Supreme Court New South Wales Medium Neutral Citation: Ageist Pty Limited v More Than Skin Deep Pty Limited [2020] NSWSC 698 Hearing dates: 22 May 2020 Date of orders: 22 May 2020 Decision date: 22 May 2020 Jurisdiction: Equity Before: Rees J Decision: Defendants ordered to withdraw caveat. Catchwords: REAL PROPERTY – Caveats – s 74MA Real Property Act – mortgage required consent of mortgagee before disposing of property – default on loan – notice of default – mortgagor trying to refinance – mortgagor's wife (also finance broker and director of purchaser) assisting with finance – mortgagor signs contract of sale to related parties – sale price above market – deposit not paid – unclear whether agent on contract actually retained – mortgagee not told – contract to support higher value of property for refinance – not bona fide contract of sale – offer of finance – offer not accepted – finance insufficient anyway – power of sale exercised – mortgagee sells at auction – caveat lodged citing earlier contract of sale – whether serious issue to be tried – no evidence purchaser could get finance – balance of convenience favoured removal of caveat Legislation Cited: Real Property Act 1900 (NSW), ss 57(2), 58(1), 74MA Conveyancing Act 1919 (NSW), s 111 Cases Cited: Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 Buchanan v Crown & Gleeson Business Finance Pty Ltd (2007) 13 BPR 24,513; [2006] NSWSC 1465 Forsyth v Blundell (1973) 129 CLR 477 Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161 Pham v Zraika (No 4) [2018] NSWSC 566 Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 Waring (Lord) v London and Manchester Assuring Co Ltd [1935] Ch 310 Texts Cited: Croft & Hay, The Mortgagee's Power of Sale (3rd ed, 2012, LexisNexis Butterworths) Category: Principal judgment Parties: Ageist Pty Ltd (Plaintiff) More Than Skin Pty Ltd (First Defendant) Lupco Stojcevski (Second Defendant) Representation: Counsel: Mr D Meyerowitz-Katz (Plaintiff) Mr A Katsoulas (Defendants) Solicitors: Summer Lawyers (Plaintiff) Sydney Law Practice (Defendants) File Number(s): 2020/00147216 ex tempore Judgment 1. HER HONOUR: The plaintiff, Ageist Pty Ltd, is the second registered mortgagee of a Leichhardt property owned by Steven Murabito. The plaintiff became the second mortgagee by taking an assignment of a loan and a transfer of mortgage from H & H Mezz Pty Ltd. The plaintiff seeks an order under section 74MA of the Real Property Act 1900 (NSW) that the first defendant, More Than Skin Pty Ltd, and the second defendant, Lupco Stojcevski, withdraw a caveat lodged on the title of the Leichhardt property on 30 April 2020. The caveatable interest is described as a charge arising under a contract of sale dated 11 September 2019 between Mr Murabito and the defendants (the First Contract of Sale). 2. The problem is twofold. First, Mr Murabito and the defendants are related parties. More Than Skin is a company of which Lilly (also known as Lila) Stojcevski and Lupco Stojcevski are directors and Mr Stojcevski is the sole shareholder. Ms Stojcevski is the defacto wife of Mr Murabito and the sister of Mr Stojcevski. Second, the plaintiff has itself sold the Leichhardt property at auction on 21 March 2020, having exercised its power of sale (the Second Contract of Sale). Witnesses 1. The hearing began on 18 May 2020 and evidence was gradually taken over the next four days. The plaintiff relied on the evidence of a director of Ageist, Clare Terrance; two solicitors for the plaintiff, Yulia Gurdina and Paul Reese (Mr Reese was also the solicitor for H & H Mezz); and the mortgage manager for the first registered mortgagee (Perpetual Corporate Trust Limited), Tim Stoyles. These witnesses were not required for cross-examination. 2. The defendants relied on the evidence of Mr Murabito, Mr Stojcevski and Ms Stojcevski. Mr Murabito was not required for cross-examination. Ms Stojcevski was the subject of lengthy cross-examination. Ms Stojcevski was a thoroughly pleasant, intelligent lady who was knowledgeable about the transactions in question and clearly conversant in property and finance transactions. The evidence indicated that Ms Stojcevski was a finance broker. However, Ms Stojcevski's evidence developed a number of significant problems during cross examination. Ms Stojcevski gave inconsistent evidence as set out at [18] and [20]. Ms Stojcevski gave improbable answers as set out at [26], [27], [29] and [31]. I formed the view that Ms Stojcevski would say whatever she thought would assist the defendants' case, whether it was true or not, whilst having an eye to what she could get away with given her knowledge of the transactions and available records. 3. Mr Stojcevski was briefly cross-examined for the purposes of putting various propositions as required by the rule in Browne v Dunn (1893) 6 R 67. Mr Stojcevski was not a particularly co-operative witness but professed to be suffering from a migraine. It was difficult, in the time available, to form an assessment of his credibility. However, Mr Stojcevski's presentation as someone who was unknowledgeable about mortgages did not sit well with his affidavit evidence that he was a director of Terra Nuovo Investments Pty Limited, "an investment firm where Lilly acts as a broker for Prime Lending". Facts 1. Mr Murabito and the Stojcevski's have been engaged in a number of business ventures since at least 2012. In 2014, the Leichhardt property was purchased by Mr Murabito and Mr Stojcevski for $900,000. Mr Murabito later acquired Mr Stojcevski's interest in the property and became the sole registered proprietor. The Leichhardt property was leased to Little Town Pty Ltd, Mr Stojcevski's company. The loans 1. In January 2019, Perpetual Corporate Trust obtained a valuation of the Leichhardt property at $1.64 million. Perpetual Corporate Trust advanced funds secured by a first registered mortgage over the property. 