent extending the operation of each caveat until further order.
I heard the plaintiff's application on 23 April 2014. The matter was then adjourned to a date to be fixed, with a direction that the parties would bring in a statement of agreed facts and further submissions in relation to the status of existing contracts for the purchase of lots subject to caveat, following which judgment would be reserved. Before dealing further with the facts, I note that one effect of this exercise has been to substantially narrow the number of lots for which the application is now pressed. In effect, the plaintiff presses the application only for those lots where there is no contract for the sale of the lot, or where there is a contract that was entered into after the date of the caveat.
Yaran's case
The plaintiff is part of the Yaran Group. It has been involved in property development for some years, and one member of the group (Yaran Residential Investments Pty Ltd) is an approved participant in the National Rental Affordability Scheme (NRAS) conducted under the National Rental Affordability Scheme Act 2008 (Cth). For the purposes of this application, it is unnecessary to go further into the involvement of the NRAS and the incentives allocated to Yaran Residential Investments under it.
Crest is a financier based in Singapore.
In 2011, Faryar Gorjy (a director of the plaintiff) had discussions with Crest, for the purposes of procuring finance for the development projects. The parties discussed a profit-sharing arrangement. Crest agreed to provide finance, and the projects proceeded.
The transactions were structured using a company formed for the purpose of each development (the SPV). Each of the first six defendants is the SPV for a separate development project. In his affidavit, Mr Gorjy gives the following broad outline of the transactions and the way in which the SPVs were structured and operated:
(a)in respect of each development a unit trust was established with the SPV as a corporate trustee;
(b)the directors of the SPV/trustee were Mr Gorjy and his brother Shahyar Abdollah Gorjy;
(c)all the units in the unit trusts were issued to the plaintiff;
(d)the SPV/trustee acquired the land;
(e)in some instances some of the acquisition and initial costs of development were funded by the plaintiff;
(f)the SPVs/trustees employed no staff and the plaintiff's staff undertook all the project management work and, under the supervision of the Gorjy brothers, appointed consultants and builders on behalf of the trustee/SPV;
(g)the plaintiff's staff were also responsible for selling the completed homes or house and land packages, for which it was agreed that the plaintiff would be entitled to a fee;
(h)development feasibilities were prepared and submitted to Crest;
(i)if Crest agreed to fund a development, the units in the unit trust were transferred to Crest as legal owner while the plaintiff retained beneficial ownership of the units. This transfer of units was used as collateral security for the monies advanced by Crest on the basis that, in the absence of a default and on repayment of the advance, the units would be transferred back to the plaintiff which would become both the legal and beneficial owner of the units;
(j)Crest advanced funds to the plaintiff which on‑lent the funds to the trustee/SPV;
(k)pursuant to the terms of the relevant SPV agreement, each trustee/SPV was responsible for the development of the land acquired in its name in accordance with the development feasibility for that development.
Relations between the plaintiff and Crest deteriorated in 2012. In October 2012, Crest forwarded a Term Sheet, for execution by the plaintiff. One effect of this agreement was that the Gorjy brothers resigned as directors of each SPV, with full operational control transferred to Crest, and with new directors to be appointed by Crest.
On 22 November 2012, Crest served a default notice under the Loan Agreement, and on 19 December served a notice to terminate the Loan Agreement. The plaintiff denies that the default notice and the notice to terminate were effective.
Crest has commenced proceedings in this court against Yaran. Yaran has counterclaimed for relief that includes rectification of the Loan Agreement. Each of the first six defendants is a defendant to the counterclaim.
The agreements
The arrangements between the plaintiff, Crest and each defendant, was implemented by several agreements: a Loan Agreement between the plaintiff and Crest; separate SPV Agreements (also referred to as Unitholder Agreements) between the plaintiff, Crest and each defendant; and a Deed of Acknowledgement between the plaintiff, Crest and each defendant.
