New South Wales Supreme Court CITATION : Witty & Ors v LKJD Managment Pty Ltd [2009] NSWSC 1380 HEARING DATE(S) : 24 & 27 November 2009 JUDGMENT DATE : 24 November 2009 JURISDICTION : Equity JUDGMENT OF : Slattery J at 1 ORDERS: DECISION : 1. The Summons be dismissed. 2. The first plaintiff pay the defendants' costs in the sum of $630.00. CATCHWORDS : REAL PROPERTY - torrens title - caveats against dealings - lapsing notices served - application for extension of caveats - caveats incurably defective - no description of estate or interest claimed - no clear interest created by underlying transactions - caveats not extended LEGISLATION CITED : Real Property Act 1900 (NSW) ss 74F 74K, 74L CATEGORY : Principal judgment Dolroy Pty Limited v Civilco Constructions Pty Limited [2007] NSWSC 1263 CASES CITED : Jones v Baker (2002) 10 BPR 19 Warden v Mortgage House (No 1) Pty Limited [2006] NSWSC 1462 First Plaintiff: Jeanette Beatrice Witty PARTIES : Second Plaintiff: Unique Office Group Pty Ltd Third Plaintiff: LKJD Holdings Pty Ltd Defendant: LKJD Management Pty Ltd (In Liquidation) - Paul Cook (Liquidator) FILE NUMBER(S) : SC 5441/09 COUNSEL : Plaintiffs: Mr Deitch (by leave of the Court) Defendant: Mr B Hemsworth (Solicitor) SOLICITORS : Plaintiffs: Mr Deitch (by leave of the Court) Defendant: Somerville & Co IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST SLATTERY J TUESDAY 24 NOVEMBER 2009 5441/09 JEANETTE BEATRICE WITTY; UNIQUE OFFICE GROUP PTY LTD & LKJD HOLDINGS PTY LTD V LKJD MANAGEMENT PTY LTD (IN LIQUIDATION) - PAUL COOK (LIQUIDATOR) JUDGMENT 1 HIS HONOUR: Introduction 2 Leonard Deitch and his relatives have owned a family home in Deepwater Road, Castle Cove for many years. Leonard Deitch is a director of LKJD Management Pty Limited (Management), the registered proprietor of the property. Management recently suffered financial difficulties and has been in liquidation since July 2009. The defendant, Management's liquidator, plans to sell the property. He cannot do that because the three plaintiffs have each placed a caveat on the title. Each plaintiff claims an interest in the property. The liquidator has issued lapsing notices for the plaintiffs' three caveats. In answer to those notices Leonard Deitch now requests the Court to extend the caveats. The liquidator opposes their extension. The issue for decision is whether or not the caveats should be extended. 3 In conformity with the Court's policy of reducing the risk of identity theft, the precise address of the property is not published in this judgment. If required the address may be ascertained from the Court's file. Management's Loan Agreements and the Caveats 4 Leonard Deitch is associated with each of the three plaintiffs. He is the former husband of the first plaintiff, Jeanette Beatrice Witty. His son David Deitch controls or is closely associated with the second plaintiff, Unique Office Group Pty Limited (Unique). Leonard Deitch is also associated with the third plaintiff, LKJD Holdings Pty Limited (Holdings). Before it went into liquidation, Leonard Deitch was in day to day control of Management. 5 In the 2008-2009 financial year Management found itself in financial difficulties. Leonard Deitch looked to other family members to assist in funding it through a liquidity crisis. Management's funding options were limited as it had previously mortgaged the property to Permanent Custodians Limited. Permanent is not a party to these proceedings. 6 As Management's financial difficulties deepened, Leonard Deitch arranged for Management to make three written loan agreements. The first was with Jeanette Witty. The second was with Unique. Leonard Deitch negotiated the second agreement with his son David. The third was with Holdings, although this agreement was made in 2007. Each of these agreements was in similar terms providing for each plaintiff to advance money to Management. The Agreements and the Caveats 7 The agreement with Jeanette Witty was made on 4 February 2009 and provided for an initial advance of $10,000 by Witty to Management. Jeanette Witty made further advances to Management on the same terms. Jeanette Witty's February agreement with Management provided: "1 Jeannette Witty hereby agrees to loan $10,000.00 to LKJD Management Pty Ltd for a period of not more than 3 months commencing 5 February 2009 at an interest rate of 10% per annum. 2 Jeannette Witty will pay direct to Bluestone Mortgages the amount of $10,000.00 in reduction of the Mortgage Loan Account Number 8009220 on 5 February 2009. 