2. In February 2019, a loan agreement was entered into between H & H Mezz, Samuel M Holdings Pty Ltd (Mr Murabito's company), Ms Stojcevski and Mr Murabito. Under the loan agreement, H & H Mezz lent $400,000 to Samuel M Holdings. To secure the loan, Mr Murabito granted a second mortgage over the Leichhardt property, Ms Stojcevski granted a mortgage over another Leichhardt property, and both gave guarantees. On 18 February 2019, the second mortgage was registered on title to the Leichhardt property. The second mortgage incorporated a memorandum of common provisions which provided: 7 Dealings with the Mortgaged Property 7.1 The Mortgagor must not, without the Lender's prior written consent: (a) dispose of, deal with or part with the possession of: (i) the Mortgaged Property or any estate or interest in the Mortgaged Property; … That is, Mr Murabito was not permitted to dispose of the Leichhardt property without the prior written consent of H & H Mezz. 1. The loan was advanced by H & H Mezz on 19 February 2019. By 19 April 2019, Samuel M Holdings had defaulted on the loan. Indeed, according to Ms Terrance, Samuel M Holdings has not made any of the payments required under the loan agreement. Ms Stojcevski was aware that Samuel M Holdings was in default and was making efforts to refinance this loan as well as other loans from Perpetual Corporate Trust. 2. On 6 June 2019, H & H Mezz issued a default notice to Samuel M Holdings and to Mr Murabito and Ms Stojcevski as guarantors. The notice of default advised: "Read the notice carefully as the Mortgagee may immediately [take] possession of the Land without notice or need for court intervention." On 18 June 2019, receivers were appointed to Samuel M Holdings. On 19 June 2019, Ms Stojcevski sent an email to Prime Capital advising that she could refinance the loans from Perpetual Corporate Trust, including the loan secured by the Leichhardt property, to loans with Prime Capital secured by first registered mortgages. Ms Stojcevski also sought a loan of $1.5 million for More Than Skin to be secured over various properties including the Leichhardt property. Ms Stojcevski proffered an estimated value for the Leichhardt property of $2 million. On 20 June 2019, Prime Capital replied, approving the refinance of the loans from Perpetual Corporate Trust. However, the loan sought for the Leichhardt property was now described as a construction loan, in respect of which Prime Capital sought further information including feasibility studies, council approvals, building contracts, a description of the project and estimated development costs. The construction loan does not appear to have progressed further. 3. On 29 June 2019, Raine & Horne Concord provided a market appraisal of the Leichhardt property to Mr Murabito, observing that improvements to the property were 60% complete and, with existing use rights, the property had a value of between $2.5 and $2.7 million. Whilst the phrasing of the market appraisal is not entirely clear, Ms Stojcevski clarified the nature of the report: A. … [Raine & Horne] assisted on just giving us indicative values on when the building would complete, on what it would be worth and they did some rental appraisals in terms of what the rent would be once the construction was completed. The date of the market appraisal, following shortly after Prime Capital's email of 20 June 2019, suggests that Mr Murabito and Ms Stojcevski were endeavouring to progress efforts to obtain finance from Prime Capital with the Leichhardt property offered as security for such finance. First Contract of Sale 1. On 11 September 2019, the First Contract of Sale was exchanged. The contract recorded a sale price of $2.65 million, a deposit paid of $256,000 and a balance of $2,385,000 due on completion on 15 April 2020, seven months hence. According to the contract, Raine & Horne Concord was the vendor's agent and deposit holder. 2. The First Contract of Sale has some curious features. First, the purchase price exceeded the value of the property as suggested by Ms Stojcevski to Prime Capital on 19 June 2019 and appears to reflect what it was thought the property would be worth when construction was completed, as suggested by the market appraisal prepared by Raine & Horne Concord on 29 June 2019. Mr Stojcevski explained that numerous improvements had been made to the Leichhardt property since it was purchased and some $570,000 had been spent. Council inspections had been undertaken for some 50% of the work including most of the engineering. Mr Stojcevski wanted to use the Leichhardt property to operate a liquor store and operate an alcohol manufacturing business. Arrangements had been made to install a commercial kitchen and a deposit of $70,000 had been paid which would be lost if Mr Stojcevski was unable to pursue the project. He had also invested in the purchase of the liquor license from the previous owner of the property and was in the process of transferring the liquor licence back, it having been transferred out during construction works. Thus the property had special value to him. Ms Stojcevski gave similar evidence. 3. It is not easy to understand why the defendants would agree to pay more than market value simply because the property was special to them, and certainly not in circumstances where they were not competing with other interested purchasers. It may be that the defendants were prepared to pay what the Leichhardt property would be worth when the construction was complete; perhaps that was expected to be the case by April 2020. However, as I understand Mr Stojcevski's evidence, he was paying for the improvements. Thus it is hard to understand why he would pay the predicted increase in the value of the property referable to his improvements. 4. Second, the contact details for Raine & Horne Concord on the front page of the First Contract of Sale did not match the street address or phone number of Raine & Horne Concord as displayed on the Raine & Horne website. As to the street address, I do not think anything turns on this as emails since received from Raine & Horne Concord do note, in the email signatures, the address noted on the contract. The same cannot be said for the phone number, but it may have been a typographical error. 