Zeaiter v Reliance Financial Services Pty Ltd

[2006] NSWSC 1471

CITATION:	Zeaiter v Reliance Financial Services Pty Ltd [2006] NSWSC 1471
HEARING DATE(S):	26 October 2006
JURISDICTION:	Equity Division Duty List
JUDGMENT OF:	Brereton J
EX TEMPORE JUDGMENT DATE:	10/26/2006
DECISION:	Order that caveat be removed upon terms providing for protection of caveator against consequences of increase in prior security
CATCHWORDS:	REAL PROPERTY – land under Torrens Title – Caveats – Removal – where seriously arguable that caveator has caveatable interest – balance of convenience – to permit refinance of higher ranking security – where refinance may derogate from caveator’s claim
LEGISLATION CITED:	Contracts Review Act 1980 (NSW) Real Property Act 1900 (NSW), s 74O, s 74MA Uniform Civil Procedure Rules 2005 (NSW), r 40.8(a)
CASES CITED:	Martyn v Glennan [1979] 2 NSWLR 234 Woodward v Page (1989) 7 BPR 14612
PARTIES:	Annette Theresa Zeaiter (plaintiff) Reliance Financial Services Pty Ltd (first defendant) Sam Peter Cassaniti (second defendant)
FILE NUMBER(S):	SC 3801/06
COUNSEL:	M Dawson (plaintiff) D Allen (defendants)
SOLICITORS:	McCabe Terrill Lawyers (plaintiff) Hancocks Solicitors (defendants)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
DUTY LIST

BRERETON J

Thursday 26 October 2006

3801/06 Annette Theresa Zeaiter v Reliance Financial Services Pty Limited

JUDGMENT (ex tempore)

1 HIS HONOUR: The plaintiff Annette Theresa Zeaiter moves for orders that the second defendant Sam Peter Cassaniti withdraw a caveat lodged by him in respect of land of which she is the registered proprietor at 12 Turon Avenue, Baulkham Hills, being land comprised in folio identifier 24/237370. She also claims consequential orders authorising the Registrar to execute the withdrawal in the name and on behalf of Mr Cassaniti, and an injunction restraining Mr Cassaniti from lodging any further caveat in respect of the land until after settlement of a proposed refinance of the registered first mortgage. Finally, she claims an order varying an order previously made authorising the Registrar to execute a withdrawal of caveat on behalf of the first defendant Reliance Financial Services Pty Limited, by varying the terms of the undertaking on which such withdrawal is to be held by the plaintiff's solicitor after execution.

2 The property is subject to a first registered mortgage to the National Australia Bank Ltd. That Bank has obtained judgment for possession of the property, but from time to time has agreed to defer execution of that judgment. The latest agreement extends the time to which it has agreed to defer execution to 1 November and there is every reason to think, based upon the correspondence, that its patience has been exhausted.

3 The first defendant Reliance Financial Services lodged a caveat in respect of the property on 19 June 2002, claiming an interest as equitable chargee pursuant to an engagement letter, dated 25 May 2002, between the plaintiff and Reliance.

4 On 21 September this year, following an application made to the Court by the plaintiff, Bergin J made orders for the removal of the Reliance caveat and requiring the plaintiff to do all such things as are necessary to finalise and settle a proposed loan from Provident Finance and to apply the surplus proceeds of that loan, after refinancing the NAB loan, only in servicing the Provident loan. In addition, the plaintiff undertook to provide to Reliance, upon exchange of contracts on a property at Normanhurst, in which she has a one-third interest, details of the sale price and, in due course, details of the settlement of that sale, and to pay all net proceeds upon that sale in reduction of the Provident loan.

5 After 22 September, the plaintiff's solicitor endeavoured for some time, without success, to obtain a withdrawal of caveat from Reliance. Difficulties were occasioned, at least in part because the person who appears to be the controlling mind of Reliance, Mr Cassaniti, is presently in prison. As the proposed settlement of the Provident refinance was imminent and, indeed, had been delayed by the absence of a withdrawal of the Reliance caveat, the plaintiff had the matter relisted on 10 October 2006, when Hamilton J ordered that Reliance deliver a copy of a signed Notice of Withdrawal of caveat by 2pm that day. Although a copy withdrawal was provided, it was attended with various formal problems and, later on 10 October 2006, Hamilton J made a further order that the Registrar forthwith sign a withdrawal of caveat in lieu of Reliance and deliver the executed withdrawal of caveat to the plaintiff's solicitor "on her undertaking to the Court that she will not deal with it otherwise than to deliver it to the incoming mortgagee on settlement".

