New South Wales Supreme Court CITATION : Integrated Lending Pty Ltd v Lion International Holdings Pty Ltd [2005] NSWSC 1268 HEARING DATE(S) : 29/11/05 JUDGMENT DATE : 29 November 2005 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq DECISION : Plaintiff's caveat extended until further order. CATCHWORDS : REAL PROPERTY [187]- Extension of second caveat- Plaintiff loaned money to defendant at high rate of interest- Loan secured by mortgage- Mortgagor granted mortgagee irrevocable power of attorney with respect to its rights and obligations under mortgage- Whether mortgagee as mortgagor's attorney could consent to lodgement of second caveat- Whether other reason why caveat should not be extended. LEGISLATION CITED : Real Property Act 1900, s 74 O Integrated Lending Pty Limited (P) PARTIES : Lion International Holdings Pty Limited (D) FILE NUMBER(S) : SC 6024/05 R D Marshall (P) COUNSEL : C Harris SC (D) Fiddes McKenzie Lawyers (P) SOLICITORS : Dominic Stamfords (D) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Tuesday 29 November 2005 6024/05 – INTEGRATED LENDING PTY LTD v LION INTERNATIONAL HOLDINGS PTY LTD JUDGMENT 1 HIS HONOUR: This is an application by a company, which describes its business as an originator of lending finance, for an order extending a caveat which it has placed on the defendant's title, number AB804128. 2 What appear to be the underlying facts at this stage are rather convoluted. The parties entered into a loan deed on 21 November 2003, whereby the defendant borrowed $200,000 at an interest rate in excess of 365 percent, reducible to only 240 percent for prompt payment. The principal was actually repaid on 16 February 2004. However, although at one stage the interest rate was capped at a mere 120 percent, the compound interest at 1 percent per day for some part of the period has given rise to a claim of about $800,000 on behalf of the plaintiff and it alleges that that claim for interest is secured under the loan deed. Just reading the loan deed, it would appear that that claim is probably correct. 3 The plaintiff lodged a caveat against the title, which was AB658411E. However, that caveat either lapsed or was withdrawn and that occurred because of discussions between the parties that the property over which the caveat was placed at Castle Hill was to be refinanced. It is obvious from the large amount of interest, that the plaintiff's loan was only ever intended to be temporary and to be replaced by permanent funding at a more usual commercial rate of interest. 4 The mortgage which is attached to the loan deed provided that the principal and interest was secured and cl 16.1 was a power of attorney clause, which reads: "16.1 The Mortgagor hereby appoints during the continuance of this Mortgage the Mortgagee or its nominee to be the Attorney of the Mortgagor in the name and on behalf of the Mortgagor or otherwise to do, perform, observe or make all acts, matters, things and payments which under all or any of the covenants and agreements contained or implied in this Mortgage ought to be done, performed, observed or made by the Mortgagor of which the Mortgagee is by this Mortgage or by statute authorised or empowered to do or which the Mortgagee as Attorney shall in its discretion think proper for the purpose of giving complete effect to this Mortgage and to the exercise and execution of the powers, rights, remedies and authorities contained or implied in this Mortgage and for the protection and perfection or attempted perfection of this Mortgage and this Power of Attorney being given for valuable consideration is irrevocable until discharge of this Mortgage has been duly executed." 5 The mortgage contained, in cl 10, the usual clause for further assurance. 6 It is not unusual for such a power of attorney clause to be contained in mortgages, and they are referred to, for instance, in the second Australian edition of Fisher and Lightwood on Mortgages, paras 1.34 and 3.48, though there are the limitations as set out in para 11.7. However, so far as my researches go, there has not been any relevant decision as to whether the mortgagee as attorney can, under s 74O of the Real Property Act 1900, consent on behalf of the mortgagor to the lodgement of a second caveat. 7 The power of attorney was duly registered as Book 4470 Number 10. After the discussions, the original caveat lapsed, but on 26 September 2005 a new caveat, the caveat the subject of these proceedings, was lodged. It was in the same form as the previous caveat, but contained the following: "Consent of the Registered Proprietor of the estate or interest affected by the caveat. I the Registered Proprietor pursuant to Power of Attorney registered number 10, book 644730 [sic] consent to this caveat." 8 Section 74O of the Real Property Act provides that if the first caveat lapses a further caveat has no effect unless either the court has made an order or the further caveat is endorsed with the consent of the registered proprietor. 9 Mr Marshall, who appears for the plaintiff, says that that consent under the power of attorney is insufficient to comply with 74O. Mr Harris SC for the defendant says that this is not so because giving such consent is not a matter that comes within cl 16 of the mortgage. 10 As I say, there have been no decisions on the extent of this sort of clause. However, its purpose, especially when read in conjunction with the clause for further assurance, cl 10, is to enable further assurance to protect and perfect the title of the equitable mortgagee. Although one does read down these powers of attorney in the way set out in para 11.7 of Fisher and Lightwood, it seems to me that the consent to a further caveat in the circumstances of this case does come within cl 16 of the mortgage, and, accordingly, the caveat must be considered a valid caveat, despite the terms of 74O of the Act. 11 Mr Harris' next point is that this application is made too late because it was brought before the court last Friday, returnable today, which is the last day before the caveat lapses. Certainly the court encourages these applications to be made as early as possible. Unfortunately, they usually are not, and I have had some things to say about that. The usual excuse, as here, is that there was correspondence between the solicitors. I do not think that I can completely deny relief because the application is made on the last day, but it is a matter I take into account when exercising my discretion. 12 The third matter put forward as to why the caveat should not be extended is that there has been an agreement between the parties that the security for any moneys owing to the plaintiff under the loan agreement has virtually been novated into an agreement by an associated company to provide security over one of its properties. 13 There is no doubt that on 26 October 2004 the plaintiff advised that following a meeting "last Thursday" it had been agreed that the company charge over the present defendant would go because St George Bank was refinancing the project; that if $1500 was paid to the Fidds McKenzie solicitors trust account, loan documentation would be prepared for execution so that there would be a security by way of a caveat over property in Windsor Road, Baulkham Hills. The $1500 was paid. There is no material as to when, but nothing happened for about eleven months. Why, it is not too clear from the evidence, but it is quite clear that no new charge and no new security over the Baulkham Hills property ever came into existence. 14 Mr Harris says that the defendant has done all that it possibly could do, it reached an agreement, it paid its $1500, and the reason why there has been no further charge is purely the plaintiff's fault because it never got around to preparing the new security. That is one possible scenario. The silence of what happened after 26 October makes it very difficult to work out exactly what did happen. However, it seems to me more likely than not, on the material I do have, that any novation agreement was conditional upon a fresh security coming into existence, which has never occurred. It seems to me that it is just almost impossible to assume that the plaintiff would give up a security and leave itself unsecured when the whole tone of the negotiations between the parties was that it was to be secured. 15 Accordingly, although there will be interesting questions of fact to be tried, in my view, the evidence at the moment is sufficient to show that the caveat may have substance and, accordingly, upon the plaintiff by its counsel giving to the court the usual undertaking as to damages, the caveat is extended until further order. 16 It would be very good for both parties if the case were brought on as soon as possible for final hearing. However, with two and a half weeks left of term and a two day hearing, probably this is unlikely to be able to be accommodated. However, I think I should give directions to enable the case to be prepared so that it can be heard at the earliest possible moment. 17 I will stand the matter over for short minutes to be brought in during the day. ********************* 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.