5. Whether Raine & Horne Concord was retained by Mr Murabito as selling agent is less clear. On the one hand, an employee of Raine & Horne Concord, in General Accounts and Administration, sent an email to the plaintiff's solicitors advising that they "can't find any involvement selling or leasing this property through Raine & Horne Concord". In contrast, Mr Murabito obtained an email from Paul Pettenon, principal and licensee in charge of Raine & Horne Concord, on 19 May 2020: "confirm[ing] that we entered into an agency agreement for the sale of your property at … Leichhardt in August 2019". If there was such an agency agreement, then Mr Pettenon appears not to have filed it in a way that it was able to be located by the accounts and administrative staff of his office. Either way, Ms Stojcevski agreed in cross-examination that her decision to buy the Leichardt property was not made in response to a marketing campaign conducted by Raine & Horne Concord. Rather, Raine & Horne Concord had assisted by giving indicative values on what the building would be worth when complete. And, so far as the evidence reveals, that was the sum total of Raine & Horne Concord's involvement in the sale. 6. Third, it is even less clear whether the deposit of $265,000 referred to in the First Contract of Sale was, in fact, paid. When asked about payment of the deposit, Ms Stojcevski initially agreed that the deposit was not paid but immediately said that the deposit was released. When asked to clarify how an unpaid deposit could be released, Ms Stojcevski said variously that the deposit was not paid to Raine & Horne Concord but directly to the vendor, Mr Murabito, then said that the deposit was paid directly to the first mortgagee and "put towards some of the payments owing". A notice to produce was issued to Ms Stojcevski seeking documents evidencing payment of the deposit and no documents were produced. The evidence indicates that the deposit was not paid. 7. The timing of the contract, the above-market sale price, the elusive agency agreement, and the absence of any reliable evidence that the deposit was paid suggest that the contract was signed to support Ms Stojcevski's refinancing efforts by providing evidence for a value of the Leichhardt property sufficient to attract the level of borrowing needed. If the First Contract of Sale was signed for that purpose, then it was not a bona fide contract which the parties intended to be bound by and perform. 8. Mr Murabito did not obtain the consent of H & H Mezz before signing the First Contract of Sale. Whilst Mr Murabito had the obligation to obtain such consent, Ms Stojcevski was endeavouring to refinance the loans of her husband and his company Samuel M Holdings and was, on her evidence, in regular contact with Mr Reese and Mr Stoyles in relation to the default and refinance. When asked whether Ms Stojcevski informed H & H Mezz of the proposed sale of the Leichhardt property, she initially said that she did not but, over the course of three pages of transcript, said variously that she had many conversations with Mr Reese and Mr Stoyles about the sale of the Leichhardt property, then said the conversation "definitely" commenced in July or August 2019 and "I'm fairly certain we discussed it", then Ms Stojcevski said she sent emails to Mr Reese and told Mr Stoyles that the property had been sold. The cross-examination continued: Q. I want to suggest to you that you never told either of them [Mr Reese or Mr Stoyles] that you were the purchaser, do you agree with that? A. No, I don't agree with that … I don't think that either of them had a problem with me being a purchaser, because they would have told me not to be the purchaser on another property. Q. Ms Stojcevski, I didn't ask you whether either of them had a problem with you being the purchaser, I asked you whether you told them that you were the purchaser? A. I'm fairly certain in conversation I have said it to them, to Tim Stoyles, but I don't remember if I have said it to Paul Reese. But it was ‑ we definitely had a conversation with being the purchaser, but I just don't remember if I ‑ I just don't remember all the conversations with them that … I think it was August and July and September, it was proposed to me by Tim Stoyles that I could just purchase the property again. And I then decided to do that. … we have had many discussions about me, the guarantor, being able to purchase the properties and they basically said I could do that … it was discussed that More Than Skin and … the owner of the complying development certificate, could purchase the property … A notice to produce was issued to Ms Stojcevski calling for emails or other correspondence with Mr Reese or Mr Stoyles requesting approval to enter into the First Contract of Sale and no documents were produced. 1. In reply, Mr Reese and Mr Stoyles disclaimed any such communications with Ms Stojcevski. Mr Reese did not recall ever speaking with Ms Stojcevski regarding the sale of the Leichhardt property or any refinance proposal; his file contained no documentary record of any conversation with Ms Stojcevski in relation to such matters; it was his practice to make file notes of such conversations, and there were none. Mr Stoyles did recall speaking to Ms Stojcevski and Mr Murabito but "at no time have I ever discussed with either Mr Murabito or Ms Stojcevski the sale of the [Leichhardt] property". Mr Stoyle's evidence is of limited relevance as he was the mortgage manager for Perpetual Corporate Trust, not H & H Mezz, so even if Mr Stoyle had consented to the sale, it would not have prevented a breach of the second mortgage. Potential refinance 1. On 24 January 2020, Ms Stojcevski sent an email to the