Supreme Court New South Wales Medium Neutral Citation: GR Capital Group Pty Ltd (Receivers and Managers Appointed) (subject to Deed of Company Arrangement) v Yan [2020] NSWSC 911 Hearing dates: 6 July 2020 Date of orders: 16 July 2020 Decision date: 16 July 2020 Jurisdiction: Equity - Real Property List Before: Robb J Decision: See par [167]. Catchwords: LAND LAW — Caveats — Removal of caveat — Withdrawal of caveat by caveator — where there are uncertainties involved in determining the effect of the relevant agreements — where, noting the probable indefeasibility of a registered mortgage, a sufficiently serious question to be tried has not been established — where, in the circumstances, the balance of convenience is in favour of an unconditional order for the withdrawal of the caveat LAND LAW — Caveats — Caveatable interest —where mortgage duty was not paid in respect of the relevant agreements or the caveat — where the failure to attend to the requirements of s 227 of the Duties Act 1997 (NSW) means that the caveat should be withdrawn Legislation Cited: Duties Act 1997 (NSW) Real Property Act 1900 (NSW) Real Property Regulation 2019 Uniform Civil Procedure Rules 2005 (NSW) Cases Cited: Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 Bahr v Nicolay (No 2) (1988) 164 CLR 604; [1988] HCA 16 Boral Recycling v Wake [2009] NSWSC 712 Cambridge Credit Corporation Ltd v Lombard Australia Ltd (1977) 136 CLR 608; [1977] HCA 29 Complex Scaffolding Solutions Pty Ltd v Abraham Doueihi [2014] NSWSC 230 Handevel Pty Ltd v Comptroller of Stamps (Victoria) (1985) 157 CLR 177; [1985] HCA 73 Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1; [2016] NSWCA 240 Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880 In the matters of Beechworth Land Estates Pty Ltd (administrators appointed) and Griffith Estates Pty Ltd (administrators appointed) (No 2) [2015] NSWSC 336 Meshumar v Otmy [2018] NSWSC 125 Santley v Wilde [1899] 2 Ch D 474 Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 1547 Category: Principal judgment Parties: GR Capital Group Pty Ltd (Receivers and Managers Appointed) (Subject to Deed of Company Arrangement) (plaintiff) Jianhua Yan (first defendant) Ching Wah Uy (second defendant) Representation: Counsel: J Knackstredt (plaintiff) A Martin (second defendant) Solicitors: Ashurst (plaintiff) Able Lawyers (second defendant) File Number(s): 2020 / 173017 Judgment 1. The plaintiff in these proceedings is GR Capital Group Pty Ltd (Receivers and Managers Appointed) (subject to Deed of Company Arrangement) (GR Capital). 2. GR Capital is the registered proprietor of property at Hurstville in this State (the Hurstville Property) upon which it has erected a home unit development and which has recently become the subject of a plan of subdivision. GR Capital entered into 'off the plan' contracts for the sale of the units in the development. Following the registration of the plan of subdivision, GR Capital is now the registered proprietor of each of the lots in respect of which the contracts of sale have not yet been completed. 3. There are now 39 lots (the Lots) that are the subject of contracts of sale that have not yet been completed. The titles to those lots are listed in prayer 6 of GR Capital's summons that was filed on 11 June 2020. It is to be noted that the lot with folio identifier 40/SP91614 that is listed in prayer 6 is no longer the subject of GR Capital's claim, as the contract for the sale of that lot was, by arrangement with the purchaser, novated to the registered mortgagee which has completed the contract. 4. Originally, there were two defendants, but on the morning of the hearing that took place on 6 July 2020, the Court made orders by consent of GR Capital and the first defendant that disposed of GR Capital's claim against that defendant, and included an order requiring the withdrawal of the caveat lodged by the first defendant against the titles to the Lots. 5. The proceedings continued against the second defendant, Mr Ching Wah Uy (Mr Uy). The relief claimed 1. The substantive order now sought by GR Capital against Mr Uy in these proceedings is: 6. Pursuant to section 74MA of the Real Property Act 1900 (NSW), the [caveat] bearing dealing [number]… AP465600 (lodged by the second defendant) lodged in respect of the land at … Hurstville, comprised in each of the folio identifiers set out in the table below, be withdrawn by the defendant who has lodged them: [the relevant folio identifiers of the Lots are then set out in a table]. 1. Section 74MA of the Real Property Act 1900 (NSW) (Real Property Act) provides as follows: (1) Any person who is or claims to be entitled to an estate or interest in the land described in a caveat lodged under section 74B or 74F may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator or another person who by virtue of section 74M is authorised to withdraw the caveat. (2) After being satisfied that a copy of the application has been served on the person who would be required to withdraw the caveat if the order sought were made or after having made an order dispensing with service, the Supreme Court may: (a) order the caveator or another person, who by virtue of section 74M is authorised to withdraw the caveat to which the proceedings relate, to withdraw the caveat within a specified time, and (b) make such other or further orders as it thinks fit. (3) If an order for the withdrawal of a caveat is made under subsection (2) and a withdrawal of the caveat is not, within the time limited by the order, lodged with the Registrar-General, the caveat lapses when an office copy of the order is lodged with the Registrar-General after that time expires. 1. The parties agreed that, in applying this provision of the Real Property Act, the Court was determining an interlocutory application that required the Court to proceed in an analogous way to the principles as would apply to an application for an interlocutory injunction, having regard to the evidence that is put before the Court. This requires the Court to first determine whether the caveator has established that there is a serious case to be tried as to the existence of the interest in the land claimed by the caveator. If that onus is discharged, it depends on whether the balance of convenience justifies the Court in rejecting the making of an order for the withdrawal of the caveat, on the basis that the party seeking the withdrawal of the caveat will be adequately protected by the usual undertaking as to damages that the caveator will be required to give to the Court: see Hanson Construction Materials Pty Ltd v Roberts (2016) 93 NSWLR 1 at 16; [2016] NSWCA 240 per Sackville AJA. The Caveat 1. Caveat AP465600 (the Caveat) lodged by Concordia Legal Pty Ltd on behalf of Mr Uy is dated 15 August 2019. 2. The caveat prohibits the recording in the Register of any dealing other than a plan affecting the estate or interest claimed by Mr Uy, and so prohibits the registration of transfers of the Lots by GR Capital to the purchasers under the 39 contracts for sale following the completion of those contracts. Consequently, completion of those contracts will not occur unless the Caveat is first withdrawn (or alternatively the purchasers cooperate to novate the contracts to the mortgagee in the same way as occurred with the lot that has been removed from GR Capital's claim, as explained above). 3. The estate or interest claimed by Mr Uy in the Caveat is described in the following terms: ESTATE OR INTEREST CLAIMED Charge By virtue of: Agreement Between CHING WAH UY And GR CAPITAL GROUP PTY LIMITED Details Supporting The Claim: Equitable Charge in the form of a right to lodge a caveat and an equitable mortgage pursuant to an agreement dates (sic) 27 January 2016. 1. It is thus clear that the Caveat claims to protect an interest in the nature of an equitable mortgage that Mr Uy claims was created by an agreement between Mr Uy and GR Capital entered into on 27 January 2016. Background 1. At this point it will be convenient to set out the uncontroversial background facts relevant to the present application. 2. On 13 June 2017, GR Capital and other parties entered into a facility agreement with Everest Private Pty Ltd (Everest Private) for the provision by Everest Private of a loan facility of up to $27.5 million. This was for the purpose of enabling GR Capital to develop 75 residential lots and two retail lots in respect of the proposed plan of subdivision on the Hurstville Property. 3. On 13 June 2017, GR Capital granted a mortgage to Everest Private to secure its obligations under the facility agreement (Everest Private Mortgage), as well as a general security agreement. 4. Searches of the titles to the Lots show that, as at 5 June 2020, the Everest Private Mortgage was the registered first mortgage encumbering the title to each of the Lots. 5. The searches also record the lodgement of three caveats against the title to each of the Lots; by Xinfeng Australia International Investment Pty Ltd (Xinfeng), by the first defendant in these proceedings, and by Mr Uy, in that order. 6. GR Capital reached an arrangement with Xinfeng, which has obviated for the moment the need for GR Capital to apply for an order for the withdrawal of the caveat lodged by that company. That arrangement apparently involves Xinfeng voluntarily removing the caveat in respect of each of the lots in the subdivision, immediately before completion of the contract for the sale of that lot, to enable completion to occur and the proceeds to be applied in reduction of the debt secured by the Everest Private Mortgage. If the need arises, GR Capital has reserved the right to seek an order for the withdrawal of the caveat. 7. Caveat AN467327G, lodged by Xinfeng, claims an interest in the lots under a mortgage and finance documents dated 19 August 2016. 8. As mentioned above, orders were made by consent on the morning of the hearing for the withdrawal of the caveat lodged by the first defendant. Caveat AP24322 lodged by the first defendant claimed an equitable interest in the lots by virtue of a loan agreement between the first defendant and GR Capital dated 19 December 2017. 9. The Court must determine GR Capital's application for an order for the withdrawal of the Caveat on the basis that Xinfeng and the first defendant maintain claims for interests in the Lots, but there is no evidence concerning the validity of those claims. 