Awadallah v Hymix Australia Pty Ltd [2015] NSWSC 117

Supreme Court New South Wales

Medium Neutral Citation: Awadallah v Hymix Australia Pty Ltd [2015] NSWSC 117 Hearing dates: 19 February 2015 Decision date: 19 February 2015 Jurisdiction: Equity Division Before: McDougall J Decision: Caveat to be withdrawn on condition that $53,891 be paid into Court to abide outcome of debt recovery proceedings in District Court. Catchwords: EQUITY - interests - equitable mortgage over real property arising from guarantee - where property is owned by joint tenants - where only one joint tenant was a guarantor - validity of a caveat lodged by the equitable mortgagee against the legal interest of that joint tenant only - whether nature of interest properly described - whether balance of convenience favours extending the caveat - effect of section 211 of the Duties Act on quantum of the mortgage Legislation Cited: Duties Act 1997 (NSW) Cases Cited: Allen Taylor & Co Pty Ltd v Harrison [2010] NSWSC 1021 Andrews v Wilcox [2008] NSWSC 280 Boral Recycling Pty Ltd v Wake [2009] NSWSC 712 Category: Principal judgment Parties: Rahgeb Naguib Awadallah (Plaintiff) Hymix Australia Pty Ltd (Defendant) Representation: Counsel: D A Allen (Plaintiff) R L Gall (Defendant)

Solicitors: Dib Lawyers (Plaintiff) Patane Lawyers (Defendant) File Number(s): 2015/46129

Judgment (ex tempore – revised 19 February 2015) 1. HIS HONOUR: This is an application for removal of a caveat. The facts that give rise to the application may be summarised relatively briefly. 2. The plaintiff, Mr Awadallah, is the director of a company known as Blue Haven Pools & Spas Pty Ltd (the company). The nature of the company's business appears sufficiently from its name. 3. The defendant supplies ready mixed concrete to those in the construction industry. It claims to have supplied concrete to the company, on the basis that it held Mr Awadallah's guarantee. 4. In proceedings in the District Court, Hymix claims payment from Mr Awadallah of some $53,891.59 together with interest and costs. It claims other relief (including declarations as to the effect of a guarantee given by Mr Awadallah and the effect of an equitable mortgage that Hymix claims to have pursuant to that guarantee). It is unnecessary to pursue the fascinating problem raised by Mr Awadallah's amended defence in those proceedings as to the ability of the District Court to grant declaratory relief. Equally, it is unnecessary to pursue the fascinating question of why the claim by Hymix in the District Court could not simply have been framed as one for money due under a guarantee. 5. Mr Awadallah had filed a defence in the District Court which was utterly uninformative. He has now filed an amended defence which is marginally less so. It asserts that the guarantee on which Hymix relied was abandoned or terminated. Alternatively, the amended defence asserts, the parties never intended that the guarantee would have binding effect in relation to the debts on which Hymix sues. 6. There is an interesting history relating to the dates of guarantees and the dates of various caveats. Again, for present purposes, the fascinating questions raised by that history can be put to one side. 7. The guarantee on which Hymix sues in the District Court, and which is said to give rise to an equitable interest in the land to which I will refer in a moment, was given on 30 June 1998 ('the 1998 guarantee'). 8. One of the provisions of that guarantee was that, for the better security for money that might be payable to Hymix pursuant to it, any interest that Mr Awadallah might then or in the future have in any land would be charged with payment of that money, and that Hymix could lodge a caveat. I set out the relevant provisions (cl 11.1, 11.2 and 11.3): 11.1 All the right, title, estate and interest which any of the Guarantors now has or may hereafter during the currency of this Guarantee acquire in any chattels, goods, plant or equipment of any kind, freehold or leasehold real property or land shall by the force of the execution of this Guarantee stand charged by each of the Guarantors (as beneficial owner of the said property) with payment of all monies hereby guaranteed. 11.2 Each of the Guarantors as registered proprietor of any such freehold or leasehold real property of land referred to in Clause 11.1 hereof hereby consents to the registration of a Caveat over the said land which the parties hereby irrevocably agree shall be a Consent Caveat. 11.3 For the purposes of registering a Caveat or Caveats pursuant to the provisions of Clauses 11.1 and 11.2 hereof the Guarantor for and on behalf of itself together with its successors in title and assignees irrevocably MAKES NOMINATES AND APPOINTS the Company, the Company's Secretary and each of its Directors, the Guarantor's joint and several true and lawful attorney and attorneys for the Company for the purpose of doing all such acts and deeds in the name of the Guarantor as the Company shall think fit and necessary to give full effect to the powers rights and remedies of the Company herein contained AND the guarantor does hereby for itself its successors and assignees covenant and agree to RATIFY AND CONFIRM all and whatever the said attorney or attorneys or substitutes therefore shall do or purport to do by virtue of this Clause. 1. Further, the guarantee provided that Mr Awadallah should pay, on a solicitor and client basis, any costs incurred by Hymix in enforcing its rights (cl 11.5). 2. Mr Awadallah and his wife, Ms Marie Awadallah (who is not a party to these proceedings), own as joint tenants a number of parcels of real estate. They may be described, sufficiently, as the Terrigal real estate, the Macquarie Street real estate, the Birchgrove real estate, the Warners Bay real estate and the Somersby real estate. 3. There is evidence of value of only the last two properties: the Warners Bay real estate and the Somersby real estate. The Somersby real estate has been sold, pursuant to a contract which does not appear to be pursuant to anything other than an open market sale, for the sum of $320,000. There is a valuation of the Warners Bay real estate, prepared less than a month ago, assessing its value at $600,000. 4. Neither the Warners Bay real estate nor the Somersby real estate is in any way relevantly encumbered. 5. The Terrigal real estate is encumbered by a mortgage said to have an amount owing of $1 million; the Macquarie Street real estate is encumbered by a mortgage said to have an amount owing of $600,000; and the Birchgrove real estate is encumbered by a mortgage said to have an amount owing of $100,000. 6. As a result of rulings on evidence that I gave, there is no evidence of the value of any of those three parcels of real estate. 7. The caveat in question was lodged against the title to all five parcels of real estate. It describes the registered proprietor as "Ragheb Naguib Awadallah". Within the box where that name appears, there is written in hand an address at Lansvale and a postcode, presumably of that suburb. 8. Adjacent to the box, there is what appears to be a hand-drawn arrow. Beneath that arrow, there is handwritten the name "Marie Young". To my inexpert eye, it may well be that the same hand was responsible for writing both the address and the name of Ms Young. 9. Apart from the fact (which may be a coincidence) that the other registered proprietor, Mr Awadallah's wife, is named "Marie", there is no evidence as to who Marie Young might be. 10. The action said to be prohibited by the caveat is that described in items 1 and 4 of Schedule 2. Only item 1 is relevant. It prohibits: The recording in the register of any dealing other than a plan affecting the estate or interest claimed by the caveator and set out in Schedule 1. 1. Of course, the caveator is Hymix. 2. Schedule 1 sets out the estate or interest claimed and the facts said to give rise to it. They are, respectively: (1) an equitable estate or interest in the fee simple as equitable mortgagee of the interest of Ragheb Naguib Awadallah in the property. (2) the caveator is owed the sum of $53,891.59 pursuant to an equitable charge arising from [the guarantee] entitling the caveator to an equitable mortgage over the property. 1. I should have mentioned that the guarantee appears to have been stamped to the amount of $53,891. It is not clear when that happened, but since there is no evidence that it was not stamped before the caveat was lodged, issues as to efficacy of subsequent stamping do not arise for consideration. 2. The urgency is said to arise because the Somersby real estate has been sold. The contract for sale was made on 7 October 2014. The copy of the cover sheet in evidence does not show any indication of stamping. I think I can assume safely that if the contract is to proceed to settlement tomorrow, then stamp duty will have been paid and the vendors, Mr and Mrs Awadallah, will be in a position to provide a marked transfer confirming that fact. 3. It cannot be said that Mr Awadallah has acted with any particular promptness in moving the Court to protect his position. The caveat appears to have been lodged in early January. Although there has been a deal of toing and froing between the parties as to withdrawal of the caveat to permit settlement, Mr Awadallah did not move the Court until, on 13 February, he sought and obtained an order for abridged service of a summons. 4. Nonetheless, the facts are that the matter is before the Court; it has not been suggested that either party has been prejudiced in putting its case to the Court; and the matter needs to be resolved. 5. The asserted urgency arises because the purchaser of the Somersby real estate gave Notice to Complete to Mr and Mrs Awadallah and their conveyancing solicitors. That notice was dated 2 February 2015. It required completion on or before tomorrow, 20 February 2015, and made time of the essence. It appointed 3.00pm on 20 February 2015, at a specified address as the time and place for completion. 6. There is no reason to think that the Notice to Complete is invalid. Nor is there any reason to think that, if it be not complied with, the purchaser will, nonetheless, extend yet further time. 7. Hymix has undoubtedly made an arguable case, in the relevant sense, that it is a creditor of Mr Awadallah, pursuant to the 1998 guarantee, for at least (in round figures) $54,000. Indeed, its solicitor puts the amount at closer to $90,000, taking into account interest and costs. Thus, it says, it should not be deprived of the protection for which it bargained – at least, unless it is given some equivalent protection. 