defendants' solicitor, Dominic Carbone, asking whether he had lodged a caveat on the Leichardt property "as we are getting ready for the finance and don't want any issues to settle the purchase contract for More Than Skin Pty Ltd". This email may suggest that the purchasers did intend to complete the First Contract of Sale. 2. On 5 February 2020, Prime Capital issued a loan approval to More Than Skin for $2.385 million, that is, the balance of the purchase price recorded on the First Contract of Sale. Ms Stojcevski was noted on the offer as the broker. It will be recalled that Mr Stojcevski described Terra Nuovo Investments as an investment firm "where Lilly acts as a broker for Prime Lending". The loan approval was subject to conditions. First, it was subject to a satisfactory valuation on the Leichhardt property and another property in Five Dock owned by a related company, Samkara Holdings Pty Ltd. The letter of offer noted that the owner's estimate of the value of the Leichhardt property was $1.64 million, although Ms Stojcevski explained, and I accept, that this value was derived from the earlier valuation obtained by Perpetual Corporate Trustee rather than her personal view on the matter. Second, Prime Capital required that it be secured by first registered mortgages over the Leichhardt and Five Dock properties. The offer stated that it would expire on 10 February 2020. 3. On 10 February 2020, the letter of offer was signed and contact details completed for Prime Capital to arrange a valuation of the Leichhardt and Five Dock properties. Payment details were also completed to enable payment of the application fee of $15,090. The loan application form instructed the applicants to scan and email all pages of the loan approval to Prime Capital. 4. Mr Reese gave evidence that he had communicated with Paul Scanlon, director of Prime Capital Securities Pty Limited, to determine what, if anything, had happened with the letter of offer. The text messages exchanged between Mr Reese and Mr Scanlon have been admitted into evidence not as truth of their contents but as evidence of what Mr Reese was told by Mr Scanlon. At the end of a lengthy text message exchange, Mr Scanlon reported in respect of the final page of the loan approval signed on 10 February 2020: "It's a fake. Not sent back to us signed". This proposition was put to Ms Stojcevski in cross-examination: she said the completed loan application form was sent to Mr Scanlon by email. A call was made for Ms Stojcevski to produce the email and any emails with Prime Capital arranging access to the Leichhardt property for the purpose of conducting a valuation. No documents were produced. 5. It was suggested to Ms Stojcevski in cross-examination that she did not progress the offer of finance by arranging for Prime Capital's valuer to access the Leichardt property. Ms Stojcevski said: A. … the lender didn't try [to get access to the Leichhardt property] because we had already told the lender that we had been locked out and … we didn't know who to contact for access at that time and this was in a heated exchange with Tim Stoyles on the phone. Q. Ms Stojcevski, is your evidence then that you told the lender not to proceed with the valuations because you couldn't access the property? A. No, we were waiting to find out who the person would be to contact to give access to the property. Q. I will ask again. Did you tell the lender not to proceed with the valuation because you couldn't access the property? A. No. We told the lender to keep … this open until we sorted out our matters and until we found out who the person was that would give us access. We were told that they would call the police so we just had to … to mitigate. Q. Did you tell the lender this by email? A. I'm not sure if it was phone or email. This explanation seemed unlikely. 1. A call for bank statements to indicate the amount of money owing on existing mortgages on these properties did not result in the production of bank statements, documents which it might be thought would be readily available. Further, when asked why the offer of finance from Prime Capital was sufficient to discharge the mortgages over the Leichardt and Five Dock properties and also fund payment of the balance of the purchase price, Ms Stojcevski's said: Q. If you need to pay out two mortgages in order to register this mortgage onto the property we were just discussing, would you agree that there would not be $2,385,000 left over for you to purchase the 8 Elswick Street property? A. Am, no, because this facility is not paying out the first mortgage at, am, for the property at 106 Queens Road. Q. I suggest to you that you would need to pay that mortgage out in order to get this facility. Do you agree with that? A. No, because the [related company which owns the second property] … has other property and there is a refinancing going on in the background due to, am, actually there was a dispute between some of the shareholders and unit trust holders and they worked that out and, am, the property ‑ yeah, none of this facility is paying out any of that, any of the ING or Peter Carbone's loans; they are being paid out by a different source of funds. Q. Well, I suggest to you you haven't put on any evidence about that, have you? A. I apologise. I didn't know that I needed to. This explanation was improbable. Taken together, the evidence indicates that acceptance of the offer of finance was not communicated to Prime Capital and the offer of finance expired. Exercise of power of sale 1. On 4 March 2020, H & H Mezz assigned to the plaintiff its loan to Samuel M Holdings and also transferred the second registered mortgage to the plaintiff. On 10 March 2020, the plaintiff entered into an agency agreement in respect of the Leichhardt property. The real estate agent gave a current estimated selling price range of between $900,000 and $950,000. On 11 March 2020, the plaintiff gave notice of the assignment of the mortgage to Mr Murabito, Ms Stojcevski and Samuel M Holdings. 