Hanson Construction Materials Pty Ltd v Roberts

1. [1]

   BEAZLEY P: I have had the advantage of reading in draft the reasons of Sackville AJA. I agree with his Honour’s reasons and his proposed orders.

2. [2]

   PAYNE JA: I agree with Sackville AJA.

3. [3]

   SACKVILLE AJA: The applicant, Hanson Construction Materials Pty Ltd (Hanson), seeks leave to appeal from interlocutory orders made by a Judge of the Equity Division (Stevenson J). [1] The primary Judge, in an ex tempore judgment, ordered that a caveat lodged by Hanson on the title of a residential property owned by the respondent (Ms Roberts) be removed. Hanson lodged the caveat to protect an interest it claimed in the property as the holder of an unregistered charge granted to it by Ms Roberts.

4. [4]

   The primary Judge made the orders to enable Ms Roberts to refinance a loan from the Commonwealth Bank of Australia (CBA) which was (and is) secured by a first mortgage over the property. The orders were subject to conditions, the effect of which was to require Ms Roberts to consent to Hanson lodging a fresh caveat to protect its security interest. However, the orders, if carried out, would reduce Ms Robert’s equity in the property because the replacement first mortgage would secure a loan approximately $200,000 greater than the loan secured by CBA’s mortgage.

5. [5]

   Hanson’s complaint is that the orders adversely affect its interest as equitable chargee because (it says) Ms Roberts’ reduced equity in the property may be insufficient to enable Hanson to recover the full amount secured by its charge. Accordingly, Hanson seeks orders allowing the appeal, setting aside the orders made by the primary Judge and dismissing Ms Roberts’ motion.

The Dispute

1. [6]

   The dispute between the parties arises out of an Application for Commercial Credit (Application) made by Wayne Roberts Constructions Pty Ltd (Constructions) to Hanson on 2 May 2013. Ms Roberts was the sole shareholder of Constructions, although her husband, Mr Roberts, apparently played a significant role in the management of the company.

2. [7]

   The Application included a Guarantee and Indemnity (Guarantee) which, on its face, appears to be signed by Ms Roberts and her husband, Mr Roberts, as Guarantors. Under the Guarantee, the Guarantors unconditionally guaranteed any moneys due by Constructions to Hanson. Clause 7 of the Guarantee created a charge over the Guarantors’ assets as follows:

3. [8]

   (The term “Guarantor” included both Ms Roberts and her husband.) The Guarantee also provided that the Guarantors had to pay to Hanson all costs and expenses incurred by it in connection with the exercise of any right, power or remedy under the Guarantee (cl 9).

4. [9]

   Hanson lodged its caveat on or shortly after 14 August 2013. The caveat was duly recorded on the title to a property located at Marks Point, New South Wales (Property), of which Ms Roberts is the registered proprietor. The Property is the home of Ms Roberts and her husband.

5. [10]

   Hanson’s caveat claims:

6. [11]

   The core of the dispute between Hanson and Ms Roberts is that Ms Roberts denies that the signature on the Guarantee is hers. She claims that she had never seen the Application or Guarantee until after Hanson commenced proceedings in the District Court against her in October 2013.

A Chronology

1. [12]

   On 23 October 2013, Hanson commenced proceedings in the District Court against Constructions, Mr Roberts and Ms Roberts. As against Ms Roberts, Hanson claimed a declaration that the equitable charge created by the Guarantee applied to the Property and to other land of which Ms Roberts was the registered proprietor. Hanson also claimed an order that Ms Roberts pay it the sum of $182,832.41 owed by Constructions, plus interest and enforcement costs.

2. [13]

   On 6 August 2014, Ms Roberts filed an Amended Defence in the District Court proceedings. She denied that she had executed the Guarantee or that she was liable to Hanson under the Guarantee. Ms Roberts verified the Amended Defence on affidavit.

3. [14]

   On 25 March 2015, Mr Morelli was appointed as administrator of Constructions. On 1 May 2015, Mr Morelli was appointed as Constructions’ liquidator.

4. [15]

   On 29 April 2015, Mr Morelli lodged a caveat over the title to the Property. The caveat claimed that an equitable charge had been created over the Property in favour of the administrator by a Deed of Guarantee executed by Ms Roberts on 23 March 2015.

5. [16]

   On 30 April 2015, the solicitors acting for Ms Roberts in the District Court proceedings lodged a third caveat over the Property. The solicitors claimed an interest in the Property as equitable mortgagees pursuant to a Costs Agreement and Personal Guarantee said to be dated March 2014 and April 2015.