3 The loan is secured by an asset of the company which is the property known as 11 Deepwater Road Castle Cove NSW 2069 (Folio 151/23848, Lot 151 in Deposited Plan 23848). A copy of a title search dated 28 August 2008 is attached to this loan agreement. 4 LKJD Management Pty Ltd agrees that Jeannette Witty can lodge a Caveat on the asset provided as security for the loan." 8 Jeanette Witty lodged a caveat, AF5959221, in support of the security provided for in her February agreement. Schedule 1 to that caveat (the Witty caveat) provides: Schedule 1 Estate or interest claimed Nature of the estate or interest in the land/registered dealing Pursuant to loan agreement By virtue of the instrument referred to below Nature of the instrument Date Parties Secured loan agreement 2.11.08 Jeannette Witty and LKJD Management P/L " " 26.11.08 " " " " 4.2.09 " " By virtue of the facts stated below 9 Management's financial troubles continued. Leonard Deitch had Management make a loan agreement with Unique on 1 July 2008. Under this July 2008 agreement Unique advanced further funds to Management. The relevant terms of Unique's July agreement were: "1. Unique Office Group Pty Ltd agree to advance from the 1 July 2008 loan funds to LKJD Management Pty Ltd to assist with meeting mortgage interest payments to Bluestone Mortgages on or about the 23 of each month for 12 months. 2. The loan will be interest free providing the full amount loan is repaid within the 12 month period if the full principal amount is not paid within the 12 month timeframe interest will be charged at the rate of 10% per annum. 3. Unique Office Group Pty Ltd will pay by direct credit to the Bendigo Bank account of LKJD Management Pty Ltd BSB 633000 account No. 130046585 varying amounts as required. 4. The loan is secured by a caveat over the property known as 11 Deepwater Road Castle Cove NSW 2069 (Folio 151/23848, Lot 151 in Deposited Plan 23848). " 10 The July loan agreement provided for a caveat over the property. Unique lodged caveat AE595235T over the property. Schedule 1 of that caveat (the Unique caveat) provides: Schedule 1 Estate or interest claimed Nature of the estate or interest in the land/registered dealing Pursuant to loan agreement By virtue of the instrument referred to below Nature of the instrument Date Parties Secured loan 1.07.08 Unique Office Group P/L and LKJD Management P/L agreement By virtue of the facts stated below 11 Holdings lodged the third caveat in question in these proceedings, caveat AF595455 (the Holdings caveat). The Holdings caveat actually relates to an agreement made two years before Management's current financial problems. On 24 April 2007 Holdings provided financial accommodation to Management pursuant to a loan agreement. The relevant terms of Holdings' April 2007 loan agreement are: "1. LKJD HOLDINGS PTY LIMITED hereby agrees to loan $273,333.33 to LKJD Management Pty Limited for a period of 3 years commencing 24 April 2007 at an interest rate of 10% per annum with principal and interest payable 3 years in arrears. 2. LKJD HOLDINGS PTY LIMITED will pay direct from the settlement of the estate of Lillian May Deitch to settle the purchase of the property at 11 Deepwater Road Castle Cove NSW Folio 151 /23848 from Ross Deitch on 24 April 2007. 2. The loan is secured by a caveat over the property known as 11 Deepwater Road Castle Cove NSW 2069 ( Folio 151/23848, Lot 151 in Deposited Plan 23848)." 12 Schedule 1 of the Holdings caveat provides: Schedule 1 Estate or interest claimed Nature of the estate or interest in the land/registered dealing Pursuant to loan agreement By virtue of the instrument referred to below Nature of the instrument Date Parties Secured loan 24.04.07 LKJD Holdings P/L and LKJD Management P/L agreement By virtue of the facts stated below 13 The short issue in this hearing is whether or not I should make orders 1, 2 and 3 in the summons, which seek to extend the operation of the three caveats. Leonard Deitch seeks these and other machinery orders on behalf of Unique, Holdings and Jeanette Witty. The liquidator opposes any extension of the caveats today. Leonard Deitch submits that relief should be granted urgently. 