National Australia Bank v Sgargetta [2015] VSC 537 (28 September 2015)

NATIONAL AUSTRALIA BANK	Plaintiff

v

DENNIS SGARGETTA	First Defendant

REGISTRAR OF TITLES	Second Defendant

JUDGE:	JOHN DIXON J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	28 SEPTEMBER 2015
DATE OF RULING:	28 SEPTEMBER 2015 (Revised 12 October 2015)
CASE MAY BE CITED AS:	NAB v SGARGETTA
MEDIUM NEUTRAL CITATION:	[2015] VSC 537

CAVEAT – Removal – Whether appropriate interest claimed on grounds stated – Whether adjournment futile – Mortgagee in possession seeking to complete sale – Section 90(3) Transfer of Land Act 1958.

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr A Segal	Gadens

For the First Defendant	In person

For the Second Defendant	No appearance

1 The plaintiff (NAB) brings an application under s 90(3) of the Transfer of Land Act 1958 (Vic) to summarily remove the first defendant’s caveat to enable NAB to settle the contract for the sale of land situated at 92 Old Coach Road, Kalorama, Victoria by it as mortgagee in possession. Mr Sgargetta’s son, Elliot Daniel Sgargetta (‘Mr Sgargetta Jnr’) is the registered proprietor.

3 Since 21 February 2007, NAB has had a first registered mortgage over the property. Pursuant to a written agreement dated 10 December 2007, NAB agreed to provide Elliot Daniel Sgargetta with financial accommodation by way of a NAB Choice Package Fixed Rate Home Loan.

4 On 8 June 2012, NAB commenced a County Court proceeding against Elliot Daniel Sgargetta seeking possession of the property and judgment for the total amount owing under the Loan Agreement. On 17 February 2014, it obtained judgment for possession of the property and for debt in the sum of $440,441.19 plus interest and costs. An appeal to the Court of Appeal was dismissed and an application for special leave to appeal to the High Court of Australia was refused.

6 Presently, Elliot Daniel Sgargetta remains in default under the mortgage and is indebted to NAB in the amount of $514,791.28, excluding enforcement expenses. This sum exceeds the sale price noted in the Contract of Sale. On 21 April 2015, this Court removed a caveat lodged over the property by Elliot Daniel Sgargetta’s wife. On 12 August 2015, the first defendant lodged the subject caveat over the property asserting a ‘part performed oral agreement’ with Elliot Daniel Sgargetta.

7 In his affidavit sworn 27 September 2015, the first defendant stated in relation to his caveat:

8 Despite repeated requests, Mr Sgargetta has refused to remove the caveat. NAB’s application to remove the caveat was personally served on Mr Sgargetta on 24 September 2015 and also in accordance with the deeming provision contained in s 89(4) of the Act.[1]

9 The first defendant sought leave for his son Elliot Daniel Sgargetta to assist him as a McKenzie friend. Elliot Daniel Sgargetta has no legal qualifications. Mr Sgargetta told me he practised as an accountant. In exceptional circumstances, the Court will allow a person who is not an admitted solicitor or barrister, who is not a member of the relevant professional body, and who does not hold a relevant practising certificate, to represent a litigant. But good grounds must be shown to the Court before leave will be granted to such a person to represent a party.[2]

10 No relevant grounds were put to me. The first defendant suggested that Elliot Daniel Sgargetta should appear ‘as a matter of public interest.’ That public interest was not clearly specified. Further, Elliot Daniel Sgargetta is intimately involved in the present proceedings as appears in these reasons. I did not see it as appropriate that the first defendant be assisted by his son in the circumstances.

11 Further, no relevant grounds to permit a McKenzie friend appeared during the hearing. Mr Sgargetta was plainly able to advocate his own position. Leave was reserved for the application to be renewed if it became evident that Mr Sgargetta was in difficulty in presenting his case and that his son might usefully assist the Court, but that circumstance never came to pass. Despite my ruling, at times during the hearing, Elliot Daniel Sgargetta sought to directly address the Court.

12 The first defendant also sought an adjournment of the proceedings, principally for two reasons as I understand his application. The first reason is that he wished for further time to ‘expose corruption that has taken place in court matters,’ referring to the County Court trial that took place in August 2013 and in which he was not a party.[3] The second reason is that he claims to have had inadequate time to prepare for this application as the application and affidavit in support was served on him last Thursday afternoon with the same material being provided to him by email on Friday afternoon.

