Supreme Court New South Wales Medium Neutral Citation: Champion Homes Sales Pty Ltd v JKAM Investments Pty LtdHotray Pty Ltd v JKAM Investments Pty Ltd [2014] NSWSC 952 Hearing dates: 4, 5 and 6 June 2014 Decision date: 18 July 2014 Jurisdiction: Equity Division Before: Darke J Decision: Equitable interests as claimed by parties established. Priority to be given according to the order in which interests were created. Catchwords: EQUITY - equitable interests in real property - equitable charge - created by words of present grant - no separate requirement of consideration for grant of charge EQUITY - equitable interests in real property - unregistered mortgages - whether grant of mortgage supported by consideration - whether mortgage does not secure any obligations EQUITY - equitable interests in real property - purchaser under contract for sale - whether no interest because specific performance would not be ordered EQUITY - equitable interests - priorities - whether holders of earlier interests guilty of postponing conduct by remaining silent or engaging in sharp practice - failure to caveat not postponing conduct where holders of later interests fail to search register - whether holders of later interests took with notice of earlier interest REAL PROPERTY - Torrens system - caveats - validity - failure to provide prescribed particulars of claimed interest - amount of debt charged on land - whether failure is to be disregarded pursuant to Real Property Act 1900 (NSW) s 74L Legislation Cited: Conveyancing Act 1919 (NSW) ss 23C(1)(a), 38 Corporations Act 2001 (Cth) ss 127(1), 127(3) Home Building Act 1989 (NSW) s 7D Real Property Act 1900 (NSW) ss 74O, 74F(5)(b)(v), 74L Real Property Regulation 2008 (NSW) cl 7, Schedule 3 Cases Cited: Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588 Business Acquisitions Australia Pty Ltd v Renshall [2006] NSWSC 1238 Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 Circuit Finance Australia Limited (Receivers and Managers appointed) (in liquidation) v Panella & anor [2011] NSWSC 311 Double Bay Newspapers Pty Ltd and others v AW Holdings Pty Ltd and others (1996) 42 NSWLR 409 FTFS Holdings Pty Ltd v Business Acquisitions Australia Pty Ltd [2006] NSWSC 846 Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30; (1983) 154 CLR 326 Lapin v Abigail [1930] HCA 6; (1930) 44 CLR 166 Lewis v Wilson (1997) 42 NSWLR 228 Nabeth Taleb v National Australia Bank Ltd [2011] NSWSC 1562; (2011) 82 NSWLR 489 Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 Texts Cited: EI Sykes and S Walker, The Law of Securities, (5th ed 1993, Law Book Company) ELG Tyler, PW Young and CE Croft, Fisher and Lightwood's Law of Mortgage, (3rd Australian ed 2014, LexisNexis Butterworths) GE Dal Pont, Equity and Trusts in Australia, (5th ed 2011, LexisNexis Butterworths) Category: Principal judgment Parties: 2014/21077 Champion Homes Sales Pty Ltd (plaintiff/cross-defendant) JKAM Investments Pty Ltd (first defendant/cross-claimant) Karl Damien (second defendant) 2014/22761 Hotray Pty Ltd (plaintiff/ cross-defendant) JKAM Investments Pty Ltd (first defendant/cross-claimant/second cross-defendant) Karl Damien (second defendant/second cross-claimant) Representation: Counsel: 2014/21077 Mr C Stomo, Mr J Moshides (plaintiff/cross-defendant) Mr G D McDonald (first defendant/cross-claimant) Mr J Cohen (second defendant) 2014/22761 Mr M Gollan (plaintiff/ cross-defendant) Mr G D McDonald (first defendant/cross-claimant/second cross-defendant) Mr J Cohen (second defendant/second cross-claimant) Solicitors: 2014/21077 Klonis & Co Lawyers (plaintiff/cross-defendant) JK Solicitors (first defendant/cross-claimant) Cambridge Lawyers (second defendant) 2014/22761 Duffy Law Group (plaintiff/ cross-defendant) JK Solicitors (first defendant/cross-claimant/second cross-defendant) Cambridge Lawyers (second defendant/second cross-claimant) File Number(s): 2014/21077 2014/22761 Publication restriction: Nil Judgment Introduction 1These two proceedings, which were heard together, concern the claims of three parties who claim to hold interests in certain land in Ironbark Avenue, Camden ("the Property"). The Property is land subject to the Real Property Act 1900 (NSW). It is owned by the second defendant in each proceeding, Mr Karl Damien. He has been the sole registered proprietor since about December 2011. 2The plaintiff in one proceeding, Champion Homes Sales Pty Ltd ("Champion"), claims to have an interest in the Property as an equitable chargee. It alleges that the charge arose pursuant to the terms of a Letter of Acknowledgement of Debt signed by Mr Damien on 4 April 2012. In the alternative, Champion claims that an equitable charge arose pursuant to a provision in a building contract it entered into with Mr Damien on 15 December 2010. 3Champion did not lodge a caveat in respect of its interest until about 30 September 2013. The estate or interest claimed in the caveat (AI50155) is expressed as: "An equitable chargee as regards the interest of Karl Damien under an equitable charge by Letter of Acknowledgment of Debt dated 4 April, 2012 which acknowledges a debt of monies owing or payable by Karl Damien to the Caveator in the sum of $506,334.00." 4The instrument by virtue of which the interest is said to arise is stated to be the Letter of Acknowledgement of Debt. 5The plaintiff in the other proceeding, Hotray Pty Ltd ("Hotray"), claims to have an equitable interest in the Property as an unregistered mortgagee. It alleges that the interest arose pursuant to a mortgage given to it by Mr Damien on 10 December 2012. 6Hotray lodged a caveat on 19 December 2012 (AH445882). The estate or interest claimed in the caveat is expressed as "Mortgagee". The instrument by virtue of which the interest is said to arise is stated to be an Agreement dated 10 December 2012 between Hotray and Mr Damien. On that day, Hotray and Mr Damien not only entered into a mortgage in respect of the Property, they also entered into a Deed. The Deed contains an acknowledgement by Mr Damien that he is indebted to Hotray in the sum of $270,000. 7JKAM Investments Pty Ltd ("JKAM"), which is the first defendant in each proceeding, claims to have various equitable interests in the Property. These are interests as a purchaser under a Contract for the Sale of Land, as an unregistered mortgagee, and as an unregistered lessee. 8JKAM claims that its interests as a purchaser and as a mortgagee arise pursuant to a Contract for the Sale of Land and a mortgage, each entered into on 21 December 2012. Its interest as a lessee is claimed to arise pursuant to a lease entered into on 1 September 2012. 9JKAM lodged three caveats on 21 December 2012. The first caveat (AH457848) claims an interest as "Purchaser". The relevant instrument is stated to be a Contract for the Sale of Land dated 21 December 2012 entered into by Mr Damien and JKAM. The second caveat (AH457859) claims an interest as "Mortgagee". The relevant instrument is stated to be a Mortgage dated 21 December 2012 entered into by Mr Damien and JKAM. The third caveat (AH457863) claims an interest as "Lessee". The relevant instrument is stated to be a Lease dated 1 September 2012 entered into by Mr Damien and JKAM. 10Both proceedings were commenced in January of this year following the service by JKAM of lapsing notices upon Champion and Hotray in respect of their caveats. Orders have been made by the Court extending the operation of those caveats until further order. 11Champion, by its Amended Summons, seeks a declaration as to the validity of the interest it claims as a chargee, or alternatively seeks an order giving leave pursuant to s 74O of the Real Property Act 1900 (NSW) ("the Act") to permit it to lodge a fresh caveat. JKAM, by its Cross-Summons in that proceeding, seeks declarations as to the validity of the interests it claims, and a declaration that Champion has no interest in the Property. 12Hotray, by its Amended Summons, seeks declarations as to the validity and extent of the interest it claims as a mortgagee. JKAM, by its Cross-Summons in that proceeding, seeks declarations as to the validity of the interests it claims, and a declaration that Hotray has no interest in the Property. 13Each of Champion, Hotray and JKAM further seeks declarations as to the priorities of the various interests claimed. 