Reported Decision : (2006) NSW ConvR 56-143 New South Wales Supreme Court CITATION : Circuit Finance P/L v Crown & Gleeson Securities P/L [2005] NSWSC 997 HEARING DATE(S) : 1 September 2005 JUDGMENT DATE : 1 September 2005 JUDGMENT OF : Brereton J CATCHWORDS : CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - Caveats against dealings - adequacy of caveat which claims an "equitable interest" Real Property Act 1900 LEGISLATION CITED : Real Property Regulation 2003 Depsun Pty Limited v Tahore Pty Limited [1990] ANZConvR 334 Hanson Construction Materials Pty Ltd v. Vimwise Civil Engineering Pty Limited [2005] NSWSC 880 CASES CITED : Jones v Baker [2002] NSWSC 89 Multi-Span Constructions No 1 Pty Limited v 14 Portland Street Pty Limited [2002] ANZ ConvR 85 Vandyke v Vandyke (1976) 12 ALR 621 Circuit Finance Pty Limited PARTIES : Crown & Gleeson Securities Pty Limited FILE NUMBER(S) : SC 4670/05 COUNSEL : J P Redmond (plaintiff) SOLICITORS : Leonard Deane (plaintiff) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BRERETON J Thursday 1 September 2005 4670/05 Circuit Finance Pty Limited v Crown & Gleeson Securities Pty Limited JUDGMENT (ex tempore - revised 21 October 2005) 1 HIS HONOUR: On 25 August 2005 the plaintiff Circuit Finance Pty Ltd filed a summons and a notice of motion, pursuant to leave granted by McDougall J, time for service of which summons and motion was abridged to 5 p.m. that day. The summons claims a declaration that Circuit Finance has an estate or interest in certain land and an order extending caveat AB566324 in respect of that land. The notice of motion claims an order that the caveat be extended up to and including the return of the summons, and "such further or other order as the court deems fit." 2 The summons and motion first came before me on Tuesday 30 August 2005 in the Duty Judge list, upon which date they were adjourned to today, to permit consideration of the effect of the recent decision of Campbell J in Hanson Construction Materials Pty Ltd v. Vimwise Civil Engineering Pty Limited [2005] NSWSC 880. 3 Circuit Finance lodged the caveat, in respect of the land comprised in folio 20/W/12958 at Erowal Bay Shoalhaven, on or about 22 June 2005. The registered proprietors of the land are Jason David Campbell and Jody-Lee Campbell as joint tenants. The certificate of title records that the land is subject to a mortgage to First Mortgage Company Home Loans Pty Ltd and a prior caveat by the defendant, Crown & Gleeson Securities Pty Ltd, A902448, as well as the plaintiff's caveat. 4 On 20 July 2005 Leonard Deane Lawyers, who act for Circuit Finance, sent a facsimile letter to Crown & Gleeson (apparently in response to a facsimile from Crown & Gleeson), asserting that Circuit Finance had a valid caveatable interest. A further facsimile letter was forwarded to Crown & Gleeson on 14 August 2005, maintaining the same assertion and enclosing a copy of a lease agreement and guarantee said to support it. On or about 18 August 2005, Leonard Deane received a lapsing notice, issued at the request of Crown & Gleeson, that mortgage AB540591 or possibly AB240591, each number being used in the lapsing notice, had been lodged for registration and that a recording would be made in the register of the lapsing of the caveat as regards that dealing unless within 21 days an order was obtained from the court and lodged with the Registrar General. That 21 day period will expire on 8 September 2005. 5 Since the proceedings were instituted, the defendants have been served. On 29 August 2005 Crown & Gleeson sent a facsimile to Leonard Deane, enclosing a copy facsimile sent to the Land Titles Office and confirming that they would not be attending the hearing of the motion then listed for 30 August 2005 at 9.30. The accompanying facsimile to the Land Titles Office was captioned "Withdrawal of application of lapsing caveat number AB566324," and stated: We, Crown & Gleeson Securities, the lodging party, hereby formally withdraw our Application of Lapsing Caveat numbered AB566324 as regards to folio 20/W/12958. Please remove any recording made in the Register relating to this matter. 6 As I have had occasion to observe more than once this week, in the light of the mandatory terms of the Real Property Act 1900, s 74R(5), if evidence of service of the lapsing notice has been lodged with the Registrar-General, then I do not see that there is scope for a lapsing notice to be withdrawn: to the contrary, the Registrar General is bound to make a recording in the register to the effect that the caveat has lapsed to the extent that it would prohibit the recording of the dealing in question. 