Capital Finance Australia Limited v Sharpe Enterprises & Ors Pty Ltd [2009] QSC 305

SUPREME COURT OF QUEENSLAND CITATION: Capital Finance Australia Limited v Sharpe Enterprises & Ors Pty Ltd [2009] QSC 305 PARTIES: CAPITAL FINANCE AUSTRALIA LIMITED ACN: 069 663 136 (plaintiff/respondent) v SHARPE ENTERPRISES PTY LTD ACN: 065 975 171 (first defendant/first applicant) RELAX MODE PTY LTD ACN: 061 650 744 (second defendant/second applicant) AIRLIE SUMMIT DEVELOPMENTS PTY LTD ACN: 100 937 648 (third defendant/third applicant) WILLIAM BENJAMIN SHARPE (fourth defendant/fourth applicant) FILE NO/S: BS 9986 of 2009 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 23 September 2009 DELIVERED AT: Brisbane HEARING DATE: 22 September 2009 JUDGE: Chief Justice ORDERS: 1. The application filed 17 September 2009 is dismissed. 2. The defendants pay the plaintiff’s costs of and incidental to the application, to be assessed on the standard basis. CATCHWORDS: REAL PROPERTY – TORRENS TITLE – CAVEATS AGAINST DEALINGS – REMOVAL – OTHER MATTERS – caveats – charging clause guarantee – whether apt to charge land prior to default by principal debtor Clark v Raymor (Brisbane) Pty Ltd [1982] Qd R 790, cited Zen Ridgeway Pty Ltd v Adams [2009] QSC 117, cited COUNSEL: D Thomae for the plaintiff -- 1 of 4 -- 2 G F Crow for the defendants SOLICITORS: Bennet & Philp for the plaintiff Macrossan & Amiet for the defendants [1] CHIEF JUSTICE: The defendants seek the removal of caveats lodged over their lands by the plaintiff. The plaintiff lodged the caveats on 16 June 2009. On 10 September 2009 it commenced this proceeding, to establish its caveatable interest. The defendants seek the summary removal of the caveats. [2] The ground of the caveats is expressed in this way: “As equitable mortgagee pursuant to clause 5 of that part of a written guarantee dated 17 May 2007 entitled ‘guarantee and indemnity – secured’ between the registered proprietor and the caveator by which the registered proprietor charged its land with payment of monies owing to the caveator.” [3] It is necessary to set out the relevant parts of the agreement, including clause 5: “2. You acknowledge that: … (e) any security held by us from you at any time secures payment by you of the Money under this Guarantee. 3. You unconditionally and irrevocably guarantee to us the punctual payment to us of the money and the due and prompt observance and performance of all covenants, obligations, terms and conditions (monetary or non- monetary, present or future, actual or contingent) on the part of each Customer to be performed or observed under or in connection with: (1) the agreement; … 4. If a Customer does not pay any of the Money when due, you must pay the whole of that money to us (or as we direct) immediately upon demand by us. 5. As security for your obligations, you: (a) hereby mortgage in our favour all your right, title and interest in: (i) any land described in the Schedule above as ‘Land’; and -- 2 of 4 -- 3 (ii) any other land that you own or in which you hold an interest as at the date of this Guarantee; and (b) mortgage in our favour all of your future right, title and interest in any land that you acquire or in which you obtain an interest at any time after the date of this Guarantee; … (d) undertake at our request to execute a separate mortgage document or documents in registrable form incorporating the covenants and provisions referred to in paragraph (c); (e) authorise us to take all actions necessary to give full effect to the security including the lodgement of caveats; …” [4] It is not suggested the “Customer”, Platinum Whitsunday Pty Ltd, has defaulted. Mr Crow, who appeared for the defendants, submitted that “the guarantee and indemnity document … does not create an equitable mortgage in the land, unless and until the principal debtor breaches its obligations and the surety fails to meet a demand of the creditor plaintiff thus enlivening the rights under the guarantee document”. On the other hand, Mr Thomae, who appeared for the plaintiff, submitted that “clause 5 of the … guarantees is an immediate condition and provides security for the applicants’ present obligations under the … guarantee”. [5] Mr Crow described clause 4 as the “pivotal” clause, confirming the traditional situation where the liability of the guarantor crystallizes upon default by the principal debtor and demand upon the guarantor. But that provision relates only to the guarantee of payment. The guarantor’s liability is broader, extending under clause 3 to “the due and prompt observance and performance of all covenants, obligations, terms and conditions (monetary or non-monetary, present or future, actual or contingent)”. Clause 5 then provides that as security for the performance -- 3 of 4 -- 4 of its obligations, each guarantor “hereby” mortgages its interest in certain land in favour of the creditor. Under clause 5(d), the guarantor is obliged to execute a mortgage at the creditor’s request, and there is no postponement of when that request might be made. The parties to this instrument intended the equitable mortgage to arise at once, and not postponed until default and demand. [6] Mr Crow separately submitted that in relation to one of the parcels of land, lot 8, of which the first defendant is owner “in its own right and as trustee”, no caveatable interest arose because the trustee had no “matured right to subrogation” (cf Zen Ridgeway Pty Ltd v Adams [2009] QSC 117, para 13). But here the terms of the guarantee create an immediate security over the land. That interest did not depend on the creditor’s being subrogated to the trustees’ right of exoneration or lien. [7] In my view, the guarantee gave the creditor a caveatable interest in the subject land. As to matters of convenience, I note that the plaintiff has consistently cooperated in withdrawing caveats, or making other appropriate arrangements, where the defendants have established that the proceeds of sale were destined to extinguish the defendants’ obligations to the registered mortgagee or to allow development. Also, as submitted for the plaintiff, “the lodging of a caveat is the only way to ensure in respect of the charge that on the application of equitable principles of priority … the charge holder can rank in priority to subsequent securities” (see Clark v Raymor (Brisbane) Pty Ltd [1982] Qd R 790, 799. [8] There will be orders that the application filed 17 September 2009 be dismissed, and that the defendants pay the plaintiff’s costs of and incidental to the application, to be assessed on the standard basis. -- 4 of 4 --