2. By this time, Perpetual Corporate Trust had brought legal proceedings against Samuel M Holdings. On 11 March 2020, Ms Stojcevski swore an affidavit in those proceedings attaching the first page of the First Contract of Sale. This appears to have been the first notice that the first registered mortgagee had of the existence of the First Contract of Sale. There is no evidence that the existence of the First Contract of Sale was brought to the notice of the second mortgagee at that time. On 21 March 2020, the plaintiff sold the Leichhardt property at auction for $1.015 million under the Second Contract of Sale, with completion to take place on 8 May 2020. 3. On 15 April 2020, the completion date under the First Contract of Sale came and went. Ms Stojcevski sought to explain the defendants' failure to complete as referable to a complaint that Mr Murabito had lodged with the Australian Financial Complaints Authority concerning Perpetual Corporate Trust's actions in taking possession of the Leichhardt property. It was not clear how Mr Murabito's complaint about the first mortgagee precluded the defendants from completing the purchase. There is no evidence that the parties to the First Contract of Sale took any steps in preparation for completion on 15 April 2020 such as obtaining payout figures, preparing settlement sheets or finalising loan documentation. The caveat 1. On 30 April 2020, the defendants lodged the caveat. This was the first notice that the plaintiff had of the existence of the First Contract of Sale. Ms Stojcevski disclaimed that the caveat was lodged in order to stop the sale of the Leichhardt property under the Second Contract of Sale. Ms Stojcevski also disclaimed that the caveat was lodged to buy more time to work out how to acquire the Leichhardt property, "No, we are not trying to work out a way to get the property". This evidence was improbable. Mr Stojcevski gave similar evidence. 2. On 8 May 2020, completion of the Second Contract of Sale was scheduled but did not proceed given the defendants' caveat. On 11 May 2020, the plaintiff's solicitors wrote to the defendants' solicitors suggesting that the registered mortgagee had priority over the caveatable interest asserted and requested that it be withdrawn, failing which these proceedings would be commenced. Settlement of the Second Contract of Sale was rescheduled for 14 May 2020 but, again, could not go ahead. 3. On 15 May 2020, these proceedings were commenced. On 18 May 2020, an automated valuation was obtained for the Leichhardt property which suggested that the Leichhardt property may be worth between $1.2 and $1.4 million. The plaintiff submitted, and I accept, that an automated valuation is not particularly precise. It is some indication of value but not as accurate as the price secured at a public auction. 4. Mr Stojcevski deposed that, at 9am on 20 May 2020, he requested Prime Capital to provide him with an update as to when the purchase of the Leichhardt property could settle as he was willing and able to settle and had provided his solicitor with documents to effect settlement. Mr Stojcevski exhibited two text messages to Prime Capital asking them to call him, "I have an urgent loan requirement". I note that the text does not refer to finance approved in February 2020 but rather suggests that Mr Stojcevski had a new request. This is consistent with an appreciation on Mr Stojcecki's part that the earlier offer of finance had expired. Mr Murabito also deposed that he was willing and able to perform the contract. Submissions 1. I have had the benefit of detailed and careful submissions by counsel for the plaintiff and the defendants. The defendants submitted that they had an indisputably valid caveat and it would be "unusual" and "rare" to order that the caveat be removed in such circumstances: Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 at [78]; Buchanan v Crown & Gleeson Business Finance Pty Ltd (2007) 13 BPR 24,513; [2006] NSWSC 1465 at [11]. Whilst the plaintiff's power of sale was not disputed, it was submitted that the plaintiff was not entitled to disregard the First Contract of Sale. It was submitted that, regardless of any credit findings that may be made, the defendants were bona fide purchasers under an earlier contract in time. It was said that the complaint that the defendants wished to pay more than the price in the Second Contract of Sale was a peculiar proposition. Even if the Court found that the First Contract of Sale was a sham, it was submitted that there was a triable issue that the Second Contract of Sale was liable to be set aside. I suppose the submission is logically possible, but if the First Contract of Sale was a sham then the defendants would not have standing to prosecute a claim that the Second Contract of Sale should be set aside. 2. The defendants submitted that the evidence did not support that the defendants knew of Mr Murabito's breach of the terms of the mortgage. It was said that attempts to establish that Ms Stojcevski was aware of a covenant prohibiting Mr Murabito from selling the property in the absence of consent was a fruitless exercise. Further, Ms Stojcevski was not a purchaser (although I note that she is a director of More Than Skin) and her knowledge could not be imputed on Mr Stojcevski. Thus it was said that the defendants remained "clean skins". Even if they knew of the covenant, it was said to be unclear as to why that amounted to postponing conduct so as to render the defendants' equity irrelevant. The short answer, I suppose, is that the equity traditionally asserted by "an innocent third party for value without notice" is necessarily reduced when the purchaser is not a third party, is on notice and lacks innocence. 