6. [17]

   On 6 June 2015, Mr Morelli, as liquidator of Constructions, advised Bluestone Mortgages Pty Ltd, which was considering advancing funds to Ms Roberts, that if she paid $64,000 no further claim would be made against her arising from the liquidation of Constructions. This amount was said to be due by Ms Roberts to the liquidator under a Deed of Settlement and Release to which she was a party.

7. [18]

   CBA informed Constructions on 12 October 2015 that since a liquidator had been appointed to the company, there had been an event of default under its credit facility. CBA advised that if the amount due by Constructions was not paid by 15 February 2016, it would charge penalty interest. CBA subsequently extended the date for repayment to 15 April 2016.

8. [19]

   On 27 October 2015, Hanson agreed with the liquidator to withdraw caveats it had lodged over properties owned by Constructions. Hanson did so in order to facilitate sale of the properties by the liquidator.

9. [20]

   On 8 December 2015, at the instigation of Ms Roberts, the Registrar-General served Hanson with a Notice of Proposed Lapsing of Caveat (Lapsing Notice) pursuant to s 74J of the Real Property Act 1900 (NSW) (Real Property Act). The Lapsing Notice informed Hanson that its caveat would lapse after 21 days unless it obtained an order extending the operation of the caveat.

10. [21]

    On 18 December 2015, Hanson filed a summons in the Equity Division seeking an order pursuant to s 74K of the Real Property Act extending the operation of the caveat. On 22 December 2015, an order was made extending the operation of the caveat until 9 February 2016. On 5 February 2016, Darke J extended the caveat until further order, on Hanson giving an undertaking as to damages.

11. [22]

    On 14 April 2016, Ms Roberts filed a Notice of Motion in the Equity Division proceedings seeking an order that Hanson withdraw its caveat to allow discharge of the CBA mortgage and registration of a first mortgage to Westpac Banking Corporation (Westpac). The orders sought by Ms Roberts contemplated that the Westpac loan would be used in part to discharge the debts due to the liquidator and to Ms Roberts’ solicitors, who would then withdraw their respective caveats. Ms Roberts offered to undertake not to create any further interest in the Property and to consent to Hanson lodging of a fresh caveat claiming the same interest over the Property as its existing caveat.

12. [23]

    On 6 May 2016, Ms Roberts’ solicitors advised Hanson that Ms Roberts no longer proposed to refinance through Westpac, but was in the process of obtaining pre-approval from an alternative financier.

13. [24]

    On 12 May 2016, Balla DCJ made an order pursuant to s 144(2) of the Civil Procedure Act 2005 (NSW) transferring the District Court proceedings to the Supreme Court. It appears that the order was made principally because of doubts as to whether the District Court had jurisdiction to grant the declaratory relief sought by Hanson.

14. [25]

    Ms Roberts filed an Amended Notice of Motion in the Equity Division proceedings on 13 May 2016 substituting Bluestone Mortgages (Bluestone) [2] for Westpac as the proposed incoming lender and mortgagee.

15. [26]

    On 5 July 2016, Bluestone informed Ms Roberts that her loan had been unconditionally approved in an amount of $692,000.50. The Loan Valuation Ratio was said to be 51.26 per cent, implying that Bluestone valued the Property at approximately $1.35 million. The purpose of the loan was stated to be the refinancing of existing home loans from other financial institutions.

16. [27]

    Bluestone’s letter of approval attached a schedule of debts to be refinanced as follows:

17. [28]

    On 8 July 2016, Ms Roberts signed a Loan Agreement with Bluestone as Manager for the lender, Permanent Guarantors Ltd. The Loan Agreement was on the terms previously communicated by Bluestone. The variable interest rate for the loan was 7.79 per cent per annum and the default interest rate was 13.79 per cent per annum. The Loan Agreement provided for Ms Roberts to make monthly repayments of principal and interest amounting to $4,976.72. The Loan Agreement also required that on settlement Ms Roberts procure the removal of the caveats that had been lodged by Hanson, the liquidator and the solicitors.

Ms Roberts’ Motion

1. [29]

   The primary Judge heard Ms Roberts’ motion on 14 July 2016, in the Equity Division Duty List. Counsel for each of the parties referred without objection to various affidavits that had been filed. None of the affidavits was formally read, but his Honour was taken to the parts of the affidavits and to certain annexed documents.