Although the agreements were not executed contemporaneously, the Loan Agreement refers to the SPV Agreements to be executed, and the later agreements refer back to the Loan Agreement. They should be read together for the purpose of ascertaining their proper construction and legal effect: see Smith v Chadwick (1882) 20 Ch D 27, 62 (Jessel MR); Smith v Chadwick (1884) 9 App Cas 187; EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd [2010] WASCA 78; (2010) 41 WAR 23 [104].
The Loan Agreement
On 2 February 2012, the plaintiff (as Borrower), Crest (as Lender), Yaran Residential Investments Pty Ltd (as NRAS Consortium), and the Gorjy brothers (as Guarantors) executed the Loan Agreement ‑ referred to in some later documents as the Investor Loan Agreement. The recitals to the Loan Agreement include:
E.The Borrower intends to carry out each Project of the NRAS Australia Project through a separate SPV for each Project.
F.From time to time, the Borrower intends to borrow funds from the Lender to fund the SPV to carry out the Project of the NRAS Australia Project.
G.The Lender has agreed at the request of the Borrower, the NRAS Consortium, and the Guarantors to provide to the Borrower the Loan Facility to fund each Project of the NRAS Australia Project.
H.The Lender, the Borrower, the NRAS Consortium and the Guarantors have agreed to enter into this Loan Agreement which sets out the terms and conditions on which the Loan Facility will be made available to the Borrower.
In cl 1.1, Definitions, the Loan Agreement defines 'SPV Agreement' to mean a separate agreement made or to be made by the Lender and the Borrower 'annexed to this Loan Agreement in Schedule 2 whereby, inter alia, the Lender holds One Hundred percent (100%) of the issued ordinary share capital or units of the SPV on trust for the Borrower as part of the Original Securities'.
By pt 2, Crest agrees to lend and the plaintiff agrees to borrow from time to time the Principal Sum pursuant to a Loan Facility on the terms and conditions set out in the Loan Agreement: cl 2.1. The Loan Agreement contemplates the plaintiff obtaining funding from other lenders, but with Crest to have a right of first refusal for each Project: 2.1(b); cl 2.6.
Clause 2.3 deals with draw downs. By cl 2.3(a), the plaintiff is required to deposit all draw downs to a central bank account in order to meet the funding requirements of each Project approved by Crest. By cl 2.3(d), 'All draw down of the Principal Sum for each Project will be treated as a loan from the Borrower to the SPV'.
Conditions precedent to the draw down of all or part of the Principal Sum include:
•when required by Crest, the SPV executing a mortgage in favour of Crest (cl 2.5(f)); and
•the plaintiff establishing an SPV for each Project funded by Crest (cl 2.5(j)).
Of central relevance in this application is cl 5, Securities:
The Borrower agrees to the Original Securities as security for the payment to the Lender of the Total Owing and the due performance of the Borrower's obligations hereunder. The Lender agrees that the Borrower may register a subject to claim caveat over the Original Securities to protect its interests pursuant to this Loan Agreement.
The term 'Original Securities' is also defined. It means:
(a)a Deed of Guarantee executed by each of the guarantors;
(b)the SPV shares or units held by Crest on trust for the plaintiff on the terms and conditions contained in an agreement to be finalised between Crest and the plaintiff in good faith in respect of such shares or units; and
(c)where any part of the Loan Facility has been used for the full acquisition of NRAS Land or NRAS dwellings, a registered first mortgage over the NRAS Land or NRAS dwellings in favour of Crest.
By cl 2.9, the plaintiff may draw down from any Project a Project Management Fee to the maximum value of 5% of the anticipated sales value for the specified Project.
The plaintiff is required to pay to Crest interest on the Principal Sum and also to pay the Lender Profit Share. The Lender Profit Share is defined in cl 1.1 as:
… the arrangement whereby at the end of each Project approved by the Lender which has settled in full will be brought to account and a profit share will be determined on the basis of 55% profit share to the Borrower and 45% profit share to the Lender. The Lender Profit share is computed as follows:
(a)The Prescribed Rate is charged and paid to the Lender (Coupon Amount) as part of each Project's financing cost.