3. It was submitted that Prime Capital's offer of finance was sufficient to complete the First Contract of Sale. It was submitted that, on 11 March 2020, a copy of the front page of the First Contract of Sale was provided to the plaintiff's solicitors as an attachment to Ms Stojcevski's affidavit and the plaintiff was therefore on notice of the contract. As such, the plaintiff took possession subject to the First Contract of Sale. In that knowledge, it was said that the plaintiff entered into another contract for sale at a significantly lesser sum and against good faith. This submission appeared to conflate the first registered mortgagee, Perpetual Corporate Trust, with the plaintiff, Ageist as assignee of H & H Mezz. As noted at [29], Ms Stojcevski swore an affidavit in separate proceedings commenced by Perpetual Corporate Trustee. It may be taken that, by her affidavit, Perpetual Corporate Trustee was on notice of the First Contract of Sale. But there is no evidence that the affidavit came to the notice of H & H Mezz or Ageist. 4. Further, the defendant submitted that the plaintiff appointed an agent before H & H Mezz assigned its rights under the mortgage. It was said that the agency agreement was prima facie invalid and the plaintiff was falsely purporting to exercise a power of sale when, in fact, it did not have such authority. (The plaintiff pointed out that the deed of assignment was dated 4 March 2020, although accepted that notice of the assignment was not given until 11 March 2020, and thus was not effective until the day after the plaintiff appointed a real estate agent. The plaintiff did not accept that this made any difference to the validity of the appointment of the real estate agent, nor the actions taken by that agent thereafter.) The auction was held just 10 days later on 21 March 2020 after an unusually short marketing campaign. It was said that the marketing material was confusing. According to the material from the agent's website, the property was listed for auction on 28 February, 21 March and 5 October. This was said to be suspicious and requiring an answer, which was uniquely within the knowledge of the plaintiff but which had remained silent. Having regard to the automated valuation, the property was sold at an undervalue, contrary to the plaintiff's duties to the mortgagor. The conduct of the plaintiff leading up to the Second Contract of Sale was thus said to be against good faith and thus liable to be set aside: Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 per Robb J at [516] ff citing Waring (Lord) v London and Manchester Assuring Co Ltd [1935] Ch 310 at 317, 318; Croft & Hay, The Mortgagee's Power of Sale (3rd ed, 2012, LexisNexis Butterworths) at [11.5]. 5. It was submitted that the balance of convenience favoured allowing the caveat to remain for 21 days if there was a realistic prospect that the defendants could complete the First Contract of Sale. The finance approval, while conditional, was said to be prima facie evidence that allowing further time for completion was not a hopeless exercise. If the defendants were given the opportunity to complete the purchase, then the vendor would obtain an increased price by $1.635 million, which would also benefit the plaintiff. Thus, it was submitted that there was no substantive prejudice suffered by the plaintiff. The special conditions of the Second Contract of Sale allowed the vendor to extend the completion date, rescind the contract or terminate the contract in the event of proceedings such as these: special conditions 33.1 and 46(b) of the Second Contract of Sale. 6. The plaintiff submitted that there is no serious question to be tried. The plaintiff was a registered mortgagee and had indefeasibility of title under section 42 of the Real Property Act. On the default by the mortgagor, the plaintiff had a power of sale pursuant to sections 57(2) and 58(1) of the Real Property Act, provided that it complied with section 111 of the Conveyancing Act 1919 (NSW), which it had. As the mortgagor was in default by April 2019 and a notice of default was issued in June 2019, the mortgagee's right to exercise its power of sale arose before the First Contract of Sale, although it was not necessary for the plaintiff's interest to arise earlier in time given that its rights as registered mortgagee defeated any equitable interest. A later equitable interest does not defeat an earlier registered interest. A contract of sale properly made in the course of the exercise of a mortgagee's power of sale is binding before completion on the mortgagor unless the mortgagee exercised its power of sale in bad faith: Forsyth v Blundell (1973) 129 CLR 477. There was no bad faith here. Accordingly, the plaintiff had a statutory right of sale which, except in the case of fraud, could not be defeated by an equitable interest in the property. 7. The plaintiff accepted that an equitable interest as purchasers under a contract of sale will arise where the contract is specifically enforceable by the purchaser: Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489 at 522-523 (Deane and Dawson JJ), at 537 (Gaudron J). But here, Mr Murabito had no right to sell the Leichardt property, being forbidden from doing so by the mortgage. The mortgage was registered on the title of the property and expressly incorporated the memorandum of common provisions, which was also registered. The defendants could not claim that they did not have notice of the fact that the property was subject to a mortgage and could not be sold without the mortgagee's consent. Thus the contract would not be specifically enforceable in equity. 8. The plaintiff submitted that the Court should find that the First Contract of Sale was entered into between related parties with no marketing campaign and no attempt at an arm's length sale. The contract was entered into by the defendants in full knowledge that the property was subject to a mortgage, that the borrower was in default, that the mortgagee had given notice of its intention to exercise its power of sale, that the vendor could not legally sell the property without the mortgagee's consent, and that the mortgagee had not given its consent. The Court could infer that the Stojcevskis were sophisticated people who understood what a mortgage meant and the implications of the mortgage being in default and the mortgagee having served such a notice. 