10. The evidence in support of GR Capital's claim in these proceedings was given by affidavits made by Mr Ryan Reginald Eagle, who, jointly with Mr Philip Quinlan (the Receivers), were appointed by Everest Private on 26 October 2018 as receivers and managers of the assets and undertaking of GR Capital, by the exercise of a power to that effect in the security documents executed by GR Capital, including the Everest Private Mortgage. 11. The Receivers remain in control of the assets and undertaking of GR Capital, and have instituted and maintained the present proceedings in the exercise of their powers as agents of GR Capital. 12. Thus, the Receivers maintain the claim of GR Capital in exercise of a power contained in a registered first mortgage granted by GR Capital in favour of Everest Private. 13. It is relevant to the background of the present proceedings that voluntary administrators of GR Capital were appointed on about 18 October 2018. At the second meeting of creditors of GR Capital that occurred on 30 January 2019, the creditors resolved in favour of a deed of company arrangement and a person other than the original administrators was appointed as deed administrator. The purpose of the deed of company arrangement was to allow GR Capital time to complete the development of the Hurstville Property and to provide a moratorium on claims against GR Capital. 14. The relevant Council gave approval on 12 May 2015 for the development of the Hurstville Property that has been undertaken by GR Capital. At the time of the Receivers' appointment, the development was approximately 80% complete. Pursuant to their rights as receivers and agents of GR Capital, the Receivers have caused GR Capital to continue the development, and the Receivers have borrowed additional funds for that purpose. Relevant plans of subdivision that have caused the creation of the Lots were registered on 19 July 2019 and 25 September 2019. The Receivers were provided with an occupation certificate in relation to the construction of the development of the Hurstville Property on 19 December 2019. 15. Before the time that the Receivers were appointed, GR Capital had entered into 'off the plan' contracts for the sale of lots in the proposed plan of subdivision, including the Lots. 16. Subject to the following qualification, each of the contracts of sale contained a special condition substantially similar to the following clause 33.(1) in one of the contracts of sale: The completion date shall be the later of: (a) Fourteen (14) days after the Vendor's Solicitor notifying the Purchasers' Solicitor that the Plan has been registered; or (b) Fourteen (14) days after the Vendor's Solicitor provide a copy of an Interim Occupation Certificate to the Purchaser's Solicitor; or (c) Thirty-five (35) days from the date hereof. which due date for completion is here in called "the due Date". Failure to complete the Contract within such time shall entitle by the party to issue a Notice to Complete requiring the other to complete this Contract within fourteen (14) days from the date of such Notice and in this respect time shall be deemed the essence of the Contract. It is expressly agreed between the parties that a period of fourteen (14) days is a reasonable and sufficient period for such notice, notwithstanding any rule or law or equity to the contrary. The notice may be withdrawn and re-issued (as required) at any time. 1. The qualification is that some of the contracts have inserted 21 days in lieu of 14 days in the various places in clause 33.(1), and there may be some other differences that are not presently material. 2. It is sufficient to note that GR Capital is now in a position to trigger the operation of clause 33.(1) so as to require completion of the contracts for sale of the Lots by establishing the due Date, but that will be a dangerous course for GR Capital to follow while the Caveat remains lodged against the title to the Lots, as GR Capital cannot be sure that it will be able to complete the contracts on the due Date. 3. Mr Eagle's evidence was that the total gross sale price for the Lots is $36,051,000 inclusive of GST (being the amount of $37,036,000 less the price of $985,000 for the lot with folio identifier 40/SP91614 referred to above at [3]). The amount available to repay GR Capital's outstanding indebtedness will be reduced by the amount of GST required to be paid together with selling costs. For completeness, I note that Mr Eagle gave evidence that the sale of another property owned by GR Capital in Queensland for a price of $1,400,000 will increase the funds available to repay the debt due to Everest Private. 4. Mr Eagle gave evidence that the Receivers are concerned that, if they are not able to cause GR Capital to complete all of the existing contracts for sale of the Lots in an expeditious way, then the risk will increase that some purchasers will not complete the contracts. That would have the result that GR Capital may be forced to sell some of the Lots at prices below the existing contract prices. Mr Eagle provided evidence of real estate advice received by the Receivers and media articles that suggest that the market for the sale of home units in Sydney may be depressed by the consequences of the present COVID-19 pandemic. I accept that there is a risk that the prices that the Receivers may be able to obtain for the sale of the Lots may be jeopardised in a significant way if GR Capital is prevented from completing the existing contracts for sale in a timely way. 5. Mr Eagle gave evidence that, as at 31 May 2020, the amount of the debt owed by GR Capital to Everest Private was at least $30,393,889.70, not including amounts due and payable such as enforcement costs and outstanding legal costs. Interest is continuing to accrue. The default interest rate is 18% per annum. The evidence suggests that interest is presently accruing at about $450,000 per month. 6. By affidavits made on 20 June 2020, 24 June 2020 and 1 July 2020, Mr Eagle has elaborated upon the evidence given in his initial 9 June 2020 affidavit. Particularly in the first of those additional affidavits, Mr Eagle has provided detailed evidence of the manner in which the debt due by GR Capital to Everest Private has accrued, and how the realisation of lots and other available assets that have already generated funds have been applied in reduction of GR Capital's indebtedness. Mr Eagle has explained how the Receivers were required to borrow additional funds from Everest Private and another lender to complete the development on the Hurstville Property, and how the Receivers have incurred other liabilities in the performance of their duties. Those liabilities include a substantial liability for fees due to the Receivers' solicitors. Mr Uy has not made any issue concerning this evidence, and I do not consider that it is necessary to examine that evidence in detail. 7. Mr Uy did not challenge the submission made by counsel for GR Capital that, on present calculations, there is a possibility that, after all of GR Capital's liabilities in respect of the advances made by Everest Private and all costs of enforcement are paid, there will be a surplus of up to $2,650,000. The realisation of that surplus is contingent, and the amount will be reduced by the accrual of additional interest and costs that require reimbursement that have not been allowed for in the calculations described in Mr Eagle's various affidavits. 8. While the realisation of a surplus of $2,650,000 is by no means certain, it is a simple calculation that, if all recoverable costs ceased to increase now, the possible surplus would be exhausted by interest accruing at $450,000 per month in less than six months. As it is not realistic to expect that the costs will not increase, and as the amount of interest that accrues will increase proportionately with the underlying recoverable debt, the surplus after repayment of GR Capital's liabilities to Everest Private is likely to be exhausted after significantly less than six months. History of communications 1. As is noted above, these proceedings were not commenced by GR Capital until 11 June 2020. However, there is a history of communications between GR Capital and Mr Uy that is relevant to the present application. 2. On 19 August 2019, Mr Uy filed a notice of motion in proceedings No 2018/244781 in the General List of the Equity Division of this Court between Xinfeng and GR Capital and others. Mr Uy sought an order that he be given leave to appear in that matter as the fourth defendant. On 27 September 2019, Mr Uy's solicitor attached a copy of the notice of motion and Mr Uy's supporting affidavit to an email addressed to the solicitor for GR Capital, who apparently also acted for the Receivers. The email purported to put Everest Private on notice of Mr Uy's interest in the Hurstville Property, and asserted that Mr Uy claimed that his interest "supersedes your client, Everest's interest in the land". The email requested an undertaking that the proceeds of sale of all lots in the subdivision be held in trust pending the determination of Mr Uy's claim. 3. On 30 September 2019, acting on behalf of the Receivers, the solicitor replied to Mr Uy's solicitor, noting, in substance, that no evidence had been provided to substantiate Mr Uy's claim for an interest in the Hurstville Property. The response proffered a number of arguments that were also put to the Court on the hearing in this matter as to why Mr Uy did not have the interest that he claimed. 4. Mr Uy's notice of motion was heard on 23 October 2020 by Ward CJ in Eq. Her Honour delivered her judgment on 8 November 2019, in which she dismissed Mr Uy's application: Xinfeng Australia International Investment Pty Ltd v GR Capital Group Pty Ltd [2019] NSWSC 1547. At [77], the Chief Judge stated a provisional conclusion (subject to what might be established in a contested hearing on all of the relevant facts) that she was not persuaded on the evidence before her that Mr Uy did have an interest in the Hurstville Property of the nature that he asserts in the present case. I have mentioned her Honour's observation for no other reason than that it may have caused a reasonable claimant in Mr Uy's position to understand that there was a question as to the validity of the interest that he had claimed, such that it might be necessary and prudent for him to commence proceedings to establish his interest. 