(b)Upon Project completion and after each Project profit is computed, the same Coupon Amount is then paid to the Borrower out of the Project profit to the extent the Project profit is adequate.
(c)The Lender and Borrower share 45%-55% respectively out of any remaining profit balance after items 1 and 2 above.
Part of the argument put on behalf of the plaintiff was based upon what it described as 'catch up profit', being its entitlement under the Loan Agreement to payment of the amount equivalent to the interest paid to Crest. In the Loan Agreement, this is referred to as the Coupon Amount. This can be read as giving Crest a possible share in the profits. On the other hand, it recognises that, after Crest's entitlement to be repaid with interest, Yaran is entitled to the profits from each Project to the extent of the Coupon Amount and to 55% of any balance after that.
The SPV Agreement or Unitholder Agreement
The SPV Agreement was executed as a deed by the plaintiff (as Unitholder), Crest (as Investor) and each SPV (as Trustee) for each of the six projects. The deeds were all dated 6 July 2012 and are in the same terms.
The deed recites that the Unitholder and Investor have entered into the Investor Loan Agreement. Relevantly, it recites:
•that each development project is to be carried out by the Unitholder through a separate corporation to be established as trustee of the unit trust;
•that following approval of the loan facility by the Investor for a particular development project, the Investor will provide the loan to the Unitholder and in turn, the Unitholder will provide a loan to the separate corporation established as the trustee of the unit trust for each development project; and
•all of the units of such unit trust will be held by the Investor as collateral security for the loan facility granted by the Investor to the Unitholder to each development project.
By cl 2.2:
Whenever the provisions of this Agreement are inconsistent with the terms of the Investor Loan Agreement, then the terms of the Investor Loan Agreement shall be paramount.
By cl 3.4, ownership of shares in the Trustee does not of itself confer any right or entitlement to the land or other assets of the Trustee. The Unitholder and the Investor are each entitled to appoint two directors to the board of the Trustee: cl 3.6. All contracts, agreements, documents or the like to be entered into by the Trustee must be signed by at least two directors, being one appointee each of the Unitholder and the Investor. In the event that the Investor has not appointed a director, all contracts, agreements, documents or the like exceeding $500,000 in value must be consented to in writing by the Investor: cl 3.8.
By cl 4:
4.1Upon and from the Commencement Date the Unitholder will transfer the Units to the Investor to be held by the Investor upon trust for the Unitholder in accordance with this clause.
4.2 From the date the Units are transferred by the Unitholder to the Investor in accordance with clause 4.1 the Investor declares that it holds the Units and all distributions of income and capital benefits rights and privileges accrued or to accrue in respect thereto upon trust for the Unitholder who for the avoidance of doubt will remain the beneficial owner thereof.
4.3 The Investor covenants with the Unitholder that so long as the Investor holds the Units as trustee for the Unitholder the Investor:
4.3.1will not Alienate the Units; and
4.3.2 will only deal with the Units in accordance with this Agreement and the Investor Loan Agreement.
4.4 On the date that the Investor has received all the entitlements due to the Investor pursuant to the Investor Loan and this Agreement then the Investor will transfer the Units back to the Unitholder so that the Unitholder is both the legal and beneficial owner of the Units whereupon the trusts hereby created in respect of the Units will be at an end.
4.5 In the event that:
4.5.1 the Unitholder defaults in the due and punctual performance of any of its obligations to the Investor pursuant to the Investor Loan Agreement which default is not remedied on the date or in the manner specified in the Loan Agreement; and/or
4.5.2 the Unitholder and/or the Trustee defaults in the due and punctual performance of any of its obligations to the lender of the Development Loan (if any),
then the obligations of the Investor to hold the Units on the trust declared in clause 4.2 shall immediately be at an end whereupon the Investor will hold the Units as both the legal and beneficial owner and the Unitholder will have no interest in the Units at all and will release the Investor from all claims of whatever nature and howsoever arising in respect thereto.