6 It is implicit in the orders made by Hamilton J that they contemplated only the settlement which had been referred to in Bergin J's order, namely of the Provident loan. After those orders were made on 10 October, the Registrar executed a withdrawal of caveat that day. On the very next day, 11 October, Mr Cassaniti lodged caveat AC 660471, the subject of the present application, in respect of the same land, claiming "equitable interest" pursuant to an engagement letter, dated 10 June 2003, between the plaintiff and, so it is said, Mr Cassaniti. Mr Cassaniti appears to have been the principal of a firm called Cassaniti & Associates, although at the relevant time the proprietor of that firm was apparently a corporation, Quest Enterprises (NSW) Pty Limited. But, in any event, the engagement letter in question purports to grant to Mr Cassaniti (as distinct from the firm) "a charge over any real or personal property which [the plaintiff] may own" either solely or jointly with any other person, persons or entities. The caveat is stamped with duty in respect of advances amounting to $16,000.

7 The orders made by Bergin J also required Reliance to file a pleaded statement of cross-claim, and a draft of that document has been provided to the Court today. In it, Reliance claims against the plaintiff advances of $25,000 made in about January 2003, $35,000 said to have been made in March 2004, and a total sum of $300,000 said to have been advanced to the plaintiff's former husband prior to about 2003, but which was guaranteed by the plaintiff in a loan agreement and a deed of loan made in 2003 and 2004. Reliance also claims $226,000 approximately against the plaintiff's former husband, and Mr Cassaniti claims an unspecified amount of fees for accounting and financial services against the plaintiff.

8 On application such as the present for an order that a caveat be withdrawn, the approach of the Court is to inquire whether the respondents would, in all the circumstances, be entitled to an interim injunction and, if not, to order that the caveat be withdrawn. If the respondents establish that it is seriously arguable that they have a caveatable interest, then the Court addresses the balance of convenience. It has been said that it is not proper to continue the caveat unless the respondents give the usual undertaking as to damages: see Martyn v Glennan [1979] 2 NSWLR 234.

9 In the present case, although the position of counsel for the plaintiff has wavered from time to time, it was conceded at the outset that it was seriously arguable that the respondents had a caveatable interest, and I proceed on that basis. The engagement letter, unless it is declared void – under the (NSW) Contracts Review Act 1980, or for unconscionability, or otherwise – appears to grant a security interest in the property to Mr Cassaniti. It follows that it is seriously arguable that Mr Cassaniti does, indeed, have a caveatable interest in the property.

10 As to the balance of convenience, the essential considerations are these. The plaintiff seeks to have the caveat removed so that she may refinance, discharge the NAB loan and mortgage, avoid the NAB executing its judgment for possession, and retain the property which is her home and that of her four children.

11 There is not before me any evidence of the terms of the refinance proposed. The plaintiff has taken this course because she fears that if precise details of the refinance and, in particular, the identity of the proposed refinancier are disclosed, then Reliance or Mr Cassaniti may contact that refinancier and jeopardise the transaction. That is a fear which in the circumstances, and given the history of the matter, is not an unreasonable one. On the other hand, it makes it very difficult to judge the balance of convenience.

12 It is clear, from the terms of the loan which was previously proposed as the refinance by Provident, that the amount of capital to be borrowed will clearly to exceed the amount required to discharge the NAB loan. The evidence suggests that the pay out figure of the National Australia Bank will be about $405,000, whereas the plaintiff proposed to borrow $465,000 and, indeed, sought $480,000 from Provident. It is also very likely, given the nature of the lenders which the plaintiff has been approaching to date, that the interest rate charged will significantly exceed those charged by a bank such as the NAB. To this extent – namely, that there will be additional principal and additional exposure to interest secured on the property – the refinance would operate to the prejudice of a subsequent mortgagee, such as the caveator claims to be. This is a significant matter on the balance of convenience.

13 A second significant matter on the balance of convenience, which cuts the other way, is that Mr Cassaniti offers no undertaking as to damages in connection with the sustaining of his caveat. I should observe that Reliance does offer an undertaking as to damages in respect of its caveat, but this seems to me to be beside the point in circumstances where the withdrawal of the caveat has already been ordered.

14 A third matter relevant to the balance of convenience is the submission on behalf of the defendant that a refinance is likely to be futile. It depends on the plaintiff being able to service the new loan, which is proposed to be for a term of only 12 months, out of the additional capital that she will borrow, and then out of the proceeds of sale of her interest in the Normanhurst property. All that suggests an inability to service the loan in the usual way, a high likelihood of default, and consequent incurring further costs and expenses, and erosion of such equity as remains in the property.