14 To complicate matters both Unique and Holdings are now deregistered companies. The summons also seeks orders for the restoration of Unique and Holdings to the register of companies. Consideration of the issues created by deregistration of Unique and Holdings can be deferred. The claim fails for other reasons. The Caveats are Defective 15 Mr Deitch came to the duty list this morning at 10am and sought to file the summons. He explained at that time that he thought that some of the caveats expired either today or tomorrow. That is why the matter was said to be urgent. I indicated to Mr Deitch that there could be difficulties in applying to extend caveats under s 74K Real Property Act 1900 (NSW) so close to their expiry, unless some prior notice had been given to the party who had filed the corresponding lapsing notices: s 74K(3). I gave Mr Deitch leave to file the summons and the following affidavits: (a) three affidavits of Leonard Deitch sworn on 23 November 2009; (b) two affidavits of David Michael Deitch sworn 23 November 2009; and (c) one affidavit of Jeanette Beatrice Witty sworn 23 November 2009. 16 I then requested that Mr Deitch attempt to contact a representative of the liquidator. I allowed him a four hour adjournment to make this contact. The objective was to bring the matter back at 2pm today for hearing. This was important in case one of the caveats did expire today. In response to being contacted by Mr Deitch, Mr Hemsworth of Somerfield & Co appeared for the liquidator. A hearing has now taken place and judgment is being delivered shortly after 3pm the same day. 17 At first I had misgivings about allowing Mr Deitch to appear on behalf of the corporate plaintiffs and Ms Witty. Because of the urgency of the situation I permitted him at least to present a case in their perceived interests. Affidavits had been filed by Mr David Deitch and Ms Witty which expressly assented to Mr Leonard Deitch representing them today. There was insufficient time for Mr Deitch to attempt to find and consult with a solicitor before the caveats expired. This might have resulted in prejudice to his and their interests. This case is yet another illustration of the need to approach the Court well before the expiry of the 21 day period after service of a lapsing notice on a caveator. 18 There are various problems with these three caveats. For the liquidator Mr Hemsworth submits that the Unique caveat has already lapsed. He also says that the Holdings caveat was issued after Holdings was deregistered on 23 February this year. He says that Mr Leonard Deitch had no authority on behalf of Holdings to issue the Holdings caveat and that the Holdings caveat was defective for that reason. No such arguments can be put in respect of the Witty caveat. There is therefore at least one caveat over the property that must be the subject of determination. Mr Hemsworth confirmed that the Witty caveat expires tomorrow. 19 All the caveats may be dealt with on a final basis for reasons that do not require me to hear argument from Mr Deitch as to whether the Unique caveat has lapsed or the Holdings caveat was invalid because of Holdings' deregistration. 20 The reason for this is that, on their face, all the caveats are, incurably defective. Mr Deitch has stated candidly to the Court that no lawyer was involved in drawing the caveats. Without being critical of the approach Mr Deitch took to crafting the caveats himself informally, they do unfortunately suffer the consequences of lack of qualified legal attention. 21 In the first place each of the Witty, Unique and Holdings caveats fails to describe any recognised estate or interest in the land. It is not clear whether the estate or interest is claimed because of a legal or equitable charge over the land or by reason of some other legal or equitable interest. 22 This obscurity is not alleviated by any part of Schedule 1. There are no facts stated to assist the reader of Schedule 1 to understand what kind of estate or interest is claimed. Proper understanding of the claim is not assisted by the description in Schedule 1, of the "instrument" which is said to be the source of the estate or interest claimed. The relevant "instrument" is described in each of the three caveats as a "secured loan agreement" between identified parties. The description does not detail the nature of the security in question. There is nothing in any of the caveats that indicates that the estate claimed is legal or equitable or that a charge or some other kind of security is involved. 23 These problems with the form of the caveats reflect deeper problems in the form of the underlying loan agreements. It may be faintly arguable that when the Witty loan agreement declares "the loan is secured by an asset of the company" and then identifies the property, that a charge over the property is perhaps intended. But even that is not clear enough to reveal what interest the caveat is really claiming. 