The sole activity of the Trustee is to complete the development: cl 8. The Unitholder and the Trustee are required to ensure that the Trustee carries out each phase of the development and completes the development: cl 9.1.
By cl 10, Funding:
10.1The initial working capital of the Trustee to meet the Development Costs for the Development will be provided by:
10.1.1the Development Loan [that is, loans from another lender]; and/or
10.1.2the Unitholder Loan.
10.2The Unitholder Loan will:
10.2.1 comprise funds drawn by the Unitholder from the Investor Loan;
10.2.2 not bear interest;
10.2.3 only be repaid upon completion of the Development and otherwise in accordance with the Investor Loan Agreement;
10.2.4 Be applied by the Trustee only for the payment of Development Costs in accordance with the Development Feasibility.
10.3 In addition to any security granted to the Investor pursuant to the Investor Loan Agreement, the Investor Loan granted by the Investor to the Unitholder is to be secured by:
10.3.1 the Investor Mortgage;
10.3.2 the Units held by the Investor as collateral security in accordance with clause 4 of this Agreement.
10.4 Upon completion of the Development the Trustee must distribute the proceeds in accordance with the Investor Loan Agreement.
Clause 11 sets out the obligations of the Unitholder, Investor and Trustee, including the obligation of the Trustee to complete the development and sell all the lots and distribute the proceeds in accordance with the Investor Loan Agreement. Clause 12 sets out certain matters which require the unanimous agreement of the parties, including any mortgaging or charging of the land or any part of them other than the Development Security and the Investor Mortgage: cl 12.1.10.
Clause 21 includes an entire agreement clause: cl 21.3.
Deed of Acknowledgement
Also on 6 July 2012, each Trustee, the plaintiff as Unitholder, and Crest as Investor, executed a Deed of Acknowledgement, by cl 2 of which:
2.1In consideration of the Investor providing a loan facility to the Unitholder for the Development which in turn enables the Unitholder to provide a loan to the Trustee to carry out and complete the Development, the Trustee agrees:-
(a)to comply and act in accordance with the terms and conditions of the Investor Loan Agreement in relation to the Development;
(b)that in the event of any conflict between the provisions of the Investor Loan Agreement and the Constitution, the Unitholder Agreement or any other document, agreement or arrangement whatsoever, the terms and conditions of the Investor Loan Agreement shall prevail;
(c)to procure that its nominee directors do all things necessary to ensure that the Trustee complies with and implements the provisions of the Investor Loan Agreement.
Clause 3 provides that the Trustee must promptly execute all documents and do all things that another party reasonably requires to effect, perfect or complete the provisions of the Deed of Acknowledgement, the Investor Loan Agreement and any transaction contemplated by them.
The trust deeds
Each of the defendants is appointed trustee of a unit trust pursuant to a trust deed. The plaintiff was the holder of all units under each trust. Whether it still holds those units beneficially is to be determined in other proceedings.
For present purposes, it is sufficient to note that the trust deeds confer power on the trustee to borrow and to grant security, including a charge: sch 6, item 5(3).
Each unit confers on its holder an equal interest in the fund, but does not entitle its holder to any particular asset or part of the fund: cl 4.1, 4.2. By cl 4.6, a unit holder may not lodge a caveat in respect of any land comprised in the fund. In my opinion, properly construed, cl 4.6 would not prevent the lodging of a caveat based on some other interest than the holding of a unit.
The caveats
On 29 November 2013, the plaintiff lodged caveats against the land in each development, claiming an interest as equitable chargee. The interest was described as arising by virtue of the provisions of the Deed of Acknowledgement and the SPV Agreement, made on 6 July 2012, between each registered proprietor, the plaintiff and Crest in which the registered proprietor covenanted to comply with the terms of the Loan Agreement made on 2 February 2012.
The caveats were initially expressed to forbid the registration of any instrument affecting the estate or interest absolutely. On 3 December 2013, the plaintiff requested the Registrar to amend each to a 'subject to claim' caveat.