9. The plaintiff submitted that the Court would find that the sale price was, to the defendants' knowledge, significantly higher than market value. Raine & Horne's market appraisal, as described by Ms Stojcevski, was of the value of the property when construction was complete. Further, it was submitted that there was insufficient evidence to support a finding that a deposit was ever paid. Although the contract nominated Raine & Horne Concord as the deposit holder, the deposit was not paid to Raine & Horne Concord and there was no evidence that it was paid at all. Ms Stojcevski's evidence to the contrary was said to be fanciful. 10. I was asked to find that Ms Stojcevski deliberately concealed the existence of the contract from the first and second registered mortgagees despite the fact that she was then in regular contact with Mr Reese and Mr Stoyles. I was asked to reject Ms Stojcevski's evidence that she had informed Mr Reese or Mr Stoyles of the sale; such evidence was said to be a contrivance invented by Ms Stojcevski whilst giving her evidence as she thought it would assist her case. 11. The caveat was not lodged until 30 April 2020, two weeks after the First Contract of Sale was due to complete and a week before the Second Contract of Sale was due to complete. The purchase price was more than double the price achieved at a public auction after a marketing campaign and well above the estimated range of the value by an automated valuation report. It was submitted that the Court would find that the purpose of the contract was to frustrate the mortgagee's interest and prevent it from exercising its power of sale. Thus, it was submitted that there was a strong inference that the contract was a sham and the defendants had thus failed to establish that there was a serious question to be tried. 12. The plaintiff submitted that the balance of convenience favoured the removal of the caveat. The borrower had been in default for more than a year and no repayments had been made. The defendants had not offered to pay the monies owing to the plaintiff as part of the sale, or to pay those monies into court, and neither was there any evidence that such monies were available to the defendants. Neither had they offered an undertaking as to damages. The Court would not restrain the exercise by a mortgagee of its power of sale under a mortgage unless the amount of the mortgage debt was paid into court: Inglis v Commonwealth Trading Bank of Australia [1972] HCA 74; (1972) 126 CLR 161. Consideration 1. Drawing on Slattery J's elegant summary in Pham v Zraika (No 4) [2018] NSWSC 566 at [18]-[19], the principles governing the Court's discretion to make orders under section 74MA of the Real Property Act for the withdrawal of a caveat may be shortly stated. The Court will normally only order the withdrawal of a caveat if the caveator can establish an entitlement to an interlocutory injunction to restrain the registered proprietor from dealing with the land pending trial of the caveator's claim: Hanson Construction at [77]. The language of the Real Property Act is very broad, and the generality of the statutory language accommodates a great variety of circumstances, including that the caveator's claimed interest is spurious, or even accepting that the caveator has a caveatable interest: Hanson Construction at [61]. The caveator's claim to have an interest in the land must raise a serious question to be tried as to the existence of the interest claimed in the caveat: Hanson Construction at [77], but once the caveator discharges that onus, the continuation or removal of the caveat depends upon the Court's assessment of the balance of convenience: Hanson Construction at [77]. The authorities recognise that the strength of the caveator's claim to an interest in land may be significant in assessing the balance of convenience: Hanson Construction at [79]. 2. The defendants claim an equitable interest in the Leichhardt property as purchasers under a contract of sale. There is no doubt that an equitable interest will arise where the contract is specifically enforceable by the purchaser in the sense that equity will assist the purchaser to enforce its rights under the contract, as opposed to the purchaser's remedies being limited to damages at common law: Stern v McArthur at 523-525 and 537. The question is whether the equitable interest which the defendants assert by reason of the First Contract of Sale is likely to be ordered to be specifically performed by this Court. There are a number of significant problems with obtaining such an order. 3. First and foremost, for the reasons advanced by the plaintiff at [38], it has indefeasibility of title as a registered mortgagee and took steps in June 2019 to exercise its power of sale by reason of the mortgagor's default. Its legal interest is not defeated by a later equitable interest which may arise under the First Contract of Sale. This is a fatal problem for the defendants. 4. Second, the First Contract of Sale was entered into by the registered proprietor in breach of the terms of the mortgage as Mr Murabito did not obtain the consent of the registered mortgagee before disposing of the property, in breach of clause 7.1 of the memorandum of common provisions. Of course, Mr Murabito's breach of contract may not prevent a purchaser acquiring an equitable interest under a contract of sale if, for example, the purchasers were innocent third parties without notice of the breach. 