7 Real Property Act 1900, s 74K(1) authorises an application by a caveator to be brought when served with a notice prepared under s 74I(1), which is what has happened here. Section 74K(2) provides that, on the hearing of such application, the court may "if satisfied that the caveator's claim has, or may have, substance" make an order extending the operation of the caveat for such period as is specified in the order or until further order of the court, but "if it is not so satisfied must dismiss the application." 8 Accordingly, even if there were affirmative consent to the order sought on the part of Crown & Gleeson, it would still be necessary that I be satisfied that the caveator's claim has, or may have, substance. And the evidence falls short of proving affirmative consent on the part of Crown & Gleeson: rather, it shows merely that Crown & Gleeson does not propose to attend the hearing and has purported, however ineffectively, to withdraw their application for lapsing. 9 It is in those circumstances that Mr Redmond, who appears for Circuit Finance, pressed for an order extending the operation of the caveat. 10 The caveat claims an estate or interest described as "an equitable interest" by virtue of "lease agreement" dated 2 June 2004 between Circuit Finance, Jason Campbell and Jody-Lee Campbell, and by virtue of: The charging clause in clause 17 of the lease agreement and the charging clause in guarantee of lessee's obligation. 11 The lease agreement, which is between Circuit Finance as lessor and Jason Campbell as lessee, of a Mitsubishi Pajero wagon and accessories, contains, amongst its terms, cl 17 which provides that: As security for the due and punctual payment of the rent and/or the moneys owing and the due and punctual performance and observance of the terms of the lease the Lessee as beneficial owner hereby charges in favour of the Lessor all of his rights, title and interest in and to the charged property and all property here after to be held or acquired by the Lessee in addition to the charged property and consents to a Caveat or other registrable instrument being lodged to register such charge. 12 That part of the lease agreement schedule which provides for identification of the charged property is left blank, so the operation of clause 17 is limited, therefore, to the words: All property hereafter to be held or acquired by the lessee in addition to the charged property. 13 Accompanying the lease is a guarantee of lessee's obligations signed by Jody-Lee Campbell, which contains a provision that, as security for the performance of the terms of the guarantee by the guarantor, she charges in favour of Circuit Finance all of her interest in any freehold land in Australia and agrees that: …the Lessor shall have in respect of such land those powers given to a mortgagee by the Property Law Act 1958 (Victoria) where the mortgage is by deed. 14 As the land was, as at 15 August 2005 and presumably also on 22 June 2005 when the caveat was lodged, held by Jason Campbell and Jody-Lee Campbell as tenants in common, it falls within the definition of charged property (so far as Jason Campbell is concerned), within the terms of clause 17 to which I have referred, and (so far as Jody-Lee Campbell is concerned) it is freehold land in Australia the subject of the charge in the guarantee given by her. In those circumstances, it is plain enough that the effect of the documentation is to give Circuit Finance an interest by way of charge or encumbrance securing the obligations of Mr Campbell as lessee and Ms Campbell as guarantor under the lease and guarantee. Such an interest is manifestly capable of supporting a caveat. 15 However, the caveat, as I have said, describes the nature of the interest claimed merely as "an equitable interest." In Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Limited [2005] NSWSC 880, Campbell J considered caveats in substantially the same form, each of which claimed merely "an equitable interest", said to arise by virtue, in that case, of a document entitled "Application for Commercial Mortgage dated 14 December 2004" between the registered proprietor and the caveator and, in the case of one caveat, relying on the additional facts "Pursuant to the provisions of the guarantee and the indemnity of the application for commercial credit." 16 Campbell J held that a claim to be entitled to an "equitable interest" was insufficient to specify the interest claimed by the caveator. His Honour pointed out that such a claim "... could relate to a multiplicity of types of interest, from an equitable easement, to the benefit of an option to purchase, to a right to have an agreement for lease specifically performed, to the benefit of a restrictive covenant under a common building scheme. As well, it could relate to an equitable mortgage or charge." Whilst acknowledging that the estate or interest in land claimed did not need to be in precise legal language, His Honour concluded that the reader of those caveats could not work anything out about the nature of the interest claimed. The caveats could not be saved by reference to Real Property Act 1900, s74L, because what was involved was not merely a failure to comply strictly with the requirements of the Part and any regulations made for the purposes of the Part with respect to the form of the caveat, but a substantial failure to disclose the nature of the caveatable interest claimed. 