2. [30]

   Hanson’s solicitor stated in his affidavit that Hanson’s enforcement costs to that time amounted to the (surprisingly large) figure of $221,000. The solicitor estimated that Hanson would incur a further $117,000 in costs if Hanson’s claim against Ms Roberts required a trial on the merits.

3. [31]

   Counsel for Ms Roberts tendered a valuation of the Property prepared by a valuer which estimated its market value as at 3 March 2016 to be $1.5 million. Although the valuation was not given an exhibit number, the primary Judge and the parties apparently regarded the valuation as having been admitted into evidence.

4. [32]

   The primary Judge noted that counsel for Hanson accepted that there was a serious question to be tried as to whether Ms Roberts’ signature on the Guarantee was genuine. [3] His Honour also observed that there were “obvious differences” between the purported signature and examples of Ms Roberts’ genuine signature. He therefore considered that her contention that she was not bound by the Guarantee was “by no means fanciful”. [4]

5. [33]

   His Honour recorded that Ms Roberts proposed to use the Bluestone advance to repay CBA’s debt (to secure a discharge of its mortgage); pay $64,000 to the liquidator (to secure removal of his caveat); pay $35,000 to the solicitors (in exchange for which they would withdraw their caveat); and pay the Australian Tax Office $35,400. His Honour commented that the practical effect of the proposal: [5]

6. [34]

   Hanson’s position before the primary Judge was that Ms Roberts owed it $290,000 (including interest) under the Guarantee and that, if successful in the District Court proceedings, it would recover all of its costs under the “all expenses” clause in the Guarantee. [6] As has been seen, Hanson’s solicitor estimated that its total enforcement costs would be in the order of $338,000, assuming the matter proceeded to a full hearing.

7. [35]

   The primary Judge referred to the valuation of the Property given by Ms Roberts’ valuer, Mr Craine, ($1.5 million) and to the value apparently attributed to the Property by Bluestone for the purposes of its advance ($1.35 million). His Honour continued as follows: [7]

8. [36]

   I have referred to the orders made by the primary Judge. [8] Those orders are subject to a stay pending the determination of Hanson’s application for leave to appeal.

Submissions

1. [37]

   Mr Giles, who appeared for Hanson, did not dispute a number of matters:

2. [38]

   Mr Giles submitted that the primary Judge had misdirected himself and accordingly had committed an error that justified the intervention of this Court. The error related to the significance his Honour attributed to his finding that it seemed “likely” that if the orders were made, there would be sufficient equity in the Property to protect Hanson’s interest. His Honour incorrectly regarded the finding as sufficient to justify re-ordering the existing priorities between the holders of security interests in the Property. According to Mr Giles, his Honour should first have considered whether ordering the removal of Hanson’s caveat, albeit on terms permitting a fresh caveat to be lodged, would derogate from Hanson’s security over the Property. His Honour’s failure to address this question constituted an error.

3. [39]

   Mr Giles also contended that the primary Judge’s finding implicitly acknowledged that there was a significant risk that Ms Roberts’ equity in the Property would not be enough to ensure that Hanson’s security interest would be adequately protected. In the absence of an unequivocal finding that the caveator’s priority would not be “derogated from in a meaningful way”, the power to order Hanson to remove its caveat had not been enlivened.

4. [40]

   Mr Giles submitted that, in any event, the primary Judge should not have considered the balance of convenience until he had determined whether the circumstances were sufficiently unusual to justify displacing the priority enjoyed by Hanson. Since the effect of the orders was to prejudice Hanson by altering the order of priority among creditors claiming security interests over the property, it was not open to his Honour to make an order simply by reference to the balance of convenience. The first sentence in par [19] of the Primary Judgment, where his Honour stated that “[i]n this complicated circumstance, the balance has to be struck”, showed that he had proceeded directly to a consideration of the balance of convenience.

5. [41]

   When it was put to Mr Giles in oral argument that he was elevating the “unusual” standard into a legal test, he said that this was not his intention. He reformulated the argument by contending that the primary Judge failed to consider whether there would be a “practical derogation” from Hanson’s security interest on the Property.

The Legislative Framework

1. [42]

   Part 7A of the Real Property Act (ss 74A-74R) deals with caveats. Section 74F(1) permits a person claiming to be entitled to a legal or equitable interest in land to lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled. On the lodgement of the caveat, the Registrar-General must give notice in writing of the caveat to the registered proprietor (s 74F(6)). The Registrar-General is also to record in the Register such particulars of the caveat as the Registrar-General considers appropriate (s 74G).