The principles
In this application, the onus is on the plaintiff to demonstrate that the caveatable interest it claims has or may have substance: Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50. This is equivalent to the test on an application for an interlocutory injunction: that is, is there a serious question to be tried? The existence of a serious question to be tried involves showing a sufficiently high likelihood of success as to justify in the circumstances the preservation of the status quo: see Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57; Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [42] ‑ [44]. How strong the likelihood of success needs to be depends upon the nature of the rights asserted and the practical consequences likely to flow from the orders sought.
The proceedings to extend the operation of the caveats are interlocutory, and it is not appropriate to attempt to determine disputed questions of fact. In a case like the present, however, it is necessary to construe the documents to ascertain whether an interest of the kind claimed has been conferred.
Because the removal of a caveat has the potential to result in the destruction, for all practical purposes, of the benefit of the plaintiff's proprietary interest, it is unusual to refuse an order extending a caveat where an arguable case as to the existence of a caveatable interest has been demonstrated. The balance of convenience is, however, a factor to be considered. And where the interest claimed by the caveator is a security interest, the balance of convenience issues may become decisive: Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95 [22].
The plaintiff has considerably mitigated the importance of the issue of balance of convenience by its decision to not press the application in relation to those lots which are subject to contracts of sale entered into before the caveats were lodged, so these contracts may proceed to settlement.
The claim for an equitable charge
The plaintiff claims to have an equitable interest in the lots created in each development as a chargee.
In the present case, the plaintiff claims an equitable charge created contractually. The question is whether the contracting parties have expressly or impliedly evinced an intention to appropriate property for the discharge of a debt or other obligation and to give the plaintiff a present right to have the property made available to meet a debt or other obligation: National Provincial & Union Bank of England Ltd v Charnley [1924] 1 KB 431, 449 ‑ 450; Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584, 595 ‑ 596; Southern Wine Corporation Pty Ltd (In liq) v Frankland River Olive Co Ltd [2005] WASCA 236; (2005) 31 WAR 162. The property charged can be property to be acquired in the future, providing it is definite and ascertainable: Montagu v Earl of Sandwich (1886) 32 Ch D 525.
No particular form of words is required to create a charge. It may be sufficient, in the circumstances, for the party granting the charge to authorise the chargee to attach a debt to particular property and place a caveat on the title of that property: see, for example, Murphy v Wright (1992) 5 BPR 11,734; Troncone v Aliperti (1994) 6 BPR 13,291. Agreeing that a caveat may be lodged may not, however, be sufficient.
In the present case, the plaintiff relies upon the combination of the three contractual agreements in this way.
First, the Loan Agreement operates by providing that money advanced by Crest under the Loan Agreement is 'treated' as a loan by the plaintiff to the SPV which receives it. This 'on-lending' is confirmed in the SPV Agreement and the Deed of Acknowledgement. The Loan Agreement also gives, or recognises, the rights of the plaintiff to the Coupon Amount or 'catch up profit', and to share, to the extent of 55%, in any balance of profit after that payment. It also provides for the plaintiff to draw down a Project Management Fee.
Second, in cl 5 of the Loan Agreement, Crest agrees that the plaintiff may register a subject to claim caveat over the 'Original Securities' to protect its interests pursuant to this Loan Agreement.
Third, the parties to the Loan Agreement, the SPV Agreement and the Deed of Acknowledgement are not independent parties. At the time of the Loan Agreement, Yaran Pty Ltd, one of the Yaran Group, was the trustee of five of the unit trusts which became the SPVs for developments. The Gorjy brothers were directors of each of the defendants. The plaintiff was the sole unit holder in each unit trust.
Fourth, the later agreements recognise the primacy of the Loan Agreement: SPV Agreement cl 2.2; Deed of Acknowledgement cl 2.1(b).
All of those matters can be accepted.
The difficulty for the plaintiff lies in the next steps.