14A Second Cross-Summons filed by Mr Damien in the Hotray proceeding was severed from the balance of the proceedings by order made on 5 June 2014. JKAM is the defendant to that Cross-Summons, which raises issues in relation to the contract for sale of the Property entered into between Mr Damien and JKAM. Mr Damien did not take an active role in the hearing, and no evidence was adduced from him. 15Aside from the interests which are asserted by the parties to these proceedings, the Property is encumbered by a registered mortgage in favour of National Australia Bank Limited. It appears from the evidence that in late 2013, the National Australia Bank appointed a receiver and manager in respect of the Property. Counsel informed the Court that the bank has now entered into possession. Two other caveats have been lodged in respect of the Property. The caveators are Christopher Haddad and Taipan Plus Pty Ltd. It appears that these caveats, which are not in evidence, were lodged in the period after JKAM lodged its caveats and before Champion lodged its caveat. There was some evidence that Mr Haddad's caveat has now lapsed, and that the Taipan Plus Pty Ltd caveat concerns an interest as a sub-tenant to JKAM. Evidence Champion 16Champion relied upon three affidavits sworn by its managing director, Mr Steve Malesev. Mr Malesev gave evidence that on or about 15 December 2010, Champion as Builder and Mr Damien and Aaron Bell Holdings Pty Ltd as Client entered into a Medium Works Commercial Contract to carry out certain building works at the Property including the construction of a squash court and gymnasium complex. At that time, the Property was owned by Mr Damien and Aaron Bell Holdings Pty Ltd. The contract was not executed by Aaron Bell Holdings Pty Ltd. The agreement was signed for the Client by Mr Damien, and signed for the Builder by Champion. Architectural plans, engineering plans and a Scope of Works dated 12 March 2010 were attached to the contract. The contract sum was stated to be $860,200 including GST. 17The contract, which is in a standard Housing Industry Association form, provided in clauses 3.6 and 3.7: "3.6 If no security is required to be provided by the Client under Item 7, the Client charges its interest in the site with the due payment to the Builder of all monies that are or may become payable to the Builder arising out of the subject matter of the contract. 3.7 If so requested by the Builder, the Client must promptly deliver an executed mortgage in registrable form to secure the charge." 18Mr Malesev gave evidence that the total cost of the building works performed in relation to the contract, including a number of variations which had been verbally agreed as between Champion and Mr Damien, totalled $1,227,896.46. In accordance with finance arrangements in place between Mr Damien and the National Australia Bank, progress payments for work done under the contract (aside from works the subject of the variations) were made directly by the National Australia Bank to Champion. Mr Malesev gave evidence to the effect that the cost of the works the subject of the variations was to be met by Mr Damien without recourse to the National Australia Bank finance. Mr Malesev agreed that Champion had not yet issued invoices to Mr Damien in respect of the works the subject of the variations. 19Mr Malesev gave further evidence that the total amount received by Champion pursuant to the contract was $685,243.64. This is $542,652.82 short of the total cost of the building works. 20In about July 2011, Champion ceased work due to payments not being made to it in accordance with the contract. 21In April 2012, Mr Malesev had Mr Damien sign the Letter of Acknowledgement of Debt. The acknowledgement is in the following terms: "I KARL DAMIEN the registered proprietor of Lot 60 (No. 8) Ironbank Avenue, Camden South ("my property") acknowledge and confirm that the sum of $506,334.00 ("the debt") is a debt owing to Champion Homes Sales Pty Ltd for building works carried out on my property by Champion Homes Sales Pty Ltd. I hereby charge my property to Champion Homes Sales Pty Ltd and Champion Homes Sales Pty Ltd are entitled to lodge a Caveat over my property as security for the abovementioned debt. I confirm that the debt will be paid out by sale of the property or refinance of the property. DATED: 4/4/2012" 22Little evidence was given concerning the circumstances in which the acknowledgement came to be prepared and signed. Mr Malesev simply deposed that he "had the registered proprietor acknowledge the sum total owing pursuant to the building contract." In the course of his cross-examination, Mr Malesev stated that he had wanted Mr Damien "to agree a certain amount that was owed and that's what we did". 23It is clear that, as at April 2012, no further work was being performed by Champion and Mr Damien was not calling upon Champion to do any further work. However, at the request of Mr Damien, certain site establishment equipment and fencing had been left on the site, and Champion was incurring hiring charges for those items. 24There is no doubt that from about the time when Champion ceased work, Mr Malesev was concerned about Mr Damien's ability to pay for the work which had been performed. Nevertheless, no steps were taken to either obtain a mortgage from Mr Damien (as contemplated by clause 3.7 of the contract) or, until about 30 September 2013, to lodge a caveat. Mr Malesev explained that as the Property remained in an incomplete state, and as Champion retained possession of certain structural engineering certificates which he thought would be required in order for an occupation certificate to be issued, he was confident that Champion's interest was sufficiently protected. Mr Malesev further explained that there was a friendship and business relationship of longstanding between himself and Mr Damien, and he placed a large amount of trust in him. Hotray 25Hotray relied upon three affidavits sworn by Mr Brian Dean Alcorn, who is the sole director of the company. He was not a shareholder in the company when it entered into the transactions with Mr Damien in December 2012. It appears that Mr Alcorn generally goes under the name Dean Alcorn. 26Mr Alcorn gave evidence that in January 2010, Hotray was engaged by Mr Damien as a manager of his business affairs. It was evidently contemplated that those services would be provided through Mr Alcorn, who holds qualifications in law and economics, and has completed courses in finance, accounting and project management. Mr Alcorn has known Mr Damien for many years. A Contractor's Agreement dated 28 January 2010 between Mr Damien and Hotray was entered into. The Contractor's Agreement provided for Hotray to be paid $80,000 (inclusive of GST) per annum, plus certain expenses. 27Mr Alcorn states that various services (which he describes in his affidavit sworn on 5 February 2014) were provided under the agreement but were not being paid for. By 2012, Mr Alcorn was becoming increasingly concerned about the situation. He requested security from Mr Damien who agreed to provide it. Mr Alcorn drew up certain documents, including a Deed and a mortgage over the Property. These documents were executed by Hotray and Mr Damien on 10 December 2012. The Deed contains the following recitals: "A The Debtor [Mr Damien] has a number of business interests which have continued for many years. B Over time the Creditor [Hotray] has loaned the Debtor various sums of money which have never been repaid with interest, or at all. C Over time the Creditor has performed various tasks for the Debtor for which it has not received any payment as agreed. D The Debtor and the Creditor have agreed to crystallise the amount owing to the Creditor by the Debtor as at the date of this document. E The Debtor and the Creditor have reached agreement on the terms and conditions set out in this document." 28By clause 2 of the Deed, Mr Damien acknowledged that the debt owing to Hotray as at 10 December 2012 was $270,000. The amount outstanding under the Contractor's Agreement (and as reflected in invoices prepared by Mr Alcorn) was only $240,000 up to the end of 2012. It appears, however, that Hotray had in addition made payments totalling about $30,000 to a company associated with Mr Damien, and those payments may have been treated as loans to Mr Damien (see Recital B to the Deed). Clause 3 of the Deed provided for interest to be paid on the debt at the rate of 10% per annum. 29In the mortgage itself, clause 2 states that Mr Damien enters into the mortgage for valuable consideration from Hotray (the receipt of which consideration is acknowledged). By clause 3.1 of the mortgage, Mr Damien mortgaged the Property to Hotray "to secure the performance of [his] Obligations and the payment by [him] of the Secured Money." 30"Secured Money" is defined to mean all money the payment of which from time to time forms part of the Obligations. "Obligations" is defined to mean all liabilities and obligations of Mr Damien to Hotray under or by reason of any Finance Document. "Finance Document" is defined to mean "the Agreement and this Mortgage". "Agreement" is defined to mean the agreement between Mr Damien and Hotray "made on or about the date of this document". 31As noted earlier, Hotray lodged a caveat on 18 December 2012 in which it claims an interest as a "Mortgagee" by virtue of an instrument described as "Agreement" dated 10 December 2012. In the course of his cross-examination, Mr Alcorn stated that the "Agreement" identified in the caveat was intended as a reference to the mortgage, not to the Deed. 32Hotray has sought the consent of the National Australia Bank to the registration of the mortgage, but such consent has not been forthcoming. Hotray's mortgage was initially stamped for only the amount of $16,000. The mortgage has only recently been stamped to an amount of $300,000. No point was taken about this. JKAM 33JKAM relied upon various affidavits sworn by Mr Johni Elia, who is the sole director of JKAM, and Mr Joseph Elia who is an adviser to the company with experience in construction management. Joseph Elia is employed as a site construction manager with a company called Architectural Collections Pty Ltd ("Architectural Collections"), another company associated with the Elia family. 