5. By letter dated 20 January 2020 to Mr Uy's then solicitor, the solicitors for the Receivers formally notified Mr Uy that the final occupation certificate in respect of the development of the Hurstville Property had been issued, and the Receivers sought to complete the existing contract for the sale of the Lots. The letter advised that the Receivers had been appointed by Everest Private, as the first registered mortgagee of the Hurstville Property, and also asserted that Mr Uy did not have a caveatable interest in that property. The letter enclosed a withdrawal of the Caveat and requested that the withdrawal be signed and returned by Mr Uy. 6. Correspondence then ensued between the solicitors for the parties in relation to the need for Mr Uy's solicitor to obtain instructions, and the extension of the deadline given by the Receivers for the return of the signed withdrawal of the Caveat. 7. Mr Uy's present solicitor requested the Receivers' solicitors, on 11 March 2020, that they refrain from commencing the present proceedings for a further seven days to enable the solicitor to get instructions from Mr Uy. 8. It is not necessary to examine in detail the subsequent correspondence, but it should be noted that, as relied upon by Mr Uy at the hearing, by letter to the Receivers' solicitors dated 15 June 2020, Mr Uy made an open offer to consent to the removal of the Caveat on conditions including: "your clients undertake to the Court that once the sales have completed, the full amount of the sale proceeds will be paid into Court upon completion of the contract for sale of land". 9. It is sufficient to record that, apart from responding in detail to various claims made on behalf of Mr Uy that were not advanced by him on the present application, and accordingly do not require consideration, GR Capital did not accept any offer made by Mr Uy. 10. On any view, Mr Uy's offer to withdraw the Caveat, provided that GR Capital agreed to pay all of the proceeds of the sale of the Lots into its solicitors' trust account, could not be justified, and it was reasonable for GR Capital, through the Receivers, to reject that offer. The total amount expected to be received from the completion of the contracts for the sale of all of the Lots, which is referred to above at [33], hugely exceeds the value of the interest claimed by Mr Uy in these proceedings, to which reference will be made below. 11. As I understand the effect of an exchange between the Court and counsel for Mr Uy at the hearing, Mr Uy accepts that it was not until counsel's written submissions were sent to GR Capital's counsel on 3 July 2020 that Mr Uy informed GR Capital that he would agree to an order for the withdrawal of the Caveat, subject to an order that the order for withdrawal would (see par 23) "commence operation upon the plaintiff confirming to the second defendant's solicitors, in writing, that the plaintiff holds the quarantined sum of $9,672,533.75 in an interest-bearing account. 12. This was the first time that Mr Uy offered to consent to the withdrawal of the Caveat, subject to an order that had an effect that preserved a fund equal to the value of the interest claimed by Mr Uy. This was intended to protect the interest that he claims to have in the Lots, pending the resolution of the dispute concerning the existence of Mr Uy's interest and whether his or the Receivers' claim, through Everest Private's first registered mortgage, takes priority. 13. Counsel for Mr Uy acknowledged at the hearing that the wording of the condition proffered by Mr Uy was not appropriate, as it would require notification that the amount was already held in an interest bearing account before Mr Uy would be required to withdraw the Caveat, when the continuation of the lodgement of the Caveat against the title to the Lots would prevent the completion of the contracts for sale that were necessary before the amount of the deposit could be generated. 14. Counsel sought and was given leave to formulate and provide to the Court a revised condition to be attached to the order for the withdrawal of the Caveat. The revised condition is set out in par 16 of counsel's supplementary submissions and is in the following terms: 2. As a condition of order 1, the plaintiff is to hold quarantined in an interest-bearing account, the sum of $9,672,533.75 from the gross sale proceeds of the remaining strata lots. 1. Mr Uy's counsel explained the calculation of the sum of $9,672,533.75 in pars 21 and 22 of his outline submissions. The amount is made up of the sums of $8,037,492.52 plus $1,635,041.23. The first amount represents a subscription price that I will explain below. The second amount is a proportion of what was described as "the net surplus figure". I will explain below, in the appropriate context, why Mr Uy's claim for this second amount is misconceived in any event. 2. GR Capital does not accept that the order for the withdrawal of the Caveat should be made on the condition is sought by Mr Uy, or any other condition. 3. Relevantly, Mr Uy has been on notice since 30 September 2019 that GR Capital denied the existence of the interest in the Lots now claimed by Mr Uy: see [39] above. GR Capital formally demanded that Mr Uy provide a withdrawal of the Caveat on 20 January 2020: see [41] above. 4. The Court was informed, in GR Capital's written submissions, that at a hearing before the Real Property List Judge on 25 June 2020, Mr Uy sought leave to file a cross summons in these proceedings, by which he would seek orders and declarations to the effect that his claimed unregistered equitable interest in the Lots takes priority to the registered Everest Private Mortgage, and any other interest that may be relevant, such as the Receivers' lien. Darke J refused leave to file the cross summons, on the basis that Mr Uy remained free to make such claim in relation to the existence and priority of his interest as he may be advised in new proceedings by separate summons. 5. Mr Uy has not yet commenced new proceedings to establish the existence and the priority of the interest claimed by him in the Lots. 6. In response to an observation made by the Court during submissions to the effect that, if the Court made an order for the withdrawal of the Caveat on the condition proposed by Mr Uy, there was a probability that any possible surplus would be exhausted by the accrual of further interest due to Everest Private, before any claim by Mr Uy could be determined, counsel informed the Court that Mr Uy would undertake to the Court to commence and prosecute his claim with all reasonable expedition. 7. It is relevant to the issue of the balance of convenience that Mr Uy has already had sufficient time to commence his proceedings to establish the rights claimed by him, and was put on notice, in the timeframes referred to above, as to his need to do so. No explanation has been proffered for why Mr Uy did not act with expedition. The consequence is that Mr Uy's dilatory response to the need to establish the rights that he claims has had the effect that he has put in real jeopardy the ability of the first registered mortgagee, Everest Private, through its appointment of the Receivers to GR Capital, to recover the whole of the debt due to it, unless an unconditional order is made for the withdrawal of the Caveat. 8. It is in these circumstances that the Court is required to decide whether to order the withdrawal of the Caveat unconditionally, or on the condition proffered by Mr Uy. Requirement for payment of mortgage duty 1. As noted above at [11] and [12], the interest sought to be protected by the lodgement of the Caveat is an equitable mortgage over the Lots created by an agreement dated 27 January 2016. 2. As a matter of principle, the Court will order the withdrawal of caveat if the caveat does not with reasonable clarity describe the true nature of the interest in the relevant property to which the caveator claims to be entitled: see Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880 at [28]-[32] per Campbell J and Real Property Regulation 2019, Schedule 2. 3. An antecedent question that arose at the hearing to the issue of whether the caveat adequately described the true interest that Mr Uy claims to have in the Lots was GR Capital's objection to the tender of the document relied upon by Mr Uy to prove the existence of the interest claimed by him, on the ground that neither the agreement nor the Caveat had been stamped with the necessary mortgage duty. 4. As mentioned, the agreement relied upon by Mr Uy was dated 27 January 2016. The effect of s 203A of the Duties Act 1997 (NSW) (Duties Act) was to abolish mortgage duty on and from the abolition date of 1 July 2016, but to preserve the situation where mortgage duty remained chargeable in respect of a mortgage first executed before the abolition date. Consequently, the document relied upon by Mr Uy was chargeable with mortgage duty, if indeed it created a mortgage. 5. Section 227 of the Duties Act has the effect that a caveat under the Real Property Act, in which an estate or interest is claimed under an unregistered mortgage, is chargeable with duty. If the mortgage itself is chargeable, but not stamped with mortgage duty, the Caveat must be stamped to the same amount as is chargeable on the mortgage. On the other hand, if the mortgagee is stamped, the caveat is chargeable with mortgage duty of $50. 6. Subsection 227(1) provides that the person liable to pay the duty is the mortgagor. 7. In the present case, neither the agreement dated 27 January 2016 nor the Caveat has been stamped as required by ss 204 and 227 of the Duties Act. 8. GR Capital submitted that the consequence was that Mr Uy was not entitled to support his opposition to an order for the withdrawal of the Caveat by tendering the 27 January 2016 agreement. That, according to GR Capital, followed from the application of two provisions in the Duties Act. First, s 211 has the effect that the mortgage "is unenforceable to the extent of any amounts secured by the mortgage on which duty has not been paid". Secondly, s 304(1) has the effect that an instrument that is chargeable with duty under the Duties Act, but has not been duly stamped, is not available for use in law or equity for any purpose and may not be presented in evidence in a court. 9. GR Capital submitted that, as Mr Uy had the burden of establishing at least a serious case to be tried that the interest in the Lots that he has claimed existed, the absence from evidence of the 27 January 2016 agreement had the necessary effect that an unconditional order should be made for the withdrawal of the Caveat. 