Under cl 5 of the Loan Agreement, Crest agrees to the plaintiff lodging a caveat over specified property ‑ the Original Securities. The definition of Original Securities does not include the land later held by each SPV. The plaintiff sought to overcome this in two ways.
Its primary argument at the hearing was that the reference to Original Securities in cl 5 can only be understood as a drafting error because, given the definition of Original Securities in cl 1.1, those words do not make sense in the context of cl 5. As a matter of construction, cl 5 must have been intended to refer to the land acquired for the Projects, that being the only land over which caveats could sensibly be registered. The court should construe cl 5 by, in effect, deleting the words 'over the Original Securities'. The rejection of words repugnant to the objectively determined intention of the parties is an acceptable method of construction: Dodds v Kennedy [No 2] [2011] WASCA 131; (2011) 42 WAR 16 [28], [62]. Although the deletion of those words would leave the property to be charged unspecified, the context would identify the Project land as the property charged.
I agree that it does not make sense to speak of a caveat over any deed of guarantee, or the shares or units in the unit trusts. The third limb of the definition of Original Securities is a registered first mortgage over the land or dwellings. I have not come across one, but s 137(1) of the Transfer of Land Act appears to contemplate a caveat by a person claiming an interest in a mortgage.
Although it was not pressed at the hearing, where the plaintiff's submissions were largely directed to the proper construction of the Loan Agreement, the plaintiff also argued that the Loan Agreement should be rectified to properly describe the property charged. Were the Loan Agreement rectified in the manner sought, the rectification operates retrospectively.
It is not, in my opinion, necessary to consider the question of rectification in detail. And it is inappropriate to do so on an interlocutory application where Crest is not a party.
I also keep in mind the question is whether the plaintiff has or may have a caveatable interest ‑ if there is a serious question to be tried about whether the agreements, read together, create an equitable charge over the defendants' land, then (subject to the balance of convenience) the protection afforded by the caveats should be extended. I am not satisfied that the plaintiff's claim on the proper meaning of cl 5, or its possible rectification, does not raise a serious question to be tried.
The next question is what implication should be drawn from an agreement that a party to a contract may place a caveat on title. This has been the subject of recent consideration in several cases, particularly in New South Wales. In Taleb v National Australia Bank Ltd [2011] NSWSC 1562; (2011) 82 NSWLR 489 [60] ‑ [61], Bryson AJ said
… 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. In my opinion Mahoney JA did not state such a principle in Troncone v Aliperti and in my opinion there cannot be such a principle, because a principle of law of that kind would divert the court from addressing the terms of each document to discover what it means, by expression and by implication.
The circumstances that there was a debt and that there is to be a caveat, together with the nature of the caveat, certainly direct attention to whether it was intended that the debt should be protected by a charge or some other interest. It is quite likely that there was some such intention in the mind of one party or of both, but if that intention is not found expressed or by implication in their document there is no equitable interest. Authorisation to lodge a caveat does not create by necessary implication the conclusion that there must have been an intention to create an equitable interest, and that there must have been the further intention that that interest should be a charge over the property.
In Aged Care Services Pty Ltd v Kanning Services Pty Ltd [2013] NSWCA 393 [82] ‑ [83], Gleeson JA (Meagher and Leeming JJA agreeing) said:
Whether it is possible to discern from the authorisation to lodge a caveat (given by a registered proprietor), an intention to create a charge which would support a caveat is the subject of conflicting views in the authorities. The conflict relates to whether there is a principle establishing what implication must be drawn in all cases from the authority to lodge a caveat in connection with an obligation to pay money, or whether each case is to be addressed by reference to the terms of the contractual document to discover what it means, by expression and by implication: Taleb v National Australia Bank Ltd [2011] NSWSC 1562; 82 NSWLR 489 at [60] per Bryson AJ.