34In December 2011, Joseph Elia obtained from Champion various engineering drawings and plans in relation to the construction works at the Property. He then submitted a tender to Mr Damien for completion of the gymnasium works on the Property. Joseph Elia states that at about that time he had discussions with Johni Elia in which it was decided that an approach would be made to Mr Damien to purchase the Property. 35On 4 April 2012, Mr Damien informed the National Australia Bank that he had a buyer for the gymnasium at the Property "who is a builder, and has the funds available ready to go ahead with the purchase as well as the remaining construction work". JKAM itself did not come into existence until about June 2012. It was incorporated specifically for the purpose of the proposed transaction. 36On 15 July 2012, Joseph Elia sent a proposal to Mr Damien for the purchase of the Property and the completion of the outstanding works. The proposal was attached to an email sent from Joseph Elia's email address at Architectural Collections. It is not clear whether the proposal was intended to be from JKAM. The proposal entailed a sale price of $1.68 million (which was about the amount then owed to the National Australia Bank and secured over the Property) and, it seems, an additional $300,000 to be paid to Mr Damien on settlement. 37The proposal further provided for the leasing of the building. Paragraph 5 of the proposal was in the following terms: "The agreed terms of the exchange of contract being that if the tenancy for the whole building is not fully tenanted by the end of the year, Karl Damien has agreed to release the purchaser from all contractual obligations in relation to the exchange of contract and will pay the sum of $480,000 plus gst being for the construction works completed at [the Property]." 38The proposal further provided, in paragraphs 8 and 9, for Mr Damien to grant to the purchaser second mortgages over both the Property and another property owned by Mr Damien in Denham Court. 39Mr Damien responded on 18 July 2012. He set out his understanding of the proposal. It included the following: "13. In the event that the purchaser decides to rescind the contract and walk away then Karl Damien will pay the purchaser $480,000 plus GST for the building works completed on the property. 14. In order to secure that payment I will grant to the purchaser a mortgage over the properties at Ironbark Avenue and [Denham Court]." 40This response, which Mr Alcorn says he prepared for Mr Damien, included a paragraph which stated that on settlement the purchaser would pay Mr Damien "an extra $400,000" on top of a sale price of $1,680,000. 41On 19 July 2012, Joseph Elia sent an email to Mr Damien in which he identified the purchasing company as JKAM. The email made reference to the preparation of "legal documents" including leases and second mortgage documents. Shortly thereafter, Mr Damien informed Joseph Elia that if he needed anything in relation to the sale or leases he should speak to Dean (presumably Mr Alcorn) who was said to be looking after Mr Damien's legal affairs. 42At about this time JKAM commenced to carry out construction works at the Property. 43In August 2012, Champion sent various design drawings to Joseph Elia. 44On 1 September 2012, JKAM entered into a lease of the Property for a period commencing on 1 September 2012 and terminating on 31 August 2027, with an option to renew for a period of five years. It appears that efforts were made to have the National Australia Bank consent to the registration of the lease, but these attempts were not successful. 45On 11 September 2012, Mr Alcorn sent a draft deed to Mr Damien to be forwarded to Joseph Elia for his comment. The draft provided for JKAM to purchase the Property for $2,081,000. It was further provided that in the event that the improvements on the Property were not fully tenanted by 31 December 2012, then JKAM could elect not to proceed with the purchase, in which case Mr Damien would pay JKAM $480,000 plus GST for the construction works. The draft further provided for a second mortgage over the Property (and a second mortgage over the Denham Court property) to secure payment of the construction works amount of $480,000 plus GST. 46Further draft documents were prepared by Mr Alcorn in November 2012. On 23 November 2012, Mr Alcorn sent an email to Joseph Elia in the following terms: "Here are initial drafts for discussion purposes of the proposed Contract special conditions and the side Deed to be entered to cover off the deal for the property at Ironbank Avenue Camden. Let me know so we can get together to finalise asap." 47The draft Deed differed in some respects from the earlier draft prepared by Mr Alcorn. It included a provision to the effect that the purchase price included a payment to Mr Damien of $300,000 which, if not paid by 31 December 2012, would accrue interest at a rate of 10% per annum. However, the draft Deed continued to include a provision for a second mortgage over the Property to secure payment of the construction works amount of $480,000 plus GST. 48On 26 November 2012, Joseph Elia sent a revised draft Deed to Mr Damien. This draft deleted the provision dealing with the $300,000 component of the purchase price. 49Shortly prior to 9am on 10 December 2012, Mr Alcorn sent a further draft Deed by email to Joseph Elia for his consideration. This draft reinstated the provision dealing with the $300,000 component of the purchase price. 50A meeting had been arranged to take place at Mr Damien's office at around that time. The evidence suggests that it was intended by Mr Damien and JKAM that the Deed, together with a Contract for the Sale of Land and a mortgage between them, was to be executed at that meeting. The evidence further suggests that it was intended by Mr Damien and Hotray that the Deed and mortgage between them were also to be executed at that meeting. 51Joseph Elia was, for some reason, late to the meeting. He did not arrive until about 11:00am. As a consequence, only the documents as between Mr Damien and Hotray were executed at the meeting. By the time Joseph Elia arrived, Mr Alcorn had left. He gave evidence that he took the documents which were to be executed by JKAM with him. Nevertheless, the Deed between Mr Damien and JKAM was executed later on 10 December 2012 when Joseph Elia arrived at Mr Damien's office. The Deed as executed appears to be in the same form as the draft sent earlier in the day to Joseph Elia, apart from an additional clause 3(q) which was in handwriting. Joseph Elia said in cross-examination that the handwritten clause was inserted by Mr Alcorn on 21 December 2012. I do not accept that suggestion, which was not contained in any of Joseph Elia's affidavits, and was not put to Mr Alcorn. 52The Deed provided for Mr Damien to sell the Property to JKAM or its nominee for $2,081,000 plus GST, with the sale price to include a payment to Mr Damien of $300,000 which, if not paid by 31 December 2012, would accrue interest at the rate of 10% per annum. The Deed further provided that up to 31 December 2012, Mr Damien would be responsible for all mortgage repayments and outgoings for the Property, and from 1 January 2013 JKAM would be responsible for all mortgage repayments and outgoings for the Property. The Deed further provided that the value of the construction works undertaken by JKAM was $480,000 plus GST and, to secure payment of that amount, Mr Damien agreed to grant JKAM a second mortgage over the Property. 53Between 10 December 2012 and 21 December 2012, there were further discussions concerning the special conditions for the Contract for Sale. On the morning of 21 December 2012, Joseph Elia sent an email to Mr Alcorn which attached some amended special conditions. The email included the following: "I require the following Caveats to be prepared: 1 Caveat for the 2nd Mortgage ("Instrument") to be used for the 2nd mortgage on [the Property] 2 Caveat for $528k Construction ("Facts") to be used, the owner Karl Damien consents/ Acknowledges the investment in $528 in site improvements for [the Property] 3 Caveat for Contract of Sale ("Instrument") to be used, Equitable and Legal interest. 4 Caveat for Lease ("Instrument") to be used, Pursuant to the Unregistered Lease." 54Later that day, at a meeting held at Mr Damien's office (attended by Messrs Damien, Alcorn and Joseph Elia), Mr Damien and JKAM entered into a Contract for the Sale of Land in respect of the Property, and a mortgage over the Property. The contract for sale provided for a purchase price of $2,081,000, with a deposit of $208,100. However, special condition 13.1 provided: "The Vendor acknowledges that the Purchaser has already paid the Deposit in the value of $528,000 which has been used towards the improvements on the site." 55A title search in respect of the Property dated 28 March 2012 (almost nine months earlier) was attached to the contract for sale. The only relevant encumbrance noted in the Second Schedule to the search was the mortgage to the National Australia Bank Limited. However, there was no evidence that JKAM placed any reliance upon the contents of the search in proceeding to enter into the contract for sale or the mortgage. 