13 The application consists of an affidavit of some 28 paragraphs supported by 14 exhibits. The electronic materials last Friday also included an outline of the plaintiff's submissions to be made this morning. The first defendant was, in the available time, able to prepare an affidavit of some 25 paragraphs that included seven exhibits. In addition, he was able to present submissions to the Court. The argument on both sides in respect of this adjournment, including a short period when I read the first defendant's affidavit, has taken approximately two hours.

14 I explained to the first defendant the issues that I will consider in determining his application for an adjournment. The principal argument that was raised against the adjournment was that it would be futile to grant it. I endeavoured to establish from the first defendant precisely how he would establish the interest notified by the caveat if granted an adjournment. The first defendant referred to the existence of written documents which he describes as loan agreements.

15 It is unclear what are the precise terms of these loan agreements, if there be more than one, but it is clear that they are private documents within the family, although they may also involve as a party San Andrea Pty Ltd, as trustee for the Sgargetta Settlement Trust, which is a company controlled by the first defendant.

16 The first defendant said that these written agreements are located in his files at his office and apparently it will take until Tuesday of next week to discover the files because of personal family commitments that are concerned with childcare arrangements for his young grandchildren and with the conduct of his practice as an accountant. There was no explanation of why he did not obtain the documents when he was preparing the affidavit that he filed this morning or at any time between last Thursday evening and this morning. I was not persuaded that his assertion was genuine.

17 What is significant is that Mr Sgargetta did not identify to the Court that there was within these agreements any specific charging clause that affected the property. Whether or not the agreements contain an obligation to repay by a specific date the funds loaned or advanced was not a matter that the first defendant could clearly recall. When asked what were the consequences under the agreements for non-payment of the advance the first defendant stated that he would sue his son to recover the debt.

18 I am not persuaded that the material to which the first defendant refers as being able to be produced to the Court if he was granted an adjournment, is capable of establishing an estate or interest in the land as a chargee. As I understood Mr Sgargetta’s contention, that was the estate or interest that he was asserting in order to be repaid funds loaned, and be paid for services rendered as an accountant.

19 Further, the interest that is claimed by the caveat is quite different. The first defendant’s caveat asserted a freehold interest in the property on the basis of part performance of an oral agreement. There was nothing in the plaintiff’s affidavit referring to an oral agreement, or part performance. The first defendant has not suggested that, if granted an adjournment, he will take any steps to justify that particular interest.

20 When I asked him why he had specified his grounds of claim in that manner when his claim was as a chargee, he replied that it was the best available fit from the drop-down menu that appeared at the Land Victoria website for the way he understood his claim when he was seeking to lodge the caveat. I doubt that this was a genuine response but because Mr Sgargetta is not legally qualified, I will extend to him the benefit of the doubt. The move to an electronic land register, with the capacity for any person without legal training to complete and lodge a caveat by making selections from drop-down menus may be problematic but I need not pause to consider that issue. Be that as it may, the obligation that the first defendant now faces is one of justifying the estate or interest claimed on the grounds of claim that appear in the caveat.

21 Having taken some time to question the first defendant as to what further information might be placed before the Court if an adjournment were granted, I am not persuaded the first defendant is in a position to justify the caveat that has been lodged, and as a consequence, any adjournment would be futile. There cannot be a serious question that the first defendant is entitled to a fee simple estate in the land on the grounds of a part performed oral agreement.

22 The other question that arises in relation to the adjournment is the balance of convenience. The plaintiff has entered into a contract of sale of the property that was due to be settled on 9 October 2015 or earlier, by agreement. I am informed by the plaintiff’s counsel that an earlier settlement date was agreed. The affidavit of Mr Robert Thomas Hinton, sworn 24 September 2015, deposes that settlement of the contract was scheduled to take place on 18 September 2015.

23 The property was sold for $420,000, although the first defendant suggested that it had been appraised by somebody, presumably an employee of an estate agency, as possibly being able to achieve a greater purchase price than that, but there is no suggestion of a challenge to the bona fides of the exercise of the mortgagee’s power of sale.

24 The amount that was due under the mortgage to the bank on 17 February 2014, was $440,441.90, and the amount that is presently owing is $514,791.28, excluding enforcement expenses that have not yet been quantified. It is clear that there is insufficient funds available to satisfy the registered first mortgage and that delay has increased the losses facing the bank.