In my view, Bryson AJ was correct to observe in Taleb that the statements of Mahoney JA and Meagher JA in Troncone v Aliperti (1994) 6 BPR 13,291 are not to be taken as such a principle. Rather, they are to be taken as a proposition to be derived from the facts in Troncone. So much is clear from the summary of the proposition in Troncone, given by McLelland CJ in Eq in Coleman v Bone (1996) 9 BPR 16,235 at 16,239:
'... if in a contract between A and B, A grants B authority to lodge a caveat in respect of property of A, that grant carries with it by implication such estate or interest in the property as is necessary to enable that authority to be exercised. Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money (Troncone at BPR 13,293-4, ConvR 60,020 per Meagher JA).'
In Complex Scaffolding Solutions Pty Ltd v Doueihi [2014] NSWSC 230 [30], Robb J said:
[W]here the only right given to the creditor is to lodge a caveat, it might be difficult to determine whether the parties intended the lender to have a charge over the relevant property. A mere right to lodge a caveat, without more, should not give the creditor a charge: see Taleb v National Australia Bank [2011] NSWSC 1562; (2011) 82 NSWLR 489 at (61); cf Coleman v Bone (1996) 9 BPR 16,235 and Iaconis v Laza [2007] NSWSC 1103; (2007) 13 BPR 24,937. However, it may be, when all of the circumstances are considered, and the relevant term is construed in its context, the court should find by implication that the parties intended that the creditor would be entitled to a charge: see Murphy v Wright. Where the relevant term uses words such as 'charge' and 'mortgage' the conclusion that the term was intended to create a security in favour of the lender may be relatively easy to reach.
What are the circumstances of the present agreements?
First, the defendants are trustees of unit trusts. Subject to any default, the plaintiff was at all times the beneficial owner of all of the units in the unit trusts.
Second, the Loan Agreement contains no words of charge, or any other words indicating an intention to create an equitable interest in land. It goes no further than an agreement by Crest that the plaintiff may lodge a caveat to protect its interests pursuant to the Loan Agreement.
Third, at the time of execution of the Loan Agreement, Crest had no interest in any Project land by virtue of which it could grant an interest to the plaintiff or charge the land to secure its obligations. The only prospective interest Crest had in the Project land was if it were to take security by way of a mortgage. In lodging the caveats, the plaintiff relied, as it must, on the terms of the two later agreements to which the defendants were parties.
Fourth, in the Deed of Acknowledgement, the defendants agree to comply and act in accordance with the terms and conditions of the Loan Agreement. But there are no words of charge in the SPV Agreement or the Deed of Acknowledgement, and neither contains any provision which might indicate an intention on the part of the defendants to grant an interest in and charge the land. The two deeds to which the defendants were parties refer to the security to be held by Crest, but neither refers in any way to security to be held by the plaintiff.
Fifth, under the SPV Agreement, the Unitholder Loan made by the plaintiff to each defendant will not bear interest, and will only be repaid upon completion of the development 'and otherwise in accordance with the Investor Loan Agreement': cl 10. Clause 11 requires each defendant to complete the development and sell all the lots and distribute the proceeds in accordance with the Investor Loan Agreement. Clause 12 requires the unanimous agreement of the parties to any mortgaging or charging of the land or any part of them other than the Development Security (that is, security to external lenders) and the Investor Mortgage. These provisions, in my opinion, are not consistent with the implication of a grant of security in favour of the plaintiff where that might require the defendants to distribute the proceeds of the development otherwise than as provided in the Loan Agreement.
The plaintiff needs to show a sufficient likelihood of success in its claim of an equitable charge to justify the continuation of the caveats. While it has agreed to the caveat lapsing for all land subject to contracts entered before the lodging of the caveat, there are some lots which are subject to contracts for sale entered later.
With respect, I agree with the comments of Bryson AJ in Taleb. If the intention to grant an interest in the land is not found expressed or by implication in the documents, there is no equitable interest. The intention to grant an interest is not expressed, and I am not satisfied that the plaintiff's case for the implication of an equitable charge, from these agreements is sufficiently arguable to justify an order maintaining caveats on the land.
Conclusion
I would dismiss the application.
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