56The mortgage given by Mr Damien to JKAM contained clauses 2 and 3.1 which are in the same terms as clauses 2 and 3.1 in the mortgage given by Mr Damien to Hotray. The mortgage also contained definitions of the relevant terms which are in substantially the same terms as the definitions contained in the mortgage given to Hotray. The "Agreement" is defined to mean the agreement between Mr Damien and JKAM "dated on or about the date of this document". 57Joseph Elia obtained three caveats from Mr Alcorn at the meeting held on 21 December 2012. He personally attended to the lodgement of JKAM's three caveats later that day. Summary of principal submissions 58An attack was made by JKAM upon Champion's asserted status as a chargee over the Property. The primary submission (supported by Hotray) was that the charge purportedly given by the terms of the Letter of Acknowledgement was not supported by any consideration passing from Champion. 59It was then submitted that insofar as Champion sought to fall back upon the charge given by clause 3.6 of the construction contract, the charge was void as it was not in accordance with s 7D of the Home Building Act 1989 (NSW). JKAM contended that s 7D applied to the construction contract because it was a contract under which the holder of a contractor licence undertakes to do "specialist work" as defined in the Home Building Act. As an alternative to that submission, JKAM submitted that as Champion had failed to comply with various provisions of the contract in relation to the variations agreed with Mr Damien it would only be able, at best, to claim a quantum meruit in respect of the works the subject of the variations, and that any moneys so payable do not fall within the scope of the charge created by clause 3.6 of the contract. JKAM further submitted that even if the charge under clause 3.6 was valid and operated in respect of the amounts claimed by Champion to be owing, s 74O of the Real Property Act would not be available to permit Champion to lodge a caveat based on that charge because it is a different interest based on different facts, and Champion should be restrained from lodging any such caveat. 60JKAM submitted that Champion was in any event guilty of postponing conduct such that it should not be able to claim priority over JKAM's subsequently created interests. It was put that Champion was aware that JKAM was contemplating finishing the construction works at the Property, and had some dealings with JKAM in that regard (essentially the supply of drawings), yet conducted itself as if it claimed no interest in the Property by remaining silent about its position. In circumstances where it was accepted that JKAM did not conduct any search of the register before it took its interests, JKAM did not rely upon Champion's failure to lodge a caveat as itself constituting postponing conduct. 61Hotray, for its part, submitted that any interest held by Champion was postponed by "their failure to provide notice to the world" that it claimed an interest in the Property. This submission, which is apparently based upon the failure of Champion to lodge a caveat, suffers from the difficulty that Hotray also failed to conduct any search of the register before it took its interest. 62As against Hotray, JKAM submitted that no consideration was given by Hotray for the grant of the mortgage in its favour, and insofar as the difficulty was sought to be overcome by reliance upon the existence of the Deed, the Deed did not operate as such because its execution was not witnessed in accordance with s 38 of the Conveyancing Act 1919 (NSW). Mr Alcorn witnessed the signature of Mr Damien on the Deed, and executed the Deed for Hotray in his capacity as sole director and secretary (see ss 127(1) and (3) of the Corporations Act 2001 (Cth)). It was submitted that because of Mr Alcorn's positions as the sole director of Hotray and as a representative of Mr Damien in his dealings, he was not a "person who is not a party ... to the deed" within the meaning of s 38(1A)(b) of the Conveyancing Act. 63JKAM next submitted that Hotray took its interest with notice of JKAM's interest as a mortgagee. In this regard, it was contended that, to the knowledge of Mr Alcorn (whose knowledge should be attributed to Hotray), JKAM and Mr Damien had reached a binding agreement prior to 10 December 2012 to grant a mortgage over the Property. 64JKAM submitted that Hotray was in any event guilty of postponing conduct by what was described as its "sharp practice" in taking advantage of Joseph Elia's lateness to the meeting on 10 December 2012 to procure a situation where Hotray acquired its interest as a mortgagee prior to JKAM acquiring its interests as a purchaser and mortgagee. 65Finally, JKAM contended that the interest claimed by Hotray was inadequately described in the caveat, contrary to s 74F(5)(b)(v) of the Real Property Act. 66As against JKAM, Champion submitted that JKAM has no interest in the Property pursuant to the contract for sale because there is no chance that JKAM will obtain a decree of specific performance of that contract. Champion further submitted that JKAM's mortgage does not, on its true construction, secure any obligations owed by Mr Damien to JKAM, and is thus illusory. Hotray submitted that JKAM took its interests as purchaser and mortgagee with notice of Hotray's interest as mortgagee. Determination as to the validity of the interests claimed Champion 67Champion claims an interest as an equitable chargee. It may be accepted that the evidence did not demonstrate that Champion provided valuable consideration for a promise by Mr Damien to give the charge referred to in the Letter of Acknowledgement of Debt dated 4 April 2012. All the work the subject of the construction contract had been performed by about mid-2011, and there was no evidence of any fresh agreement on Champion's part to do anything, or forbear from doing anything, in return for an agreement by Mr Damien to give a charge. However, I do not think that it follows that no valid equitable charge was created by the Letter of Acknowledgement of Debt. 68An equitable charge is a proprietary interest granted by way of security (see Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd [2000] HCA 25; (2000) 202 CLR 588 at [6]). The creation of such an interest may, but does not necessarily, depend upon an enforceable agreement to grant a charge. In essence, the creation of an equitable charge depends upon the existence of an intention on the part of the chargor to create the interest. 69An equitable charge can be created by words of present grant in an instrument whereby real or personal property is expressly or constructively made liable or specifically appropriated to the discharge of a debt (see ELG Tyler, PW Young and CE Croft, Fisher and Lightwood's Law of Mortgage, (3rd Australian ed 2014, LexisNexis Butterworths) at [2.3]; GE Dal Pont, Equity and Trusts in Australia, (5th ed 2014, LexisNexis Butterworths) at [1.65]; EI Sykes and S Walker, The Law of Securities, (5th ed 1993, Law Book Company) at 193). Where the property concerned is land, the interest must be created by writing signed by the person creating the interest (see s 23C(1)(a) of the Conveyancing Act). The writing must show with sufficient clarity an intention to create the interest (see Nabeth Taleb v National Australia Bank Ltd [2011] NSWSC 1562; (2011) 82 NSWLR 489 at [50]). 70The Letter of Acknowledgment of Debt, which was signed by Mr Damien, contains words of present grant ("I hereby charge"). The Property is expressly charged to Champion as security for the debt of $506,334 which is acknowledged in the same instrument. In conjunction with those words of express grant of a charge, the Letter of Acknowledgment of Debt gives Champion an entitlement to lodge a caveat over the Property. In my view, the terms of the Letter of Acknowledgement of Debt clearly reveal an intention on the part of Mr Damien to grant a charge over the Property in favour of Champion as security for the acknowledged debt. Having regard to Mr Malesev's evidence, which I accept, there is no reason to doubt that the acknowledged debt was (and remains) truly owing and may be sued for (see Lewis v Wilson (1997) 42 NSWLR 228 at 233B-C per Sperling J). 71In my opinion, a valid equitable charge in favour of Champion was created by the Letter of Acknowledgment of Debt. This is not a situation (such as occurs, for example, when an equitable mortgage is said to arise on the basis of an enforceable agreement to grant a legal mortgage) where the existence of the claimed interest depends upon proof of an enforceable agreement which, unless it is an agreement under seal, requires valuable consideration (see EI Sykes and S Walker, The Law of Securities (5th edition, Law Book Company, 1993) at pages 193-194). 