15 There is no direct evidence of the value of the property, but so far as the evidence goes, it suggests that it is worth somewhere between $620,000, a figure implicitly derived from Providence's offer of $465,000 on a 75 per cent loan to valuation ratio, and $720,000, a figure referred to an assessment of value undertaken by real estate agents on behalf of the plaintiff. In the present context, prudence dictates that one would be more influenced by the lower than the upper end of that range. Nonetheless, that would still leave an equity in the property of some $155,000 after a refinance for $465,000. The plaintiff's evidence is that she anticipates that upon the sale of the Normanhurst property she will receive a sum in the order of $160,000.

16 In Woodward v Page (1989) 7 BPR 14,612, McLelland J (as he then was) considered circumstances somewhat similar to the present. The defendant had lodged a caveat in respect of property over which the plaintiff was the registered proprietor, claiming an equitable interest pursuant to a trust. The plaintiff sought an order for withdrawal of the caveat to enable him to raise further finance against the property. The plaintiff wished to increase the mortgage for a capital raising venture. Given that it was seriously arguable that there was a caveatable interest, although it was far from certain that there was such an interest, whether or not an interlocutory injunction would be granted in the interim required the Court to consider a course best calculated to achieve justice between the parties. That involved a consideration of the consequences to both parties of the granting of an interlocutory injunction. (It is those consequences I have endeavoured to summarise above.) Ultimately, in that case, his Honour ordered the withdrawal of the caveat so as to permit an increase in the amount borrowed on the security of the land, but upon terms which provided for the gathering of funds to enable the increased borrowing to be paid down.

17 Mr Allen has made submissions concerning possible difficulties with the proposed borrowing from Provident. I think I must adopt as a starting point the judgment of Bergin J, in which it is implicit that her Honour has accepted that the balance of convenience favoured the removal of Reliance as caveator in order to permit refinance. Although, as I have said, particulars of the proposed new refinancing are not before the Court, I think I should proceed on the basis that, as is implicit in her Honour's decision, a refinance in terms substantially the same as the Provident refinance should be regarded as within what her Honour would have permitted. The precise identity of the refinancier as distinct from the terms could not be relevant.

18 Next, I think it is strongly arguable that the course adopted by Mr Cassaniti – of first declining to execute a withdrawal of caveat when repeated attempts were made to obtain such a withdrawal from him pursuant to Bergin J's order and secondly in very promptly lodging his own caveat after Hamilton J had made orders which dispensed with the need for Mr Cassaniti's co-operation – illustrates that he was engaged on a course of seeking to frustrate the proposed refinance. That, I think, strongly favours making an order for the withdrawal of his caveat upon substantially the same terms as the Reliance caveat was to be withdrawn.

19 Nevertheless, I think that some protection should be afforded to Mr Cassaniti for the loss of priority which he will suffer by reason of the additional amount to be secured on the subject property as a result of the refinance. In order to cover that, the plaintiff should be required to pay into Court, from the proceeds of sale of the Normanhurst property, a sum equivalent to the difference between the payout figure to the National Australia Bank and the amount of principal to be borrowed from the refinancier. If one adopts the present figures and the Provident mortgage, that is a sum of $60,000. In that way, I think the balance of injustice from requiring the caveat to be removed, on the one hand, and permitting the refinance to proceed on the other, is best achieved.

20 I would propose to make orders to the following general effect, but counsel will settle them and bring in short minutes in due course.

(1) Order pursuant to (NSW) Real Property Act 1900, s 74MA, that the second defendant Sam Peter Cassaniti forthwith withdraw caveat AC 660471 in respect of the land comprised in folio identifier 24/237370.

(2) Order pursuant to (NSW) Real Property Act 1900, s 74O that the second defendant Sam Peter Cassaniti, have leave to lodge a further caveat claiming the same interest as is claimed in caveat AC 660471 after he has been notified by the plaintiff's solicitor that the mortgage to the refinancier has been registered.

(3) Order that the plaintiff be restrained from lodging any dealing in respect of the property other than a discharge of the National Australia Bank mortgage and the mortgage to the refinancier.

(4) Direct that the plaintiff forthwith notify the defendants of the registration of the mortgage to the refinancier.

(5) Release Rachael Porter from the undertaking given to the Court pursuant to order 2 made on 10 October 2006 upon her undertaking to the Court that she will not deal with the withdrawal of the caveat number 8716182 nor any withdrawal of caveat AC 660471 which might be executed by the Registrar otherwise than by delivering it to any incoming mortgagee upon settlement of the refinance of the NAB mortgage.

(6) Upon the plaintiff by her counsel giving to the Court the usual undertaking as to damages, order that the defendants be restrained from by themselves, their servants or agents lodging any further caveat in respect of the property until after notification by the plaintiff of registration of the mortgage to the refinancier.

(7) Order pursuant to Uniform Civil Procedure Rules 2005 (NSW), r 40.8(a) that the Registrar execute a withdrawal of caveat AC 660471 on behalf of and in the name of the second defendant Sam Peter Cassaniti.

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