8. The issues really turned on two points. One was the validity of the caveat. The other was considerations of balance of convenience. Wrapped up in the latter question was an issue as to whether, in any event, alternative security should be provided for more than (again in round figures) $54,000, bearing in mind s 211 of the Duties Act 1997 (NSW) and my decision in Boral Recycling Pty Ltd v Wake [2009] NSWSC 712. 9. As to the validity of the caveat: Mr Allen of counsel, for Mr Awadallah, noted that there were two proprietors of the Somersby real estate, and that they held as joint tenants. He submitted that the effect of the caveat on its face was to go beyond whatever rights Hymix might have under the 1998 guarantee and the equitable mortgage clause (cl 11.1) therein. That arose, he submitted, because the actions prohibited by the caveat included the recording of any dealing other than a plan affecting the estate or interest claimed by the caveator. He submitted that this was sufficient to prohibit the recording of any dealing by Mrs Awadallah in respect of her own interest in the subject land, notwithstanding that she was not a party to the equitable mortgage relied upon and was not even named as a registered proprietor. 10. Mr Allen relied on the decision of Hammerschlag J in Andrews v Wilcox [2008] NSWSC 280. 11. Ms Gall of counsel, for Hymix, submitted that the caveat was adequate in form. She referred to the decision of Slattery J in Allen Taylor & Co Pty Ltd v Harrison [2010] NSWSC 1021. 12. In each of the cases relied upon by counsel, it is necessary (as always) to pay very close attention to the facts. In Andrews, as it appears from [5] of the reasons for judgment given by Hammerschlag J, the caveat described the proprietor as Mr Wilcox only and claimed an interest of an "equitable mortgage pursuant to deed of loan between Andrew Wilcox and Susan Andrews dated 2 February 2005." 13. In that case, as in Allen Taylor and as in this case, there were in fact two registered proprietors of the land, and they held as joint tenants. 14. In those circumstances, Hammerschlag J said at [25] that the caveat on its face extends, and is recorded as extending, to affecting a dealing by Mrs Wilcox with her interest. He rejected a submission that the caveat should be limited because of the description of Mr Wilcox alone as registered proprietor. His Honour said at [26] that the effect of the caveat was to apply to the interests of both joint tenants. 15. In those circumstances, His Honour considered that the caveat could not stand because, (at [28]) it interfered with the other joint tenant's rights with respect to the property. 16. In Allen Taylor, the caveat named only Mr Harrison as registered proprietor. The estate or interest claimed was "an equitable interest given by Norman Leslie Harrison ("the registered proprietor") over the freehold interest of the registered proprietor." (I should note that there appears to have been a formatting or other error at [27] of His Honour's reasons, but what I have set out is, I think, the effect of what is there recorded.) 17. Schedule 2 item 1 was in common form with the present case and with the caveat under consideration in Andrews. 18. At [28], Slattery J said that on first principles, the caveat appeared to be carefully drawn to achieve the purpose of identifying and affecting only Mr Harrison's interest as joint tenant in the land, but not the interest held by his wife as the other joint tenant. His Honour referred to the description of the registered proprietor, and the description of the estate or interest that I have set out above. His Honour noted that it was only that estate or interest which was the subject of the prohibition following from item 1 of Schedule 2. 19. At [29], His Honour concluded that the drafting was appropriate, and in his view consistent with the operation of s 74F of the Real Property Act 1900 (NSW). 20. His Honour then referred to Land Titles Office practice. I pass over that, since there was no evidence of such practice in this case, and no reason to think that it is the same now as it was in 2010. 21. At [32], His Honour considered the decision of Hammerschlag J in Andrews. He summarised the reasoning in that case and then, at [33], set out what he saw as a distinguishing feature in the present case before him. Slattery J said that in the case with which he was dealing, the plaintiffs had made it clear by their drafting that their claim was limited to Mr Harrison's interest and that they did not seek to prohibit Mrs Harrison from dealing with her interest. 22. The essence of His Honour's reasoning on this point may be found at [34]: [34] The limitation of Oberon's and Allen Taylor & Co's claimed interest in their caveats to the interests of the one joint tenant, Mr Harrison is important. A co-owner (whether joint tenant or tenant in common) may grant an interest over or encumber his or her own interest in the land; and, the other co-owner must submit to the grant or encumbrance, unless it improperly interferes with that co-owner's rights to the land, including the right to possession: Hedley v Roberts [1977] VR 282, at 288 and Butt, Land Law, 6th Edition, Law Book Co, [1448]. Where a caveat on its face interferes with the right of the other co-owner to deal with the land and where it has not been demonstrated that the other co-owner consents to the continuation of the caveat, then the caveat cannot stand: Andrews v Wilcox [2008] NSWSC 280 at [28]. In my view a clear attempt has been made to avoid that problem here and the caveat is not defective on that ground. 