72In view of that conclusion, it is not necessary for Champion to assert the existence of a charge based upon clause 3.6 of the construction contract, and it is not necessary for the Court to consider the various arguments raised by JKAM as to the validity and scope of any such charge. Hotray 73Hotray claims an interest as an equitable mortgagee. The memorandum to the mortgage sets out the respective rights and obligations of the parties to the mortgage. Some of the obligations are placed upon Hotray (see, for example, clauses 3.2, 10.5 and 10.7). Clause 2 of the memorandum specifically states that Mr Damien enters into the mortgage for valuable consideration received from Hotray. 74The mortgage is expressed to be given to secure the performance of Mr Damien's Obligations (see clause 3.1). Those Obligations include those owed by Mr Damien under "the Agreement", which is defined as the agreement between Mr Damien and Hotray made on or about the date of the mortgage. That is plainly a reference to the Deed dated 10 December 2012 between Mr Damien and Hotray. It is recited in the Deed that the parties have agreed to crystallise the amount owing to Hotray by Mr Damien, and have reached agreement on the terms set out in the Deed. Those terms include a provision concerning an agreed rate of interest to apply on the amount of the acknowledged debt. 75It seems to me that in these circumstances, Hotray must be regarded as having provided valuable consideration for the grant of the mortgage. In the context of an agreement reached as to the amount of the debt and the rate of interest to apply, the parties have entered into a further agreement (involving an exchange of promises) for the debt to be secured by a mortgage over the Property. That agreement is effective, in accordance with the principles of equity, to bring into existence an equitable interest in the Property (see Chan v Cresdon Pty Ltd [1989] HCA 63; (1989) 168 CLR 242 at 257). In my view, Hotray has an interest in the Property as an equitable mortgagee. 76It is not necessary to consider any question as to whether the Deed has effect as a Deed. JKAM 77It was not suggested that JKAM did not have an equitable interest arising from the lease it entered into on 1 September 2012. 78As far as its claimed equitable interest as a purchaser is concerned, it is correct that any such interest is commensurate with the availability of specific performance (see Tanwar Enterprises Pty Ltd v Cauchi [2003] HCA 57; (2003) 217 CLR 315 at [53]). Champion submitted that there was no chance that specific performance of the contract will be ordered in circumstances where the amount payable by the purchaser would not be sufficient to pay out the first registered mortgagee, the National Australia Bank. 79By reason of Special Condition 13.1, which contains an acknowledgement that JKAM has, by its building work, already paid "the Deposit in the value of $528,000", as little as $1.553 million may be required to be paid on completion. There was no clear evidence of the current level of the debt owed to the National Australia Bank. The debt was about $1.68 million in July 2012. The evidence does not show the extent to which payments (whether of principal or interest) have since been made to the bank. 80The evidence, such as it is, does not warrant the conclusion that there is no chance that specific performance of the contract will be ordered. There are matters of contention between Mr Damien and JKAM in relation to the contract for sale. These are the subject of the Second Cross-Summons which has been severed from the balance of the proceedings. It is clear that Mr Damien asserts that JKAM is in breach of the contract, although there is no evidence that Mr Damien has purported to terminate the contract. It is also clear that JKAM has taken steps towards settlement of the purchase, and has asserted its readiness in that respect. 81It is the obligation of Mr Damien to provide an unencumbered title on settlement. The attitude of the National Australia Bank is not presently known, and neither is the financial position of Mr Damien. The current value of the property is not known, although I note that there is in evidence an estimate given by a real estate agent that the property may have a value of $3.15 million. The possibility that arrangements might be able to be made so as to satisfy the National Australia Bank (and any other relevant claimants) cannot be discounted. In these circumstances, I am not prepared to accept the submission that JKAM has no equitable interest as a purchaser under the contract for sale. 82As far as its claimed interest as an equitable mortgagee is concerned, I do not accept the submission that the mortgage is illusory because it does not secure any obligations owed by Mr Damien to JKAM. The submission commenced by noting that the mortgage secured performance by Mr Damien of his Obligations which, tracing through the relevant definitions, meant obligations under or by reason of the Agreement. The Agreement was defined to mean the agreement between Mr Damien and JKAM "dated on or about the date of this document". It was then submitted that the Agreement was the contract for sale entered into on the same day as the mortgage (not the Deed entered into some 11 days earlier), and that Mr Damien had no obligations to pay money to JKAM under the contract for sale. 83However, in circumstances where: (1)the evidence is clear that the parties intended that the Deed be entered into at a meeting on 10 December 2012 along with the mortgage and the contract for sale, and that would have in fact occurred save only for Joseph Elia's lateness on that day; (2)the Deed (not the contract for sale) was the instrument which provided for substantial obligations to be imposed upon Mr Damien; (3)clauses 2(h) and (i) of the Deed provide for payment of the construction works amount of $480,000 plus GST, with such payment to be secured by a second mortgage over the Property; and (4)as it turned out, the Deed and the mortgage were executed within eleven days of each other, I think that the Deed should be regarded as the Agreement within the meaning of the mortgage. It meets the description of an agreement between Mr Damien and JKAM dated "on or about" the date of the mortgage itself. On that basis, the mortgage secures performance of Mr Damien's obligations under or by reason of the Deed. It was not suggested that Mr Damien had no obligations under the Deed such that the mortgage was illusory. 84Accordingly, all of the challenges to the validity of the interests claimed by Champion, Hotray and JKAM fail. 85In summary: (1)Champion acquired an interest as an equitable chargee on 4 April 2012 when the Letter of Acknowledgement of Debt was provided by Mr Damien; (2)JKAM acquired an interest as an equitable lessee on 1 September 2012 when it entered into the lease with Mr Damien; (3)Hotray acquired an interest as an equitable mortgagee on 10 December 2012 when it entered into the mortgage with Mr Damien; (4)JKAM acquired an interest as an equitable mortgagee on 21 December 2012 when it entered into the mortgage with Mr Damien; and (5)JKAM acquired an interest as a purchaser under a contract for sale on 21 December 2012 when it entered into that contract with Mr Damien. Determination as to the priorities of the interests claimed 86All of the interests claimed in respect of the Property are equitable. There was no suggestion that any of the interests claimed were "mere equities" (as to which see the discussion by Bryson J, as his Honour then was, in Double Bay Newspapers Pty Ltd and others v AW Holdings Pty Ltd and others (1996) 42 NSWLR 409 at 423 - 425). 87As stated by Mason and Deane JJ in Heid v Reliance Finance Corporation Pty Ltd [1983] HCA 30; (1983) 154 CLR 326 at 339, the general principle applicable to competing equitable interests is that where the merits are equal, priority in time of creation gives the better equity. However, priority will be accorded to the later interest if the merits are unequal and favour the later equitable interest, as for instance where the owner of the later interest is led by the conduct of the owner of the earlier interest to acquire the interest in the belief or on the supposition that the earlier interest did not then exist. 