New South Wales Supreme Court CITATION : Mellish v Fetoza Pty Limited [2007] NSWSC 790 HEARING DATE(S) : 30 May; 1 June 2007 JURISDICTION : Equity Division Duty List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 1 June 2007 DECISION : Leave granted to lodge further, more limited, caveat CATCHWORDS : REAL PROPERTY – Torrens system – caveats against dealings – where caveat claims excessive interest – where tenant clearly has arguable caveatable interest of lesser extent – balance of convenience – where interest of tenant disclosed in contract for sale – where purchaser would be protected against notice LEGISLATION CITED : (NSW) Real Property Act 1900 ss 42, 74F, 74O (NSW) Real Property Regulation 2003 cl 7 CASES CITED : Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997 Ocean View Group Holdings v Balaz [2006] NSWSC 1469 PARTIES : Kaye Lorraine Mellish (plaintiff) Fetoza Pty Limited (defendant) FILE NUMBER(S) : SC 2940/07 COUNSEL : Mr M J Stevens (plaintiff) Mr M J Heath (defendant) SOLICITORS : R & M Legal (plaintiff) BHM Lawyers (defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST BRERETON J Friday, 1 June 2007 2940/07 Kaye Lorraine Mellish v Fetoza Pty Limited JUDGMENT (ex tempore) 1 HIS HONOUR: The plaintiff Kaye Lorraine Mellish, her husband Garry Mellish and her son-in-law Michael Mitchell, operate a large retail pet store in Nowra under the name "Parkview Pets", originally from premises at shop 1, 106 Kinghorne Street, Nowra, and now from premises which comprise a combination of that original shop and the adjoining shop 2. At one stage during 2004 to 2005, they also traded from an additional nearby shop, shop 4, but their occupancy of that shop came to an end in mid 2005. 2 The present occupancy of shops 1 and 2 arises under a lease by the defendant Fetoza Pty Limited to Ms Mellish of shops 1 and 2, for a term of five years commencing on 1 June 2002 and ending on 31 May 2007, with an option to renew for a further term of five years. That lease has evidently been stamped, but has never been registered. The option for renewal was exercisable between 1 December 2006 and 1 March 2007. The maximum period of the tenancy, including the option, was ten years. 3 On 14 December 2006, within the exercise period, Ms Mellish gave notice of exercise of the option to Fetoza, and it is evident that that notice was received. However, there was a dispute between the parties arising from the termination of the occupancy of shop 4, which was not the subject of the relevant lease, and the principal of Fetoza indicated that he would address the question of an option after "outstanding debts" – which seems to have been a reference to an amount of rent or occupation fee claimed in respect of shop 4 – were paid. In circumstances where the lease had not been registered, the option had apparently been exercised, but there appeared some reluctance to accept its exercise, Ms Mellish, on or about 23 February 2007, lodged a caveat in respect of the land comprised in folio 10/1203, which is the land of which the leased premises form part. 4 Schedule 1 to the caveat did not describe the nature of the estate or interest claimed, although it referred to an "unregistered, stamped lease", dated 1 June 2002, between Fetoza and Ms Mellish, and asserted that the lease was for a term of five years with an option of five years which had been exercised. The interest claimed by the caveat, whatever it is, is not on the face of the caveat limited to part of premises – namely shops 1 and 2 – but on the face of the caveat extends to the whole of the property in the folio. 5 Mr Heath, for the defendant, does not dispute that Ms Mellish has a caveatable interest in the land. On the other hand, it is plain that the caveat is excessive insofar as it claims an interest in the whole and not just part of the land, and is defective insofar as it does not describe the interest claimed. 6 As I explained in Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd [2005] NSWSC 997, the lodgement of a caveat prohibiting the recording of a dealing is authorised by (NSW) Real Property Act 1900, s 74F(1), in respect of "the estate or interest to which the [caveator] claims to be entitled"; see also s 74F(2). Section 74F(5) requires that a caveat be in the approved form and specify prescribed particulars; those particulars are prescribed by (NSW) Real Property Regulation 2003, cl 7, and include particulars of the estate or interest in land claimed by the caveator, as well as the facts on which the claim is founded and, if based on an instrument, particulars of the instrument. In Circuit Finance I said [at 21]: Those provisions, taken together, make it 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 the 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. 7 I acknowledged that in some circumstances the additional facts set out in the caveat may be capable of saving it, if it is possible to ascertain from them the nature of the estate claimed. Here, it is arguable that the reference to the instrument and the additional facts may be sufficient to make clear that the claim is as lessee, but that, on any view, cannot save the caveat in this case because of the manifestly excessive claim to an interest in the whole, as distinct from in a part, of the subject property. 