5. Third, I do not think that the purchasers can be described as innocent third parties without notice. At the time the First Contract of Sale was entered into: 1. Ms Stojcevski knew from her involvement in the underlying loan and mortgage transaction that Samuel M Holdings was in default on its loans with Perpetual Corporate Trust and H & H Mezz; that the Leichardt property secured the loans; that mortgages had been registered by Perpetual Corporate Trust and H & H Mezz; and, that a notice had been issued by H & H Mezz indicating that it intended to exercise its power of sale. Ms Stojcevski was engaged in efforts to refinance the indebtedness of Samuel M Holdings. 2. Ms Stojcevski was also director of one of the purchasers, More Than Skin. Her knowledge may be imputed to that company. 3. Mr Stojcevski owned a company for which Ms Stojcevski worked as a finance broker. Given the close working relationships that appear to have existed between these parties, including between Ms Stojcevski and her brother, I consider it likely that Mr Stojcevski was also aware that Mr Murabito was in default under the mortgages. Both may be regarded as familiar with the significance of this. 4. The mortgage and memorandum of common provisions were publicly available documents. Thus, it seems to me that the purchasers were on notice of the restrictions on Mr Murabito's ability to deal with the property. Although Ms Stojcevski was in regular contact, on her evidence at least, with Mr Reese, she did not inform him of Mr Murabito's proposed sale, nor that the First Contract of Sale had been entered into. Whilst the obligation to obtain consent rested on Mr Murabito, on her evidence Ms Stojcevski was in contact with H & H Mezz's solicitor on behalf of her husband and his company. It would have been a simple matter to inform Mr Reese of the proposed sale and seek the consent of H & H Mezz but I find that she did not. 1. Fourth, the bona fides of the First Contract of Sale is doubtful. The First Contract of Sale was entered into at a time when Ms Stojcevski was endeavouring to refinance Perpetual Corporate Trust's loans. As I have already noted, the timing of the contract, the above-market sale price, the elusive agency agreement, and the absence of any reliable evidence that the deposit was paid suggest that the contract was signed to provide evidence of a value of the Leichhardt property sufficient to attract the level of borrowing needed. The only document which may suggest otherwise is Ms Stojcevski's email sent four months later, referred to at [22], in which Ms Stojcevski indicated to the defendants' solicitor that she planned to complete the contract once finance was obtained. Weighing up the different pieces of evidence, I consider, however, the First Contract of Sale was not a bona fide contract when it was entered into four months earlier but prepared to support a higher valuation of the Leichhardt property for the purposes of obtaining finance. 2. Fifth, an offer of finance was made by Prime Capital in February 2020 but was not accepted and expired. The failure to produce any documents evidencing that acceptance of the offer was emailed to Prime Capital, or any documents evidencing arrangements for access to the proposed security properties for the purposes of conducting a valuation, is telling. I think it is obvious why the defendants did not send their acceptance to Prime Capital: there was no point spending $15,090 (the application fee) to progress the application when the finance would not be sufficient to complete the purchase. The $2.385 million approved was not sufficient to discharge the existing registered mortgages on the Leichhardt property and the Five Dock property leaving sufficient funds to complete the First Contract of Sale because the finance approved equated with the balance of the purchase price and left nothing to pay out existing mortgages. Noting that Ms Stojcevski was the broker who sought finance in the first place, I think it likely that the letter of offer was another attempt by Ms Stojcevski to lend credibility to the suggestion that the First Contract of Sale may be completed. 3. On 15 April 2020, none of the parties to the First Contract of Sale were in a position to complete, nor did they take any steps to do so. The plaintiff was in possession of the Leichhardt property and had sold it at public auction, thus Mr Murabito could not give clear title. Nor could the defendants pay the balance of the purchase price, even assuming for the moment that they had paid the deposit. 4. Thus it seems to me that the defendants' suit for specific performance is beset with insurmountable difficulties. I am not satisfied that there is a serious issue to be tried. Even if one assumes that there is a serious issue to be tried, the balance of convenience tells strongly against allowing the caveat to remain on title. First, there is a binding contract of sale in place by which the registered mortgagee has sold the property to a bona fide third party for, on the face of it, market value. Completion of that contract has been twice delayed and the purchaser may issue a notice to complete or terminate the contract. Second, the defendants' prospects of obtaining finance to complete the First Contract of Sale are remote. The numbers on Prime Capital's offer still do not 'stack up'. Nothing is known of the assets of More Than Skin or Mr Stojcevski which might support another means of paying the purchase price, either from their own assets or from other finance. I am not satisfied that the defendants will be able to secure finance to complete the First Contract of Sale in the near term future, or at all. 5. For these reasons I make the following orders: 1. Order, pursuant to section 74MA of the Real Property Act 1900 (NSW) that the first and second defendants withdraw caveat AQ73878 lodged in respect of the land comprised in Lot 1 of Section C of Deposited Plan 3863, more particularly known as 8 Elswick Street, Leichhardt in the State of New South Wales, 2040. 2. Order that the defendants pay the plaintiff's costs of the proceedings. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 June 2020