2. [43]

   The Registrar-General is not required to be satisfied that the caveator is entitled to the estate or interest claimed in the caveat. The Registrar-General is obliged only to ensure that a caveat apparently complies on its face with the requirements of Part 7A of the Real Property Act and with the requirements of any regulations (s 74Q).

3. [44]

   Section 74H states the effect of a caveat lodged under s 74F. While the caveat remains in force, the Registrar-General must not, except with the caveator’s written consent, record any dealing if it appears that the recording of the dealing is prohibited by the caveat (s 74H(1)(a)(i)). However, the caveat does not have the effect of prohibiting a dealing except to the extent that the recording of the dealing would affect the estate or interest claimed in the caveat (s 74H(1)(b)(i)).

4. [45]

   The Real Property Act provides for the lapsing of a caveat in certain circumstances. One such circumstance is when the registered proprietor applies successfully to the Registrar-General to serve a lapsing notice on the caveator (s 74J(1)). The notice informs the caveator that unless the caveator obtains within 21 days an order from the Supreme Court extending the caveat and lodges with the Registrar-General a copy of the order, the caveat will lapse. If the caveator does not lodge a copy of such an order, the Registrar-General is to make a recording in the Register to the effect that the caveat has lapsed and the caveat thereupon lapses (s 74J(4)).

5. [46]

   A caveator served with a lapsing notice under s 74J(1) may apply to the Supreme Court for an order extending the operation of the caveat (s 74K(1)). Section 74K(2) provides that on such an application:

6. [47]

   An order under s 74K(2) may be made ex parte (s 74K(4)).

7. [48]

   If the Supreme Court orders the operation of a caveat to be extended for a specified period and no further order is made before expiration of the period, the caveat lapses (s 74LA(1)). A caveat may also be withdrawn by the caveator (s 74M).

8. [49]

   Section 74MA of the Real Property Act allows for an application to be made to the Supreme Court for an order that the caveat be withdrawn. It provides as follows:

9. [50]

   If a caveat lapses or is withdrawn, a further caveat in respect of the same estate or interest purporting to be based on the same facts has no effect unless the Supreme Court grants leave for the further caveat to be lodged (s 74O(1),(2)).

10. [51]

    Any person who lodges a caveat without reasonable cause, or who refuses to withdraw a caveat after being requested to do so, is liable to pay compensation to any person who sustains pecuniary loss attributable to the first person’s actions or failure to act (s 74P(1)(a),(c)). Similarly, a person who, without reasonable cause, procures the lapsing of a caveat is liable to any other person who sustains pecuniary loss attributable to the first person’s actions (s 74P(1)(b)).

Reasoning

1. [52]

   The effect of lodging a caveat is expressly stated in s 74H of the Real Property Act. While the caveat is in force, the Registrar-General is prohibited, except with the consent of the caveator, from registering a dealing which affects the estate or interest of the caveator. If an inconsistent dealing is lodged for registration or a lapsing notice is served, the caveator must seek an order continuing the operation of the caveat or the caveat lapses. An order extending the caveat ensures that the caveator’s unregistered estate or interest cannot be extinguished by the registration of an inconsistent dealing.

2. [53]

   Different views have been expressed as to whether lodging a caveat has significance for purposes other than preventing the registration of an inconsistent dealing. The orthodox view is that stated by Barwick CJ in J & H Just (Holdings) Pty Ltd v Bank of New South Wales [11] (Just v Bank of NSW). His Honour said that the purpose of a caveat: [12]

3. [54]

   Windeyer J in the same case addressed the significance of the holder of an unregistered interest failing to lodge a caveat where there are competing unregistered or equitable interests: [13]

4. [55]

   Some authorities have attributed greater significance both to the lodgement of a caveat and the failure to lodge a caveat, usually in the context of competition between unregistered interests in the same land. [14] For example, Callinan J in his concurring judgment in Black v Garnock [15] strongly disagreed with Barwick CJ’s observations in Just v Bank of NSW. Callinan J said that the complete statutory code in the Real Property Act relating to caveats was designed not just to prevent registration of inconsistent dealings, but to serve as notice to anybody interested in the land who searched the Register that there was some other dealing or transaction on foot. [16] For that reason, he disagreed with the limited operation and purpose attributed to a caveat by Barwick CJ. In Callinan J’s view: [17]

5. [56]

   It is not necessary in this case to express an opinion on the conflict of judicial opinion as to the nature and purpose of a caveat. The present case does not involve a contest between competing unregistered or equitable interests. There is no dispute that Hanson’s equitable charge, if valid, takes priority over the security interests of the liquidator and of the solicitors. Hanson’s charge was first in time and there is no suggestion that it did or omitted to do anything that would justify postponing its interest to the later unregistered interests on equitable principles.

