New South Wales Supreme Court CITATION : Lew v Bluescope Distribution Pty Ltd [2010] NSWSC 794 HEARING DATE(S) : 14 July 2010 JURISDICTION : Equity JUDGMENT OF : Pembroke J EX TEMPORE JUDGMENT DATE : 14 July 2010 DECISION : See judgment CATCHWORDS : CAVEAT - removal - meaning of "serious issue" - commercial risk - competing registered interest - application of principles in Inglis v Commonwealth Trading Bank (1972) 126 CLR 161 LEGISLATION CITED : Real Property Act 1900 CATEGORY : Principal judgment Gay v Gooden (1989) NSW Conv R 55-445 Inglis v Commonwealth Trading Bank (1972) 126 CLR 161 Kerabee Park Pty Ltd v Daley [1972] 2 NSWLR 222 CASES CITED : Mango Media Pty Ltd v Garner Transport & Haulage Pty Ltd [2007] Martyn v Glennan [1979] 2 NSWLR 234 Morkaya v Parkinson [2010] NSWSC 596 Ruxan Pty Ltd v Peachme Pty Ltd [2004] NSWSC 1221 Uniting Church (NSW) Trust Association Ltd v Hill [2005] NSWSC 665 PARTIES : Peter John Lew Bluescope Distribution Pty Limited FILE NUMBER(S) : SC 2010/00229397 COUNSEL : D McFarlane - for the Plaintiff A Narayan - for the Defendant SOLICITORS : Nelson Keane & Hemingway - for the Plaintiff DLA Phillips Fox - for the Defendant IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PEMBROKE J WEDNESDAY 14 JULY 2010 2010/00229397 - PETER JOHN LEW v BLUESCOPE DISTRIBUTION PTY LIMITED ACN 096 380 068 EX TEMPORE JUDGMENT 1 HIS HONOUR: The plaintiff and his wife are the registered proprietors of a property known as 41 Thorby Avenue, Dubbo. They have entered into a contract for the sale of the land. That land is mortgaged to St George Bank. The mortgage is registered. The evidence before me indicates that the amount owing to St George Bank and secured by that mortgage is so great that there is no reasonable possibility of any of the net proceeds of sale being available to satisfy the interest of the defendant. 2 The interest of the defendant arises pursuant to a secured loan and guarantee dated 2 March 2005 between the plaintiff and a company owned and controlled by him, and the defendant by its former name. 3 The secured guarantee and indemnity provides that the plaintiff agrees to secure payment of the guaranteed moneys by charging all of his present and future interests in real property. It also provides that he consents as guarantor to the lodgement of a caveat or caveats to record the interest secured by the charge. Serious Issue 4 The defendant lodged a caveat on the title to the land recording the interest which it claimed pursuant to the secured guarantee. The amount agreed to be owing to the defendant by the plaintiff pursuant to the secured guarantee is approximately $19,000. There is no suggestion in the evidence that St George Bank as the registered mortgagee took with notice of the unregistered interest of the defendant as chargee pursuant to the secured guarantee. There is therefore no serious issue to be tried as to whether the defendant's unregistered equitable interest as a chargee has any priority as against the registered interest of St George Bank. 5 The defendant contended that it satisfied the test as to a serious issue to be tried simply because it had a caveatable interest. This represented confusion as to the necessary test. In the context of an application to remove a caveat, the shorthand expressions "serious question" or "serious issue to be tried" have a recognised meaning. Whether a caveat should be ordered to be removed depends upon whether an interlocutory injunction would be granted to protect the interest claimed in the caveat: Kerabee Park Pty Ltd v Daley [1972] 2 NSWLR 222; Martyn v Glennan [1979] 2 NSWLR 234; Gay v Gooden (1989) NSW Conv R 55-445; 70 Pitt Street Sydney v McGurk [2004] NSWSC 413 at [15]; Ruxan Pty Ltd v Peachme Pty Ltd [2004] NSWSC 1221; Uniting Church (NSW) Trust Association Ltd v Hill [2005] NSWSC 665 at [10] and Morkaya v Parkinson [2010] NSWSC 596. 