New South Wales Supreme Court CITATION : So v Li [2009] NSWSC 32 HEARING DATE(S) : 03/02/09 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 3 February 2009 DECISION : Order that caveat be extended until further order. Order the first defendant to pay the costs to date reserving further costs. CATCHWORDS : REAL PROPERTY [19]- Application to extend caveat- Plaintiff lent money to first defendant and registered caveat over her equitable interest in fee simple- Fee simple held in joint tenancy between first and second defendants- Right of one joint tenant to encumber their interest in fee simple- Construction of caveat- Caveat, on its true construction, only affects the interests of the first defendant and not the interests of the second defendant- Law as to encumbering property: "ius accrescendi praefertur oneribus" and "alienatio rei praefertur iuri accrescendi"- Consent of co-owner required to encumber the other aliquot share but that does not make the charge over the first defendant's interest in the fee simple ineffective. Andrews v Wilcox [2008] NSWSC 280 CASES CITED : Hedley v Roberts [1977] VR 282 Lyons v Lyons [1967] VR 169 Mason v Merett (Franklyn J, 12.6.1989 unreported) Jung Sook So (P) PARTIES : Meihua Li (D1) Xingfan Jin (D2) FILE NUMBER(S) : SC 1268/09 COUNSEL : D Burwood (P) J Sung (S) (D) SOLICITORS : Logos Lawyers (P) J S Legal (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Tueday 3 February 2009 1268/09 – SO v LI JUDGMENT 1 HIS HONOUR: This is an application to extend a caveat. The plaintiff says that she lent money to the first defendant. She says that there was a deed bearing date 11 March 2008 which constituted and evidenced the transaction. She says that the first defendant, who is the only other party to the deed, is in default, but that is of little moment in the present proceedings. 2 Clause 7(h) of the deed provided that the first defendant: "Hereby agrees to charge all her equitable interest in freehold or leasehold property both presently held and including future acquired freehold and leasehold property (if any). Property means all property owned by the borrower now or in the future, solely or jointly and including without limitation the property 3/84 Frederick Street, Campsie." 3 The plaintiff placed caveat AD833918S over 3/84 Frederick Street. However that property is held in joint tenancy by the second defendant Xingfan Jin and the first defendant. 4 Schedule 1 of the caveat provided that the estate claimed by the caveator was "Caveatable interest in the fee simple estate of Meihua Li in the property 3/84 Frederick Street, Campsie (Lot 3 Strata Plan 67714)." It then referred to the loan agreement. 5 Schedule 2 to the caveat, which is the schedule which prohibits action, prohibited in the first item, the only relevant one, "the recording in the Register of any dealing other than a plan affecting the estate or interest claimed by the caveator and set out in Schedule 1". That interest was the interest of the first defendant in the property. Accordingly, although the caveat could be better expressed, the caveat on its true construction only affects the interests of the first defendant and not the interests of the second defendant. 6 The law as to the encumbering of property which is co-owned is complex. It was summarised by the great Lord Coke in his work Coke on Littleton and is based on two maxims of the law, "ius accrescendi praefertur oneribus" on the one hand and "alienatio rei praefertur iuri accrescendi" on the other hand. Of course the first of those means that the law favours the alienation of property against the right of survivorship. The second being that the right of survivorship is put before the burdens. 7 So that where one has co-owned property each owner is able to sell, lease or mortgage his or her aliquot share, sometimes severing the joint tenancy, sometimes not, but that no encumbrance or burden by either incorporeal hereditament or mortgage/charge is to burden the other aliquot share unless there is consent. Those principles are conveniently summarized by Justice Harris in Hedley v Roberts [1977] VR 282 at 288. 8 Mr Sung, who appeared for the defendants, put that the deed which purported to grant an equitable charge in favour of the plaintiff did not have that effect because any charge granted over an aliquot share would affect the whole of the fee, and as there was no evidence that the second defendant had consented to his part of the fee being affected, thus the charge must be ineffective. 9 I was attracted to that argument for a while. Mr Sung based it in part on the decision of Justice Franklyn in the Supreme Court of Western Australia in Mason v Merrett 12 June 1989 unreported, which he said was followed by Hammerschlag J in this Court last year in Andrews v Wilcox [2008] NSWSC 280. 10 With respect, I do not think that that is so. Justice Franklyn said that he had great difficulty with the concept of an equitable charge being raised against the interest of only one joint tenant because it was seemingly at odds with the unity of title and interests essential to joint tenancy. But he went on to say "however the point was not argued" so that his Honour merely mentioned his conceptual difficulty, but certainly did not make any decision. Nor did Justice Hammerschlag. He was really dealing in Andrews' case with the form of the caveat which, on its face, purported to extend to the interest of the non-borrower. The present caveat, as I have construed it, does not so offend. 11 The proposition that a co-owner cannot charge his or her own interest is contrary to authority. First of all, it runs against the maxim "alienatio rei praefertur iuri accrescendi" and it is contrary to the decision of Justice McInerney in Lyons v Lyons [1967] VR 169. Professor Butt in his book on Land Law in the Fifth Edition at paragraph [1448] rejects it almost out of hand with authorities. 12 Accordingly, it is fairly arguable that the plaintiff does have an equitable charge over Ms Li's interest and there is no reason why the caveat should not stand until the present dispute between the parties has been dealt with. Accordingly, I order that caveat AD833918S affecting the interests of the first defendant in Folio Identifier 3/SP67714 be extended until further order, and order the first defendant to pay the plaintiff's costs to date, reserving further costs. Stand the matter over to the Registrar's list on 4 May 2009 at 9.15am. Liberty to restore on five days' notice. 13 I should note that I have not overlooked the point that the deed, literally construed, only charges the first defendant's equitable interests in freehold land not her legal interests and that her aliquot share in the Campsie land is a legal interest. However no-one based any argument on this point so that I do not need to consider it at this stage of the proceedings. ************************ 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.