88Their Honours continued (at 341 - 342): "It will always be necessary to characterize the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct is such that, in fairness and in justice, the earlier interest should be postponed to the later interest. Thus in Latec Investments Kitto J said that the case where the conduct of the prior owner leads the later owner to acquire his interest on the supposition that the earlier interest does not exist - the test stated by Dixon J in Lapin v Abigail - was just one "instance" of a case when the merits are unequal: see also Lapin v Abigail, per Isaacs J; General Finance Agency, etc. Co (in liq) v Perpetual Executors and Trustees Association, etc. To say that the question involves general considerations of fairness and justice acknowledges that, in whatever form the relevant test be stated, the overriding question is "... whose is the better equity, bearing in mind the conduct of both parties, the question of any negligence on the part of the prior claimant, the effect of any representation as possibly raising an estoppel and whether it can be said that the conduct of the first or prior owner has enabled such a representation to be made ...": Sykes Law of Securities, 3rd ed. (1978), page 336; see also Dixon v Muckleston; Latec Investments. Thus elements of both negligence and estoppel will often be found in the statements of general principle: see for example, Lapin v Abigail, per Dixon J. It may be that an equitable interest will not be postponed to an equitable interest created later in time merely because there is a causal nexus between an act or admission on the part of the prior equitable owner and an assumption on the part of the later equitable owner as to the non-existence of the prior equity. Fairness and justice demand that we be primarily concerned with acts of a certain kind - those acts during the carrying out of which it is reasonably foreseeable that a later equitable interest will be created and that the holder of that later interest will assume the non-existence of the earlier interest. Thus, the mere failure of the holder of a prior equitable interest in land to lodge a caveat does not in itself involve the loss of priority which the time of the creation of the equitable interest would otherwise give (J & H Just (Holdings) Pty Ltd v Bank of New South Wales), notwithstanding that the person acquiring the later interest had, before acquiring that interest, searched the register book and ascertained that no caveat had been lodged. It is just one of the circumstances to be considered in determining whether it is inequitable that the prior equitable owner should retain his priority." 89The reference made by their Honours to the test stated by Dixon J in Lapin v Abigail [1930] HCA 6; (1930) 44 CLR 166 is to the following passage (at 204): "In general an earlier equity is not to be postponed to a later one unless because of some act or neglect of the prior equitable owner. 'In order to take away any pre-existing admitted equitable title, that which is relied upon for such a purpose must be shown and proved by those upon whom the burden to show and prove it lies, and ... it must amount to something tangible and distinct, something which can have the grave and strong effect to accomplish the purpose for which it is said to have been produced' (per Lord Cairns LC, Shropshire Union Railways and Canal Co v The Queen). The act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. This, in effect, generally means that his act or default must in some way have contributed to the assumption upon which the subsequent legal owner acted when acquiring his equity." 90Accordingly, the focus of the relevant inquiry is whether some identifiable conduct on the part of the owner of the earlier interest has contributed to the acquisition by the later owner of its interest such that, in all the circumstances, it would be inequitable for the owner of the earlier interest to maintain its priority. As stated by Pembroke J in Circuit Finance Australia Limited (Receivers and Managers appointed) (in liquidation) v Panella & anor [2011] NSWSC 311 at [13]: "When courts speak of 'general considerations of fairness' in the context of a priority dispute, the search is for conduct which is both blameworthy and causative: Heid v Reliance Finance at 341. Mere unfairness in the outcome is irrelevant unless there is also some tangible conduct by the holder of the first interest which caused the holder of the later interest to act on a false premise. This is why, in such a case, the conduct of the holder of the first interest is often described as 'postponing' or 'disentitling' conduct. It is not sufficient to point to the eventual outcome and contend that it is unfair. It may well be so by some moral standard. But the unfairness of the outcome is not a reason for departing from well-established legal principle ..." 91The submissions made by JKAM included the contention that it was only the completion of the works by JKAM which had created any equity in the Property (that is, a value in excess of the amount owed by Mr Damien to the National Australia Bank), and it would thus be unfair if such equity was to be enjoyed by the holders of the earlier created interests (Champion and/or Hotray) to the exclusion of JKAM, the holder of the later acquired interest. However, as stated above, broad appeals to notions of unfairness are really beside the point unless they rest upon a consideration of the relevant circumstances in which the later interest was acquired. 92When pressed to focus upon the relevant circumstances, JKAM submitted that Champion conducted itself as if it did not have any interest in the Property. There is no doubt that Champion, believing itself to be sufficiently protected otherwise, took no steps to lodge a caveat until well after both Hotray and JKAM had acquired their interests in the Property. However, in circumstances where JKAM did not conduct any search of the register before it acquired any of its interests, it did not submit that Champion's failure to lodge a caveat was itself postponing conduct. Rather, JKAM relied upon the fact that Champion, in certain dealings it had with Joseph Elia, remained silent as to any rights it may have in relation to the Property. 93The first such dealing occurred in December 2011 when Champion sent various engineering drawings to Mr Damien (copied to Joseph Elia). The next dealings occurred in August 2012 when Champion sent various design drawings to Mr Damien and to Joseph Elia. 94JKAM submitted that it should be inferred that Champion was aware that another builder (associated with Joseph Elia) was at least contemplating completing the works on the Property. I would draw that inference from the content of the communications concerning the engineering and design drawings. Moreover, Mr Malesev accepted in cross-examination that at some point he became aware that Mr Damien was going to appoint another builder to finish off the works. JKAM submitted that in those circumstances Champion, rather than remaining silent, ought to have brought to the attention of the new builder the fact that Champion had, or claimed to have, an interest in the Property. It should be noted that it was not suggested that JKAM had sought any information or assurances from Champion as to its position, or that Champion had positively said or done anything which misrepresented its position. 95Hotray submitted that the failure of Champion to lodge a caveat amounted to postponing conduct. Mr Alcorn accepted that he was aware that Champion claimed to be owed money by Mr Damien, but maintained that he had no knowledge that Champion claimed any interest in the Property. That evidence, which was not challenged, may be accepted. However, there was no evidence that Hotray searched the register before it acquired its interest in December 2012. 96In my opinion, neither JKAM nor Hotray has demonstrated that any conduct of Champion ought, in all the circumstances, be regarded as postponing conduct justifying a conclusion that it would be inequitable for Champion to maintain its priority. Put another way, I do not consider that any of the later interests claimed by JKAM and Hotray should be regarded as a better equity than the earlier interest claimed by Champion. 97I do not think that Champion, by remaining silent as to any rights it may have in relation to the Property, engaged in any postponing conduct. As mentioned above, JKAM made no enquiry of Champion as to whether it claimed any such rights. That was the case even though Joseph Elia was aware that Mr Damien was not able to complete the building project and, by no later than July 2012, was aware that Mr Damien was in financial difficulty. There is no reason why Joseph Elia could not have made relevant enquiries of Champion. In the absence of any discourse on the subject, I do not think that it can be said that Champion made any representation to JKAM about its rights vis-à-vis the Property. I also do not think that it was reasonably foreseeable to Champion that, by acting as it did, JKAM would proceed to acquire an interest in the Property on the assumption that Champion had no interest in it. If, in December 2012, JKAM in fact assumed that Champion had no interest in relation to the Property, or would not assert any interest in the Property, such an assumption could not reasonably have been based upon Champion's conduct. 98I also do not think that Champion, by failing to lodge a caveat, engaged in any postponing conduct. Whilst such a failure can amount to such conduct, it does not do so in the present case where the later interests were acquired without first searching the register. The failure to caveat had no bearing upon the acquisition of the later interests. 99I turn now to consider the position of Hotray. JKAM submitted that it was sharp practice on the part of Hotray to take advantage of Joseph Elia's lateness to the meeting which was scheduled to take place at about 9am on 10 December 2012. It was contended that Hotray (through Mr Alcorn, who prepared the various transaction documents) understood that it was intended by all concerned that the various documents would be executed at the meeting in an order whereby JKAM's interests as purchaser and mortgagee would be created before Hotray's interest as mortgagee. It was then contended that it was sharp practice for Hotray to, in effect, take advantage of Joseph Elia's lateness by proceeding in his absence to execute its Deed and mortgage, thereby acquiring its interest first, and then failing to inform JKAM on 21 December 2012 of what had happened. 