24 The differences between the three loan agreements makes the common description of the instrument in the caveats "secured loan agreement" an unreliable basis to infer that a recognised form of security, such as a charge, was contemplated by the draftsperson of the Witty caveat. The Unique loan agreement does not even identify any particular property as being a source of any security. Rather the Unique loan agreement says "the loan is secured by a caveat over the property". These are not themselves words of charge. A caveat is not a security. It may give notice of a security under the Torrens system. It is difficult to see how the loan can be secured in any legal sense "by the caveat" itself. The Holdings loan agreement is no better. 25 Not only are the caveats defective in form but the loan agreements themselves do not clearly create any particular security interest. This is not a case where a caveator could refer me to the loan agreements to convincingly resolve some ambiguity in the caveats. Section 74L Real Property Act 1900 requires the Court to disregard a caveator's failure to comply strictly with Part 7A of the Act including the requirements as to the form of caveats: s 74F(5). There is a point beyond which the failure to comply by describing a caveatable interest is so great that the Court cannot disregard it: Jones v Baker (2002) 10 BPR 19, 115 at [31]–[34]. For example a caveat that describes an estate or interest claimed as an "equitable interest" is manifestly defective and is not susceptible to being cured under s 74L: Warden v Mortgage House (No 1) Pty Limited [2006] NSWSC 1462. These caveats are so defective they cannot be cured. 26 Furthermore a s 74 order will not be made when the caveator was held to have no interest in any case: Dolroy Pty Limited v Civilco Constructions Pty Limited [2007] NSWSC 1263 per Barrett J. It has not been established here that any plaintiff has a caveatable interest in the property. Conclusion 27 For these reasons there is no point in extending the operation of any of the caveats. They are incurably defective in form. I decline therefore to make the orders sought. The result will be that the Witty, Unique and Holdings caveats, if they are not otherwise invalid or have not otherwise lapsed, will expire at the latest tomorrow. 28 Now that I have declined to grant the relief sought in orders 1, 2 and 3 Mr Deitch does not press the balance of the relief in the summons. In those circumstances the summons will be dismissed. Costs Issues 29 Mr Hemsworth seeks a costs order against Ms Witty. I will not make any costs orders against Ms Witty without her appearing in person or by some other legal representative. Because of the imminent expiry of the caveats the Court acted this afternoon to deal with the question whether or not to grant the principal relief sought. I did so hearing Mr Deitch in Ms Witty's interests because of the urgency of the matter and because Ms Witty's affidavit of 23 November 2009 authorises Mr Deitch to represent her in these proceedings. 30 When it comes to costs there is no similar urgency. Costs is an issue that Ms Witty will need to deal with either herself or through a legal representative. For this reason I will adjourn this matter until Friday 27 November at 10am in my duty list. 31 I direct the defendant's solicitor, Mr Hemsworth, to notify Ms Witty of the adjourned date and of the fact that the matter will be mentioned on that day with a view to setting a date for any argument that is to take place about the making of costs orders against her. ********** IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY LIST SLATTERY J FRIDAY 27 NOVEMBER 2009 5441/09 JEANETTE BEATRICE WITTY; UNIQUE OFFICE GROUP PTY LTD & LKJD HOLDINGS PTY LTD v LKJD MANAGEMENT PTY LTD (IN LIQUIDATION) - PAUL COOK (LIQUIDATOR) SHORT MINUTES OF ORDER Noting what Mr Hemsworth has told me that he has negotiated a resolution of costs issues directly with Ms Witty and not through Mr Deitch I am prepared to make costs orders in relation to her. By consent I make the following orders set out in short minutes of order provided to me today: 1 The Summons be dismissed. 2 The first plaintiff pay the defendants' costs in the sum of $630.00. ********** 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.