Circuit Finance Australia Ltd v Registrar of Titles [2005] QSC 283 [2006] 1 Qd R 204

SUPREME COURT OF QUEENSLAND CITATION: Circuit Finance Australia Ltd v Registrar of Titles [2005] QSC 283 PARTIES: CIRCUIT FINANCE AUSTRALIA LIMITED ABN 75 112 117 898 (applicant) v REGISTRAR OF TITLES (respondent) FILE NO/S: BS 7064 of 2005 DIVISION: Trial Division PROCEEDING: Application ORIGINATING COURT: Brisbane DELIVERED ON: 12 October 2005 DELIVERED AT: Brisbane HEARING DATE: 1 September 2005 JUDGE: McMurdo J ORDER: It will be declared that the caveat lodged by the applicant over Lot 16 on Survey Plan 156413 County Nares Parish Smithfield Title Reference 50437241 is a caveat to which s 126(2) to s 126(7) apply CATCHWORDS: CONVEYANCING – LAND TITLES UNDER TORRENS SYSTEM – CAVEATS AGAINST DEALINGS – LAPSE, REMOVAL AND WITHDRAWAL – LAPSE – where the applicant lent money on the security of a charging clause over property – where the applicant lodged a caveat accompanied by the owner’s consent, pursuant to the charging clause – where the Registrar of Titles treated the caveat as a lapsing caveat – where s 122 of the Land Title Act 1994 provides that a caveat may be lodged by a person claiming an interest in a lot – where s 122(2) provides that a caveat may only be lodged by a equitable mortgagee if it was a caveat to which s 126 applies – where s 126 provides that a caveator must commence proceedings to establish its interests within a certain timeframe, or the caveat lapses – where s 126(1) provides that the section does not apply to a caveat where the consent of the registered owner is deposited when the caveat is lodged – whether an equitable mortgagee may lodge a non lapsing caveat over property if the consent of the registered owner is deposited with the caveat -- 1 of 7 -- 2 Land Title Act 1994 (Qld), s 75, s 122, s 126 Land Title Amendment Act 1994 (Qld) Ex parte Hill v Dodson [1903] St R Qd 101, cited Theodore v Mistford Pty Ltd [2005] HCA 45, applied COUNSEL: P W Hackett for the applicant B Clarke for the respondent SOLICITORS: Patane Lawyers as town agents for Leonard Deane Lawyers for the applicant Crown Law for the respondent [1] McMURDO J: The applicant lends money to business borrowers. Sometimes it lends on the security of a registered mortgage. But it also provides finance by a chattel lease facility, under which the lessee’s obligations are secured by a charging clause in these terms: “Charged Property As security for the due and punctual payment of the rent and/or the moneys owing and the due and punctual performance and observance of the terms of this lease the Lessee as beneficial owner hereby charges in favour of the Lessor all of his right, title and interest in and to the charged property and all property here after to be held or acquired by the Lessee in addition to the charged property and consents to a Caveat or other registrable instrument being lodged to register such charge.” The term “the charged property” is defined in this form of lease agreement as any property specified in the agreement and any other land or other property which the lessee “had, now has or may in the future acquire any interest in during the currency of this lease”. [2] In a number of transactions, the applicant has lodged a caveat (over Queensland property), accompanied by the lessee’s consent, pursuant to that charging clause. The applicant says that its caveats are non lapsing because they are lodged with the registered owner’s consent. The Registrar of Titles treats them as lapsing caveats, with the result that he may remove them if the applicant does not start proceedings to establish its interest according to s 126(4) of the Land Title Act 1994 (Qld). One of these caveats was tendered in evidence. It was lodged last April, so that if the Registrar is correct, it has lapsed and may be removed because no proceeding has been commenced. In the usual case, the applicant does not wish to bring proceedings against its customer where there is no dispute between them, and the caveat has been lodged only against the possibility of a default. [3] The applicant claims to be entitled to caveat as an equitable mortgagee, which, so far at least, the Registrar seems to accept. The issue is whether upon the proper construction of the Land Title Act, a caveat by an equitable mortgagee, which is lodged with the consent of the registered proprietor, lapses absent proceedings to enforce it. The applicant