100Mr Alcorn gave evidence that there was no agreement in relation to priorities as between the various interests, although he conceded in cross-examination that had Joseph Elia attended on 10 December 2012 as arranged, it was probable that JKAM's documents would have been signed prior to Hotray's documents. I note, in this regard, that clause 2(i) of the Deed between Mr Damien and JKAM refers to the grant of a "second mortgage" to JKAM. 101Mr Alcorn deposed that on more than one occasion prior to 10 December 2012, he and/or Mr Damien had told Joseph Elia that he (Mr Alcorn) was owed a considerable amount of money by Mr Damien, that Mr Damien wanted to get the money from the proceeds of sale of the Property, and that was "what most of the $300,000 is". Presumably, that is a reference to the $300,000 that was specified as a component of the purchase price payable to Mr Damien and upon which interest would accrue if not paid by 31 December 2012. 102In the witness box, giving further evidence in chief with leave, Mr Alcorn said that on at least three occasions between about September and November 2012, at meetings in Mr Damien's office attended by Joseph Elia, it was stated that he (Mr Alcorn) "was owed considerable money by Mr Damien" and that on at least one occasion it was also stated that he (Mr Alcorn) "was to be paid from the sale of the Property". 103In cross-examination, Mr Alcorn went further. He denied the suggestion that at no stage did he say anything to Joseph Elia to the effect that he was to be given security for the debt owed to him by Mr Damien. Mr Alcorn also affirmatively asserted that he told Joseph Elia that he was to take security for the monies owed to him. Mr Alcorn offered no explanation as to why such statements, which he agreed concerned an important issue in the case, were not referred to in his affidavits. Mr Alcorn agreed that he did not show Joseph Elia any of the documents which Hotray and Mr Damien were going to sign. 104Joseph Elia, for his part, deposed, in effect, that at no stage was he told that Mr Alcorn or Hotray had any interest in the Property. He denied in cross-examination that he understood that on 10 December 2012 documents were to be executed which would secure Mr Alcorn's position. He further denied that he was told that Mr Alcorn was owed money by Mr Damien. 105Joseph Elia seemed to accept that he had been a party to some communications and discussions with Mr Alcorn, and that after first meeting Mr Alcorn (between about July and September 2012) he had discussions with him about matters "relevant to the transaction". However, he denied that he attended meetings with Mr Alcorn in the period from September to December 2012 other than the occasions (presumably 1 September 2012 and 21 December 2012) when documents were signed. He said that any "discussions" he had with Mr Alcorn were in fact confined to electronic communications. Later, however, Joseph Elia seemed to accept that Mr Alcorn was present, as Mr Damien's legal representative, at a number of meetings with Mr Damien in relation to the formulation of documents. 106I do not accept Mr Alcorn's evidence to the effect that Joseph Elia was informed prior to 10 December 2012 that he (Mr Alcorn), or any company associated with him, was going to take security over the Property. That evidence only emerged in cross-examination. It was not contained in Mr Alcorn's affidavit (sworn shortly prior to the commencement of the hearing) which dealt with the topic of the discussions with Joseph Elia. Neither was it adduced in the course of the further evidence given on that topic in his examination in chief. Mr Alcorn appreciated that what, if anything, was said about taking security was an important issue in the case, and one which ought to have been dealt with in his affidavit. It is clear that Mr Alcorn did not show Joseph Elia any of the documents which Hotray and Mr Damien were going to sign, and in one answer given in cross-examination Mr Alcorn stated that "what I do and what I have got in writing" was none of his (Joseph Elia's) business. In my view, the likelihood is that Mr Alcorn said nothing to Joseph Elia about an intention to take security over the Property. In my view, Mr Alcorn's evidence that he informed Joseph Elia that security was to be taken ought be seen as self-serving testimony, rather than as a true recollection of what occurred. 107I am prepared to accept Mr Alcorn's evidence that in the course of discussions about JKAM's agreement with Mr Damien (and in particular in relation to discussion about the $300,000 component of the purchase price) it was mentioned to Joseph Elia that he (Mr Alcorn) was owed a considerable amount of money by Mr Damien. This aspect of his evidence was not directly challenged in cross-examination. Whilst Joseph Elia denied that he was told that Mr Damien owed money to Mr Alcorn, I found Joseph Elia's evidence concerning the communications or discussions he had with Mr Alcorn to be marked by inconsistencies, and generally unimpressive. I would not accept his denial in preference to Mr Alcorn's essentially unchallenged evidence on this point. 108There was also no challenge to Mr Alcorn's affidavit evidence that at the meeting at Mr Damien's office on 21 December 2012 Joseph Elia enquired of Mr Alcorn about "your documents" and, in response, Mr Alcorn said that they had been signed on 10 December 2012 and he had already lodged a caveat to protect his mortgage. I have some disquiet about that evidence. In particular, I do not think that Joseph Elia would have asked about Mr Alcorn's documents in circumstances where (as I have found) Mr Alcorn said nothing to Joseph Elia about an intention to take security over the Property. Nevertheless, it was part of JKAM's postponing conduct case that Mr Alcorn did not inform JKAM on 21 December 2012 about the interest Hotray had taken some eleven days earlier. Accordingly, the adducing of evidence in rebuttal, and a direct challenge to Mr Alcorn in the witness box, was to be expected. In their absence, I accept, with some hesitation, that on 21 December 2012 Mr Alcorn did say something to Joseph Elia to the effect that he (Mr Alcorn) had taken security over the Property and lodged a caveat. 109In my view, JKAM has failed to establish that any conduct of Hotray would, in all the circumstances, be regarded as postponing conduct justifying a conclusion that it would be inequitable for Hotray to maintain its priority. I agree that Hotray took advantage of Joseph Elia's failure to attend as arranged on 10 December 2012. It did so by proceeding with the execution of its documents. Hotray could have delayed that process so that all of the documents would be executed on the one occasion as envisaged. Had that occurred, it is likely, as conceded by Mr Alcorn, that JKAM would have acquired its interests before Hotray acquired its interest. 110However, there was no agreement or arrangement between the parties to the effect that the interests be acquired in any particular order. Indeed, JKAM was not told that Mr Alcorn, or any company associated with him, was intending to take security over the Property. JKAM may thus be taken to have been proceeding unaware of the taking of any such interest. It was proceeding independently of whatever agreements existed as between Mr Damien and Mr Alcorn. 111JKAM had been told that Mr Damien owed a considerable amount of money to Mr Alcorn, but it appears that, once again, JKAM made no enquiry about Mr Alcorn's position, including whether he claimed or intended to claim any interest in the Property. According to Joseph Elia, he was content to rely upon the "accuracy and integrity of all legal documents concerning the property" as prepared and presented to him by Mr Alcorn who he understood to be Mr Damien's lawyer. However, in cross-examination, he conceded that he knew that Mr Alcorn was advising Mr Damien and not JKAM, and there was evidence that JKAM had its own legal advisers available to it, namely, Bayside Solicitors of Ramsgate and (by 21 December 2012) J K Solicitors of Bexley North. 112In these circumstances, Hotray's conduct in proceeding without delay with the execution of its documents on 10 December 2012 does not strike me as amounting to sharp practice. It should be noted that it was not put to Mr Alcorn in cross-examination that his conduct was of that character. 113In addition, for the reasons given earlier, I accept that JKAM was told on 21 December 2012 that Mr Alcorn had taken security over the Property and lodged a caveat. I therefore do not accept JKAM's submission that it proceeded to take its interests in ignorance of the existence of an interest claimed by Mr Alcorn or a company associated with him. It is not surprising that JKAM would proceed regardless given that it had carried out a great deal of construction work for the financially distressed Mr Damien, for which it had not been paid, and the transaction offered means by which recompense for the work might be obtained, and the opportunity to acquire a good investment. 