6. [57]

   As has been seen, Hanson’s caveat was lodged well before the liquidator or the solicitors acquired their interests in the Property. However, unless the unorthodox views of Callinan J prevail, it was not Hanson’s lodgement of a caveat that conferred or preserved priority on its interest over the other unregistered interests. Nor was it the fact that the liquidator’s caveat and the solicitors’ caveat were lodged after Hanson had lodged its caveat. Hanson’s interest had priority because of the general equitable principle that where the merits are equal, priority in time gives the better equity. [18]

7. [58]

   Section 74MA of the Real Property Act operates within a legislative framework in which the principal, if not necessarily the only, purpose of lodging a caveat is to prevent the registration of a dealing inconsistent with the caveator’s interest. The legislation recognises that the lodgement of a caveat may create difficulties for others who hold or claim interests in the land, including the registered proprietor. Section 74J(1) accommodates this difficulty by allowing the registered proprietor to obtain the issue of a lapsing notice. Such a notice forces the caveator to demonstrate to the Court that he or she has at least an arguable claim to the interest protected by the caveat. Section 74MA provides an alternative mechanism by permitting the registered proprietor (among others) to seek an order from the Court that the caveator withdraw the caveat.

8. [59]

   The only express statutory precondition to the exercise of the Court’s power under s 74MA to order the withdrawal of a caveat is that the Court must be satisfied that a copy of the application has been served (relevantly) on the caveator. If the precondition is satisfied, the Court:

9. [60]

   The language of s 74MA of the Real Property Act is very broad. Once the precondition is satisfied the Court’s power to order the withdrawal of a caveat is not subject to any express constraints. As was said of a legislative predecessor to s 74MA(2)(b), the legislative text gives the Court the widest powers in the making of orders. [19]

10. [61]

    The generality of the statutory language accommodates the great variety of circumstances in which an application to remove a caveat may be made. For example, the application may be made on the ground that the caveator’s claimed interest is spurious. Alternatively, the applicant may accept that the caveator has a caveatable interest, but dispute the extent of the caveator’s interest, for example the amount claimed to be due under an unregistered mortgage. In some cases, of which the present case is an example, there is real doubt as to whether the caveator has an interest in the land but the doubt cannot be resolved until a hearing on the merits of the caveator’s substantive claim takes place. Even where there is no doubt as to the nature and extent of the caveator’s interest, the registered proprietor may have strong reasons for seeking an order for the withdrawal of the caveat, perhaps subject to the conditions designed to minimise prejudice to the caveator.

11. [62]

    The breadth of the statutory language does not mean that the Court has an untrammelled power to require a caveator to withdraw a caveat. The language of s 74MA of the Real Property Act must be construed having regard to the other provisions of Part 7A and to the subject matter, scope and purpose of the legislation as a whole. The Court clearly must pay close attention to such matters as the nature of the interest claimed by the caveator, whether there is any dispute as to the existence or extent of the interest and the likely consequences of ordering the caveat to be withdrawn. But the text of s 74MA gives little support to Hanson’s contention that the Court’s power to order the withdrawal of a caveat cannot be enlivened unless an unstated precondition is satisfied.

12. [63]

    Mr Giles relied on the decision of the Western Australian Court of Appeal in Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd [20] (Custom Credit) which concerned legislation in similar, but not identical, terms to s 74MA of the Real Property Act. [21] Mr Giles submitted that the judgment of Owen J, with whom Malcolm CJ and Walsh J agreed, supported his contention that unless the primary Judge found that the circumstances of the present case were “unusual”, his Honour was not entitled to order Hanson to withdraw its caveat.

13. [64]

    In Custom Credit, the caveator claimed an interest in the land as equitable chargee under an unregistered mortgage from the registered proprietor, who had guaranteed the repayment of certain loans made by the caveator. The registered proprietor, who held the legal title to the land as trustee for third parties, disputed whether the mortgage was effective to charge her interest in the land. The registered proprietor also sought an order for rectification of the mortgage. The substantive proceedings were complex and involved large sums.