25 Mr Hinton also exhibits an email from a solicitor at his firm to the plaintiff, confirming that the purchaser has requested that the settlement date be brought forward to 18 September 2015. It appears that this arrangement was entered into in particular to suit the convenience of the purchaser. Mr Hinton now deposes to the fact that the purchaser and his family vacated premises in which they were previously living in anticipation of settlement on that date. The purchaser has temporarily, with his family, which includes his three year old son, temporarily moved into a motel/hotel, and have otherwise put their possessions into storage.

26 Neither the first defendant, nor his son for that matter, made any offer to service the defaulting loan, or pay any funds into court, in return for further time to prepare their position.

27 Bearing in mind all of these circumstances, I refused the application for the adjournment.

28 I now turn to the substantive application. This application is made pursuant to s 90(3) of the Transfer of Land Act for the removal of the caveat. As canvassed above, the first defendant’s caveat, which was filed on 12 August 2015, claims a freehold estate in the land on the grounds of a part performed oral agreement with the registered proprietor. The principles that are to be applied on the application to remove a caveat are well known. In summary, the Court's power to act under s 90(3) of the Transfer of Land Act, is discretionary and the exercise of that discretion is ordinarily approached in a similar manner as is used in determining whether or not to grant an interlocutory injunction.

30 Having noted some relevant matters above, I will add to the background to this dispute. On 25 November 2014, the bank took possession of the property. The affidavit evidence shows that the registered proprietor remains in default under the mortgage and is presently indebted to the bank in the amount of $514,791.28 excluding enforcement expenses.

31 Requests were made that the first defendant remove the caveat, which were refused, resulting in this application. The difficulty with the first defendant's position is that at its highest he wants to suggest that there is a charge or some form of security interest created by a written agreement between his trustee company and/or himself and Elliot Daniel Sgargetta, however that is not what is claimed by the caveat.

32 For that reason alone, I would order that the caveat be removed. If that interest is what is properly claimed then a caveat that sets out the correct estate or interest claimed and the correct ground of claim was what should have been lodged. However, it would be futile to lodge a caveat that claimed a security interest of that sort for several reasons, or to entertain any application to amend the caveat.

33 The first reason is that s 91(2B) of the Transfer of Land Act 1958 would operate to permit the NAB’s transfer to the purchaser to be registered and cause the caveat to lapse.

34 The second reason is the application of the principle identified in Law Mortgagees Queensland Pty Ltd v Thirteenth Corp Pty Ltd.[6] The principle is a further reason to order the removal of the present caveat. In that case, the interest claimed by the caveats was an equitable interest in fee simple under an uncompleted contract of sale, alleged to have been entered into on a date that predated the registration of the plaintiff's mortgage. However, the contract of sale was subject to the approval of a plan of subdivision and, in the particular circumstance, the equitable interest claimed by the first defendant as supporting the caveat could not have arisen in advance of the plaintiff's mortgage. The Court held that because the plaintiff's interest as registered mortgagee arose before the creation of any equitable interest claimed in the caveat, the plaintiff's mortgage must prevail.

35 The Court went on to point out that even if the interest claimed in the caveats had existed prior to registration of the plaintiff's mortgage, the plaintiff's caveat must still be removed because, notwithstanding the order of creation of the interests in the absence of fraud, the plaintiff as registered proprietor holds its registered estate in the land, that is pursuant to the mortgage, free of the claims of the caveator. That position arises by force of statute, namely s 42 of the Transfer Of Land Act 1958.

36 In this case, even if the first defendant had been able to establish that there was a ground for him to claim the freehold estate in the land pursuant to a part performed oral agreement, and even if that oral agreement was shown to have created that interest prior to 21 February 2007, it would still be deferred to the registered interest of the mortgagee, which is indefeasible under the provisions of the Transfer of Land Act 1958. That is because the first defendant does not suggest that he would be able to demonstrate that the registration of that mortgage was based in fraud.

37 That is not to say that the first defendant has not made various allegations that may amount to fraud against the plaintiff, and those associated with it, in the course of this proceeding. Those allegations are based in the matters that were the subject of proceedings between the plaintiff and Elliot Daniel Sgargetta. Whether or not those allegations have substance and are of any significance is not a matter with which I am concerned on this application. It was clear that Mr Sgargetta principal concern was to press for ‘justice’ in respect of those matters. I explained to him that this was not the proper place for those allegations to be aired and that such matters can be raised before the Court in the appropriate way and vindicated by a hearing on evidence after notice of the allegations has been given to the persons being accused of wrongful conduct.

38 What is significant for my purposes is that it is not suggested that any of that conduct impugns the registration of the plaintiff's mortgage on the title at the relevant time. The first defendant’s complaint is that there had been an agreement reached between the registered proprietor and the bank for refinancing the bank's loan, and that in purported performance of that agreement the first defendant's trustee company tendered certain moneys to the bank which were not accepted.

39 The circumstances of that non-acceptance are matters that have been dealt with in other proceedings, but what is presently significant is that the first defendant told me that he intended that his trustee company - by the process of paying out the plaintiff's mortgage, which in his submission was defeated by the improper or inappropriate or wrongful conduct of the bank - did not obtain, in effect, a subrogated right to the plaintiff's mortgage or a clear title to the property in order to register its own mortgage.

40 This proposition suggests that San Andrea Pty Ltd rather than Mr Sgargetta might have been the proper claimant. It also reveals that the manner in which the first defendant asserts that he might acquire an interest in this property was by a security based upon or in support of the loans that he had made for the benefit of his son. It was necessarily created after the registration of the plaintiff's mortgage. Finally, there is no suggestion in these circumstances that the registration of the mortgage might be impugned by fraud. Whatever be the reason for the failure of that commercial arrangement, the fact remains that the plaintiff’s mortgage in good faith was registered on the title and, as such, retains its quality of indefeasibility.

41 It follows that it would be futile to extend this proceeding to permit the first defendant an opportunity to attempt to justify the caveat that he has in fact lodged.

42 Further, the Court could only entertain the maintenance of a caveat on the condition that the first defendant successfully sought leave to amend the caveat; instituted proceedings to establish the interest claimed; and, most importantly having regard to the rule in Inglis v Commonwealth Trading Bank of Australia,[7] paid into court the whole of the amount due under the mortgage. There has been no application to amend the caveat and no offer to pay into court. That payment required would be at least $514,791.28.

43 For these reasons, I am satisfied that there is no serious question to be tried that the first defendant has an interest as notified by this caveat and it is unnecessary to turn to the question of the balance of convenience. However, on that issue, for completeness, I would add one observation. Although I am satisfied that the balance of convenience would favour the plaintiff, there is some evidence that the purchaser under this contract is experiencing some hardship because he and his family have vacated the premises in which they were living and are now temporarily located in a motel or a hotel. Had I been minded to conclude that there was some prospect of the first defendant justifying the interest claimed by the caveat, I would have not been persuaded by that circumstance alone that the balance of convenience favoured the bank.

44 Accordingly, the orders that the Court will make is that the second defendant, the Registrar of Titles, is ordered pursuant to s 90(3) of the Transfer of Land Act 1958 to remove caveat AM101365U from the land in volume 4244, folio 765.

45 After delivering this ruling extempore, the first defendant asked whether I held any shares in the plaintiff. When I inquired why the first defendant was seeking this information after his case was concluded, he asserted that pursuant to the decision in Ebner v Official Trustee in Bankruptcy,[8] I should have disclosed this information at the beginning of the hearing. I disclosed that I have a family trust that has a holding of about 200 NAB shares and I have a superannuation fund that has a holding of a little more than that.

46 The applicable principles were set out by the High Court in Ebner. As a matter of prudence any shareholdings in a litigant should be disclosed by the judge, but the fact that shares are held by the judge, directly or indirectly, in a large publicly listed company is not a ground upon which a judge should disqualify himself or herself unless there is a realistic possibility that the outcome of the case could affect the value of the shares.[9] Clearly, no such circumstance arose here. Further, if the first defendant had a serious submission on this point, he plainly being alive to it, he should have made his inquiry at the beginning of the hearing. Had he done so, I would have rejected a submission that I recuse myself and I will not now accede to the later submission and recuse myself from completing the application.

^[6] [1999] VSC 360 (Warren J) (as she then was) noting the approach of the New South Wales Court of Appeal in Vukicevic v Alliance Acceptance Co Ltd & Anor, unreported NSWCA (1987) CCH Aust & NZ Conveyancing Report, 270.

Supreme Court of Victoria

National Australia Bank v Sgargetta [2015] VSC 537 (28 September 2015)