New South Wales Supreme Court CITATION : Bellissimo v JCL Investments Pty Ltd [2009] NSWSC 1260 HEARING DATE(S) : 2 November 2009 JUDGMENT DATE : 2 November 2009 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 2 November 2009 DECISION : 1. Order that the plaintiff remove caveat number AD5289XXX forthwith; 2. Order that the proceedings be otherwise dismissed. CATCHWORDS : CAVEAT – application for extension of caveat – whether interest in land claimed by caveat is adequately described – whether agreement granting authority to lodge caveat by implication confers such an interest in land as will sustain caveat – if agreement had been intended to create charge over land that charge would be unenforceable as mortgage duty has not been paid under Duties Act 1997 – form of caveat defective – order that caveat be removed LEGISLATION CITED : Real Property Act 1900 (NSW) Duties Act 1997 (NSW) Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880; (2005) 12 BPR 23,355 Warden v Mortgage House No 1 Pty Ltd [2006] NSWSC 1462; (2006) 13 BPR 24,375 Troncone v Aliperti (1994) 6 BPR 13,291 Coleman v Bone (1996) 9 BPR 16,235 CASES CITED : Nudd v Official Trustee in Bankruptcy [2002] NSWSC 399; (2002) 11 BPR 20,163 Redglove Projects Pty Ltd v Ngunnawal Local Aboriginal Land Council [2004] NSWSC 880; (2004) 12 BPR 22,319 Iaconis v Lazar [2007] NSWSC 1103; (2007) 13 BPR 24,937 Express Loans & Finance Pty Ltd v Hunter [2004] NSWSC 142; (2004) 11 BPR 21,451 Boral Recycling v Wake [2009] NSWSC 712 Wu v Dardaneliotou [2008] NSWSC 1319 Plaintiff: Francesco Bellissimo PARTIES : 1st Defendant: JCL Investments Pty Ltd 2nd Defendant: The Registrar General, Department of Lands, Land and Property Information Division FILE NUMBER(S) : SC 4130/09 COUNSEL : Plaintiff: S Milanovic Defendant: n/a SOLICITORS : Plaintiff: Bilias & Associates Defendants: n/a IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Monday, 2 November 2009 4130/09 Francesco Bellissimo v JCL Investments Pty Ltd & 1 Or JUDGMENT 1 HIS HONOUR: The plaintiff commenced these proceedings by summons on 14 August 2009. The whole of the relief sought in the summons is: " 1. An order that the operation of caveat No AD528XXX be extended until further order of the court. 2. A direction [that] the Registrar settle and sign a minute of this order forthwith. 3. Such further or other order as the court may deem fit. " 2 On 17 August 2009 Rein J directed that the summons be returnable on 25 August 2009. On that day His Honour made certain orders which, as they appear on the associate's record of proceedings and on the formal orders entered and sealed by the Deputy Registrar, included orders that the operation of the caveat be extended until further order of the court; that the matter be listed before the duty judge on 2 November 2009; that the solicitors for the plaintiff notify the first defendant of the orders and provide a statement to the first defendant that if it wished to be heard regarding the continuation of the caveat, it must appear on the next occasion. The court noted that the plaintiff's application is for final relief and that in the event that there was no appearance by the first defendant on the further occasion, the matter was to be dealt with without reference to the first defendant. 3 When the matter was called today there was no appearance for the first defendant. 4 The plaintiff is a solicitor. The caveat describes the nature of the estate or interest in the land of the first defendant in which the plaintiff asserts a caveatable interest as follows: " An equitable interest pursuant to a Deed of Guarantees dated 17 February 2006 between the caveator and registered proprietor ". The caveat states that the interest arises by virtue of the facts stated below, namely: " An equitable interest in property as a result of unpaid costs and disbursements from tax invoice dated 19 January 2007 to Louise Lewis for legal services provided by the caveator in accordance with deed of guarantee dated 17 February 2006 where the guarantor gives consent to the caveator to lodge a caveat over the subject property. " 5 When these proceedings were called this morning I drew the attention of counsel for the plaintiff, Mr Milanovic, to the difficulties that arose from the description of the interest in the land claimed by the plaintiff. Section 74F of the Real Property Act 1900 (NSW) provides that caveats lodged under the section must be in the approved form and must specify, amongst other things the prescribed particulars of the legal or equitable estate or interest to which the caveator claims to be entitled (s 74F(5)(a) and (b)(v)). 6 Clauses 7 (b) and schedule 3 of the Real Property Regulation require the caveat to specify "Particulars of the nature of the estate or interest in land claimed by the caveator", and if the caveator claims as mortgagee or chargee "a statement of the amount (if readily ascertainable) of the debt or other sum of money charged on the land (or, if the money is not readily ascertainable, the nature of the debt ... secured on the land)". 7 In Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880; (2005) 12 BPR 23,355, Campbell J (as his Honour then was), observed (at [28]) that whether a caveat adequately describes the estate or interest is to be decided from the point of view of a person examining the caveat, who need not necessarily be the registered proprietor. The caveat in that case identified the nature of the estate or interest in the land claimed by the caveator as "an equitable interest". His Honour observed that an equitable interest in land "could relate to a multiplicity of types of interest", and the caveat failed to comply with fundamental requirements for a caveator fully and properly to describe the interest claimed. His Honour observed that the defect could not be ignored in reliance on s 74L. That decision has, so far as I am aware, been consistently followed. Thus, in Warden v Mortgage House No 1 Pty Ltd [2006] NSWSC 1462; (2006) 13 BPR 24,375, Brereton J said (at [15]): " ... As Campbell J explained in Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd [2005] NSWSC 880, a caveat that merely claims 'an equitable interest' is inadequate to specify the interest claimed by the caveator, as required by Real Property Regulation 2003 (NSW), reg 47; Sch 3, Item 1 [see also Circuit Finance Pty Ltd v Crown & Gleeson Securities Pty Ltd (2006) NSW ConvR 56-143]. Mr Warden's caveat provides, as the particulars of the nature of the estate or interest in land claimed, only 'equitable interest', and for the reasons explained in those two cases, that is insufficient. This is not a mere formal requirement; it goes to the heart of the operation of the caveat provisions of the Real Property Act 1900 (NSW), and is not susceptible of being cured under s 74L. Nor is the defect overcome by the statement of the facts said to support the claim, because at the very least, those facts admit of the possibility of a range of different types of 'equitable interest'... " 8 On the matter coming before me again this afternoon, counsel for the plaintiff takes an initial point. He says that according to a file note of the plaintiff, or the plaintiffs' solicitor, when the matter was before Rein J on 25 August 2009, his Honour made an order for "dismissal of the lapsing notice". No such order appears on the court record. I am unaware of any provision for the court to make an order to "dismiss a lapsing notice" and counsel was not able to refer me to any. I do not know what such an order would mean. What is clear from his Honour's orders is that the order for extension of the caveat was to operate until further order and that the matter was to be returned before the duty judge today. It was also clear that the first defendant could seek to have the orders discharged. 9 In my view, the question of the validity and the continued operation of the caveat remains under the purview of the court. There is no appearance for the first defendant. Nonetheless, the proceeding having come under the court's attention, it behoves the plaintiff to demonstrate how the continuation of the caveat could be justified having regard to the description of the interest claimed. 10 Counsel for the plaintiff submitted that in this case, the nature of the equitable interest claimed could be gleaned from the description of facts by virtue of which it is said to arise, and the reference to a term of the deed of guarantee where the guarantor gave consent to the caveator to lodge a caveat over the subject property. It is said that that, coupled with the description of the relevant facts, including that the equitable interest is a result of the unpaid costs and disbursements, makes it tolerably clear that the nature of the interest claimed is by way of equitable charge. 11 That submission directs attention to the deed of guarantee and to the provisions relied upon by the plaintiff. That deed recites that the plaintiff had been retained to act on a "deferred basis" for a particular company and for Ms Lewis in respect of proceedings in this division and in respect of proceedings in the Full Court of the Family Court of Australia. The deed recites the entry by the other company and by Ms Lewis into two separate fee agreements with the plaintiff. The operative provision in clause 2 provides for the first defendant and Ms Lewis (the second defendant) to guarantee the payment of all costs and disbursements and tax invoices issued by the plaintiff which become due and payable pursuant to the cost agreements. Clause 2(iii) provides: " That the company J C L INVESTMENTS PTY LTD hereby consents to Francesco Bellissimo t/as Bellissimo & Associates Solicitors to lodge a caveat at the Property Information Service division of the Department of Lands, over the property known as folio identifier lot X section Y in deposited plan Z situated at AA Ellis Street Condell Park 2200 in the State of New South Wales whereby it is hereby agreed that Frank Bellissimo has a caveatable interest in the property and that Francesco Bellissimo will withdraw the caveat only upon payment of costs and disbursements referred to in (i) and (ii) immediately above and any interest payable in accordance with the fees agreements annexed to this Deed. " 12 There is no doubt that in some cases an agreement that one party has authority to lodge a caveat in respect of the property of the other carries with it by implication an agreement to confer such an interest in the land as will sustain a caveat. That is the application of the principle that whoever grants a thing is deemed to grant that without which the grant itself would be of no effect (Troncone v Aliperti (1994) 6 BPR 13,291; Coleman v Bone (1996) 9 BPR 16,235; Nudd v Official Trustee in Bankruptcy [2002] NSWSC 399; (2002) 11 BPR 20,163 at 20,167, 20,169-20,170). In Troncone v Aliperti, the majority of the Court of Appeal construed an agreement that creditors could lodge caveats on the debtor's property as an implied grant by the debtor of an equitable charge. (See Redglove Projects Pty Ltd v Ngunnawal Local Aboriginal Land Council [2004] NSWSC 880; (2004) 12 BPR 22,319 at [17]-[23].) In Iaconis v Lazar [2007] NSWSC 1103; (2007) 13 BPR 24,937, Young CJ in Eq (as His Honour then was) said (at [23]): " [23] The current commercial enthusiasm for this sort of clause in a contract and for lodging a caveat was given a great boost by the decision of the Court of Appeal in Troncone v Aliperti (1994) 6 BPR 13,291. This decision has often been interpreted by persons seeking charges as meaning that every time there is an agreement that X can lodge a caveat over any property Y may own, that an equitable charge is created. It should be remembered, as McLelland CJ in Eq said in Coleman v Bone (1996) 9 BPR 16,235 at 16 and 239, that the true principle is that ' Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money.'" 13 As Bryson J (as his Honour then was) said in Express Loans & Finance Pty Ltd v Hunter [2004] NSWSC 142; (2004) 11 BPR 21,451 the question is always a matter of construction of the particular document under consideration. There, the defendant signed an authority and agreement authorising the caveator "to lodge a caveat on the above security property if the fees as agreed are not paid on demand and will sign all documents as required by [the plaintiff] to facilitate same". His Honour construed that agreement as an authority for the lodgment of a caveat and nothing else, and not as having created a charge over the land or any other means of enforcement. His Honour recorded the plaintiff's contention that "the agreement would be futile and ineffective if it did no more than it literally provides for". His Honour said (at [13]): " In my mind, this is incorrect. An impediment is placed in the way of a registered proprietor if a caveat is lodged, whether or not the caveat is effective, as its lodgement confronts the registered proprietor with problems and difficulties, whether or not it can be removed." The purpose of the clause, his Honour said, was "to enable the plaintiff to impede and obstruct the defendant's path as registered proprietor, without going any further. " 14 Counsel for the plaintiff gave various descriptions of the nature of the interest created, it was said, by clause 2(iii). Without resiling from his submission that the clause created an interest in the nature of a charge, he also submitted that the clause was designed to provide security to ensure that the guarantor's property was not sold, and that there be no dealing with the property without the plaintiff's consent. Counsel also submitted that the effect of the clause was to give the plaintiff an "equitable priority" in the proceeds of sale if the property were sold. This latter is another way of restating the contention that the instrument is a charge. However, the former submission that the clause was designed to ensure that the property not be sold, and there would be no dealing with the property without the plaintiff's consent, I think more accurately identifies the intended purpose of clause 2(iii). That is so, because, the caveat is to operate as an injunction, for so long as it remains on the title, precluding the registration of dealings prohibited by the caveat. 15 In Iaconis v Lazar, in the context of an agreement between a client seeking a loan and a finance broker, Young CJ observed (at [24]) that: " ... if the facts show that there is a pro forma document and a person of limited commercial experience has signed it without evidence being proffered by the lender that the clause has been properly explained to the person who is said to have given the charge by or on behalf of the person providing the financial benefit, that the court may very well come to the conclusion that the former person never intended to give a charge notwithstanding the words used in the document. " 16 There is no evidence here that the persons were of limited commercial experience. But there is this similarity: in this case, the charge was taken by a solicitor from a company associated with his client. The plaintiff deposed that he had agreed to act for the client provided that "my costs are secured via a caveat over the property in your name or under your control." He deposed telling the client that: " We would need to enter into a deed of guarantee where you allow me to place a caveat on the home where you live which is owned by JCL Investments." 17 Had it been intended to create a charge, whereby the plaintiff could apply to the court for an order for sale of the property or for the appointment of a receiver, one would expect the nature of that arrangement to be spelled out clearly in an agreement between a solicitor and his client, or between a solicitor and a company associated with the client, and not be left to implication. 18 It is more likely that the parties intended by clause 2(iii), that by the plaintiff's being authorised to lodge a caveat, and by its being agreed that he had a caveatable interest in the property, that the parties intended, and intended only, that the company would not be permitted to deal with the land without the plaintiff's consent. Such a negative covenant does not create an interest in land (Redglove Projects Pty Ltd v Ngunnawal Local Aboriginal Land Council). 19 Section 204 of the Duties Act 1997 (NSW) charges duty on instruments that fall within the definition of a "mortgage". For the purposes of Ch 7 an instrument is a mortgage "if it is a security by way of mortgage or charge over property, wholly or partly in New South Wales, at the liability date". If the deed of guarantee does create an implied charge, it is a mortgage within the meaning of Ch 7 of the Duties Act. Section 210 imposes duty of $5 if the mortgage secures no amount, or if the amount secured is not more than $16,000. There is provision for additional duty on an advance or further advance which increases the amount secured. Section 211 provides that a mortgage on which duty is required by Chapter 7 to be paid is unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid. 20 It may be that if the instrument is a charge it is liable to no more than $5 of duty. I will assume that that is the case, and that the costs agreement does not contain provisions which would amount to an advance within the meaning of s 206. Nonetheless, the effect of s 211 is that whilst any duty remains unpaid on the instrument, it is unenforceable. This goes beyond the prohibition in s 304 on the instrument being received into evidence if not duly stamped, or if an undertaking is not given. 21 It was submitted for the plaintiff that he would undertake forthwith to pay duty payable on the instrument. However, as McDougall J said in Boral Recycling v Wake [2009] NSWSC 712, a case dealing with a caveatable interest said to arise by a guarantor's having agreed to charge its interest in freehold or leasehold property: " ... if the provisions of clause 9 are to create a caveatable interest it must be because they operate as a mortgage or charge. Therefore, s 205 of the Duties Act attracts the obligation to stamp. A failure to stamp attracts the operation of s 211. There is no point in standing the matter down to enable the mortgage to be stamped because that would operate to make it enforceable from the date of stamping. Even if this were incorrect (and under the Stamp Duties Act , 1920, it appears that late stamping may have validated an instrument ab initio - see McKensey v Hewitt [2004] NSWSC 636 at [11]) the question is to be assessed today in respect of the particular caveat lodged." 22 I should add that there is a public policy interest in persons taking instruments which are intended to create a mortgage or charge in drawing to the attention of the mortgagor or chargor, being the party primarily liable for the duty, that, such a liability exists. At the very least that would draw to the attention of those signing such instruments that an agreement, which in terms is expressed to be an agreement to the lodgment of a caveat, will be contended by the other party to amount to a charge over the first person's land. 23 Finally, the summons does not claim any relief except an order extending the operation of the caveat. In Wu v Dardaneliotou [2008] NSWSC 1319, Brereton J said (at [2]): " [2] It must be said that these proceedings are hardly a model of how such applications should be conducted in the Duty Judge list. First, as I have said many times in the past, a Summons claiming an order extending operation of a caveat must include a claim for final relief. A Summons which claims, as this one does, only an order extending the operation of a caveat until further order is defective in not claiming any final relief. ... " 24 In a similar vein, in Iaconis v Lazar, Young CJ in Eq said (at [22]) that: " A caveat should only remain on the title pending the application by the person claiming the equitable or other interest to commence a suit for specific performance or otherwise to vindicate that equitable interest." 25 In my view, the form of caveat is defective. I inquired whether the attention of Rein J had been drawn to authorities such as Hanson Construction Materials Pty Ltd v Vimwise Civil Engineering Pty Ltd when the matter was before His Honour on an ex parte basis and orders were made for the extension of the caveat. I was told that those authorities were not referred to. In my view, a party making an ex parte application for extension of a caveat has an obligation to draw to the attention of the judge hearing the matter, particularly in the course of a busy duty judge list, the authorities relevant to the relief sought where there may be doubt whether the order sought is appropriate. 26 In my view, the operation of the caveat should not be further extended. It ought be removed. Because I am told that for some reason of which I am unaware, there may be a question as to the validity of the lapsing notice, it is appropriate to order that the plaintiff withdraw the caveat. No formal application has been made for leave to lodge a further caveat claiming an interest as chargee, but for the reasons I have given I would refuse such an application if it were made now. 27 For these reasons I make the following orders. 1. Order that the plaintiff remove caveat number AD5289XXX forthwith. 2. Order that the proceedings be otherwise dismissed. 28 There has been no appearance for the defendant so accordingly there will be no orders as to costs. ****** 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.