New South Wales Supreme Court CITATION : McGrath v McGrath [2006] NSWSC 736 HEARING DATE(S) : 20 July 2006 JUDGMENT DATE : 20 July 2006 JURISDICTION : Common Law JUDGMENT OF : Campbell J EX TEMPORE JUDGMENT DATE : 07/20/2006 DECISION : Caveat set aside CATCHWORDS : CONVEYANCING - LAND TITLES UNDER THE TORRENS SYSTEM - caveats against dealings - order extending caveat made ex parte - whether to be set aside Evidence Act 1995 LEGISLATION CITED : Real Property Act 1900 Uniform Civil Procedure Rules Malouf v O'Donohoe [2001] NSWSC 335 Milstern Retirement Services Pty Ltd v The Owners Strata Plan No. 22521 [2006] NSWSC 301 CASES CITED : Padkohe Pty Ltd v Fletcher [2006] NSWSC 20 Pyoja Pty Ltd v 284 Bronte Road Developments Pty Ltd [2003] NSWSC 818 Telsa Nominees v Bingi Pty Ltd [2005] NSWSC 1323 Watts v Brooks [2001] NSWSC 423 Paul William McGrath - Plaintiff PARTIES : David William McGrath - First Defendant Joanna Tracy McGrath - Second Defendant FILE NUMBER(S) : SC 14041/05 SOLICITORS : Appeared in person - Plaintiff Burrell Solicitors - Defendants IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION CAMPBELL J THURSDAY 20 JULY 2006 14041/05 PAUL WILLIAM McGRATH v DAVID WILLIAM McGRATH & ANOR JUDGMENT – Ex Tempore 1 HIS HONOUR: This is the hearing of an amended Notice of Motion brought by the proprietors of the land in Lot 26 Deposited Plan 30041, which is located at 3 Bounty Avenue Kirrawee. Those registered proprietors are David and Joanna McGrath. 2 David's father, Mr Paul McGrath, lodged a caveat against the title to that land which became registered as caveat number AB665749Y. The caveat is one which is written out in Mr Paul McGrath's own handwriting. It claims the following estate or interest in the land: "All monies are still intrinsically held in the equity/property; and owned by my son David William McGrath. I.e the transfer of my Cronulla equity to 3 Bounty Avenue Kirrawee NSW 2232." 3 In the place on the caveat form where the facts which give rise to the claimed interest are to be stated, Mr Paul McGrath wrote: "The Cronulla equity, referred to above; is 2/4 The Esplanade Cronulla New South Wales 2230, and which was sold at auction on Saturday 30 November 1996 (Family Court of Australia DG2173/1993.) My son David McGrath was the owner of the Cronulla unit at the time of auction on 30/11/1996." 4 The lodgement of that caveat was notified to the defendants on 4 August 2005. On 5 August 2005 they caused an application to be lodged with the Land and Property Information Division of the Department of Lands for the caveat to lapse. 5 On 5 September 2005 the plaintiff appeared in person before the duty judge in the Common Law Division of this court. He began an action by filing a summons, in which the only order sought was an extension of the caveat. There was no appearance for the defendants on that day. This is hardly surprising, as the proceedings were only begun on 5 September 2005. 6 The common law duty judge that day made an order which said: "I grant the order extending the operation of the caveat AB665749 over the property known as 3 Bounty Avenue Kirrawee New South Wales 26/30041." 7 Because the application was ex-parte, there were no reasons for judgment. It is therefore not possible to know what it was which moved the common law duty judge that day to depart from the very clear practice of the court, and the requirements of section 74K of the Real Property Act 1900, that a caveat not be extended on an ex parte application, unless there are most unusual circumstances requiring its extension. That practice has been stated repeatedly: Malouf v O'Donohoe [2001] NSWSC 335; Watts v Brooks [2001] NSWSC 423; Pyoja Pty Ltd v 284 Bronte Road Developments Pty Ltd [2003] NSWSC 818; Telsa Nominees v Bingi Pty Ltd [2005] NSWSC 1323; Padkohe Pty Ltd v Fletcher [2006] NSWSC 20. 8 Because the order was one made without reasons, it is also not known what it was which moved the common law duty judge that day to make an order extending the caveat without any time limit on the period of extension, and without there being any proceedings on foot which tested the validity of the estate or interest claimed in the caveat. Both of those requirements usually apply to an application for extension of caveat, though not invariably so: Milstern Retirement Services Pty Ltd v The Owners Strata Plan No. 22521 [2006] NSWSC 301 at [19]-[20], [41]-[44]. 9 Because the order is one which was made in the absence of the party, it is open to a person affected by the order to seek to have it set aside: Uniform Civil Procedure Rules 36.16. 