6 The issue is not whether the caveator has a valid caveatable interest but whether, as against competing interests, there is a serious question that the interest recorded in the caveat would be entitled to the protection of an interlocutory injunction. The defendant's submissions ignored the effect of the competing interest of St George Bank. 7 There was no dispute that the defendant had a legitimate caveatable interest. But that did not answer the question whether there was a serious issue to be tried. That required consideration of whether, having regard to the prior registered interest of St George Bank and the uncontroverted evidence of the amount outstanding and the anticipated net proceeds of sale, the defendant's caveatable interest gave it any claim against the property in a practical sense. Only then could it be said that an interlocutory injunction would be granted to protect the interest claimed in the caveat. 8 I am satisfied, bearing in mind the uncontroverted evidence, that there is - or will be when the sale of the property completes - no net proceeds available to the defendant. In Uniting Church (supra), the fact that the registered mortgage would wholly exhaust the proceeds of sale was a complete answer to the caveator's claim that its caveat should be maintained. So it is in this case. Balance of Convenience 9 In addition, the balance of convenience favours the plaintiff. There is no legitimate and realistic benefit to the defendant in having the caveat remain. The contract for sale is due to complete on 19 July 2010. The rights of third parties, including those of the plaintiff's wife, are affected. 10 There is no reasonable basis for the defendant's contention that it should be entitled to improve its position by having the plaintiff pay the moneys secured by the guarantee and indemnity into court. The principles in Inglis v Commonwealth Trading Bank (1972) 126 CLR 161 have no application on the facts of this case. That is because, in the events that have occurred, the defendant's charge is an empty security. Those principles may well apply in any given case involving an equitable charge. See Mango Media Pty Ltd v Garner Transport & Haulage Pty Ltd [2007] NSWSC 712. But they do not apply in the circumstances of this case. Nor is there any reasonable basis for the proposition that the plaintiff should proffer alternative security to the defendant in return for an order that the caveat be withdrawn. Commercial Risk 11 The fact of the matter is that a commercial party who takes an equitable charge pursuant to a secured guarantee and indemnity, knows that his caveat will only be as effective as the amount of money left over after the discharge of registered interests or the priority, if any, which his equitable charge has against the registered interests. If there will be no money left over after satisfaction of the monies due to the registered mortgagee, the chargee's equitable interest recorded in its caveat secures nothing. There is no utility in maintaining the caveat. It will only cause difficulty to parties dealing in the land without securing a legitimate advantage to the defendant. Fall Back Position 12 As a fall back position, the defendant sought an order or an undertaking from the plaintiff that the plaintiff indemnify the defendant for any costs which it might incur in any subsequent proceedings that it might commence against St George Bank – limited to the costs that would not otherwise be covered by an award of costs in its favour in any such proceedings. It is not appropriate for me to make any such order. Nor is it appropriate for the plaintiff to be obliged to offer any such undertaking. On the evidence before me, although any priority claim that the defendant has against St George Bank is preserved, I cannot see that it has any sound basis or reasonable prospect of success. There is therefore no utility in making such an order and no basis for attributing any responsibility to the plaintiff for the defendant's costs of any such hypothetical proceeding. Withdrawal of Caveat 13 For all of those reasons, the interests of justice and the circumstances of the case necessitate the removal of the caveat. I will order pursuant to s 74MA of the Real Property Act that caveat number AF471095C be withdrawn forthwith in relation to the property known as 41 Thorby Avenue, Dubbo, being the whole of the land in lot 67 in deposited plan 1005323. Indemnity Costs 14 Having regard to the correspondence in Exhibit C and the fact that the defendant's position was unsustainable and should not have been maintained, I order that the defendant pay the plaintiff's cost on an indemnity basis. oOo 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.