seeks a declaration that such a caveat does not lapse. -- 2 of 7 -- 3 [4] The issue concerns the combined operation of s 122 and s 126 which provide as follows: “122 Lodging a caveat (1) A caveat may be lodged by any of the following-- (a) a person claiming an interest in a lot; (b) the registrar under section 17; (c) the registered owner of the lot; (d) a person to whom an Australian court has ordered that an interest in a lot be transferred; (e) a person who has the benefit of a subsisting order of an Australian court in restraining a registered proprietor from dealing with a lot. (2) However a caveat may only be lodged by an equitable mortgagee if it is a caveat to which section 126 applies. (3) To remove any doubt, it is declared that an interest in a lot does not include an interest in a proposed allotment under the Land Sales Act 1984 that a person obtains when the person agrees to purchase the allotment under that Act. … 126 Lapsing of caveat (1) This section does not apply to a caveat if-- (a) it is lodged by the registered owner; or (b) the consent of the registered owner is deposited when the caveat is lodged; or (c) an office copy of a court order mentioned in section 122(d) or (e) is deposited when the caveat is lodged; or (d) it is lodged by the registrar under section 17; or (e) it is lodged other than under this division. (2) A caveatee of a caveat to which this section applies may serve on the caveator a notice requiring the caveator to start a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat. (3) The caveatee must notify the registrar within 14 days of service of the notice on the caveator. (4) If a caveator does not want a caveat to which this section applies to lapse, the caveator must-- (a) start a proceeding in a court of competent jurisdiction to establish the interest claimed under the caveat-- (i) if a notice under subsection (2) is served on the caveator--within 14 days after the notice is served on the caveator; or (ii) if a notice under subsection (2) is not served on the caveator--within 3 months after the lodgment of the caveat; and (b) notify the registrar within the 14 days or the 3 months that a proceeding has been started and identify the proceeding. -- 3 of 7 -- 4 (5) If the caveator does not comply with subsection (4), the caveat lapses. (6) The caveator is taken to have complied with subsection (4)(a) if a proceeding has been started in a court of competent jurisdiction to establish the interest claimed under the caveat before the caveat was lodged. (7) The registrar may remove a caveat that has lapsed from the freehold land register.” [5] The term “equitable mortgagee” is undefined. But s 75 provides: “75 Equitable mortgage (1) An equitable mortgage of a lot may be created by leaving a certificate of title with the mortgagee. (2) Subsection (1) does not affect the ways in which an equitable mortgage may be created.” Section 75 restates what had always been the law in Queensland, that the deposit of the certificate of title (with intent that it should be security for a debt) is one of several means of creating over Torrens land what the general law would describe as an equitable mortgage: Theodore v Mistford Pty Ltd [2005] HCA 451 where Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ said: “[25] … the term ‘equitable mortgage’ is not used in the texts and the authorities with any single denotation. The nature of the security created must turn upon the intention of the party dealing with the assets to be subjected to the security and the nature of those assets. So it is accepted that a mortgage of an equitable interest, being an equity of redemption, can only be by way of equitable mortgage, although described as a second mortgage of the land in question. [26] In respect of a legal interest, under the general law an agreement to give a legal mortgage is described as an equitable mortgage. Subject to compliance with any statutory formalities, it may be treated in equity as if a legal mortgage had been granted and therefore as carrying with it the remedies, including foreclosure, incident to a legal mortgage. Hence the statement that while in theory the equitable mortgagee may call for a legal mortgage, in the great majority of cases the mortgagee rests upon its equitable rights. Lord Eldon LC said of the Court of Chancery that ‘an equitable title to a mortgage is here as good as a legal title’. In this way, by looking at the intent rather than the form, equity is able to treat as done that which in good conscience ought to be done.” It would appear then that the term “equitable mortgagee” in s 122(6) has a corresponding meaning, which would include a mortgagee whose interest derives from the deposit of the certificate of title. 