17 In the short time available I have given some further consideration to these issues in the light of the caveat before me. Section 74F(1) authorises the lodgement of a caveat prohibiting the recording of any dealing affecting the estate or interest to which the caveator claims to be entitled. Section 74F(2), in respect of caveats by a registered proprietor, is in similar form. Section 74F(5) requires that such a caveat (a) be in the approved form; and (b) specify the prescribed particulars. 18 Those prescribed particulars are to be found in Real Property Regulation 2003 which provides, by clause 7, that a caveat must specify the particulars set out in Schedule 3 in relation to the estate or interest to which a caveator claims to be entitled. Schedule 3 specifies those particulars as follows (emphasis added): 1 Particulars of the nature of the estate or interest in land claimed by the caveator. 2 The facts on which the claim is founded, including (if appropriate) a statement as to the manner in which the estate or interest claimed is derived from the registered proprietor of the estate or interest or the primary or possessory applicant against which the caveat is to operate. 3 If the caveator's claim is based (wholly or in part) on the terms of a written agreement or other instrument, particulars of the nature and date of that agreement or instrument and the parties to it. 4 If the caveator claims as mortgagee, chargee or covenant chargee, a statement of the amount (if readily ascertainable) of the debt or other sum of money charged on the land (or, if the amount is not readily ascertainable, the nature of the debt, annuity, rent-charge or other charge secured on the land). … 10 It is not necessary to specify: (a) whether the estate or interest claimed is legal or equitable, or (b) the quantum of the estate or interest claimed (except as provided in paragraphs 4 and 5), or (c) how the estate or interest claimed ranks in priority with other estates and interests in the land. 19 Section 74H(1)(b) provides that a caveat does not prohibit the recording of dealings, etc., except to the extent that the recording of such a dealing, etc. "would affect the estate, interest or right claimed in the caveat." 20 Section 74K(2) requires that the court be satisfied that the caveator's claim has, or may have, substance before making an order. 21 These provisions, taken together, make clear that the characterisation and description of the nature of the estate, interest or right claimed by a caveator is more than a mere formal requirement of the provisions of the Act relating to caveats, but goes to the heart and substance of the operation of those provisions. Without the estate interest or right claimed being described, neither the Registrar General nor a person reading the caveat can know, for purposes of s 74H(1)(b), whether a dealing would affect the estate claimed. Nor can the court know, for purposes of s 74K(2), whether the caveator's claim has, or may have, substance. 22 In Multi-Span Constructions No 1 Pty Limited v 14 Portland Street Pty Limited [2002] ANZ ConvR 85, Barrett J said that "[a] caveat is not an ambulatory or flexible means of maintaining a blocking position in aid of whatever interest, if any, the caveator may have from time to time." His Honour thought that it was central to s 74F that there was a notion of a party lodging a caveat asserting an entitlement to a particular estate or interest, with the caveat prohibiting the recording of any dealing affecting that estate or interest. 23 In Depsun Pty Limited v Tahore Pty Limited (1990) ANZConvR 334, McLelland J, as he then was, held that s 74L did not authorise orders amending the provision of a caveat defining the interest claimed, though it may authorise amendment of the prohibitions contained in a caveat. 24 In Jones v Baker [2002] NSWSC 89, Young CJ in Eq said: Although s 74L of the Act now commands the Court "to disregard any failure of the caveator to comply strictly" with the requirements of the Act and regulation as to form of a caveat, there is a point after which the departure is so far removed that the Court cannot disregard the non-compliance. 25 His Honour thought that the purpose of s 74L was to overcome the effect of the cases cited and applied in Vandyke v Vandyke (1976) 12 ALR 621, that even small technical defects would operate to make a caveat ineffective, so that despite the breadth of its language, s 74L was aimed at curing that mischief and not to compelling the court to treat as valid caveats which completely disregard the provisions as to form contained in the Act and Regulation. 26 In Hanson v Vimwise, Campbell J thought that s 74L did not extend to allowing an expression of enormous generality such as "an equitable interest" to be treated as sufficient to enable some more precise interest which might be encompassed within it to be substituted when construing the caveat. 27 Those authorities, coupled with what I have said about the significance of the role of the description of the estate, interest or right claimed in the operation of Part 7A of the Real Property Act 1900, compel the conclusion that an inadequately described claim cannot sustain a caveat. 28 The insufficiency of a description such as "an equitable interest" is further illustrated by the sub-clause of the Regulation which provides that it is not necessary to state whether an interest is legal or equitable. It would follow, then, that if a caveat claiming "an equitable interest" were sufficient, then so would be one which merely claimed "an interest". But that does not at all describe the nature of the estate or interest claimed. The nature does not mean whether it is legal or equitable, but whether it is an interest as beneficial owner, joint tenant, tenant in common, lessee, chargee, mortgagee or the like. 29 I have given anxious consideration to whether the reference in the caveat, in the statement of additional facts, to the "charging clause", can save the caveat here. However, "charging clause" is capable of more than one meaning. It is true that it might be a clause imposing a charge in the nature of an encumbrance, but it might also be a clause which authorises certain charges or costs or fees to be imposed. A clause in a will, authorising a solicitor executor to charge costs, is often described as a charging clause. The reference to a "charging clause" does not enable "the nature" of the claimed estate to be ascertained. 30 Accordingly, in my opinion, the caveat does not sufficiently describe the nature of the estate or interest claimed, and that is not merely a failure to comply strictly with the requirements of the Act and Regulation relating to the form of caveats, but a substantial failure to comply with those requirements in an essential way, because it makes the Part unworkable in respect of that caveat. 31 In those circumstances, I cannot be satisfied that the caveator's claim has, or may have, substance, and I am bound by s 74K(2) to dismiss the application for an order extending the operation of the caveat. 32 However, the notice of motion includes a claim for such further or other order as the court may see fit. It follows from my conclusion that the relevant provisions of the guarantee and the lease are sufficient to give Circuit Finance an equitable (and caveatable) interest as chargee that Circuit Finance does, in fact, have a caveatable interest, though not one which it has at this stage effectively claimed. As has already been noted the caveat will not expire until 8 September 2005. Mr Redmond has indicated that, within the scope of par 6 of the notice of motion, he would seek leave, if it be required, pursuant to s 74O, to lodge a further caveat. Although express notice of that claim has not been given to Crown & Gleeson, the attitude evinced in the correspondence of 29 August 2005, to which I have referred, indicates that Crown & Gleeson has been prepared to abandon pursuit of the lapsing of the existing caveat. On that basis, Crown & Gleeson could not reasonably claim to be prejudiced by not having notice of an application for leave to lodge a further caveat. In any event, nothing would prevent Crown & Gleeson from serving a lapsing notice in respect of any such further caveat if so advised. 33 Accordingly, I make the following orders: (1) Order, pursuant to Real Property Act , s 74O, that the plaintiff have leave to lodge a further caveat in respect of the land comprised in register folio 2/W/12958, claiming an interest as chargee pursuant to lease agreement between Jason David Campbell and the plaintiff dated 2 June 2004 and Guarantee of Lessee's Obligations between Jody-Lee Campbell and the plaintiff of the same date. (2) Order that the notice of motion be otherwise dismissed. (3) Adjourn the hearing of the summons to 29 September 2005 at 9.30 a.m. before the Registrar. (4) No order as to the costs of the notice of motion, to the intent that each party bear its own costs. (5) Direct that the Registrar settle and sign a minute of this order 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.