114I also do not accept JKAM's submission that Hotray took its interest with notice of an interest held by JKAM as a mortgagee. It was contended that prior to 10 December 2012 JKAM reached a binding agreement with Mr Damien for the grant of a mortgage over the Property. This agreement was said to be evidenced by paragraphs 13 and 14 of the email sent by Mr Damien to Joseph Elia on 18 July 2012. The email commences with the words "As I understand the deal it is as follows", and then sets out fourteen points including the following: "(1) Sale price $1,680,000 (2) Contracts to be exchanged by say 3 August 2012 ... (4) Purchaser to fund all necessary works to obtain OC for entire building except the fixing and resealing of the carpark which will be Karl Damien's responsibility ... (6) Settlement date on say 19 October 2012 (7) On settlement purchaser to pay Karl Damien an extra $400,000 (8) Both parties to endeavour to lease the whole of the property including the gym area, the pool and upstairs offices from day 1 (9) All offers for lease are to be discussed and agreed between the Karl Damien and the purchaser ... (11) In the event that the building is not fully tenanted by 19 October 2012 then the purchaser has the right to rescind the contract and walk away (12) That decision must be made by 26 October 2012 (13) In the event that the purchaser decides to rescind the contract and walk away then Karl Damien will pay the purchaser $480,000 plus GST for the building works completed at the property (14) In order to secure that payment I will grant to the purchaser a mortgage over the properties at Ironbank Ave and Keating Place." 115On the next day, Joseph Elia sent an email in response which is in the following terms: "Hi Karl, The purchasing company of the Camden site is JKAM INVESTMENTS PTY LTD ... . Your letter of authority is to be addressed to JKAM INVESTMENTS PTY LTD AUTHORISING THE COMPANY TO PREPARE LEGAL DOCUMENTS, LEASES, SECOND MORTGAGE DOCUMENTS FOR 8-10 IRONBANK AVE CAMDEN SOUTH AND YOUR HOUSE. THIS WAY WE CAN FINE TUNE THE LEASES WITH THE AGENT." 116It was accepted that Mr Damien's email only records a proposed agreement as it stood in July 2012. Nevertheless, it was put that paragraphs 13 and 14 of the email evidence a separate or "stand-alone agreement" to the effect that "in the event that the purchaser decides not to pursue a contract and walk away" JKAM would be paid $480,000 plus GST for the completed building works. It was further put that this agreement had been partly performed by 10 December 2012. 117I do not agree that paragraphs 13 and 14 of Mr Damien's email can be construed as an agreement separate from the twelve other points. All fourteen points are said to constitute "the deal". Moreover, paragraphs 13 and 14, in their terms, presuppose the existence of an exchanged contract for sale which the purchaser decides to rescind. Finally, there is nothing in Joseph Elia's response to suggest that any part of "the deal" is to operate independently of any other part. The focus of his response is upon the preparation of formal legal documents. 118There is no doubt that Mr Alcorn was closely involved in the preparation of such documents, and was aware that Mr Damien was proposing to grant a mortgage over the Property in favour of JKAM. However, the conduct of the parties in the negotiations over the terms of the documents clearly showed that it was contemplated that binding agreements would only be made when the terms of the relevant documents were finally settled and the documents themselves were executed and, where relevant, exchanged. 119My conclusions that neither Champion nor Hotray was guilty of postponing conduct, and that Hotray did not take its interest with notice of an interest held by JKAM as a mortgagee, mean that priority in relation to the various equitable interests described at [85] above is to be determined by the order in which the interests were created. Validity of Hotray's caveat 120The remaining issue is whether the interest claimed by Hotray was inadequately described in the caveat, contrary to s 74F(5)(b)(v) of the Real Property Act which provides: "74F(5) A caveat lodged under this section must: ... (b) specify: ... (v) the prescribed particulars of the legal or equitable estate or interest, or the right arising out of a restrictive covenant, to which the caveator claims to be entitled; ..." 121By clause 7 of the Real Property Regulation 2008 (NSW), a caveat lodged under s 74F of the Act against a dealing must specify the particulars set out in Schedule 3 in relation to the estate or interest to which the caveator claims to be entitled. Schedule 3 provides, relevantly, as follows: "1 Particulars of the nature of the estate or interest in land claimed by the caveator. 2 The facts on which the claim is founded, including (if appropriate) a statement as to the manner in which the estate or interest claimed is derived from the registered proprietor of the estate or interest or the primary or possessory applicant against which the caveat is to operate. 3 If the caveator's claim is based (wholly or in part) on the terms of a written agreement or other instrument, particulars of the nature and date of that agreement or instrument and the parties to it. 4 If the caveator claims as mortgagee, chargee or covenant chargee, a statement of the amount (if readily ascertainable) of the debt or other sum of money charged on the land (or, if the amount is not readily ascertainable, the nature of the debt, annuity, rent-charge or other charge secured on the land). ... 10 It is not necessary to specify: (a) whether the estate or interest claimed is legal or equitable, or (b) the quantum of the estate or interest claimed (except as provided in items 4 and 5), or (c) how the estate or interest claimed ranks in priority with other estates and interests in the land." 122The Hotray caveat describes the nature of the estate or interest claimed as "mortgagee". In my view that sufficiently specifies the particulars required by item 1 of the Schedule. It is not necessary to state whether the claimed interest is legal or equitable (see item 10(a) of the Schedule). 123The claimed interest is said to arise by virtue of an instrument in the nature of an agreement dated 10 December 2012 between Mr Damien and Hotray. No other facts are stated. JKAM makes the point, correctly, that Hotray's interest as a mortgagee arises from the mortgage between it and Mr Damien dated 10 December 2012, not the Deed between them of the same date. However, the reference to an instrument in the nature of an agreement (which gives rise to an interest as a mortgagee) is not necessarily a reference to the Deed rather than the mortgage. As Mr Alcorn stated in the witness box, the mortgage itself also answers the description of an agreement. 124I would not conclude that there has been a failure in this case to specify the particulars required by items 2 and 3 of the Schedule. In any event, to the extent that there might be said to be such a failure to comply strictly with the requirements with respect to the form of the caveat, it would be a failure that would be disregarded by the Court in conformity with s 74L of the Real Property Act. 125Hotray has failed to specify the particulars required by item 4 of the Schedule. At the time the caveat was lodged, it was readily ascertainable that the amount of the debt charged on the land was $270,000, the amount acknowledged by Mr Damien to be owing (see clause 2 of the Deed). This failure to comply strictly with the requirements with respect to the form of the caveat is also one that the Court would disregard pursuant to s 74L of the Real Property Act (see FTFS Holdings Pty Ltd v Business Acquisitions Australia Pty Ltd [2006] NSWSC 846 at [23]; Business Acquisitions Australia Pty Ltd v Renshall [2006] NSWSC 1238 at [33]). Accordingly, I do not think that there is any impediment to the maintenance of Hotray's caveat arising from any failure to comply with s 74F(5)(b)(v) of the Real Property Act. Relief 126In the light of the conclusions set out above, it is appropriate that declarations be made as to the existence of each of the equitable interests described at [85] above. There should also be a declaration to the effect that, in relation to those equitable interests, priority is given to the interests according to the order in which they were created. 127As far as the costs of the proceedings are concerned, there does not seem to be any reason why costs should not follow the event. On that basis, the appropriate orders would be that JKAM pay the costs of Champion and Hotray. Champion and Hotray have established their equitable interests in the Property over the opposition of JKAM, and JKAM's alternative arguments, that Champion and Hotray engaged in postponing conduct so as to lose priority, have not been accepted. 128The parties are directed to bring in Short Minutes to give effect to these reasons. This is to be done within 14 days. ********** 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. Decision last updated: 18 July 2014