1 At [3] -- 4 of 7 -- 5 [6] The applicant argues that in terms of s 122(2), its caveats are ones “to which section 126 applies”, although they are accompanied by the deposit of the consent of the registered owner. It submits that whether or not the caveat is accompanied by the owner’s consent, s 126 applies. Absent that consent, s 126 provides that the caveat will lapse if there are not duly commenced proceedings. Yet the applicant argues, s 126 also effectively provides that a caveat with the owner’s consent will not lapse. Either with or without consent, the applicant says that s 126 has an effect upon a caveat, by making it a non lapsing or lapsing caveat as the case may be, so that it is a caveat “to which section 126 applies” as that expression is used in s 122(2). [7] This argument would give no purpose to the words “to which section 126 applies”. Some meaning of them must be found which gives them some purpose. The Registrar submits that they mean a caveat to which subsections 126(2) to (7) apply. Subsection 126(1) describes the circumstances in which a caveat will not be affected by what might be described as the operative provisions of s 126, that is the provisions which determine the duration of the effect of the caveat. The Registrar submits that read with s 126, s 122(2) has the result of making irrelevant an owner’s consent to an equitable mortgagee’s caveat: with or without that consent, the equitable mortgagee’s caveat will lapse absent compliance with subsection 126(4). [8] As the Registrar’s submissions point out, there is an alternative interpretation but one which, if possible, should be rejected. Section 122(2) is in terms of what may be lodged by an equitable mortgagee. Upon a literal reading of s 122, a caveat to which s 126 does not apply cannot be lodged. According to s 126(1), a caveat lodged accompanied by the owner’s consent is one to which s 126 does not apply. Read in that way, s 122 would invalidate the lodgement of the caveat of an equitable mortgagee accompanied by the owner’s consent, whilst permitting the lodgement of the same caveat without the owner’s consent. That could not have been intended. A consideration of the relevant extrinsic material 2 confirms my view that s 122(2) should not be read literally and that the Registrar’s interpretation is correct. [9] The Explanatory Note to the Land Title Bill 1994 said that it was based largely on the draft bill contained in the report of the Queensland Law Reform Commission on the consolidation of the Real Property Acts.3 Clause 50 of the Commission’s draft bill provided for an equitable mortgage by a deposit of the certificate of title, and cl 50(2) provided that such a mortgagee could lodge a caveat forbidding registration of an instrument other than subject to the mortgage. Clause 89 of the Commission’s draft set out the circumstances in which a caveat would not lapse. One of them was where it was lodged accompanied by the written consent of the registered proprietor. Another was where it was lodged by “an equitable mortgagee under section 50(2)”. What the Commission had recommended was that an equitable mortgagee by deposit of the certificate of title could lodge a non lapsing caveat even without the owner’s consent, and any other equitable mortgagee could lodge a caveat which would not lapse if accompanied by that consent. [10] Upon its enactment, the Land Title Act contained what is still its s 75 and s 126, but it did not contain what is now s 122(2). There was then no provision dealing specifically with the lodgement of a caveat by an equitable mortgagee, whether a mortgagee by deposit of the certificate of title or otherwise. Section 75 of this Act, 2 Acts Interpretation Act 1954 (Qld), s 14B 3 Report No 40 published 1991 -- 5 of 7 -- 6 unlike its predecessor which was s 30 of the Real Property Act 1877, did not provide that an equitable mortgagee by deposit of the certificate of title could lodge a caveat. But such an equitable mortgagee, like any equitable mortgagee, would have an interest sufficient to support a caveat: Ex parte Hill v Dodson [1903] St R Qd 101 at 106-107 