14. [65]

    The registered proprietor sought an interim order for the removal of the caveat. The trial judge made the order on the ground that the caveator (who bore the onus) had not established that there was a serious issue to be tried as to whether it had a caveatable interest. The trial judge indicated that he would have ordered removal of the caveat in any event, because the caveat effectively stultified the registered proprietor’s business and the balance of convenience favoured removal.

15. [66]

    Owen J accepted that the caveator had to satisfy the Court that there was a serious issue to be tried as to whether it had the interest claimed in the caveat. [22] His Honour then said this: [23]

16. [67]

    Owen J considered that this was not “an unusual case where the balance of convenience favour[ed] removal”. He inclined to the view that: [24]

17. [68]

    The reasoning in Custom Credit has not escaped criticism in Western Australia. In Navarac Pty Ltd v Moondancer Holdings Pty Limited (Moondancer), [25] the trial judge held on the authority of Custom Credit that once the caveator established an arguable case as to the existence of a caveatable interest, the caveat had to remain “unless the circumstances are so unusual as to justify its removal”. The trial Judge was not persuaded to depart from the “normal rule”. [26] The Court of Appeal, in allowing the appeal, observed that: [27]

18. [69]

    The Court considered that, on the facts of the case, balance of convenience factors were of great importance. Among other things, maintaining a caveat over a large area of subdivided land prejudiced third parties who had entered contracts to purchase lots within the subdivision, free of encumbrances. [28] For that reason, the Court held that the trial Judge’s discretion had miscarried.

19. [70]

    Significantly, the Court added the following observations: [29]

20. [71]

    These observations are inconsistent with Mr Giles’ argument that no order can be made under s 74MA of the Real Property Act unless a finding is made that the circumstances of a case are so unusual as to justify removal of the caveat.

21. [72]

    Mr Giles also relied on two decisions of Brereton J, both of which were referred to by the primary Judge. In the first, Buchanan v Crown and Gleeson Business Finance Pty Ltd [30] (Buchanan), Brereton J held, correctly in my view, that: [31]

22. [73]

    Brereton J pointed out that an obvious case of the balance of convenience favouring removal of a caveat is where the applicant has an interest in the land superior to that of the caveator, particularly where the caveat prevents the applicant legitimately exercising its proprietary rights. His Honour gave as an example Kerabee Park Pty Ltd v Daley [32] (Kerabee), in which an order was made for the removal of a caveat lodged by an unregistered second mortgagee, where the caveat effectively prevented the first mortgagee exercising its power of sale.

23. [74]

    Brereton J in Buchanan accepted that a valid caveat can also be removed if it prevents the registered proprietor from the legitimate exercise of a right in respect of the land, including a proper sale or refinance. However, his Honour considered that there was great force in the caveator’s submission that removal of a caveat should not be countenanced where it “would have the practical effect of deferring the priority of the caveator’s equitable mortgage”. His Honour interpreted the observations of Owen J in Custom Credit [33] as standing for the proposition that “it is a rare case where a valid caveat will be removed for reasons of the balance of convenience”. [34] Brereton J did not refer to the warning by the Western Australian Court of Appeal in Moondancer against interpreting Custom Credit as laying down a proposition of law.

24. [75]

    Brereton J identified a critical question in Buchanan to be whether removal of the caveat would derogate from the caveator’s claim and priority. After considering the evidence as to the value of the property and the amounts due to the security holders, his Honour found that the proposed transaction would not derogate from the caveator’s interest. His Honour was therefore not satisfied that the balance of convenience favoured maintaining the caveat and he ordered its withdrawal.

25. [76]

    In Tadrous v Tadrous, [35] Brereton J in substance repeated the principles he stated in Buchanan. His Honour explained that the reason why orders which have the effect of deferring the priority of the caveator’s equitable interest are ordinarily not to be countenanced, is that “to do so is practically to prefer unsecured rights over the proprietary rights of the caveator”. [36] Accordingly, his Honour rejected an application by the registered proprietor, who sought an order requiring the withdrawal of a caveat to facilitate the refinancing of an existing first mortgage. In his Honour’s view, it was critical that the caveator had a seriously arguable claim to an equitable charge over the land, the value of which would exceed the registered proprietor’s equity under the proposed refinancing. [37]

26. [77]