1. It is difficult, in ex tempore reasons given in the Duty List, to deal effectively with what might well be thought to be inconsistent decisions at first instance given by two Judges in this Court. However, if I may say so with respect, I think that the careful analysis undertaken by Slattery J is correct. Further, I think, it is applicable in the present case. 2. It is necessary to return to the precise wording of the caveat with which I am concerned. Mr Awadallah alone was specified as the registered proprietor. The nature of the interest claimed by Hymix was described. Clearly, reading the description as a whole, it was an interest following from the claimed equitable mortgage over Mr Awadallah's interest (whatever that might be) in the subject properties. In passing, I should note that Mr Allen submitted at one stage that the description of the estate or interest was inadequate because it was simply said to be an equitable estate or interest in the fee simple. However, in my view, to divorce those words from the words immediately following them is unrealistic. Those following words limit and describe the equitable estate or interest that was claimed. 3. Further, the statement of facts makes it clear that the charge is asserted only against Mr Awadallah, and as arising from an agreement to which only he was party (and of course Hymix). Thus, it seems to me, the caveat to this point is drafted so as to make it clear that it is intended to affect only Mr Awadallah's interest in the property, and to protect only the benefit, as equitable mortgagee, that Hymix has against him (on its case) by virtue of the 1998 guarantee. 4. That directs attention to item 1 of Schedule 2. What is prohibited is the recording of a dealing that affects the estate or interest claimed by the caveator. The estate or interest claimed by the caveator, Hymix, is not an interest against the property overall, or against both the registered proprietors. It is an estate or interest claimed as equitable mortgagee of the interest of Mr Awadallah in that property. 5. It is of course trite to say that joint tenants between them own the land, as it used to be said, per my et per tout: by half and by whole. However, it does not follow that a charge given by one joint tenant only, over his interest, is a charge also over the interest of the other joint tenant. 6. The nature of joint tenancy is that such a charge of one joint tenant's interest will, of necessity, affect the whole of the land held in joint tenancy. It is a charge over the whole of the land, but only to the extent of the chargor/joint tenant's interest in it. Such a charge does not affect the whole of the legal interests in that land where one only of the joint tenants is the chargor. This metaphysical distinction may be difficult to grasp, but it does seem to me to be important for the present case. 7. Thus, when one reads the caveat as a whole, two quite separate conclusions follow. The first is that the prohibition extends only in respect of the estate or interest claimed, which is the estate or interest as equitable mortgagee of Mr Awadallah's interest as joint tenant. 8. The second conclusion is that in practical terms, the protection of that interest by the caveat will have consequence for the exercise by Mrs Awadallah of her rights as joint tenant. Effectively she cannot sell or mortgage or transfer her interest without the consent of the caveator. However, to my mind, one needs to distinguish carefully between the legal characterisation of the claimed interest and the practical consequences of the statutory method, provided by the caveat system, for protecting it. 9. In short, I see no relevant distinction between the facts of this case and the facts considered by Slattery J in Allen Taylor. For the reasons that his Honour gave, supplemented by what I have just said, I prefer the view that the caveat in the present case does not on its face go beyond the rights asserted arising under the 1998 guarantee. 10. I turn to considerations of balance of convenience. 11. Mr Allen submitted that there was clear evidence that the protection afforded to Hymix under its equitable mortgage and caveat extended to the unencumbered Warners Bay real estate, valued at $600,000. Mr Awadallah had sworn that he had a 50% interest in that property. The accuracy of that conclusory and unsubstantiated assertion is open to question. Nonetheless, Mr Allen submitted, on the face of things there was a valuable unencumbered parcel of real estate, of which Mr and Mrs Awadallah were joint tenants, which (more accurately, Mr Awadallah's interest in which) remained available to Hymix for or by way of security. 12. In addition, Mr Allen submitted, there were the three other parcels of real estate (out of the five to which I have referred) in respect of which, it might be thought, there could be some equity available for Hymix. 13. That last point can be disposed of quickly. If Mr Awadallah wished to assert that those other properties could offer some comfort, it was incumbent on him to give proper evidence of their value, and proper evidence (rather than a bald assertion) of the amount owing. 14. Ms Gall submitted that there was a real likelihood that the company, and Mr Awadallah as guarantor, might have other liabilities which could be enforced against the various parcels of real estate. The answer to that, I think, is that the title searches do not disclose that there are any other caveators. There are of course the three mortgages to which I have referred. However, if there are creditors, it does not appear that they have taken steps to protect, by lodging caveats, any equitable interest that they may have in the land pursuant to whatever agreements they may have entered into. 15. Thus, whilst I recognise from long experience the likelihood that companies engaged in the construction industry may be saddled with heavy liabilities, I do not regard that as significant. 16. Ms Gall pointed to an offer made by her client, namely that it would accept payment into Court of the sum of $90,000, to be held pending the determination of the District Court proceedings. I do not think that that is an appropriate condition. I return to what I said in Boral Recycling. I start by setting out s 211 of the Duties Act: 211 Consequences of non-payment of duty A mortgage on which duty is required by this Chapter to be paid is unenforceable to the extent of any amount secured by the mortgage on which duty has not been paid. 1. At [12] of Boral Recycling, I said that since the mortgage or charge in that case had not been stamped at all, the consequences that s 211 prescribed must follow. The section is clear. A mortgage that is required to be stamped is enforceable only to the extent of the moneys secured by it on which duty has been paid. 2. In this case, it may very well be that the equitable mortgage extends beyond the amount of (in round figures) $54,000, to the whole amount asserted in the evidence for Hymix and beyond. Particularly taking into account the costs charging clause (cl 11.5), that would appear to be correct. However, the simple fact is that whatever may be the amount actually secured, the mortgage is enforceable only to the extent that it (or the instrument creating it) has been stamped. 3. Thus, it would be inappropriate to require any condition of payment in beyond the amount in question, which more accurately was $53,891.59. 4. Mr Allen relied on evidence given by Mr Awadallah that the company had commenced marketing by internet and that its sales had increased. That evidence was entirely conclusory, and unsupported by detail or by documents. However, it cannot be ignored for that reason alone. 5. Mr Awadallah said, further, that to enable the company to meet its customers' demands, he needed to inject further capital. Thus, he said, he proposed to inject all the surplus proceeds of the sale of the Somersby real estate into the company. If that were not done, he said, the company could not continue to supply pools and spas and pay its contractors. 6. Mr Awadallah did not trouble to give any detail of the financial position of the company. He did not trouble to explain why (for example) a capital injection of $250,000 rather than $300,000 would not be sufficient. He did not trouble to explain why, if the need for capital was so urgent, the Warners Bay real estate had not been sold, either instead of or in addition to the Somersby real estate. 7. It is a serious thing to deprive a creditor of security that it has taken, simply for the convenience of the debtor. In this case, Hymix (on its case) bargained for security by way of equitable mortgage over any real estate that Mr Awadallah then owned or in the future might own. That is its entitlement. I do not see why it should be forced to settle for less, particularly having regard to what I regard as the inadequate evidence of need for the whole of the funds, and the inadequate evidence of the failure to exploit alternative remedies for the company's undercapitalisation. 8. In those circumstances, it seems to me that sufficient justice is done between the parties if the order for withdrawal of caveat is made, in relation to the Somersby real estate, on condition that the sum that I have identified ($53,891) be paid out of the proceeds of sale into Court, or into such other account that the parties may wish to agree between them, to abide the outcome of the District Court proceedings. 9. That will give effect to a number of competing principles. It will enable Mr Awadallah and his wife to deal with their real estate, and to avoid the threat of rescission and damages for breach of contract. It will, so far as the unsatisfactory evidence permits a conclusion to be drawn, enable a substantial capital sum to be injected into the company's business. It will leave Mr and Mrs Awadallah free to deal with their other real estate as they might wish, subject only to the mortgages and caveats affecting them. 10. Further, that outcome will give effect both to the policy underlying and the clear command of s 211 of the Duties Act. 11. Finally, an outcome in those terms will ensure that Hymix is not deprived of the security for which it bargained, to the extent that it has sought, as required by law, to protect its ability to enforce that security (and again, I am referring to s 211 of the Duties Act). 12. The parties are to bring in short minutes of order to give effect to these reasons. 13. I will hear argument on costs.