and could therefore caveat pursuant to s 122(1). The apparent effect of the Act in its original terms was to permit an equitable mortgagee, whose mortgage was created by a deposit of the certificate of title or otherwise, to lodge a caveat which would be susceptible to lapsing unless accompanied by the owner’s consent. [11] However, the Minister’s Second Reading Speech indicates quite a different intention.4 He then said: “Moving to a different area, the old legislation allowed equitable mortgagees to lodge a caveat to protect their equitable interest. Equitable mortgagees are persons who do not register a mortgage but rely on their physical possession of the Certificate of Title as security for the money loaned by them. As mentioned earlier, under the provisions of this Bill, as a Certificate of Title will only be issued when the land is unencumbered by a mortgage, the equitable mortgagee has the security of a clear Certificate of Title and therefore does not need the benefit of a caveat. If the equitable mortgagee wishes to have a better security, the mortgagee is entitled to register a mortgage.” The Minister’s intention was that the holder of an equitable mortgage, at least when in possession of the certificate of title, should not caveat at all. This is an apparent reference to an equitable mortgage created by the deposit of the certificate of title. At least for those equitable mortgagees, the Minister’s intention was to disallow any caveat. [12] The present s 122(2) was inserted by the Land Title Amendment Act 1994 (Qld). According to the relevant Explanatory Note, the purpose of this new subsection was to “make it clear that a lapsing caveat may be lodged by an equitable mortgagee”, which the Minister repeated in his Second Reading Speech.5 The amendment appears to represent a policy shift, although the Explanatory Note said that this was an amendment in the nature of the clarification of the original intent. In any case, the clearly stated purpose of s 122(2) was that an equitable mortgagee might lodge a caveat, but only a lapsing caveat. That corresponds with the Registrar’s submission. [13] The Minister’s Second Reading Speech for the (original) Land Title Bill, in the extract which I have set out, might suggest that in his reference to an equitable mortgagee when introducing the amendment, he still had in mind only an equitable mortgage created by deposit of the certificate of title. Should the reference to an equitable mortgagee in s 122(2) be confined to such a mortgagee, whose interest is created by the deposit of the certificate of title? If it were so confined, then the applicant would be outside s 122(2), and upon the presently accepted premise that the applicant’s standard form of chattel lease entitles it to an interest in land, the applicant could lodge a non lapsing caveat if with the owner’s consent. In my view 4 On Hon G N Smith, 16 February 1994, Hansard pp 6905-6906 5 Hansard 28 April 1994, p 7893 -- 6 of 7 -- 7 the term “equitable mortgagee” in s 122(2) should not be so confined. Section 75(2) makes it clear that the Act uses the term “equitable mortgage” to refer not just to a mortgage by deposit of the certificate of title. And whatever was the policy behind restricting the right to caveat to a lapsing caveat, it is difficult to see any relevant distinction between an equitable mortgage by deposit of the title deed and some other equitable mortgage. [14] In my conclusion the Registrar’s submission as to the effect of s 122 and s 126 should be upheld. The applicant’s submission gives no purpose to the words “to which section 126 applies”, because upon its argument, s 126 would always apply. The Registrar’s submissions are strongly supported by the Explanatory Note and the Minister’s Second Reading Speech to the Bill by which s 122(2) was inserted. The consequences could be impractical, both for financiers and those who need finance. But the extrinsic material supports the language of the statute in showing that a caveat lodged by a person claiming to be an equitable mortgagee is susceptible to lapsing and removal whether or not accompanied by the owner’s consent. [15] It will be declared that the caveat lodged by the applicant over Lot 16 on Survey Plan 156413 County Nares Parish Smithfield Title Reference 50437241 6 is a caveat to which s 126(2) to s 126(7) apply. I will hear the parties as to costs. 6 Exhibit 1 in these proceedings -- 7 of 7 --