8 In those circumstances, the ordinary solution is to grant leave to the caveator to lodge a further caveat claiming the interest to which the caveator is arguably entitled, omitting the excessive claim and properly particularising the claim. No question of prejudice which would indicate that that course was inappropriate appears in the present case. 9 However, for Fetoza, Mr Heath argues that the balance of convenience favours allowing the caveat to lapse, rather than continuing it or permitting the lodgement of a further caveat. It is to be remembered that on questions of balance of convenience the essential issue is the balance of injustice, namely, what prejudice would be suffered by the registered proprietor if the caveat is wrongly permitted to remain on the title on an interlocutory basis, against what prejudice would be suffered by the caveator if the caveat be wrongly allowed to lapse on an interlocutory basis. In this respect, it is usually a highly relevant consideration that the lapse of the caveat might derogate from the interest of the caveator in the land [Ocean View Group Holdings v Balaz [2006] NSWSC 1469, [11]]. 10 Fetoza has, by contract dated 22 February 2007, sold the land for a price of $1.05 million. Fetoza proposes to use the proceeds of sale to make a contribution to a superannuation fund before 30 June 2007 to take advantage of special benefits recently announced and available up until 30 June 2007 in respect of superannuation contributions. 11 Although the caveat was not registered until 23 February 2007, the day after the date of the contract, Fetoza was notified, by letter dated 16 February 2007, that a caveat was in the process of being lodged. It is true that the Contract for Sale discloses and is expressed to be subject to existing tenancies. In that respect, the existing tenancies to which it refers include, in respect of what is described as unit 1, a lease to Kaye Mellish, unregistered, for a term of five years commencing 1 June 2002 and ending 31 May 2007. However, it does not refer to any option, let alone that the option has been exercised. 12 More significantly, the effect of Real Property Act s 42(1)(d) is that, upon registration, and notwithstanding the existence in any other person of any interest in land which might otherwise have priority to that of the registered proprietor, the purchaser will hold the property free of any estate or interest other than those recorded in the register except, relevantly, a tenancy of which the registered proprietor had notice before becoming registered against which he was not protected, but provided only that the term for which the tenancy was created (including any additional term of an option to renew contained in it) would not exceed three years. The term of this tenancy is five years, and ten years when the option is included, and does not fall within the exception under s 42(1)(d). 13 Accordingly, it seems to me that there is a very great likelihood that, upon registration of a transfer to the proposed purchaser, the tenant's claim would be defeated and the purchaser would hold free of the lease. While, on the other hand, if the caveat is permitted to remain on title, the sale might well be delayed or even lost, I think it is clear that the balance of convenience favours protecting the tenant's interest and allowing a fresh caveat to be lodged. 14 Pursuant to Real Property Act, s 74O(2) I order that the plaintiff Kaye Lorraine Mellish have leave to lodge a further caveat in respect of the land contained in folio identifier 10/1203, notwithstanding that it claims the same estate, interest or right or purports to be based on the same facts as caveat AC951220, provided that the further caveat: (a) claims an interest only in part, namely, shops 1 and 2 of the property, and (b) the nature of the interest claimed is described as "lessee" 15 I direct that by 8 June 2007 the plaintiff file an amended summons specifying the relief that she claims on a final basis. I stand over the proceedings to 15 July 2007 at 9.30am before the Registrar for directions. I order that costs of the application be costs in the proceedings. [Counsel addressed on costs] 16 Although there is something to be said for the position of each of the parties on the question of costs, ultimately the proceedings were necessary because a lapsing notice was served in circumstances where the tenant had a clearly arguable caveatable interest, even if not properly described in the caveat. The tenant has substantially succeeded on the present application. On the other hand, she needed a number of indulgences from the Court in order to do so. It is because of the belated application and the need for those indulgences that I have proposed only an order that costs be costs in the proceeding, rather than the more usual order that they be the plaintiff's costs in the proceedings. I decline to vary the costs order I have already pronounced. 17 I direct that 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.