    Courts have approached applications for the removal of caveats pursuant to s 74MA of the Real Property Act by applying principles analogous to those appropriate to applications for interlocutory injunctions. [38] Since the caveator is seeking to maintain a statutory injunction preventing registration of inconsistent dealings pending resolution of any dispute, he or she bears the onus of showing that there is a serious issue to be tried as to the existence of the interest claimed in the caveat. Once the caveator discharges that onus, the continuation or removal of the caveat depends on the Court’s assessment of the balance of convenience. Without attempting to be exhaustive, I have identified some matters the Court must take into account in making that assessment. [39]

27. [78]

    In some circumstances, an application by a registered proprietor for the removal of a caveat is unlikely to succeed. If the nature and extent of the caveator’s interest is undisputed and removal of the caveat will clearly destroy the caveator’s interest, it is fair to say that it would be very unusual for the application to be granted. [40] An example of such a case is where the caveator has an equitable charge to secure repayment of a loan and the practical effect of removing the caveat would be to render the charge worthless. But as the Court in Moondancer observed, to say that in these circumstances it would be unusual – perhaps extremely unusual – to order the withdrawal of the caveat, is not to elevate “unusual” into a legal test that must be satisfied before an order can be made. To do so imposes unwarranted constraints on the discretion conferred on the Court by s 74MA of the Real Property Act.

28. [79]

    The authorities also recognise that the strength of the caveator’s claim to an interest in land may be significant in assessing the balance of convenience. [41] This is consistent with the well-established principle that the apparent strength of each party’s case is a material factor in assessing the balance of convenience on an application for an interim injunction. [42] It follows that a registered proprietor seeking an order for the removal of a caveat to permit the refinancing of a mortgage loan, may have a stronger case if there is real doubt as to whether the interest claimed by the caveator is valid and enforceable.

The Present Case

1. [80]

   The present case has two features of particular significance. The first is that there is real doubt as to whether Hanson’s claimed equitable charge over the Property is valid and enforceable. The primary Judge pointed out that there are obvious discrepancies between the signature purporting to be that of Ms Roberts on the Application and examples of her genuine signature. The discrepancies lent weight to her denial that she signed the Application.

2. [81]

   Moreover, contrary to Hanson’s submissions in this Court, the evidence supporting Ms Roberts’ denial was not confined to her solicitor’s affidavit made on information and belief. Ms Roberts verified her Amended Defence in the substantive proceedings on affidavit. In doing so, she attested to the truth of her pleaded denial that she signed the Application. By contrast, Hanson did not adduce any evidence before the primary Judge disputing Ms Roberts’ affidavit evidence. In particular, Hanson did not read any affidavit from its employee who purported to witness Ms Roberts’ signature on the Application. No explanation was provided for that omission.

3. [82]

   The second feature is that although the primary Judge found that the orders sought by Ms Roberts would reduce the equity in the Property available to Hanson, his Honour also found that it seemed likely that there would be sufficient equity to protect Hanson’s interest. Bearing in mind that the onus rested on Hanson to establish that the balance of convenience favoured continuation of the caveat, this amounted to a finding that his Honour was not satisfied that the orders would cause Hanson to suffer financial loss. In other words, his Honour accepted that the orders would necessarily displace the priority Hanson enjoyed over the other creditors who had lodged caveats (assuming its claimed interest to be valid), but was not satisfied that it would suffer a practical detriment as a consequence of losing its priority.

4. [83]

   In my opinion, the primary Judge did not commit any error of principle that vitiated the exercise of his discretionary power to order the withdrawal of Hanson’s caveat, subject to conditions. His Honour accepted that there was a serious issue to be tried as to whether Hanson was entitled to the equitable charge it claimed in its caveat. His Honour then proceeded to consider whether the balance of convenience favoured continuation or withdrawal of the caveat.

5. [84]

   The primary Judge cited Buchanan and Tadrous v Tadrous for the proposition that only in a “rare case” will a caveat be removed for reasons of balance of convenience if to do so would have an adverse effect on the priority of the caveator’s claim. If anything, this proposition was too favourable to Hanson. For the reasons I have given, depending on the strength or weakness of the caveator’s case and other considerations material to the balance of convenience, it will not necessarily be “rare” for an order to be made for the withdrawal of a caveat, even if there is a potentially adverse impact on the caveator’s claimed priority. In any event, s 74MA of the Real Property Act does not require the Court to make a finding that the case is “rare” before the power to order withdrawal of a caveat is enlivened.