10 The mere fact that the person has not been heard is not decisive, as the Court sometimes needs to act urgently and on an ex parte basis. 11 The departures from the usual practice concerning extensions of caveat, which I have already identified, provide a reason, though again not a decisive one, in favour of setting aside the orders. 12 Ultimately, the question of whether the orders ought be set aside will depend upon whether there is any substance in the interest claimed in the caveat. In broad terms, the interest which is claimed by the caveat is one which asserts that the former ownership by Mr David McGrath of the unit at the Esplanade in Cronulla gives rise to an interest of Mr Paul McGrath in the Kirrawee property. Mr Paul McGrath has no registered interest in the property at Bounty Avenue Kirrawee, so any such interest must be an equitable interest, if it exists at all. 13 The property at the Esplanade is shown, by transfers in evidence before me, to have been acquired on 26 October 1987 by Mr Paul McGrath and his daughter Susan, as tenants in common in the proportions nine to one. 14 On 1 September 1988 Mr Paul McGrath transferred his nine tenths interest in the property to Susan. 15 On 29 May 1990, under a document which has become registered, Susan purported to transfer the property to David for $55,000. 16 On 27 August 1990, David executed a mortgage to his father. It recited an acknowledgment of a debt of $155,000. There were some unusual provisions in the mortgage, whereby David would not have exclusive use and occupancy of the unit until he had paid the $155,000. There was provision whereby if the $155,000 was not paid by 31 December 1990, then Mr McGrath Senior: "shall have the sole arbitrary discretionary power to determine the higher purchase mortgage monies to be paid by David; ...Before any exclusive occupancy is given" for the unit. 17 Around that time, the first marriage of David was coming to an end. A decree nisi of that marriage was pronounced on 23 November 1990. That decree nisi was entered on 24 December 1990. Pursuant to the property arrangements connected with that divorce, David's first wife purchased his interest in the former matrimonial home, at 55 Lansdowne Parade Oatley, and David received a sum in the order of $105,000. 18 On 15 March 1991, David purchased another property, a home unit at 7/28 Nicholson Parade Cronulla, for himself. He paid $145,000 for it, using part of the proceeds of sale of the Oatley property, and borrowing the balance of about $130,000 odd from the National Australia Bank. 19 David married his present wife in July of 1994. In April of 1995 the mortgage to the National Australia Bank over the Nicholson Parade unit was discharged. In May of 1995 David sold the property at Nicholson Parade for $175,000. He had net proceeds of sale after payment of expenses of a little over $170,000. 20 David and his wife purchased the house at 3 Bounty Avenue Kirrawee in May of 1995, for $250,000. That purchase price was funded from the proceeds of sale of the Nicholson Parade property, and a further $110,000 which was borrowed from Perpetual Trustees Limited. 21 Mr Paul McGrath was married, in 1990, to a lady other than David's mother, and they had had a child. That marriage came to an end, however. On 7 June 1996 the Family Court of Australia made orders in a property settlement connected with that divorce. Those orders were made in proceedings DG 2173/1993, the proceedings that the caveat refers to. One of those orders was one which set aside the transfer of the unit at the Esplanade from Mr Paul McGrath to Susan alone, the transfer from Susan to David, and the mortgage by David to Paul. The property was ordered to be sold, with the proceeds being paid, as to nine tenths, to the wife and the remaining one-tenth to Susan. 22 Pursuant to those orders, the property was indeed sold, and, one would infer, the sale proceeds distributed in accordance with the order. 23 It is possible for an equitable interest in property to arise if part of the purchase price is provided by someone other than the people who are the legal owners of the property. It is that type of equitable interest which I apprehend Mr McGrath was claiming in his caveat. 24 If the mortgage by David to Paul of the unit was taken at face value, Paul would have an interest as mortgagee in that property, and also in any proceeds of sale of that property. However, at the time of sale of the Cronulla unit the mortgage had been set aside. Hence it could provide no basis for Paul to have any interest in the Cronulla property or its proceeds of sale. 25 In any event, the sequence of events which I have outlined demonstrates that no part of the proceeds of sale of the Cronulla unit found their way into David's hands, nor can they be traced in any other way into the Kirrawee property. 