10. GR Capital acknowledged the effect of s 304(2) of the Duties Act, whereby, notwithstanding the prohibition in subsection (1), the Court may admit into evidence an instrument that is chargeable but has not been duly stamped if, after its admission, the instrument is transmitted to the Chief Commissioner of State Revenue in accordance with arrangements approved by the Court. 11. Mr Uy responded to GR Capital's objection by offering to give to the Court the "usual undertaking by person not liable", in the terms required by Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 31.13(2). As the relevant provisions of the Duties Act imposed the liability to pay mortgage duty on GR Capital, as the mortgagor, Mr Uy offered to undertake to forward to the Chief Commissioner of State Revenue the name and address of GR Capital, as the person liable to pay duty on the 27 January 2016 agreement, together with that instrument. 12. GR Capital in turn responded by submitting that, even if the effect of the giving of the undertaking by Mr Uy was that the 27 January 2016 agreement could be received into evidence, it would still be unenforceable at the present time by operation of s 211 of the Duties Act. 13. Mr Uy's offer to give the undertaking attracted the potential operation of a line of authorities in this Court that arguably have the effect that the payment of mortgage duty on a mortgage after the commencement of proceedings for the removal of the caveat cannot protect the caveat from an order for its withdrawal on the ground that, on the proper interpretation of the Real Property Act, a caveat is not valid if the interest in the subject land that it seeks to protect does not exist at the time of the lodgement of the caveat. Even if the subsequent payment of the duty retrospectively validates the interest, the caveat must nonetheless be ordered to be withdrawn. I will return to a consideration of this line of authority below. 14. Given the relative urgency of GR Capital's application, and the circumstance that the Court only had one day to conclude the hearing, the parties accepted the Court's suggestion that the Court should defer ruling on GR Capital's objection to the tender of the 27 January 2016 agreement, and deal with the question of admissibility in its reserved reasons for judgment. There was no practical difficulty in the parties completing the hearing on the basis of the contingent tender of the agreement. The 27 January 2016 agreement 1. It will be convenient, at this point, to set out the terms of the 27 January 2016 agreement, which were as follows: PROPERTY SYNDICATE INVESTMENT This Agreement is made on the 27 day of January 2016 BETWEEN: Sole director, Mr. Wensheng LIU of GR Capital Group Pty Ltd ACN 169 099 425 AND: Syndicate member, Mr. Ching Wah UY of [address redacted], WHEREAS: Mr. Wensheng LIU to amend the syndicate agreement for syndicate member, Mr. Ching Wah UY for the money invested in the land to be secured by way of right to lodge the caveat and mortgage. LAND ADDRESS (the land): [Title references to Hurstville Property] 1. The 27 January 2016 agreement was signed by Mr Liu (who the evidence established was the sole director of GR Capital) and by Mr Uy, and the signatures were witnessed by a person whose name appears to be Ben Wong. 2. It will be convenient to record a number of arguments put on behalf of GR Capital as to why the Court should find that the 27 January 2016 agreement could not have created any interest in the Lots, which I consider should not be determinative of this interlocutory application, notwithstanding that it may ultimately be established that the arguments have merit. 3. GR Capital submitted that, on its face, the 27 January 2016 agreement was not supported by consideration. Apparently, that argument is based upon the proposition that the agreement purports to vary the Syndicate Agreement (which will be considered in some detail below) in a way that abandoned a prohibition in the Syndicate Agreement against the lodgement of any caveat until a subsequent date, by giving Mr Uy an immediate right to lodge a caveat, without there having been provided any additional corresponding benefit to GR Capital. 4. I will limit my response to this argument to the observation that it is possible that Mr Uy provided consideration by way of forbearance from taking steps to recover his investment, given that the Syndicate Agreement was made on 1 July 2016, and GR Capital did not secure the finance facility from Everest Private until 13 June 2017. The point is that there may have been arguable grounds for Mr Uy to demand the termination of the Syndicate Agreement, by reason of delay in the implementation of the development. I do not think it would be fair to order the withdrawal of the Caveat at this interlocutory stage of the proceedings on this ground. 5. GR Capital also submitted that the agreement, in its terms, was not with GR Capital, but with its sole director. I also consider that it would not be appropriate to determine the application on this ground, as it appears that the 27 January 2016 agreement was prepared by laypersons, and it is arguable on the face of the document that it was objectively intended that Mr Liu was contracting on behalf of GR Capital, and that he executed the agreement as authorised by s 127 of the Corporations Act 2001 (Cth). The Syndicate Agreement 1. GR Capital made submissions concerning the legal effect of the 27 January 2016 agreement that require consideration of its relationship to the Syndicate Agreement, to which reference has been made above. 2. The Syndicate Agreement is written in both the English and the Chinese language, with statements in English being followed by the apparent translation into Chinese. 3. Referring to the terms of the Syndicate Agreement that are primarily relevant to the determination of the present proceedings, the agreement contained the following recitals: B. The syndicate member(s) is/are interested in placing money in developing residential and/or mixed development sites for the purpose of assisting in [GR Capital] in the purchase of the property known as [the Hurstville Property]. C. The parties have agreed on the basis of the terms and conditions set out in this agreement to carry on business under the said Syndicate Agreement (hereinafter referred to as "the syndicate"). D. The Syndicate member shall provide the funds in accordance with this agreement or in cooperation with other syndicate members for the purpose of completing the purchase and assisting in fees which funds have been supplied by the Syndicate member to [GR Capital] pursuant to the Syndicate as being the first instalment of the Principal amount. 1. The significance of these recitals, and other provisions in the Syndicate Agreement, must be considered in light of the fact that Mr Uy submitted that the relationship between Mr Uy and GR Capital created by the Syndicate Agreement was one of creditor and debtor. As mentioned above, Mr Uy has not commenced proceedings to establish against GR Capital the interest in the Lots that he now claims. Consequently, the nature of that interest has not been defined by any pleadings. The Court must rely on the identification of the interest made by counsel for Mr Uy during the hearing. 2. At T 21.23, counsel said: "This again makes it clear that the arrangement between the parties was that this was always intended to be a loan which was to be repaid because clause [5(e)] talks about a distribution of net profits after taking into account costs and expenses, but that the no net profits would be distributed to the syndicate members until such time as the main capital units were repaid." 3. Earlier, at T 16.39 – T 17.6, counsel had said that the purpose of the Syndicate Agreement was: "Not to create a proprietary interest in the land similar to a resulting trust or something of that nature, but the proper construction of [the Syndicate Agreement] is that it is an agreement by which the moneys advanced will be repaid from the sales of the developments which arise from the subdivision and that the property is charged as a result with the repayment of that money from those sales. That is why the second defendant says this is an equitable mortgage payable quite clearly the [Syndicate Agreement] speaks of repayment on terms…there is no such claim made in respect of a proprietary claim. It is simply a claim for a charge or a charging provision in the [Syndicate Agreement]… So it is not a simple principal plus interest type arrangement. It is payment of principal plus a share of the proceeds as the price of money in the meantime." 4. In my view, on the wording of these recitals, there is a very strong argument that the effect of the Syndicate Agreement was to create some form of partnership or joint venture, by which syndicate members were to contribute capital for the purchase of the Hurstville Property. Syndicate members were to participate in developing sites, and were to "carry on business" together, and were to provide funds for "completing the purchase". 5. Clause 1 of the Syndicate Agreement contained definitions, including that "Main Capital" shall mean "monies accepted by [GR Capital] as capital of the Syndicate subscribed for in the procedures provided for in this Agreement". That also strongly suggests that the investment made by Mr Uy was a capital investment in what was called a syndicate, but may in law have been a partnership or a joint venture. 6. Clause 1 also contained a definition of "Main Capital Units" as meaning "the 65 unit shares aggregated to form the Main Capital as is required to carry on the business in accordance with this agreement". 7. "Project Capital" is defined in clause 1 as meaning "the project capital for the [Hurstville Property] supplied by the Syndicate member to the Syndicate under clause 5". 8. Clause 1 defined "Repayment" in the following terms: "Repayment" shall mean the repayment to the Syndicate Member of the Main Capital provided by the Syndicate member as at the date of this Agreement together with the net profit being the deduction of all costs and expenses arising out of and incidental to the [Hurstville Property] on or before the expiration of Construction Period or the extension of the Construction Period whichever is the later. 1. The terms of the Syndicate Agreement dealing with the capital of the syndicate, as well as the definition of Repayment, all strongly suggest that the contributions of capital were in fact capital and not loans. 2. Clause 2 of the Syndicate Agreement provided that the Main Capital of the Syndicate was to be $13,000,000 divided into 65 Main Capital Units with each unit equalling $200,000. 3. Clause 3 of the Syndicate Agreement had the effect that, in all dealings with the public, GR Capital "will operate as agent (whether disclosed or undisclosed) of the Syndicate". 4. This provision is also consistent with the syndicate members undertaking the development as partners or joint venturers. If they were lenders, there would be no reason for the Syndicate Agreement to provide for GR Capital to act as the agent of syndicate members. 5. Clause 5(e) of the Syndicate Agreement had the effect that no net profits were to be distributed to syndicate members before the Main Capital Units were first repaid. That provision is also consistent with the Syndicate Agreement having the effect of syndicate members participating as capital contributors, with an entitlement to participate in profit, after the repayment of capital contributions, rather than syndicate members being entitled to payment of interest (however calculated) on loans made by them to GR Capital. 6. Clause 6(f) of the Syndicate Agreement was in the following terms: [The Syndicate member will] not under any circumstance whatsoever lodge or authorise any Person to lodge any caveat (charge) and/or other instruments for recording on any folio of the Register for the Property until after the registration of the Strata plan for the lots in the Strata Plan with the Land and Property Information Office for [the Hurstville Property]. 1. Clause 5(g)(i) of the Syndicate Agreement contained an irrevocable appointment of GR Capital to act as the syndicate member's attorney to sign a withdrawal of any "caveat (charge) or the Withdrawal of any charge whatsoever which arises out of or incidental to this Agreement after the Syndicate member has lodged such Caveat (Charge) or Instrument that would cause detrimental effect to the continued development of [the Hurstville Property]". 2. It is to be noted that the provisions considered in the preceding two paragraphs do not authorise syndicate members to file caveats, and do not in terms grant mortgages. The provisions prohibit the filing of caveats until after the registration of the strata plan. Consequently, no issue arises under the Syndicate Agreement as to whether or not an authorisation for the lodgement of the caveat was intended to create an equitable mortgage over any part of the Hurstville Property. 3. Furthermore, the fact that the prohibition ended at the time a strata plan was registered does not mean that, after that time, the Syndicate Agreement had the effect that a syndicate member was authorised to lodge a caveat. The use of the expression "caveat (charge)" in the provisions cannot reasonably be construed as authorising or creating a charge or mortgage. The provisions are consistent with the possibility that, after the date of registration of the strata plan, some entitlement may exist in syndicate members to an interest in the Hurstville Property that they are then entitled to protect by caveat. The provisions of the Syndicate Agreement do not, as a matter of their ordinary meaning, entail that any such interest will be a mortgagor charge. 4. Clause 6(i) of the Syndicate Agreement obliged Mr Uy to subscribe for "forty Main Capital Units", which would have a value of $8,000,000. Although perhaps a minor point, the use of the word "subscribes" suggests a capital investment. 5. Clause 9.3 of the Syndicate Agreement was to the effect that the parties could only amend the agreement if each party signed a written amendment. 6. If this were a final hearing, I would have found, with substantial confidence, that, on the proper construction of the Syndicate Agreement, the subscription price of $8,000,000 paid by Mr Uy to GR Capital was a capital contribution to a partnership or joint venture that, depending upon the success of the venture, gave Mr Uy an entitlement to the repayment of his capital and a share of any profits that were made by the venture. 7. Given the interlocutory nature of the present hearing, I consider that I should not proceed upon the basis of a definite finding that the Syndicate Agreement involved contributions of capital by Mr Uy to the syndicate and did not create any mortgage to secure Mr Uy's rights under the Syndicate Agreement, whatever the nature of those rights may be. I will only proceed upon the basis that there is a strong likelihood at the final hearing that the Court will find that, by means of the Syndicate Agreement, Mr Uy entered into a partnership or a joint venture, which obliged him to make a capital contribution, and gave him a right to the recovery of his capital plus a share in profits, but did not create any mortgage to secure those rights. 8. This is a convenient place to interpolate an explanation of the amount of $9,672,533.75, which is referred to above at [50] and [51], and is the amount referred to in the condition propounded by Mr Uy to the making of an order for the withdrawal of the Caveat. 9. The sum of $8,037,492.52 reflects the subscription price of $8,000,000 referred to in clause 6(i) of the Syndicate Agreement: see [99] above. I am not sure what the amount over $8,000,000 represents. 10. The amount of $1,635,041.23 is described as a 40/65 share in the amount of $2,656,942 described by Mr Eagle as the possible surplus: see [35] above. The entitlement to a share of surplus arises out of the definition of "Repayment" in the Syndicate Agreement (see [89] above) and the proportion reflects the 40 out of 65 Main Capital Units subscribed for by Mr Uy. 11. The reason why this aspect of Mr Uy's case is misconceived is that the Syndicate Agreement gave Mr Uy a right to receive a 40/65 share of any profit from the development of the Hurstville Property. That profit would be determined by deducting all costs (including repayment of all borrowings) from total receipts. The possible surplus to which Mr Eagle referred was not a profit from the development but a surplus of assets after the whole of the entitlements of Everest Private was paid to it. Thus, the possible surplus represents the whole of the remaining capital of the syndicate. The venture has self-evidently failed. The remaining asset will be less than the capital subscribed, including Mr Uy's $8,000,000. There will thus be no net profit for the purpose of the definition of Repayment. Accordingly, even if the Court were to impose a condition of the nature sought by Mr Uy, it would not include the sum of $1,635,041.23. The effect of the 27 January 2016 agreement 1. It is in this context that the question arises as to whether the operative terms of the 27 January 2016 arguably give rise to a mortgage capable of being protected by the Caveat. The answer to that question depends upon the effect of the words "amend the syndicate agreement…for the money invested in the land to be secured by way of right to lodge the caveat and mortgage": see [70] above. 2. As noted above, in his submissions, Mr Uy attempted to characterise his rights under the Syndicate Agreement, as apparently amended by the 27 January 2016 agreement, as being in the nature of a creditor and debtor relationship as between himself and GR Capital, as opposed to that of beneficiary and trustee in respect of Mr Uy's capital contribution to enable the purchase and development by GR Capital of the Hurstville Property in GR Capital's name. 3. I do not consider that it is necessary or appropriate to attempt in this interlocutory judgment to finally determine the nature of the rights granted by GR Capital to Mr Uy under the Syndicate Agreement, as amended by the 27 January 2016 agreement. The question raises conceptual difficulties that the parties did not address in any detail. 4. I conclude that there is a substantial possibility that on a final hearing the Court would decide that Mr Uy's interest in the Hurstville Property and the Lots is, and at all relevant times has been, of a proprietary nature as a beneficiary of the property held on trust for syndicate members by GR Capital. A finding to that effect would flow from a determination that the Syndicate Agreement created a partnership or joint venture under which GR Capital held the legal title to the property purchased with the capital contributed by syndicate members on trust for those members. 5. There is thus, in my opinion, a substantial possibility that the Caveat misdescribes, in a material way, the real interest of Mr Uy in the lots, which is a possibility that supports the making of an order for the withdrawal of the Caveat. 6. At general law, the grant of a mortgage or charge is not limited to securing the repayment of a money debt, but it is appropriate to secure the performance of any kind of obligation: see Santley v Wilde [1899] 2 Ch D 474 at 474 per Lindley MR; Cambridge Credit Corporation Ltd v Lombard Australia Ltd (1977) 136 CLR 608 at 615; [1977] HCA 29; and Handevel Pty Ltd v Comptroller of Stamps (Victoria) (1985) 157 CLR 177 at 192; [1985] HCA 73. 7. I doubt that the proposition that a mortgage or charge may be granted to secure the performance of any kind of obligation extends to supporting the granting by a trustee of a mortgage over the trust property to the beneficiaries to secure the trustee's obligation to transfer the trust property to the beneficiaries in performance of the terms of the trust. However, that is a matter not addressed by the parties on the present interlocutory application, and accordingly does not require further consideration by the Court. Effect of non-payment of mortgage duty 1. Now that the uncertainties involved in determining the effect of the Syndicate Agreement and the 27 January 2016 agreement have been considered, it will be convenient to return to a consideration of the consequences of mortgage duty not having been paid in respect of either document. 2. Initially, GR Capital objected to the tender of the 27 January 2016 agreement, and not the Syndicate Agreement, but Mr Uy responded by asserting that his entitlement to maintain the lodgement of the Caveat was not dependent upon proof of the 27 January 2016 agreement, because the Syndicate Agreement itself created a creditor/debtor relationship. 3. This response creates the difficulty that the wording of clause 6(f) and (g)(i) of the Syndicate Agreement is not apparently consistent with the grant of an entitlement to lodge a caveat or the intention that such lodgement would create a mortgage or charge: see [95]-[98] above. 4. Further, if Mr Uy was granted a mortgage by the terms of the Syndicate Agreement, rather than the 27 January 2016 agreement, the Caveat would be defective and liable to be ordered to be withdrawn because it explicitly only sought to protect an equitable mortgage granted by the 27 January 2016 agreement. 5. GR Capital responded, in turn, to this change in Mr Uy's position by extending its objection to the admission of the 27 January 2016 agreement into evidence to the Syndicate Agreement, as if Mr Uy relies upon the latter agreement as giving rise to the equitable mortgage, then it is liable to the same objection as the 27 January 2016 agreement as mortgage duty was paid on neither agreement. 6. I have considered the issues that arise in this context in some detail in In the matters of Beechworth Land Estates Pty Ltd (administrators appointed) and Griffith Estates Pty Ltd (administrators appointed) (No 2) [2015] NSWSC 336 (Beechworth) at [94]-[159]. Given the length of that discussion, I will not set it out here. Both parties were given an opportunity to make additional written submissions on the issue, and both did so having regard to my reasons in Beechworth. 7. The present case does not directly raise the question of the enforceability of a mortgage granted by GR Capital to Mr Uy, whether by the Syndicate Agreement or the 27 January 2016 agreement. Section 211 of the Duties Act presently has the effect that any mortgage so created is unenforceable. However, Mr Uy does not now seek to enforce the mortgage. If the requisite mortgage duty is paid before Mr Uy seeks to enforce the mortgage, then the payment will have the effect of being retrospectively enforceable: see Beechworth at [112]-[125]. 8. I consider that the offer made by Mr Uy to give the undertaking required by UCPR r 31.13(2) has the effect that both the Syndicate Agreement and the 27 January 2016 agreement may be admitted into evidence pursuant to s 304(2) of the Duties Act. I will proceed upon the basis that those documents have been admitted into evidence as annexures to Mr Uy's affidavit, and also on the basis that Mr Uy has impliedly agreed to give the undertaking required by UCPR r 31.13(2) in respect of both documents. That implication arises from Mr Uy's express offer in relation to the 27 January 2016 agreement, and his maintenance of the tender of the Syndicate Agreement after his change in position caused GR Capital to object to the tender of both documents. 9. However, the rulings in the preceding two paragraphs do not resolve the effect of the non-payment of mortgage duty on both of the documents relied upon by Mr Uy. That is because of the existence of the line of authority in the Equity Division of this Court to the effect that a caveat is not maintainable, if not itself stamped, and it seeks to protect an interest in the subject property that was purported to be created by an instrument upon which required duty has not been paid: see Beechworth at [126]-[159]. 10. The evidence does not establish why mortgage duty was not paid in respect of either agreement in this case. In Beechworth, at [130], I referred to observations that I had made earlier in Complex Scaffolding Solutions Pty Ltd v Abraham Doueihi [2014] NSWSC 230 at [41] and [42] to the effect that the Registrar General would not accept for lodgement a caveat to protect a mortgage unless the Caveat "has been marked by the Office of State Revenue". As the Caveat was lodged by PEXA more than 3 ½ years after the date of the 27 January 2016 agreement, and more than three years after the 1 July 2016 abolition date under s 203A of the Duties Act, the need for the payment of mortgage duty may have been forgotten. However, no explanation was provided by Mr Uy. 11. As I observed in Beechworth, at [140], in the course of a consideration of the judgment of McDougall J in Boral Recycling v Wake [2009] NSWSC 712, the practice adopted by judges of this Court in ordering the withdrawal of caveats that protect an stamped mortgage appears to have been based on the consideration that s 211 of the Duties Act had the effect that the mortgage was not enforceable either at the time of the lodgement of the Caveat or at the date of the Court's judgment. As McDougall J said at [16]: "… Plaintiffs who wished to avail themselves of the caveat provisions of the Real Property Act, 1900, through mechanisms such as clause 9 of the agreement presently under consideration, should attend to their legal obligations expeditiously, and well in advance of any hearing to vindicate their rights". 12. In Beechworth, at [153], after considering the authorities that appear to establish the practice that I have described above, as well as the decision of Katzmann J in Arnautovic & Sutherland v Cvitanovic (2011) 199 FCR 1; [2011] FCA 809, I observed that it did not follow from my reasoning in Beechworth that I thought that the authorities were wrongly decided. I reserved that issue as it did not strictly arise in Beechworth. 13. Then, at [157] and [158], I expressed reasons why the Court, in the exercise of its discretion, might be justified in ordering the withdrawal of a caveat that did not comply with s 227 of the Duties Act, for reasons concerning the prevention of mortgagees seeking to protect their mortgages by lodging caveats in circumstances that did not comply with s 227 of the Duties Act, and only attending to the payment of mortgage duty after steps are taken to obtain an order from the Court that the caveat be withdrawn. 14. That is an issue that will now only rarely arise since the insertion of s 203A into the Duties Act. 15. Mr Uy made a submission that the practice that the Court has adopted is unfair because s 227(3) of the Duties Act clearly imposes the obligation to pay mortgage duty on the mortgagor. He submitted that the mortgagee should not be required to pay the mortgage duty in order to perfect its mortgage and entitlement to protect the mortgage by lodgement of a caveat, as the mortgagee may not be able to obtain reimbursement from the mortgagor. 16. While I accept there is some force in Mr Uy's argument, I do not accept that mortgagees ordinarily had difficulty requiring that the mortgage and the caveat be stamped and that the mortgagor paid the requisite duty. As the mortgage would have been granted as a result of some transaction under which the mortgagee was able to require the mortgagor to grant the mortgage, the mortgagee should have had sufficient bargaining power to require that the relevant mortgage duty be paid as an incident of the transaction, if the mortgagee attended to the requirements of s 227 and the effect of s 211 of the Duties Act. 17. Notwithstanding the effect of the counter-arguments that I considered in Beechworth, I consider that the proper course for the Court to take is to follow the line of authority that I discussed in Beechworth concerning the practice of this Court in ordering the withdrawal of caveats in cases where the requirements of s 227 of the Duties Act have not been complied with before the hearing of the application for a withdrawal order. 18. I rely on the discussion at [157] of Beechworth about the unsatisfactory consequences, concerning in particular the interests of third parties, where caveats that are not entitled to be lodged, are in fact lodged, and the validity of both the caveat and the interest sought to be protected are retrospectively contingent on the caveator deciding to pay the applicable mortgage duty, after action is taken to require the withdrawal of the caveat. Caveats perform a function of giving notice to the world of unregistered interests, as well as of preventing the registration of dealings inconsistent with those interests. The integrity of the caveat system may depend upon the application of rules that ensure that caveats that are lodged protect interests that are valid and enforceable, at least in so far as validity and enforceability are dependent upon compliance with the Duties Act. 19. This conclusion is sufficient to support the Court making the order sought by GR Capital in this case, without the imposition of the condition sought by Mr Uy. 20. However, for the reasons that follow, I have reached the same conclusion as to the orders that it is proper for the Court to make, irrespective of the consequences of the non-compliance with s 227 of the Duties Act. Is the Everest Private Mortgage indefeasible? 1. Mr Uy gave evidence in his affidavit of discussions between himself, Mr Liu of GR Capital, and Mr Ng, who was a director of Everest Private. Mr Uy had known Mr Ng since 2003. The conversations that are primarily relevant to Mr Uy's claim are as set out in the following paragraphs of his affidavit, in respect of which I have used different names for the participants than are set out in the affidavit: 14. During the second half of year 2016, I recall that I had a conversation with (Mr Ng) to the following effect: Mr Ng: I knew quite a number of rich Chinese, they want to transfer monies out of China to invest real estate in Australia. Real estate in Australia is a safe place for investment. I can use their monies to lend to Mr Liu's project if he is interested. Mr Uy: [Mr Ng], if you have capital to lend, that is good. I could recommend you to Mr Liu. Please note that the loan must pay out in the initial drawdown to my investors who have invested monies in the project. My investors expected quick return on their investment, the project cannot be delayed. You have to make sure that you have sufficient funds for the project. Mr Ng: Of course. I also ensure that your investors get paid at the initial drawdown. … 16. Between around October 2016 to March or April 2017, I met [Mr Ng] numerous times in either [Mr Ng's] office in Barangaroo or in a nearby cafe. Towards the end of that period, I recall on one such meeting having a conversation with [Mr Ng] to the following effect: Mr Ng: Please help me to obtain approval from Mr Liu, as I can definitely provide a loan to his company for the [Hurstville Property development]. I have enough monies to provide funding now. Mr Uy: [Mr Ng], it should be no problem. I was the consultant for him on his earlier project in Railway Pde. I am pretty confident on this current project having worked with Mr Liu before. I have raised $8 million from my friends and relatives which has been invested into the project already. In fact, [Mr Uy's niece] is one of the investors who has put money in. That money was used to pay $8 million of the $13 million needed to purchase the property. Liu has agreed that whenever he obtains finance for the construction, the $8 million will be repaid. Many of the people who invested the $8 million raised that money by borrowing against their own properties. So, if you are going to provide a construction loan, you must make sure the first drawdown of any facility is used to repay my investors. Mr Ng: That's fine, I agree, that should not be a problem. I will make sure your investors will get repaid first in the initial drawdown. The money I have in my company Everest Private is largely from investors from mainland China, they have a lot of money and I have managed to transfer the monies from China to Australia. If you successfully facilitate the deal between Everest Private and GR Capital, I agree to pay you $500,000 as an introducer's fee and I promise that I will not let Mr Liu know of the introducer fee. Let (sic) see what I can do. 1. Mr Uy then gave evidence, in par 17 of his affidavit, of a subsequent conversation with Mr Liu in which he told Mr Liu that, if Mr Liu did not borrow from Mr Ng, as Mr Liu had promised to pay Mr Uy's investors rapidly, the investors would commence legal action to recover their money from GR Capital and possibly Mr Liu personally. 2. Subsequently, GR Capital and Everest Private entered into the facility agreement dated 13 June 2017. 3. Mr Uy said, in par 19, that around 25 June 2017, he had a conversation with Mr Liu to the effect that he was aware that Everest Private had advanced $15,000,000 to GR Capital, and he asked Mr Liu to pay back the syndicate investors immediately. Mr Liu agreed, subject to Mr Ng agreeing to the drawdown. 4. Mr Uy then gave evidence, in par 20, of a telephone conversation with Mr Ng about Mr Ng's failure to honour his promise. Mr Uy said that Mr Ng responded by saying: "My investors from China and the solicitor for Everest Private insisted on the loan being advanced by progress payments only. Nothing stated in the facility agreement said that your investors have to be repaid first". Mr Uy has not subsequently been able to contact Mr Ng. 5. GR Capital in its submissions invited the Court not to accept the evidence of Mr Uy that has been set out above. Notwithstanding that Mr Uy's affidavit was made on 24 June 2020, GR Capital served no evidence from Mr Ng that contradicted Mr Uy's evidence. I would infer that the Receivers could have called on the assistance of Everest Private's Mr Ng, and no explanation was given for Mr Ng not giving evidence. 6. It will therefore be appropriate for the Court to proceed upon the basis that, at a final hearing, the Court may accept Mr Uy's evidence. 7. The primary impediment to Mr Uy's caveat being permitted to remain on the title to the Lots is that it is based upon an unregistered interest, of one type or another, and prevents the exercise by Everest Private of its power of sale contained in its registered Everest Private Mortgage. If Everest Private's title to its mortgage is indefeasible, it must take priority over any prior unregistered interest to which Mr Uy is entitled. 8. Section 42(1) of the Real Property Act provides: Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except [for matters not presently relevant]. 1. Mr Uy submitted that his prior unregistered interest that was sought to be protected by the Caveat takes priority over the Everest Private Mortgage under the 'fraud exception' referred to in s 42(1). He relied upon the following statement of principle by Mason CJ and Dawson J in Bahr v Nicolay (No 2) (1988) 164 CLR 604 at 615; [1988] HCA 16 (footnotes omitted): For our part we do not see the illustrations given and the statements made in the cases as amounting to definitive pronouncements that fraud is confined to fraud in the obtaining of a transfer or in securing registration. The statements, viewed in their context, merely express the reasons why particular circumstances fall within the statutory exception. Nor do we see anything in the language or the purpose of s. 68 which warrants such a restrictive interpretation. Indeed, we agree with Higgins J. in Stuart v Kingston when his Honour said that there was much to be said for the view, expressed by Stawell C.J. on the equivalent Victorian provision, that the section should be "construed strictly" and the exception "liberally". The section restricts, in the interests of indefeasibility of title, rights which would exist otherwise at law or in equity. And granted that an exception is to be made for fraud why should the exception not embrace fraudulent conduct arising from the dishonest repudiation of a prior interest which the registered proprietor has acknowledged or has agreed to recognize as a basis for obtaining title, as well as fraudulent conduct which enables him to obtain title or registration? In the context of s. 68 there is no difference between the false undertaking which induced the execution of the transfer in Loke Yew and an undertaking honestly given which induces the execution of a transfer and is subsequently repudiated for the purpose of defeating the prior interest. The repudiation is fraudulent because it has as its object the destruction of the unregistered interest notwithstanding that the preservation of the unregistered interest was the foundation or assumption underlying the execution of the transfer. For the same reason the subsequent repudiation by a transferee of property of a limited beneficial interest in that property is fraudulent, when the transferee took the property on terms that the limited beneficial interest would be retained by the transferor. It is immaterial that the transferee "may have been innocent of any fraudulent intent in taking the conveyance in absolute form": Bannister v. Bannister. 1. In its submissions, GR Capital relied on the following additional statement of principle by Brennan J at 653-654 (footnotes omitted): However, the title of a purchaser who not only has notice of an antecedent unregistered interest but who purchases on terms that he will be bound by the unregistered interest is subject to that interest. Equity will compel him to perform his obligation… A registered proprietor who has undertaken that his transfer should be subject to an unregistered interest and who repudiates the unregistered interest when his transfer is registered is, in equity's eye, acting fraudulently and he may be compelled to honour the unregistered interest. A means by which equity prevents the fraud is by imposing a constructive trust on the purchaser when he repudiates the unregistered interest. That is not to say that the registration of the transfer to such a proprietor is affected by such fraud as may defeat the registered title: the fraud which attracts the intervention of equity consists in the unconscionable attempt by the registered proprietor to deny the unregistered interest to which he has undertaken to subject his registered title… 1. It is necessary to identify in a precise way Mr Uy's case concerning the legal significance of his evidence of his communications with Mr Liu and Mr Ng. The Court must rely upon the explanation of the nature of Mr Uy's case provided by his counsel during submissions. 2. At T 30.38 – T 31.1, counsel said: I was about to give your Honour a snapshot of the way in which Mr Uy puts his case. This will dovetail into the evidence. Mr Uy says, firstly, he has an early equitable interest. The receivers say that they have a better "legal" interest because it is legal; Mr Uy says: Yes legal interests will trump equitable interest except to the extent there are personal equities involved. The evidence shows that there was an agreement made that the earlier equitable interest of Mr Uy was accepted and would be paid out as a condition of Mr Uy recommending to GR Capital that Everest should be the one from which GR Capital sought the construction finance; and by now turning around and Everest saying: No, my legal interest trumps your earlier equitable interest, Everest is seeking to hide behind the registration of its interest by denying the very agreement, which was a condition of it receiving that legal interest in the first place. 1. Counsel also provided a more expansive, but consistent, explanation of the nature of Mr Uy's claim at T 33.49 – T 35.27. 2. On the basis of the evidence tendered by Mr Uy, the following observations may be made. 3. First, the Caveat was not lodged until 15 August 2019, and there is no evidence that, at the time of the conversations between Mr Uy and Mr Ng, Everest Private was aware that Mr Uy claimed to be entitled to the interest in the Lots sought to be protected by the Caveat. 4. Secondly, Mr Uy positively advised Mr Ng that Mr Uy represented persons who had invested their money in the Hurstville Property project. Although Mr Uy told Mr Ng that the investors expected to be repaid quickly, he did not say that the investors had loaned their money to GR Capital, or that the loan was secured by an unregistered mortgage over the Hurstville Property. 5. Thirdly, Mr Uy's evidence of the conversations provides an arguable basis for a finding that Mr Uy entered into a contract with Everest Private, one of the terms of which was that, in return for Mr Uy obtaining GR Capital's agreement to entering into the finance facility with Everest Private in order to complete the Hurstville Property development, Everest Private would cause GR Capital to repay to Mr Uy the $8,000,000 that he had invested on behalf of the investors, out of the initial drawdown of the facility made by GR Capital. 6. Fourthly, there is no evidence that Everest Private knew that Mr Uy had any power to prevent Everest Private entering into the facility agreement with GR Capital and obtaining a registered first mortgage over the Hurstville Property on the terms of the Everest Private Mortgage. 7. Finally, there is no evidence that Everest Private became the registered proprietor of the Everest Private Mortgage on the basis that it would recognise and accept the priority of Mr Uy's interest in the Hurstville Property notwithstanding the registration of the Everest Private Mortgage. 8. There is, in my view, a crucial distinction between, on the one hand, Mr Uy and Mr Ng on behalf of Everest Private making a contract that Everest Private would cause Mr Uy's investment under the Syndicate Agreement to be repaid out of funds to be loaned by Everest Private to GR Capital, in return for Mr Uy procuring GR Capital's agreement to enter into the facility agreement with Everest Private; and on the other hand, Mr Uy and Mr Ng agreeing that Everest Private would, if Mr Uy did not exercise a right to prevent Everest Private from registering the Everest Private Mortgage, Everest Private would continue to recognise and give effect to an unregistered equitable interest of Mr Uy in the Hurstville Property. 9. An agreement of the former nature would simply be an agreement by Everest Private to cause Mr Uy's investment under the Syndicate Agreement to be paid out of the loan made by Everest Private to GR Capital. It would not involve any recognition of Mr Uy's investment as being a separate and continuing unregistered interest in the property intended to have priority over the registered Everest Private Mortgage. 10. I have previously stated my understanding of the relevant principles in Meshumar v Otmy [2018] NSWSC 125 at [471]-[473] in the following terms: 471 As I understand the basis of the High Court's reasoning and the interpretation of that reasoning made by Austin J, the prior equitable estate or interest in the property will be enforceable against the registered proprietor because the registered proprietor has obtained registration, and thus putative indefeasibility of title, where the "foundation or assumption", or the "terms" were, or the registered proprietor had "undertaken" that the registered proprietor's title would be subject to the unregistered estate or interest. In Bahr v Nicolay (No 2) this state of affairs arose as a term of an enforceable contract between the purchaser and the vendor. In Heggies Bulkhaul it arose as a result of an undertaking given to the holder of the prior equitable interest that was not of a contractual nature. In both cases the crux of the issue was that the registered proprietor could not have achieved registration and apparent indefeasibility because the party to whom the undertaking was given was in a position to prevent the registered proprietor to obtain a title that was not subject to the prior equitable interest, but has not done so on the faith of the undertaking that the prior interest would be recognised. 472 In my understanding it is crucial to the repudiation of the undertaking being unconscionable that the party to whom the undertaking was made was in a legal or practical position to prevent the registration of the transfer that would destroy the prior equitable interest unless the undertaking was given. Absent this power, the mere giving of assurances to a party who claimed a prior interest in the property, which was not enforceable against the parties to the transfer of the property, would not take the case out of the situation where a personal equity will not be created where the registered proprietor merely asserts his registered title after acquiring it with notice of some unregistered interest. 473 … It is fundamental to the preservation of the entrenched doctrine of indefeasibility of title by registration of dealings that notice of some existing, unregistered claimed interest does not lead to a finding that a refusal to recognise the prior claim is unconscionable, unless, there is a proper basis for that finding that does not undermine the effective operation of the doctrine. That basis may in particular circumstances exist where the prior claim was enforceable in a manner that allowed the claimant to prevent the opponent becoming registered proprietor. The unconscionability comes from resiling from some agreement or undertaking after registration where the registered proprietor would have been prevented from achieving apparent indefeasibility of title but for the making of the agreement or the giving of the undertaking. 1. I restated that understanding in Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 at [934] and remain of that opinion. 2. The consequence is, for the purposes of the present interlocutory judgment that I am of the view that at a final hearing there is a very substantial probability that Mr Uy will fail to establish that any unregistered equitable interest that he has in the Lots will take priority over Everest Private's registered interest in the Everest Private Mortgage, on the basis that the conversations between Mr Uy and Mr Ng are the basis of a finding of fraud within the meaning of s 42 of the Real Property Act, with the effect of destroying the indefeasibility of Everest Private's registered mortgage. 3. It is quite possible that Mr Uy has a valid claim against Everest Private for breach of contract arising out of the conversations between Mr Uy and Mr Ng deposed to in Mr Uy's affidavit, but that is a matter for Mr Uy to prosecute in separate proceedings. 4. I am not satisfied that Mr Uy has established a sufficiently serious question to be tried in respect of the existence of the interest in the Lots that he has sought to protect by the Caveat, having regard to the probable indefeasibility of the Everest Private Mortgage, to justify the Court making an order for the withdrawal of the Caveat on the condition contended for by Mr Uy. Balance of convenience 1. Even if I am wrong in the conclusion that I have expressed in the preceding paragraph, and I should have found that the evidence is sufficient to establish the requisite serious question to be tried, I would nonetheless reject Mr Uy's claim that the order for the withdrawal of the Caveat should be made on the condition sought by Mr Uy. This is because I regard Mr Uy's case as being a weak one, and, having regard to the issues relevant to the balance of convenience, an unconditional order should be made for the withdrawal of the Caveat. 2. First, as I have explained above, although Mr Uy claims that he became entitled to lodge the Caveat, either on the 1 July 2014 date of the Syndicate Agreement, or on the date when the 27 January 2016 agreement was made, he did not do so until 15 August 2019. That was well after Everest Private had made all of its advances to GR Capital under the facility agreement and the Everest Private Mortgage had become enforceable. The Receivers were appointed on 26 October 2018. Consequently, Mr Uy permitted Everest Private and the Receivers between them to take all of the risks involved in funding and completing the Hurstville Property development, and thus the creation of the Lots, without knowing of the existence of the unregistered interest in the Hurstville Property that would have been disclosed by a timely lodgement of the Caveat. 3. Secondly, for the reasons that I have considered above at [37]-[58], Mr Uy has stood by for an unwarranted length of time without instituting proceedings to establish the rights now claimed by him in circumstances where he ought to have been aware that his claims were contentious. The result is that, if the Court were to order, as a condition to the withdrawal of the Caveat, the Receivers cause GR Capital to quarantine a fund of $8,000,000 out of the proceeds of the completion of the contracts for sale of the capital lots, that would put Everest Private at considerable jeopardy of suffering a shortfall in recovery of the full amount that is now owed both to Everest Private and the Receivers. 4. Thirdly, the imposition of a condition requiring the quarantining of a fund of $8,000,000 would have the practical effect of imposing a freezing order on Everest Private for that sum, in the absence of Mr Uy having established on a proper basis a right to a freezing order arising out of the prosecution by Mr Uy of the contract claim that may be available to him, and evidence that may justify the making of a freezing order because of Everest Private's circumstances. As a practical matter, Mr Uy has been the author of this difficulty, because of his failure to commence a contract claim in a timely way, and his delay in agreeing to the making of an order for the withdrawal of the Caveat subject to a condition that requires the quarantining of the sum of $8,000,000. The manner in which Mr Uy has conducted these proceedings has not given rise to any forensic obligation upon Everest Private to prove that it will be able to pay Mr Uy $8,000,000 if he ultimately establishes, in properly constituted proceedings, the rights that he now claims. 5. In this respect, it is relevant to the balance of convenience favouring the making of an unconditional order for the withdrawal of the Caveat that Mr Uy is not precluded from seeking the protection that he would otherwise get by the imposition of the condition by commencing proceedings to enforce the contract that he alleges, together with the making of an application for an appropriate freezing order. That observation implies no comment at all about Mr Uy's prospects of succeeding in an application for a freezing order against Everest Private. 6. Fourthly, the imposition of the condition may adversely affect the interests of third parties, for example Xinfeng and the first defendant, who continue to claim an interest in the Lots. It is probable that the possible surplus of $2,650,000 will substantially be eroded by the accrual of interest on the $8,000,000 that is quarantined and the extra costs that will be incurred. The Court has no basis for assessing the relative priorities of possible claimants to any surplus that is preserved. Orders 1. For the reasons given above, the Court makes the following orders: 1. Pursuant to section 74MA of the Real Property Act 1900 (NSW), the caveat bearing dealing number AP465600 lodged by the second defendant in respect of the land at 1-5 Treacy Street, Hurstville, comprised in each of the folio identifiers set out in the table below, be withdrawn by the second defendant by 5:00 pm on the date that is 5 days after the date that this order is made by the Court: 5/SP91614 37/SP91614 65/SP91614 6/SP91614 38/SP91614 69/SP91614 12/SP91614 39/SP91614 70/SP91614 13/SP91614 43/SP91614 71/SP91614 15/SP91614 44/SP91614 72/SP91614 16/SP91614 46/SP91614 74/SP91614 17/SP91614 49/SP91614 75/SP91614 21/SP91614 51/SP91614 24/SP91614 53/SP91614 28/SP91614 56/SP91614 29/SP91614 57/SP91614 30/SP91614 58/SP91614 31/SP91614 60/SP91614 32/SP91614 62/SP91614 35/SP91614 63/SP91614 36/SP91614 64/SP91614 1. The second defendant pay the plaintiff's costs of the proceedings. 2. These orders be entered forthwith. ********** 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: 17 July 2020