New South Wales Supreme Court CITATION : La Fontaine v Manley [2000] NSWSC 1252 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 4620/00 HEARING DATE(S) : 29 November and 6 December 2000 JUDGMENT DATE : 6 December 2000 PARTIES : Peter Allan La Fontaine (P) Peter John Manley (D) JUDGMENT OF : Hamilton J COUNSEL : J T Johnson (P) M Scheib (D) SOLICITORS : La Fontaine (P) Crichton-Browne Crossley (D) CATCHWORDS : CONVEYANCING [184], [191] - Land titles under the Torrens system - Caveats against dealing - Practice - Order extending caveat - Principles applying to exercise of discretion - Who may lodge - Person who lodged lapsed caveat - Grounds substantially the same - Court's discretion to allow - Principles applying to exercise of discretion. Conveyancing Act 1919 s 23C LEGISLATION CITED : Legal Profession Act 1987 ss 174, 175 & 182 Real Property Act 1900 s 74K(1), (2), 74O Bethian Pty Limited v Green (1977) 3 FamLR 11,579 CASES CITED : Kingstone Constructions Pty Limited v Crispel (1991) 5 BPR 11,987 Ralph Symonds Australia Pty Limited v Pacific Property Investments Pty Limited 19 October 1988 NSWSC Bryson J unreported Wildshut v Borg Warner Acceptance Corp (Australia) Ltd (1987) NSW ConvR par 55-344 DECISION : Extension of caveat refused; leave granted to lodge fresh caveat. IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J WEDNESDAY, 6 DECEMBER 2000 4620/00 PETER ALLAN LA FONTAINE v PETER JOHN MANLEY JUDGMENT 1 HIS HONOUR: In this matter the plaintiff applies for the extension of a caveat over property of the defendant until further order. The caveat is over four properties in Phillip Street, Alexandria. The defendant owns at least one further piece of real estate which has been called in evidence the Coaches Creek property, over which the plaintiff does not have a caveat. The plaintiff has issued a summons in which he has claimed a declaration that he has a caveatable interest as described in caveat number 6657627. The caveatable interest is stated as follows: "Amounts due under cost agreement between Peter Allan La Fontaine and Peter John Manley for payment of legal costs & disbursements including counsels fees." The instruments referred to as giving rise to the estate or interest are specified to be a "cost agreement" dated 7 September 1998 and a number of memoranda of fees. The facts relied on as supporting the caveat are stated as follows: "Peter Manley engaged the caveator to perform legal work and to employ barristers to appear and the caveator did the work and has not been paid. The memoranda of fees rendered was [sic] acknowledged to be a caveatable interest and charge over the land pursuant to clause 7 of the cost agreement." One of the barristers concerned was Mr Malcolm Ramage QC. The matter in which the plaintiff acted for the defendant was proceedings brought by the New South Wales Crime Commission under the Criminal Assets Recovery Act 1990. In effect, as a result of the proceedings, orders were made against the defendant in the Common Law Division of this Court and those orders affect the pieces of real property referred to in both the instruments which it will be necessary to refer to later. 2 It is a significant factor for the determination of any application that the document referred to as the cost agreement of 7 September 1998 is not itself executed, as is common ground between the parties. The document which was executed is a document which has been referred to today during argument as "the handwritten document". That is a document dated 9 April 1999 and signed by both the defendant and his partner, Raylene Ruttley-Manley. It is addressed to "La Fontaine Solicitors" and its terms are as follows: "We, Peter & Raylene Ruttley-Manley, hereby agree to pay your legal costs & disbursements & those of Malcolm Ramage QC as per your respective costs agreements, for outstanding & ongoing fees from the proceeds of the sale of the Alexandria properties or sale of Red Mercedes when sold, on the basis it is sold reasonably soon having regard to market conditions. AND we confirm that this is a caveatable interest in our properties to secure such payment." There is now evidence before me that both Ms Ruttley-Manley and the defendant had seen what has been called the cost agreement of 7 September 1998 before they signed the handwritten document. Whether or not that cost agreement is to be taken to be incorporated by reference in the handwritten document, since the terms in which it purports to grant an estate or interest in the land are no more satisfactory than the terms of the handwritten document, in that it proceeds in clause 7 to give rights by reference to the existence of a caveatable interest. It is only in a later cost agreement, that is one that was created after the handwritten document, that there is in terms reference to the granting of a charge. However, when I say that that last mentioned document was created, whilst it was typed up, it is as unsigned as the cost agreement. 3 The plaintiff's case is that, despite the inelegance of the language, the handwritten document, whether or not it be taken to incorporate the cost agreement, grants to the plaintiff a charge over all of the real estate of the defendant and Ms Ruttley-Manley to secure the payment of legal costs owing by the defendant to the plaintiff and to Mr Malcolm Ramage QC. The plaintiff says that it is an immediate grant of charge rather than an agreement to grant a charge and that, in relation to that grant, the provisions of s 23C of the Conveyancing Act 1919 are satisfied by the handwritten document. He says that it does not make any difference to whether a charge exists if no moneys are currently due and payable for costs; work has been done and costs incurred (which is not really denied) and until those costs are paid, whether immediately due and payable or not, he has a charge which is a caveatable interest. He says that that is protected by the existing caveat, which ought be extended. If that be wrong, he ought be allowed to lodge a caveat in proper form to protect it. 4 Mr Scheib of counsel now appears for the defendant and controverts those propositions on a number of grounds. Mr Scheib appropriately takes me back to the basic terms of the provisions of the Real Property Act 1900 ("the RPA") which governs this application. The RPA relevantly provides as follows: "74K(1) Where a caveator is served with a notice prepared under section 74I (1) or (2) , 74J (1) or 74JA (3) , the caveator may prepare, in the manner prescribed by rules of Court, an application to the Supreme Court for an order extending the operation of the caveat. (2) Subject to subsection (3) , on the hearing of an application made under subsection (1) , the Supreme Court may, if satisfied that the caveator's claim has or may have substance, make an order extending the operation of the caveat concerned for such period as is specified in the order or until the further order of that Court, or may make such other orders as it thinks fit, but, if that Court is not so satisfied, it shall dismiss the application." Mr Scheib squarely faces up to the fact that what the plaintiff must establish to be entitled to extension is not that it has an estate or interest but "that the caveator's claim has or may have substance". However, he submits on a number of grounds that I should come to the conclusion that the plaintiff's claim has no substance. He says that the acknowledgment of caveatable interest in the handwritten document or the cost agreement, if it be incorporated, is not sufficiently clear to found any claim for a charge over the property. Whilst technical words are not needed to create a charge, there should be for a charge to be established simple clear words of charge, which it is easy to include in a document and are simply not included in the documents here. He points out that by reason of various provisions of the Legal Profession Act 1987 ("the LPA") including ss 174, 175 and 182 no moneys can presently be said to be due and payable by the defendant to the plaintiff and this assertion does appear on the material before me to be correct. Indeed, as far as the question of the quantification of costs is concerned, he says that there have not even yet been delivered bills of costs in a form which would be assessable under the LPA. He says that the caveat ought not be extended or a fresh caveat allowed whilst no moneys immediately due and payable are secured under the charge. He also says that if I am against him on those submissions, then the facts and circumstances generally and the conduct of the plaintiff should preclude the granting of relief. 5 What the Court should do, he says, is to allow the present caveat to lapse (it expires on Friday when the present temporary extension runs out) and to refuse to allow any further caveat to be lodged, by reference to various considerations, including that there is no amount currently due and payable under the charge (if it exists); that the plaintiff must be taken to have well known of the requirements of ss 174, 175 and 182 of the LPA and did not comply with them; that the plaintiff has up until now been making demands for the immediate payment of sums to which he was not entitled; that it must therefore be inferred that the plaintiff has been using the caveat as a lever to extract payment from the defendant of a sum to which he is not entitled. He points in conjunction with that to the very turgid evidence of negotiations or attempts at negotiation between the parties relating to the matter. He says that the conclusion that should be come to in relation to that is that the defendant has been attempting to obtain appropriate quantification of the amount payable and the plaintiff has not taken appropriate steps to do that, to the extent, as already stated, of not yet having delivered bills in a form of which assessment could be ordered. He reminds me that the making of the various possible forms of order which could be made are all, on the face of the RPA, discretionary and that relief should be refused either in the exercise of discretion, or by reason of the plaintiff not coming to the Court with clean hands, or on the bases enunciated by Needham J in Wildshut v Borg Warner Acceptance Corp (Australia) Ltd (1987) NSW ConvR par 55-344. 6 The conclusions that I have come to are as follows. I have concluded that the present caveat is insupportable. The principal reason for that conclusion is that there is no reference on the face of the caveat to the document which has on this application been put before the Court as founding the caveat, namely, the handwritten agreement. The cost agreement is referred to in the very inelegantly drawn caveat; but the cost agreement alone, being unexecuted, cannot give the plaintiff rights. Its operation, if any, is through incorporation into the handwritten document and, in any event, the handwritten document may operate according to its own terms without actual incorporation in law of the cost agreement into it. The operative document is therefore the handwritten document, which is not mentioned in the caveat. For those reasons the caveat as it stands ought be allowed to lapse. 7 However, I do not accede to Mr Scheib's submissions that the claim as argued before me has no substance. It does seem to me that there is a fair argument that the handwritten document does create a present charge over the property to secure the amount of costs, and that that charge is neither nonexistent nor unenforceable because no amount is presently due and owing under it. Most of the thousands upon thousands of mortgages that exist in this country at any given time do not have any sum immediately due and payable under them, the interest being paid up to date and the principal not yet having fallen due; but their operation as securities cannot rightly be suggested to be affected by that. It is certainly arguable, in my view, that if the documents create a charge it is not rendered presently nonexistent by the fact that none of the sums potentially payable under it has not fallen due and payable at all. 8 I should make it doubly plain, to prevent any misunderstanding, that the ruling that I am making is not that the charge is valid, a matter which will fall to be determined at another time, but that it cannot be said that the plaintiff's claim is without any substance. I find that the plaintiff has established that it does have a claim of substance. 9 The relationship between the principles applicable in applications for extensions of caveats on the one hand and interlocutory injunction applications on the other have never been entirely clearly spelt out. On the one hand, Bryson J in Ralph Symonds Australia Pty Limited v Pacific Property Investments Pty Limited NSWSC 19 October 1988 unreported has referred to the principles relating to interlocutory injunctions as relevant to the approach to the extension of caveats; on the other hand it is pointed out in other authorities that the extension of a caveat is a statutory remedy and not a remedy granted by the Court in the exercise of its general jurisdiction. The applicability of discretionary defences such as unclean hands in the case of statutory remedies is not entirely clear: Bethian Pty Limited v Green (1977) 3 FamLR 11,579 at 11,582; and see generally Kingstone Constructions Pty Limited v Crispel (1991) 5 BPR 11,987; and see generally Young & Cameron, Conveyancing Service New South Wales [41972.5]. 10 In my view it is clear that the jurisdiction which permits a second caveat to be lodged after a first caveat has proven unmaintainable by the making of an order under s 74O of the RPA is discretionary. I propose to exercise the discretion in this case in favour of making an order to permit the lodgment of a fresh caveat. Whilst the first caveat was badly drawn, it miscarried by omission of reference to the appropriate piece of paper. It certainly refers to the cost agreement which is arguably incorporated in the handwritten document and each of those documents contains the provision which it is claimed creates a charge in entirely the same terms. The first caveat has failed because of bad drafting, not because of anything relating to the substance of the claim for an estate or interest. 11 So far as concerns the other considerations put as going to the exercise of discretion, I do not need to go in any detail into the degree to which general principles relating to interlocutory restraints are applicable or not applicable to statutory applications relating to caveats. Assuming that I have a full discretion, I do not intend, as I have already indicated, to exercise the discretion against the plaintiff in this case. This is not the time and place to make judgment of Mr La Fontaine's conduct in relation to the negotiations, or any one else's. It will suffice to say that I am not convinced on the evidence that Mr La Fontaine was using the caveat as a lever to extract something to which he was not entitled rather than to vindicate and enforce the charge which he arguably claims to have. Nor can I come to any other conclusion, nor do I come to any other conclusion, concerning his conduct that would lead me to exercise discretion against him. Nor do I find it established that he has come to court with unclean hands in any way that would bring him within the Wildshut principle. 12 Mr Scheib has also referred to what he says is the large excess of assets over liabilities of the defendant and their excess over the largest claim made by the plaintiff. In short, the plaintiff's claim is some $70,000. The four Alexandria properties are worth $1.2 million to $1.5 million. The present evidence shows they are encumbered by a mortgage to about $200,000, and to the extent of about another $200,000 by reason of the orders obtained by the New South Wales Crime Commission against the defendant. Mr Johnson, of counsel for the plaintiff, has drawn attention to the fact that there are also claims to equitable interests in the properties by Ms Ruttley-Manley and the defendant's children. Nonetheless there does appear to be an excess of value over encumbrances as far as these properties are concerned. What has been described as the Coaches Creek property is said to be worth a further $300,000, and there are no encumbrances that affect it, except to the extent that the encumbrances already mentioned extend to that property. However, this is not an application for Mareva relief. It is an application simply to determine whether the plaintiff ought be allowed to maintain a caveat to protect an equitable charge that he says he has. There was a submission by Mr Scheib that the Court in its discretion should allow a caveat only over the Coaches Creeks property over which the plaintiff does not currently have a caveat and he ought not be allowed to re-lodge a caveat over the Alexandria properties which the defendant is attempting to sell in one line. 13 However, I do not intend to restrict the plaintiff in that fashion. I intend to allow him to replace the invalid caveat with a caveat which I consider to be valid. But I do not think in all the circumstances he ought be allowed to simply tie up for any extended period the whole of the valuable line of property which the defendant has. In fairness to the plaintiff, it should be said at once that Mr Johnson has on more than one occasion openly informed the Court that the plaintiff's desire is only to maintain a caveat to the extent necessary to protect the amount of costs which may be secured by the charge, and not otherwise to encumber or interfere with the defendant's dealings with his property. Even if all the property were sold, this would be able to be dealt with, if deemed appropriate at the time, by the setting aside of some appropriate fund, or in some other way. Particularly in light of the offer thus properly made on the plaintiff's behalf, it is my view that in exercising my discretion to allow the lodgment of a further caveat, I should make that order upon conditions. Those conditions should include: (1) A condition that the plaintiff will diligently take all appropriate steps to quantify or cooperate in the taking of all appropriate steps to quantify the amount of costs which he is entitled to be paid and which may be said to be secured under the charge. (2) A condition to the general effect that the plaintiff will upon reasonable request remove the caveat from any properties affected to permit the defendant to deal with the same provided that he need not upon request remove the caveat if the result of its removal would be such that the amount of costs claimed would be greater than the amount secured under the charge. The orders should, of course, encompass liberty to apply, so that any matters that arise in relation to the conditions could be brought back to the Court. 14 There has been some discussion before me today as to what those steps may be, but I think it better that any further discussions on that await the bringing in of short minutes after the parties have had time to consider the reasons I am now giving. There has been some very limited debate on costs which matter can be taken up again when short minutes are brought in. However, the plaintiff in the course of this matter will need to face the fact that he has failed to justify the caveat which he set out to justify and has failed to have it further extended. Short minutes should be brought in to give effect to the orders embodied in these reasons. …oOo… Last Modified: 03/28/2001 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.