26 One of the submissions which Mr Paul McGrath made to me today was, in effect, that David used the proceeds which he eventually received from the sale of his first matrimonial home in Oatley to pay for the Nicholson Parade Cronulla unit, rather than to repay the debt which was owing, at least on the face of the documents, in connection with the Cronulla transfer. It is not necessary for the purposes of this judgment to decide whether that contention is correct. I say that because, even if it were correct, it would not result in any equitable interest in the Kirrawee property arising. 27 In deciding whether this caveat ought remain on the title, the task of the Court is not to make a final decision about the rights of the parties. This caveat fulfils a function similar to an interlocutory injunction, of preserving the status quo while there is an opportunity to investigate whether the claim made by the caveat is a justified claim. Such caveats are extended in accordance with very similar principles to those which govern the award of interlocutory injunctions, namely, whether a serious question to be tried has been demonstrated concerning the existence of the interest claimed in the caveat, and, if a serious question to be tried of that kind has been shown, where the balance of convenience lies. 28 In the present case, the plaintiff has not demonstrated that there is a serious question to be tried concerning whether he has any equitable interest in the Kirrawee property. 29 For those reasons, it is appropriate to vacate the order made on 5 September 2005 extending the caveat, and to order that the caveat be withdrawn. 30 I make orders two, three and four in the Amended Notices of Motion, a copy of which I initial and date today's date, inserting in order four where the blank occurs, the figure seven. I note that paragraph five of that Notice of Motion is not pressed. * * * * * * * * * * 31 The applicant seeks costs of the Amended Notice of Motion. Ordinarily costs follow the event. The case today has followed an unusual course. There had been an attempt at mediation which failed. In the course of the hearing today I gave the parties an adjournment to see whether an accommodation could be arrived at, and no accommodation could be arrived at. 32 Mr Paul McGrath submits that because some without prejudice negotiations occurred yesterday, there ought be no order as to costs. He submits that in any event, he would be unable to pay them. I received some evidence of those settlement negotiations under section 131(2)(h) Evidence Act 1995, for the purpose of the costs application. 33 That evidence shows that there were settlement negotiations, which included a proposal put forward by the defendants that there be a verdict for the defendant, previous orders be vacated, the caveat be removed, and that there be no order as to costs. 34 There was also a proposal for a side agreement between the parties, under which a sum of money would be payable, and certain other events would occur. The plaintiff was unwilling to agree to there being a verdict for the defendant. He tells me, and I accept, that the reason he was unwilling to agree to that is that he thought, when he was going to get a sum of money under the side agreement, there should be a verdict for him. 35 This morning, the plaintiff came to Court and said to me that he was willing to agree to the order, if only he could make a statement. "The order" was, as I understood it, one of the proposals the defendants had made in settlement negotiations. He has, in substance, made that statement in the course of his evidence. 36 It seems to me that the settlement which was proposed was one with elements which were outside the orders which the Court could make, in some of the terms of the side agreement. 37 In all the circumstances, I do not think that the making of the various settlement offers is shown with sufficient clarity to result in a circumstance which takes the matter out of the ordinary principle that costs follow the event. I therefore order the plaintiff to pay the defendants' costs of the proceedings including the costs of the Amended Notice of Motion. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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