6. [85]

   In assessing the balance of convenience, the primary Judge took into account that the validity of Hanson’s claimed interest turned on the “stark question” of whether Ms Roberts’ signature had been forged. His Honour accepted that there was “some substance” to Ms Roberts’ contention that she never signed the Agreement, a conclusion clearly supported by the evidence. The primary Judge’s observation that “a balance has to be struck” referred to the strength of the competing contentions of the parties as to the validity of the Guarantee. In my view, his Honour was entitled to give consideration to the strength of Ms Roberts’ contention in determining whether the balance of convenience favoured continuation of the caveat.

7. [86]

   The primary Judge specifically acknowledged that the orders sought by Ms Roberts, if made, would cause certain of her creditors to be preferred over Hanson’s claimed interest. However, his Honour did not consider that to be an insuperable barrier to her application because he was not satisfied that Ms Roberts’ remaining equity was insufficient to protect Hanson’s equitable charge. His Honour also took into account that Bluestone required other creditors to be paid out before it was prepared to refinance the existing first mortgage over the Property. In these circumstances, I consider that it was well open to his Honour to require Hanson to withdraw its caveat on terms permitting it to relodge the caveat after Ms Roberts discharged the existing CBA mortgage, paid out the creditors identified by Bluestone and granted a first mortgage to Bluestone.

8. [87]

   Contrary to Mr Giles’ submissions, I do not accept that the primary Judge was required to make a finding that the proposed orders would not derogate from Hanson’s security position before considering whether the balance of convenience favoured continuation of the caveat. The impact of the orders on Hanson’s security position was clearly a material matter to be taken into account in determining where the balance of convenience lay and his Honour did take the impact of the orders on Hanson’s interest into account. But even if there was a prospect that Hanson’s security position would be detrimentally affected, that did not necessarily preclude an order requiring the withdrawal of the caveat. Whether an order having that effect could be justified depended on the weight to be given to all the material circumstances.

9. [88]

   Similarly, I do not accept that the primary Judge was required to find that the circumstances were sufficiently “unusual” to justify displacing the priority accorded to Hanson by its caveat. Section 74MA of the Real Property Act does not require such a finding to be made before the discretion conferred by the provision is enlivened.

10. [89]

    Mr Giles also criticised the primary Judge’s finding that it seemed likely that Ms Roberts’ equity in the Property, after the refinancing, would be sufficient to protect Hanson’s interest. I did not understand the criticism to be a challenge to the finding of fact, which would not raise any issue of principle. I understood Mr Giles’ point to be that unless the primary Judge analysed Ms Roberts’ capacity to service the Bluestone mortgage loan and the consequences of any default, his Honour could not have found that the orders would not involve any practical “derogation” from Hanson’s interest. As I have explained, I do not accept that a finding to this effect is required to enliven the discretion conferred by s 74MA of the Real Property Act.

11. [90]

    If Mr Giles intended to challenge the primary Judge’s factual finding, I do not think the challenge is made out. The primary Judge did not choose between the valuation apparently adopted by Bluestone ($1.35 million) and the opinion expressed by Mr Craine ($1.5 million). (His Honour observed that Mr Craine’s valuation was not supported by any evidence from Mr Craine himself. The Rules, however, permit an expert valuation report to be tendered without an affidavit from the expert. [43] ) Mr Craine’s opinion was supported by a detailed analysis based on comparable sales. By contrast, there was no evidence before the primary Judge explaining the basis on which Bluestone attributed a value of $1.35 million to the Property.

12. [91]

    As the primary Judge found, if Mr Craine’s valuation was accepted, Hanson’s position was “less problematic”. [44] The margin between Bluestone’s loan (about $700,000) and the value of the Property was about $800,000, considerably in excess of the amount claimed by Hanson, even allowing for enforcement costs.

13. [92]

    It is also relevant to point out that Hanson’s action against Ms Roberts has been on foot for nearly three years, during which period interest has been accumulating on Hanson’s claimed debt at penalty rates. Hanson gave no explanation to the primary Judge for the apparent delay in finalising the proceedings and it adduced no evidence to show that the proceedings cannot swiftly be brought to finality. A swift resolution of Hanson’s claim minimises the risk that Ms Roberts will prejudice Hanson’s interest by defaulting on the Bluestone Mortgage or accumulating substantial arrears of interest and costs.

Orders

1. [93]

   I propose the following orders: