Blog 100. How does failure to caveat affect priorities between equitable interests in land?

In this blog I deal with a recent case on the above question preceded by two reminiscences, one personal and the other relating to this legal question.

The personal reminiscence is, this being Blog 100, that the origin of my Blog was a seminar I gave on caveats for the Leo Cussen Institute in July 2017.  As I walked down Little Bourke Street to the old Leo building I expected few attenders in the dead of winter and holidays.  There were 56 – so I learnt that there were a lot of solicitors interested in caveats.  I then proposed to Leo to write a booklet on the subject but was told that these no longer sold.  I hardly knew what a blog was, but asked my friend Frank Pereira-Jackson, who had advised me on computers for 20 years, whether a blog was feasible, he said yes and we have done it ever since.  I do the writing, with my work perused and at times questioned by the non-lawyer Frank, who having studied mathematics and computer science, has maintained a lifelong affection for grammar, layout and general pedantry.  After critiquing my work he then creates links to cases referenced and seeks to ensure the formatting works correctly on the many different systems and browsers before launching it into cyberspace.   His support has been invaluable.

The legal reminiscence is that I studied Property Law at Melbourne Uni in 1972 using the first edition of Sackville and Neave, Australian Property Law.  I have recently re-read the 10th ed, 2016, in the course of which I was struck that the question with which this blog is concerned has been the subject of shifting judicial attitudes over a century.  In determining equitable priorities in land some judges take the failure to caveat much more seriously than others.  So the rough history has been –

  1. In Butler v Fairclough (1917) 23 CLR 78 the majority of the High Court held that by omitting to lodge a caveat the plaintiff had lost the priority arising from its equitable interest being created earlier than that of the defendant.  Griffith CJ. stated –

“A person who has an equitable charge upon the land may protect it by lodging a caveat, which in my opinion operates as notice to all the world that the registered proprietor’s title is subject to the equitable interest alleged in the caveat.”

  1. In Abigail v Lapin [1934] AC 491 the Privy Council held that Butler v Fairclough was rightly decided.
  2. This view held sway until J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546, the high-water mark of downgrading the significance of a caveat in determining priorities.  Barwick CJ. stated at 552- 556 –

“Much has been said in the course of this case about the failure of the Bank to lodge with the Registrar-General a caveat against dealings … Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator.  This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration.  The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator’s estate or interest though if noted on the certificate of title, it may operate to give such notice. …

But it was the respondents’ conduct in thus arming the mortgagee with the capacity to become the registered proprietor and able to deal with others as such and not any failure by them to lodge a caveat that was decisive in Abigail v. Lapin … much of what Lord Wright says about the consequences of a failure by a claimant to an equitable interest to lodge a caveat and particularly his comments on Butler v. Fairclough … became, in my opinion, obiter.

… To hold that a failure by a person entitled to an equitable estate or interest in land … to lodge a caveat against dealings with the land must necessarily involve the loss of priority which the time of the creation of the equitable interest would otherwise give, is not merely in my opinion unwarranted by general principles or by any statutory provision but would in my opinion be subversive of the well recognized ability of parties to create or to maintain equitable interests in such lands. …

Of course, there may be situations in which such a failure may combine with other circumstances to justify the conclusion that “the act or omission proved against” the possessor of the prior equity “has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it that the prior equity was not in existence” … This is the relevant principle to apply if it is claimed that the priority of a prior equitable interest has been lost in competition with a subsequent equitable interest. … “The Act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. … : Lapin v. Abigail per Dixon J. …  In my opinion, the failure to lodge a protective caveat cannot properly be said necessarily to be such an act or default. …  As I have said, the purpose of the caveat is protective: it is not to give notice.  The holder of the subsequent equity in my opinion could not properly rely upon the absence of any notification in the register book of the lodgment of a caveat as a representation or as the basis for a conclusion that no equitable interest in the land existed in any person.  …”

Windeyer J. stated at 558 – 559 –

“Too much has I think been read into the statement by Griffith C.J. in Butler v. Fairclough … – repeated by Lord Wright in the Privy Council in Abigail v. Lapin …

However, the fact that a caveat discoverable by a search of the title is “notice to all the world” of the interest claimed does not mean that the absence of a caveat is a notice to all and sundry that no interest is claimed. … After all, the primary purpose of a caveat against dealings is not to give notice to the world of an interest.  It is to warn the Registrar-General of a claim. …  The Bank did not by not lodging a caveat warning the Registrar-General represent to the appellant that it had no claim. …”

  1. These views were, however, initially rejected in Victoria in Osmanoski v Rose [1974] VR 523, in which Gowans J. held that a failure to by a purchaser to caveat warranted postponement to the interest of a later purchaser.  His Honour distinguished Barwick CJ. views on the ground that under the Victorian legislation (unlike the NSW legislation) a caveat was not merely directed to the Registrar.
  2. Then Gowans J.’s view was itself rejected by the Full Court in Jacobs v Platt Nominees Pty Ltd [1990] VR 146, although Osmanoski was not specifically overruled.  The court stated at 151: “we are of the view that the Victorian legislation is not so different that it provides a necessary reason for distinguishing Just’s Case.”
  3. However, at least two subsequent Victorian cases predating this Blog have distinguished Jacobs: Mimi v Millennium Developments Pty Ltd [2003] VSC 260 and Handberg v MIG Property Services Pty Ltd [2010] VSC 388.  In both cases failure to caveat led to postponement.  In the latter case Robson J. stated that failure to caveat “by itself may be sufficient to defer priority if the circumstances otherwise make it fair and just to do so” (at [198]).
  4. And in Black v Garnock (2007) 230 CLR 438, which concerned NSW legislation, Gleeson CJ. at [7] cited with approval the view of Barwick CJ. of the purpose of a caveat, while conversely Callinan J. at [80] stated of Barwick CJ’s dictum that “To hold that a failure by a person … to lodge a caveat … must necessarily involve the loss of priority … is not merely … unwarranted … but would in my opinion be subversive …” –

“I must respectfully disagree.  What is much more likely to be subversive of the whole of the scheme of the Torrens system is that a person interested in, or entitled to deal with, land, who has not acted fraudulently, might suddenly and unexpectedly be saddled with, or postponed to, an equitable estate or interest in land which could have been, but was not made the subject of protection by prompt lodgment of an instrument or the filing of a caveat pending the lodgment.”

  1. Then in the history of this Blog –

In UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (in liq) (No 2) [2021] VSC 711 (Blog 53) Richards J. held (at [33]) that the mere failure of the holder of the earlier interest to caveat did not dictate its postponement to the holder of a later interest who had searched the Register: it was but one circumstance to be considered.  Similarly: Roberts Gray Pty Ltd v Brunner & Ors [2021] VSC 76 at [144], Daly AsJ, Blog 45; TL Rentals Pty Ltd v Youth on Call Pty Ltd and Ors [2018] VSC 105 at [21], Derham AsJ, Blog 13.

  1. And now I come to KKJA Investments which held that the unexplained failure to caveat was a material consideration in postponing the earlier equitable interest to the later.

KKJA Investments Pty Ltd v Yan Shi [2025] VSC 583, Daly AsJ.  The facts were –

  • Ms Feng was the registered proprietor of land in Camberwell encumbered by a registered mortgage to the ANZ Bank.
  • She and her husband borrowed $600,000 from the plaintiff (KKJA) secured by an unregistered mortgage dated 6 December 2021.
  • Feng also borrowed approximately $600,000 from the defendant (Yan Shi) pursuant to a loan agreement dated 3 March 2022 which described the security as a ‘caveatable interest’ over the land.
  • There was evidence that in the foregoing period there was at least $600,000 equity in the property.
  • In about early November 2022 the agreement between Feng and KKJA was varied extending the loan period from six to 12 months and reducing the principal to $550,000.
  • On 10 November 2022 KKJA caveated in respect of its mortgage.
  • On 21 November 2022 Yan Shi caveated in respect of her charge.
  • The land was subsequently sold yielding surplus proceeds of only approximately $255,000.
  • KKJA commenced this proceeding to determine entitlement to these proceeds.
  • KKJA’s evidence did not materially exceed exhibiting the mortgage and deed of variation and deposing to non-payment, nor did it explain the failure to caveat earlier.
  • Yan Shi deposed inter alia: to how her loan had occurred; that Feng asked Yan Shi not to lodge any instrument on the title because she was refinancing from the ANZ to the Commonwealth Bank (CBA); that Feng showed Yan Shi and her daughter Shi He documents connected with her refinancing and a title search disclosing the registered mortgage as the only encumbrance; that Shi He assisted her to conduct a title search which disclosed no change from the previous search; that she caveated on learning of litigation involving Feng’s husband’s company.
  • Shi He deposed inter alia: although not a lawyer she was familiar with caveats and understood the financial risks when a property was used to secure multiple loans; in about January 2022 she was present when Feng’s husband asked her mother to lend him $600,000, to which Shi He said that her mother would need some security and a guarantee and to caveat, but Feng requested that Yan Shi not caveat as she was refinancing; Feng said that the CBA had valued the property at $3.25 m., from whom she would borrow $2.6 m. leaving about $200,000 to provide “an extra layer of protection” to the loan agreement; Feng’s husband said there were no other interests in the property; with the borrowers’ consent she obtained relevant information from the CBA; she made other relevant enquiries showing that the title was clear, which she told her mother; she obtained further information from the CBA that its refinancing would proceed, from which she inferred that there were no caveats or encumbrances impeding this, and so told her mother that the title was ‘clear’ except for the CBA mortgage.
  • Yan Shi further deposed inter alia: verifying Shi He’s affidavit; that before entering the loan agreement Shi He told her that the title was clear except for the registered mortgage and there were no caveats; Shi He in effect repeated this before she advanced any funds; had she seen a title search on 3 or 4 March 2022 she would only have seen the bank mortgage confirming what Shi He had said; she was prepared to lend during the bank refinancing but would not have loaned if knowing of another secured loan behind the scenes; she relied on a title search dated 17 November 2021 and her daughter.

 

Daly AsJ dismissed the plaintiff’s claim to the funds, holding –

  1. Each party held a valid equitable interest in the funds.  The fact that KKJA held an unregistered mortgage and Yan Shi held a charge did not per se improve KKJA’s position.  The question was whether in all of the circumstances the presumption that the earlier interest holder had priority had been displaced.  [5]
  2. While the mere failure to lodge a caveat was not of itself sufficient to displace the presumption that the earlier interest holder had priority, a failure to lodge a caveat may amount to postponing conduct if there were circumstances indicating the need or desirability of doing so to protect that person’s interests, and where the omission led to subsequent interest holders suffering detriment through relying on the absence of any caveat or other registered interests.  [18], [40], [46]
  1. In all of the relevant circumstances, in particular, the absence of any evidence of anything but an arms length relationship between KKJA and the borrowers (ie no evidence that KKJA’s failure to caveat was reasonable or at least understandable), its failure to register its mortgage or caveat amounted to postponing conduct.  There was no evidence ex­plain­­ing why KKJA should rely upon representations by borrowers that they would not further encumber the property (if any such representations were in fact made), but KKJA’s failure to caveat armed the borrowers with the capacity to do so.  It was difficult to see what more Yan Shi could have done.  She suffered detriment as a consequence of KKJA’s failure to caveat.  It would be unconscionable for KKJA to maintain its priority over the funds.  [6], [39], [42]-[43], [45], [48].

 

Philip H. Barton

Owen Dixon Chambers West

Wednesday, November 12, 2025

Blog 99. Specific performance and mortgages – Court of Appeal overturns Blog 73, restores Blog 63.

Parwan Investments Pty Ltd (recs apptd) v Hooper & Anor [2024] VSCA 86, McLeish, Walker and Macaulay JJA, (6 May 2024).

In this case the Court of Appeal exhaustively considered the remedy of specific performance, and the nature of a Torrens system mortgage and of the equitable interest of a purchaser.

The facts were –

  • In 2015 the Commonwealth Bank lent the appellant (Parwan) $850,000 to purchase an 88 ha. parcel of land (‘Lot 2’). Parwan became registered proprietor.  The bank registered its mortgage.
  • On 21 October 2016, without the consent of the bank and so in breach of the mortgage, Parwan entered into a contract to sell 11 ha. of Lot 2 (the ‘Purchased Land’) to the first respondent (Hooper) for $900,001 with a deposit of $1. The contract –
    • made settlement conditional on registration of the plan of subdivision by 21 April 2018, obliging Parwan to use its best endeavours to obtain this and giving Hooper a right of termination if this date was not met;
    • specified settlement by the later of 21 March 2018 or 14 days after notice of registration of the plan;
    • was subject to a contemporaneous 24 month lease to Hooper of the Purchased Land.
  • Hooper paid the deposit and the parties entered into the lease which provided that unless terminated it would thereafter continue as a periodic tenancy.
  • In 2017 Hooper caveated over Lot 2 claiming an interest as purchaser.
  • 21 April 2018 passed without Hooper electing to exercise the right of termination of the contract of sale.  It remained on foot with Lot 2 unsubdivided and so unable to be transferred to him.
  • In 2018 Parwan executed an equitable charge over Lot 2 in favour of Hooper for $350,000, said to reflect the value of Hooper’s improvements.  In 2018 Hooper caveated based on this charge.
  • Parwan subsequently defaulted on the loan and the money secured became immediately payable. On 13 March 2020 the bank appointed receivers of Lot 2.  Pursuant to the mortgage and their terms of appointment the receivers had power to take possession of and sell the land.  The bank instructed the receivers to sell Lot 2 and recover the secured money.
  • In February 2021 Hooper commenced a proceeding seeking inter alia specific performance of the contract of sale.  Parwan counterclaimed seeking orders for vacant possession and a clear title.   Parwan sought summary judgment and gave Hooper a notice to vacate.
  • Matthews AsJ granted partial summary judgment, namely on those aspects of the claim and counterclaim concerning specific performance, finding that the contract was not amenable to such relief, and so dismissing that claim as having no real prospect of success (Blog 63). Forbes J. vacated these orders, allowing Hooper’s claim to proceed (Blog 73).  Parwan now sought leave to appeal against the orders of Forbes J.

The Court of Appeal granted leave to appeal and allowed the appeal, holding –

  1. A mortgage registered under the TLA constituted the mortgagee as the registered proprietor of a security interest in the land. Except in the case of fraud, the registered proprietor of land (including a registered mortgagee) held it absolutely free from all encumbrances, with two exceptions not presently relevant, but subject to various specified rights including the interest of a tenant in possession. [48], [49]
  2. Until the discharge from the secured money, the registered first mortgagee had the same rights in law and equity as a mortgagee of general law land in whom the legal interest was vested (with the mortgagor retaining the right to quiet enjoyment until default). [50]
  3. A registered mortgagee had, upon default in payment of the principal sum or interest secured, statutory powers to enter and sell the land to enforce its security interest. But the mortgagee could instead appoint a receiver to the land and vest that receiver with powers of sale.  Where a mortgage was (as here) made by deed and the power of sale was activated the mortgagee had a statutory power to appoint a receiver.  This power may also (as here) be conferred by the mortgage document itself following non-compliance with a default notice. [50]-[52]
  4. Receivers appointed pursuant to such mortgage provisions were the agents of the mortgagor. This, however, was a ‘special and limited agency’ eg. because the receiver was appointable and removable by the mortgagee and could in many ways act independently of the mortgagor or at the direction of the mortgagee.  It was not an ordinary agency because in exercising powers (including of sale) the receiver was appointed for the mortgagee’s not the debtor’s benefit. [53], [54]
  5. Specific performance in its narrow and strict sense assumed an executory or preliminary agreement to do something to put the parties in the legal position which the agreement intended, eg specific performance of a contract of sale of land to compel the vendor to execute and deliver a transfer, enabling its registration. [55]
  6. Enforcement of the performance of an executed contract was not specific perform­ance in this strict sense, nonetheless described as ‘relief approximate to specific performance’. [56]
  7. Specific performance was unavailable if damages were an adequate remedy; but damages were generally an inadequate remedy against a vendor failing to complete a sale. [57]
  8. Possible defences to an action for specific performance were –
    1. that fulfilment of the contract was likely to require continual curial supervision: however, this was not an automatic bar – much depended on the period of performance of the obligations and the number and detail or complexity of the terms to be performed. Courts often exercised a supervisory jurisdiction on applications by trustees, receivers and administrators; and completion of a contract had been ordered against vendors who were also required to use best endeavours to register a plan of subdivision – the prospect of some supervision in those circumstances had not prevented the specific performance order; [58]
    2. impossibility of performance, ie a prospect that the defendant would lack power to comply with the proposed order. The rationale for this defence was that equity would not specifically enforce the impossible, eg obtaining the apparently unobtainable consent of a third party.   So, although a vendor must use best endeavours to obtain any necessary consent to sale, including taking necessary proceedings, and an order for specific performance could be made conditional on such consent being obtained, there would be no such order if it was sufficiently clear that consent was unobtainable; [59]-[61]
    3. futility of performance, ie a possible insufficient probability that the order would sufficiently benefit the plaintiff to render it just; [59]
    4. hardship suffered by a third party, eg where specific performance of a contract of sale of an interest in land would prejudice another person interested therein but not a party to the contract. A court may also refuse specific performance if it was probable that this order would involve a breach of contract with a third person. [62], [63]
  9. Although it was often said that a contract of sale of land gave the purchaser an equitable interest therein, this only meant that the purchaser had acquired certain equitable rights to its specific performance, and that these and related rights extended, for example, to rights to obtain injunctions and other such relief against the vendor and third persons in appropriate circumstances.  So, under a specifically enforceable contract of sale of land an equitable interest was created immediately.  In other words, in this context, a purchaser’s equitable interests were commensurate with the extent of equity’s protection of them. [64], [65]
  10. In this case, the circumstances in which a trial court would exercise its discretion included:
    1. the bank (not a party to the proceeding) was the registered proprietor of a first mortgage with an indefeasible legal security interest in the land;
    2. by contract subsequent to this registration Parwan sold a part of Lot 2 conditional on registration of a plan of subdivision creating the title to the land sold;
    3. the contract was without the bank’s consent and so Parwan’s entry into and performance of it would breach the mortgage;
    4. following Parwan’s default the bank appointed receivers to enforce its security interest, who wished to sell Lot 2 and who had given notice to terminate the lease;
    5. it could not be assumed that registration of the plan of subdivision could or would occur;
    6. Parwan had possibly breached it obligation to use best endeavours to obtain such registration;
    7. the bank was not obliged to discharge its mortgage until fully paid;
    8. the mortgage debt would not be discharged by payment of the amount owing to Parwan under the contract of sale; and
    9. after the proceeding commenced the bank refused consent to the sale. [67]
  11. An order for specific performance in the strict sense would be that Parwan execute and deliver to Hooper a transfer of the subdivided portion of Lot 2 corresponding to the Purchased Land. But, before that, Parwan would have to perform the following contractual promises:
    1. use its best endeavours to prepare and register a plan of subdivision containing a lot corresponding with the Purchased Land (the ‘subdivision obligation’), and;
    2. assuming this succeeded, procure a discharge of mortgage enabling Hooper’s registration as proprietor free of encumbrances (the ‘mortgage discharge obligation’), and;
    3. to do this, either pay out the whole mortgage debt, and so compel discharge, or not so pay but persuade the bank to discharge the mortgage at least partially – in this sense completion of the contract depended Parwan’s ability to compel the bank (a third party to the contract of sale) to discharge the mortgage at least in part or the bank consenting to doing so. [68]-[70]
  12. Having found that Parwan had not established that subdivision was impossible, Forbes J. in effect assumed successful navigation of performance of the subdivision obligation. [73]
  13. Forbes J. –
    1. assumed that, once subdivision occurred, the bank might (perhaps should), because Parwan could raise money to pay it out from sale of lots, consent to discharge the mortgage insofar as it affected the lot comprising the Purchased Land (ie. a partial discharge), even though the sale of the Purchased Land would not suffice to discharge the mortgage debt; [76]
    2. and reasoned that so, because hypothetically the bank might agree to release the mortgage, this possibility met the argument that specific performance had no reasonable prospect of success. [77]

The proposition that, for Parwan to show Hooper’s lack of such real prospect, it should also show that the bank would not consent to the sale, which it was not obliged to do, after a subdivision it was actively resisting, appeared somewhat fantastic and artificial.  In any event, the proper inference from the evidence was that the bank would not give such consent.  This sufficed to require that the appeal be allowed. [79]

  1. Accordingly, the judge ought not to have allowed the appeal from the associate judge’s decision on the basis that, in order to demonstrate Hooper’s lack of a real prospect of obtaining an order for specific performance, Parwan was required, but failed, to expressly address the bank’s attitude to a partial discharge of mortgage on the assumption that a plan of subdivision had been registered. [81]
  2. However, a more fundamental barrier to an order for specific perform­ance was that –
    1. the bank’s interest had priority to Hooper’s potential equitable interest (ie to the extent that the contract was amenable to an order for specific performance) and so this potential interest could not defeat the bank’s immediate entitlement to enforce its legal interest; [83]
    2. an order for specific performance would cause the bank hardship because the caveats referable to Hooper’s right to specific performance would prevent the bank recovering its debt while (presumably funded by it) the receivers pursued registration of the plan of subdivision, with the bank then waiting to see whether the subdivided lots (including the Purchased Land) could be sold in such a sequence that the entire mortgage debt was recovered before the mortgage was discharged. Such an order would safeguard the interest of a subsequent, unregistered interest-holder (Hooper), contrary to Parwan’s obligations under its mortgage, in preference to the immediately exercisable rights of the prior registered proprietor (the bank).  An order with this effect would upend priorities in the Torrens title system; [84]
    3. hardship to a third party being a reason for declining specific performance, such hardship to the bank would be virtually certain to lead a court to so decline. [85]
  3. There was accordingly no real prospect of Hooper obtaining an order for specific performance at trial. Summary judgment would be granted on Hooper’s claim for specific performance and for injunctions restraining sale of the Purchased Land, and on the counterclaim.  Orders would be made enabling sale of the Purchased Land including for removal of the caveats and distribution of the proceeds of sale. [86], [87]

 

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 8, 2025

Blog 98. Mortgagee takes priority over caveators purchasing under joint venture agreement.

Australian Commercial Mortgage Corporation Pty Ltd atf The Balmain Opportunity Trust v Negash [2025] VSC 502, Harris J. (19 August 2025).   This case concerns a unique purchase arrangement, whereby in substance a number of persons purchased off-the-plan pursuant to a joint venture agreement and/or contract, and whose caveatable interests were postponed to a subsequently registered mortgage.  The facts were –

  • In 2014 Emanda Pty Ltd (Emanda) entered into a contract to purchase land at Tarneit (the Property). Before settlement of its purchase it offered lots in the Property’s prospective subdivision for purchase.  There were two relevant documents: a Deed of Joint Venture Agreement (JVA) and a contract of sale.  The JVA provided –
    • “In exchange for the Contributor contributing to the venture costs and paying the additional contribution, the Contributor is herein granted an Option to Purchase the Nominated Lot and at the completion of the project and upon the Nominated Lot being available for sale, if the option to purchase is exercised …, the additional contribution will be credited towards the purchase of the Nominated Lot by the Contributor (as Purchaser) upon settlement of the sale … pursuant to a Contract of Sale, …” (Recital F);
    • “Emanda agrees to the Contributor joining the venture with Emanda to the extent of the Contributor contributing to the venture costs and paying the additional contribution in exchange for the Contributor being granted an option to purchase the Nominated Lot” (cl. 2.5);
    • that “ESVC amount” was:
      “The share in venture costs payable by each Contributor, which is calculated based on the total of the venture costs divided equally between each Contributor (subject to the number of Lots nominated to each Contributor)” (cl 1.3); .
    • that “additional contribution” was –
      “A sum of money payable toward the venture by the Contributor equivalent to the agreed value of the Nominated Lot, which is monies that will be later deemed as payment (or part payment …) of the Purchase Price for the Nominated Lot if the herein option is exercised ….” (cl. 1.3);

Clause 2.14.1 repeated this definition.

    • “The Contributor’s contribution is payable as follows:
      (a) an initial sum of money on signing of this Deed, as specified in the Schedule herein (“initial contribution”);

(b) a further sum is to be paid by the date set out in the Schedule (“second contribution”); and

(c) the balance of the contribution payable by the Contributor is to be paid in instalments as set out in the Schedule herein (“subsequent contributions”) …, as set out in the Schedule herein for the term of the venture with any balance owed …, to be paid in full at settlement.” (cl. 2.14.10)

    • The schedules to individual JVA’s varied between contributors. Each schedule provided for: the number, size and value of the lot; the ESVC amount, additional contribution and total contribution, and the dates and amounts of initial and second contributions.  Item 7(b) in the Schedule read –

“7. Contribution/s:

…

(b) ESVC Amount Total: The amount shown in item 4

(i) Subsequent contributions: Instalment Amount:
Date payable: Weekly Fortnightly Monthly Quarterly
*circle appropriate one.
Date of payment of
First Subsequent
Contribution: Thirty (30) days after the payment of the Second Contribution being on”

In many of the JVA’s, item 7(b) in the Schedule was uncompleted and it was difficult to reconcile the amounts stated under different headings in the document.

    • “The herein mentioned option to purchase is available to be exercised or waived by the Contributor once the Contributor receives notice by Emanda of the Nominated Lot being available for sale” (cl. 2.33.1);
    • that a contract of sale would be entered into simultaneous with execution of the deed (cl. 2.6).
  • The contract of sale provided for price, deposit and balance payable. Special condition 22 referred to “Instalment payments outlined in deed of agreement”, and stated:
    “The Purchaser and Vendor hereby agree that this Contract of Sale is subject to and conditional upon both parties entering into a deed of agreement for payments to be made by the Purchaser toward Development Costs.”

The court inferred that the “deed of agreement” was the JVA.

  • Some persons executed only one of the JVA or contract of sale.
  • The defendants which were legally represented gave evidence of paying over $2 m. in total under the contracts and deeds.
  • Emanda became registered proprietor of the Property in January 2017. It continued to offer interests in the land.  Contributors lodged caveats, the 1st to 9th defendants (being largely those caveating until early 2025) claiming a “freehold estate”, with those caveating in July 2025 claiming as “lienee” based on a purchaser’s lien.
  • Two companies (Perpetual and Balmain Fund Administration) were lenders. In May 2022, following contact from Emanda’s mortgage broker, Mr Darjai, a loan originator at Balmain Nb Corporation Ltd, Mr Logan, provided an indicative funding proposal.   On inquiry about the caveats Darjai in substance responded that: the director and primary representative of Emanda, Mr Seid, had asked his family members to caveat to protect Emanda’s interests; there were no agreements between Emanda and the caveators; the caveats were lodged on legal advice to meet the best interests of Mr Seid and the development; all caveats would be removed to facilitate refinancing; there were no third party investors; the caveats had been lodged because Mr Seid thought this would prevent any mortgagee from charging high penalty interest.
  • Logan gave evidence that he accordingly thought that the caveators had neither interests in the Property nor agreements with Emanda. There was also evidence that inquiries had been made of the municipal council on behalf of the prospective lenders.
  • On about 1 July 2022 Emanda entered into a loan agreement with Perpetual and Balmain Fund Administration secured by mortgage. On application by Emanda the Supreme Court ordered removal of the caveats to permit registration of the mortgage, with the caveators having the right to relodge their caveats thereafter.  The mortgage was registered in August 2022 and the caveats were relodged.
  • Emanda defaulted under the mortgage. The mortgage debt was assigned to the plaintiff (ACMC).  It exercised its power of sale as mortgagee by contract dated 23 December 2024 due for settlement on 10 August 2025.
  • In late June 2025 the contracts of sale and JVAs were terminated.
  • ACMC applied under the Transfer of Land Act s. 90(3) for removal of the caveats. On the day of the hearing it disclosed a sale price of $8.4 m. and a mortgage debt of about $7 m., leaving (after sale costs, tax and legal costs) little if any surplus.  During the hearing it filed an affidavit concerning its financial position.

The Sale of Land Act 1962 s. 29A(1) provided that

“For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is-

(a) obliged to make two or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or …”

Section 29P prohibited a vendor from mortgaging land subject to the terms contract, and s. 29S(1)(a) rendered such a contract voidable by the purchaser before completion.  Section 29S(1)(c) provided inter alia that a mortgagee with actual or constructive notice of the interest of such a purchaser could not exercise its remedies and must discharge the mortgage.  Section 29V(1) provided that constructive notice only existed if notice of the purchaser’s interest would have come to the mortgagee’s knowledge if the mortgagee had made: (a) a proper inspection of the relevant land; and (b) such inquiries as ought reasonably to be made by the mortgagee of the mortgagor as to the rights of any person in possession; and (c) inquiries of the relevant municipal council; and (d) such searches, inquiries and inspections in the Office of the Registrar of Titles and Registrar-General as reasonably ought to have been made.

Harris J. removed the caveats, holding –

  1. A caveatable interest could exist in unsubdivided land, but on subdivision the caveatable interest was limited to the particular lot sold. [37]
  2. There was a serious question to be tried that the purchasers had equitable interests in the Property in the form of purchasers’ liens. These were based on their payments to Emanda as vendor, which, on termination of the contracts of sale and JVAs, were required to be repaid and secured by equitable liens. [35], [38], [39], [41], [49], [50]
  3. It was unnecessary to determine the significance of the fact that following rescission of the contracts “freehold interest” was no longer an accurate description of a caveator’s interest. [42]
  4. These contracts were arguably terms contracts. [52], [59]
  5. ACMC did not have actual notice of the JVAs and of the contracts of sale. It did not have constructive notice within the meaning of s. 29S(1)(c) by reason of ss. 29V(1)(a) – (c) but whether it had such notice by reason of s. 29V(1)(d) was a difficult question.  The search of the Registry showed the reason for the caveats, which referred to liens and freehold interests – but these did not reflect the existence of a terms contract.  It was, however, arguable that a mortgagee with notice of any contract giving rise to interests in the land was required by s. 29V(1)(d) to inquire as to what the contract underlying the purported interests (in this case freehold interest) was.  There was therefore an arguable case under the Sale of Land Act. [54], [57]-[59]
  6. The balance of convenience was against maintenance of the caveats. This was chiefly because ACMC as first registered mortgagee had priority to the sale proceeds leaving very little surplus, and in light of the affidavit filed on its behalf ACMC had sufficient financial resources to satisfy any compensation awarded pursuant to the Sale of Land Act.    Further reasons supporting this conclusion on the balance of convenience were that if the sale was not completed there would be prejudice to the purchaser without the likelihood of any greater surplus of funds. [60]-[63]
  7. There would be no order as to costs, owing to the mortgagee’s right of indemnity. [65]

 

Philip H. Barton

Owen Dixon Chambers West

Tuesday, September 2, 2025

Blog 97. Caveat claiming equitable charge survives.

Formquip Nirvana Pty Ltd v Memphis Property Co Pty Ltd & Anor [2025] VSC 348, Cosgrave J. (16 June 2025).   This case is a valuable analysis of the distinction between an equitable mortgage and an equitable charge, and of how a charge may be created, this being relevant to whether an interest in land claimed in a caveat was identical to that in a lapsed caveat contrary to the Transfer of Land Act 1958 (TLA) s. 91(4).  His Honour also reminds us of the concept of hypothecation. As stated in Sackville and Neave, Australian Property Law, 10th ed, 2016, p. 1079 –

“A hypothecation is the type of security which gives the creditor power over the encumbered property only in the event of default. The creditor does not take a transfer of ownership and is not entitled to possession … a Torrens system mortgage is properly classed as a hypothecation …”

I also refer to: Hycenko v VHY Enterprises Pty Ltd & Ors [2020] VSC 834; Southside Industries (Aust) Pty Ltd v D. B. Cls-B1 Pty Ltd & Anor [2023] VSC 187SR; and Symbion Pty Ltd v Sellers [2023] VSC 441.

The facts were –

  • The directors of Formquip Project Management Pty Ltd (Project Management) were Messrs Stone and Bishop. They were also the directors of the plaintiff (Nirvana) until July 2024 when Stone became sole director.
  • Nirvana was the registered proprietor of land in Bulleen being developed into 31 residences (the Property). It had entered into 14 contracts for sales off-the-plan.
  • The Property was mortgaged to a mortgagee (Payton) registered in July 2022.
  • The directors of the first defendant (Memphis) were Mr and Mrs Crozier. Memphis alleged that it had lent Nirvana $1m. for construction work on the Property pursuant to an agreement (Loan Agreement) made on about 29 December 2022 between it, Project Management and Nirvana (as varied or novated), by which Nirvana had charged and mortgaged the Property to it.  It alleged that this agreement was in writing and implied from: a deed dated 29 December 2022 (the First Deed); an email dated 17 January 2023 (the email), and; another deed executed in January 2023 (the Second Deed) by agreement backdated to 29 December 2022.
  • The parties to the First Deed were Project Management as borrower and Memphis as lender agreeing to lend $1 m., the loan commencing on 29 December 2022 and being repayable six months later. Its schedule referred to “Security” and Nirvana, but its body referred to neither.  It was executed by Stone on behalf of Project Management but unexecuted by Memphis.
  • The email was from the then solicitors for Nirvana including to Bishop and Stone. It stated:

“We confirm your instructions that the Borrower will be Formquip Nirvana Pty Ltd ATF Formquip Nirvana Trust and not Formquip Project Management Pty Ltd as per your previous instructions given that Formquip Nirvana will be providing a second mortgage over 118–120 Manningham Road, Bulleen, Vic.

Bishop forwarded it to Mr Crozier.

  • The Second Deed was signed by Stone and Bishop on behalf of Nirvana and by the Croziers on behalf of Memphis. Its parties were Nirvana as borrower and Memphis as lender.  The principal sum was $1 m. advanced or to be advanced by 29 December 2022 for the purpose of working capital for Nirvana, repayable six months later.  Clause 5 provided:

“IN consideration of the Lender entering into this Deed, and in order to secure the obligations of the Guarantor herein the Guarantor hereby CHARGES AND MORTGAGES in favour of the Lender the property described in Item 9 of the Schedule (“the Mortgaged Premises”).”

Item 9 referred to the “Mortgaged Premises” and to a second ranking mortgage over the Property.

  • In June 2024 another mortgage to Payton was registered.  In August 2024 caveats were lodged by persons surnamed Mifsud each claiming an interest as chargee.
  • On 2 October 2024 Memphis caveated claiming an interest as mortgagee pursuant to the Loan Agreement.
  • Later in October another company controlled by Stone (Boutique) caveated claiming an interest as chargee.
  • In December 2024 Memphis commenced a Supreme Court proceeding inter alia claiming relief attributable to being an equitable mortgagee of the Property.
  • On 8 January 2025 Memphis’ caveat lapsed through a notice from the Registrar of Titles under the TLA s. s. 89A which Memphis alleged it had neither received nor known of. It then lodged a second caveat, claiming an interest as chargee pursuant to the Loan Agreement.
  • Nirvana issued a proceeding including seeking removal of the caveat under the TLA s. 90(3), in part arguing that the second caveat contravened s. 91(4), which provided that a caveat that had lapsed or been removed by court order shall not be renewed by or on behalf of the same person in respect of the same interest.
  • Nirvana argued that the caveat was impeding it obtaining further finance and thus the development. Stone deposed that:
    • Payton’s initial finance was exhausted but a new financier had agreed to lend $4.8 m. to complete the development provided its debt was fully secured on the Property which was prevented by Memphis’ caveat (however, the proposed agreement with the new financier referred to different title details from those in the court documents);
    • this further funding “would allow Nirvana to complete the development and perform its obligations under the 14 contracts of sale…”, and that “[t]he financier requires such completion to occur on or before 30 September 2025”, which could not occur if the caveat remained;
    • the relevant planning permit expired on 7 October 2025;
    • Nirvana was required to enter a section 173 agreement with the municipality for which the caveator’s consent was required.

In his affidavit Stone requested that, due to commercial sensitivities, details of the new financier and any party involved in the development not be revealed to Memphis.

  • Counsel for Memphis submitted: the loan was from Memphis to Nirvana which charged and mortgaged the Property in its favour; the word “Guarantor” in cl. 5 of the Second Deed was an error for “Borrower”; notwithstanding the ostensible terms of the deeds it was apparent that Nirvana was the borrower from the intended effect of cl. 5, the Second Deed being created shortly after the email confirming that Nirvana (not Project Management) was the borrower.
  • Counsel for Nirvana submitted: there was no such error in cl. 5; the loan was a “three-way arrangement” with Project Management as borrower and the Second Deed being executed so as to obtain a guarantee from Nirvana; but the Second Deed was irremediably defective principally because Nirvana as principal borrower could not also be a guarantor.
  • Counsel for Memphis relied on Australian Secured & Managed Mortgages Pty Ltd v Horizon Hotels Pty Ltd (“Horizon Hotels”) [2022] NSWSC 1647, where the following clause in an agreement was held to create an equitable charge:

“The applicant/s hereby charges and mortgages to and in favour of … Highmore the applicant’s interest in any and all assets and real property owned by the applicant/s individually or jointly (including the security offered) to secure payment by the applicant/s to … Highmore of the fees and any and all other monies due to … Highmore by the applicant/s including all amounts that … Highmore may incur in connection with the enforcement and/or preservation of its rights under this agreement.”

Cosgrave J. declined to remove the caveat, holding –

  1. Although “Guarantor” was referred to in cl. 5, the Second Deed did not otherwise refer to a guarantor in its description of parties or schedule. Further: Nirvana’s lawyers had prepared it and to that extent it could be construed against Nirvana contra proferentem; there was no evidence that Mr Crozier obtained professional advice about either deed; it was undisputed that Nirvana was the registered proprietor of the Property, that Memphis had lent $1 m. in connection with its development, not repaid, and that as confirmed in the email (sent by a director of Nirvana to Memphis) Nirvana had instructed its solicitors that Nirvana not Project Management was the borrower. [39]-[40]
  2. Accordingly, notwithstanding issues with the documentation, the caveator had raised a serious question of having an equitable charge, cl. 5 of the Second Deed being materially similar to that in issue in Horizon Hotels. The email was important in confirming the thrust of Memphis’ case that by agreement the borrower would not be Project Management but Nirvana which would grant security to Memphis.  Even if there was some uncertainty and the Second Deed did not accurately represent the agreement, the party to be charged signed it consistently with Memphis’ case. [37], [41]
  3. Because the relevant clause referred to both charging and mortgaging, the Second Deed created two different types of interest in the property which could attract protection by a caveat. More particularly –
    1. Whereas an equitable charge was a pure hypothecation not entitling the chargee to foreclosure on default, an equitable mortgage was a mixed hypothecation giving the mortgagee potential full beneficial ownership through the process of foreclosure. [52], [57]
    2. The creation of a charge did not require any specific wording. It sufficed that the grantor manifested an immediate intention to create a charge by using words, such as “will charge”, creating a present intention to charge land specified as security. [57]
    3. Further, an agreement to execute a registrable instrument upon request transferring to one party another’s estate and interest in land by way of security created a specifically enforceable right to call for a legal mortgage, which was a species of equitable mortgage. [57]
  4. Notwithstanding Nirvana alleging that its urgent need for finance was being forestalled by the caveat the balance of convenience did not favour its removal because:
    1. Nirvana would still be impeded by five prior interests. There was no evidence of the position of the registered mortgagee or other caveators, in particular the size of their debts or willingness to be paid, or of project completion costs; [63]-[64]
    2. If the caveat remained the new financier could still register a security interest with likely priority subsequent to the other claimed security interests; [65]
    3. Stone did not expressly depose that the only way to complete the project by 30 September 2025 was with the asserted further finance, or that without it the project would not be completed; [66]
    4. If the new financier registered a mortgage with priority over Memphis (and potentially over other parties claiming interests in the Property) then Memphis could not only lose its priority but the security interest itself. The Court could not assess with reasonable confidence whether if its caveat was removed Memphis would be repaid, absent evidence both of the debts owed to the registered mortgagee and other caveators and evidence enabling comparison of total construction and development costs with the likely proceeds of sale.  The Court suspected non-payment, with Memphis suffering serious potential damage; [67]-[68]
    5. The new finance documentation exhibited was unclear and uncertain because much was redacted or entirely missing. Evidence was lacking on both the final terms of the building contract and whether the prospective new financier approved it.  Hence it was uncertain whether the building would proceed even if the caveat was removed; [69]
    6. There was no compelling rationale for the confidentiality sought. The Court could have been asked to preserve confidentiality by for example placing an affidavit or exhibit in a sealed envelope with no access without curial leave.  However, Nirvana had acted unilaterally by withholding documentation without sufficient explanation. [70]
    7. The discrepancy in title details between the proposed new finance facility and the court documents was unexplained. [71]

    [72]

  5. Subject to hearing the parties the proceeding would be dismissed with costs taxed on the standard basis. [73]

 

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 19, 2025

 

Blog 96. Prima facie case of implied, resulting or constructive trust but caveat removed on balance of convenience.

Barnard v Otten [2025] VSC 313, Irving AsJ (3 June 2025)

The facts were as follows –

  • Rhianna Otten was the daughter of Sharon Otten and sister of Declan Otten. Rhianna was until her death on 1 April 2024 the partner and fiancée of the plaintiff (Carl) (the couple).  Carl deposed –
    • Before 2018 the four of them discussed purchasing a property, including initially in Rhianna’s name, then to be subdivided and part be transferred into Sharon’s name. But the couple did not pursue this because of difficulty finding land and cost.
    • Rhianna and Declan opened a joint bank account (the joint account) into which Sharon made deposits. This account was not used to pool funds for a property purchase.  Sharon and Rhianna did not agree to purchase a property.
    • In around 2020 the couple purchased a house at Corio (the Property) for $416,000, negotiated by Rhianna, using a loan from a financier secured by first mortgage and an $85,000 gift from the sale of Sharon’s house at Melton described by Sharon as an ‘early inheritance’. Rhianna became its registered proprietor.  The couple and children lived in the house.
    • With the couple’s agreement Sharon purchased, he believed using her proceeds of sale, and placed, a moveable granny flat onto the Property, into which Sharon and Declan moved in mid-2021, living rent free and not contributing to mortgage repayments.
    • Until 1 April 2024 the couple made all mortgage repayments, being about $80,000, from their joint finances and also paid all rates, insurance and utilities bills. Sharon paid for gas supply to the granny flat.
  • On the other hand Sharon deposed –
    • Following the sale of her property she had approximately $220,000.  She agreed to Rhianna and Declan opening a bank account in their names so that she (Sharon) could make deposits to protect that money from her other daughter Taylah.  She paid $100,000 into this joint account in October 2018.
    • In 2018 Sharon and Rhianna began discussing property purchase. She (Sharon) suggested finding land with subdivision potential, to be purchased in Rhianna’s name and then subdivided so that sufficient for a granny flat could transferred into her (Sharon’s) name.  They then involved Declan and Carl in their discussions.
    • She paid $70,700 into the joint account in November 2019 and a further $25,907.50 between March 2018 and February 2020.
    • The four persons created a Facebook group chat containing discussions about purchasing a property together.
    • On 16 December 2020 the Property was purchased in Rhianna’s name using her (Sharon’s) contribution of $85,000 and the mortgage loan.
    • She neither sought legal advice nor caveated because she was clear about her agreement with Rhianna. The couple and the children moved into the Property.   The granny flat was subsequently constructed using Sharon’s funds from the joint account and she and Declan moved in.  They did not contribute to loan repayments.
    • The granny flat was not portable and its cost of relocation would exceed initial construction costs.
    • At least fortnightly Rhianna borrowed money from Sharon and Declan for living expenses.
  • Rhianna died intestate. Subsequently her aunt made one mortgage repayment.  Carl became registered proprietor of the Property in his capacity as administrator of Rhianna’s estate.  The mortgage was in default with interest accruing inducing a default notice.  Carl engaged an agent to sell the Property, requiring vacant possession.
  • Carl and Sharon were in dispute about possession of the Property. The mortgagee issued notices to vacate to her.
  • Sharon caveated over the Property claiming an implied, resulting or constructive trust with an absolute prohibition on dealing with it.
  • Carl applied under the Transfer of Land Act 903 for removal of the caveat. He also sought possession, which was dismissed because the Property had been vacated.

Irving AsJ ordered removal of the caveat, holding –

  1. A joint endeavour constructive trust arose where there was a joint relationship or endeavour; an asset was acquired in the course thereof; the joint relationship or endeavour was prematurely terminated; one party had made financial or non-financial contributions for the purpose thereof; and it would be unconscionable to permit the other party to retain the benefit of the relevant property where the contributions were made in circumstances where it was not specifically intended that the other party should so enjoy it. [49]
  2. A common intention constructive trust arose where there was a common intention or understanding that a person would acquire an interest in property and that person has acted to his or her detriment in reliance on that intention or understanding. [50]
  3. Equity would presume that a person held property on resulting trust, proportionate to the contribution, where another person contributed to its purchase and the property was held in the name of the first person. If the contributor was the parent of the person holding the property, a rebuttable presumption of advancement arose. [51]
  4. The caveator established a prima facie case of an interest in the Property by virtue of an implied, resulting or constructive trust, because –
    1. her evidence was of providing monies pursuant to an agreement with the couple to purchase a property together sufficient to subdivide and accommodate a granny flat for Sharon and Declan;
    2. her provision of $85,000 in purchase monies was undisputed, although the evidence of whether this was a gift to Rhianna conflicted;
    3. a granny flat was established which Sharon and Declan occupied;
    4. notwithstanding Carl disputing any agreement to jointly purchase the Property, and that the $85,000 was a contribution and not a gift, a prima facie case of Sharon’s asserted interest sufficed;
    5. conflicts in evidence were to be resolved at trial.

[7], [66], [73]

  1. However, the balance of convenience favoured removal of the caveat because: the mortgagee’s intention to sell the Property was undisputed and the caveat depressed the price; although the caveat claimed an absolute prohibition Sharon’s interests in the Property were at most not asserted to be to the whole Property; Sharon could claim on the funds remaining after the mortgagee was paid out. [7], [67]-[71], [73]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 05, 2025

Blog 95.          Caveator makes unsuccessful application to restrain mortgagee’s sale.

This Blog does not normally cover injunctions but for completeness I cover Trotter v RNC Nominees Pty Ltd [2025] VSC 224, Gray J. which succeeds the caveat case RNC Nominees Pty Ltd v Trotter [2025] VSC 207 the subject of the previous Blog.

The facts were –

  • The first plaintiff (Gary) established a farming business, Beverly Farming Pty Ltd (Beverly Farming), with his wife Lorna. He and their son Andrew were its directors.
  • In around January 2023 Beverly Farming agreed to purchase a property (Marnoo Property). It sought finance.  On 24 May 2023 a loan facility agreement (Facility Agreement) was made by which the first defendant (RNC) agreed to advance up to $6.8 million to Beverly Farming including: $4.1m. for this purchase (the ‘Marnoo Acquisition Limit’); and a $1.5m. ‘Crop Lending Limit’ in three tranches of $500,000 payable respectively by 31 May, 30 June and 30 September 2023.   Clause 10.5(b) in substance required the Borrower to ensure that the interest cover ratio (ICR) remained above 2.00x (the ICR Undertaking).  The ICR was calculated by dividing the ‘Annualised EBIT’ (Beverly Farming’s EBIT for the previous three months multiplied by four) by the ‘Annualised Interest Amount’ (being, in respect of a particular month, the interest amount payable that month multiplied by 12).  Clause 4.2(a)(iii) required RNC to make the Marnoo Acquisition Limit available provided the Borrower was not in breach, or would be rendered in breach by the proposed Advance, of each financial covenant in clause 10.5.
  • Beverly Farming’s guarantors were members of the Trotter family and an associated company. The advances were to be secured by registered mortgages over the Marnoo property and nine other properties, including ‘Hemphills’, ‘South East’ and ‘Woods’ (the three properties), variously owned by members of the Trotter family, and by a general security agreement (collectively, the Securities).
  • Eight of these properties were already encumbered by first registered mortgages to other lenders, seven securing a debt of approximately $4.75m to the National Australia Bank (NAB) as quantified in March 2025.  Accordingly RNC would only be the first mortgagee of the Marnoo Property and another property.
  • On 7 June 2023, the Marnoo Acquisition Limit was advanced. The first and second tranches of the Crop Lending Limit were also advanced.  However, the Marnoo Acquisition Limit did not cover $400,000 in stamp duty, interest and costs.  Accordingly Beverly Farming used approximately $400,000 of this second tranche on the costs of acquisition of the Marnoo Property.  Andrew became its registered proprietor.
  • Beverly Farming failed to pay interest for June 2023.
  • On 15 September 2023, RNC advised Beverly Farming that it was in breach of the ICR Undertaking.  Beverly Farming requested drawdown of the third tranche of the Crop Lending Limit with some $80,000 of it being applied to the interest due under the Facility Agreement on 29 September.  On 21 September 2023 RNC refused this drawdown on the basis that the Facility was in default and of non-satisfaction of conditions in a reservation of rights letter (Draw Down Dispute).
  • On 9 October 2023, RNC served a default notice, relying on the failure to pay the interest due on 29 September and the breach of the ICR clause, and calling in the whole loan.
  • In February 2024 RNC issued another default notice.
  • On 4 April 2024 the parties to the Facility Agreement entered into a Deed of Forbearance (the Deed).  This recited that the secured debt exceeded $7 m. with other amounts accruing. Clause 5.1 required the Obligors to repay the Secured Money by 19 April 2024.  RNC agreed to forbear from exercising its rights and remedies arising out of the “Existing Defaults” (defined as including but not being limited to failures to pay interest and fees due in five specified months and failure to comply with cl. 10.5(b) as at 30 September 2023) for the “Forbearance Period” (defined as the period ending on the earlier of a breach of the Deed or a future default under the Facility Agreement or Securities).  By cl. 8.1 the Borrower and the Guarantors released the Lender from any Claims which they now had or but for the execution of this Deed may have had in relation to the Facility Agreement, the Securities, the Draw Down Dispute and/or anything else under the Deed.
  • On 1 May 2024 RNC issued a third default notice, under the Transfer of Land Act (TLA) s. 76 relying on a series of defaults, including breach of cl 10.5(b) as at 30 September 2023.
  • On 6 May 2024 it took possession of the mortgaged properties, appointing the second defendant and another person its agents, and as receivers and managers of Beverly Farming.
  • On 21 February 2025 RNC entered into contracts of sale of the three properties, due for settlement on 7 April 2025.
  • Lorna caveated over these properties. RNC applied under the TLA s. 90(3) for removal of the caveats and on 16 April 2025 his Honour declined to remove the caveats, on the balance of convenience (Blog 94).  He also expressed the preliminary view of adjourning this application for two months provided Lorna undertook to commence within that period any proceeding asserting her equitable interest in the properties and alleging breach of the TLA s. 77 in the sales, with liberty to apply.  He also stated that the parties would be heard on the precise terms of the orders to be made.
  • RNC sought an urgent listing of the s. 90(3) application to obtain final orders.  It also extended the settlement dates of the contracts of sale to 30 April 2025 but stated to the Court that a further extension was likely to be impossible.
  • Before the relisted date, 22 April, the parties filed fresh material.  RNC still sought removal of the caveats.  His Honour determined that the s. 90(3) application would be reconsidered afresh on 24 April, and that Lorna could file material responding to RNC’s new material.
  • The plaintiffs then commenced this proceeding seeking an injunction, listed for mention on 24 April. The Writ claimed that:
    • it was unconscionable, including under ss. 12CB or 12CA of Australian Securities and Investments Commission Act 2001 (Cth), for RNC to rely on Beverly Farming’s breach of the ICR Undertaking. The loss claimed was that in reliance on this breach RNC had not advanced the final tranche of money, whereby Beverly Farming could not pay the September 2023 interest, and, that RNC had relied on breach of the ICR Undertaking and this non-payment to enforce the Securities, and RNC had charged default interest;
    • in entering into the three contracts RNC had failed to act in good faith and with regard to the plaintiffs’ interests, contrary to s. 77(1) and the duty it otherwise owed to Gary (breach of duty claim), and if RNC was not restrained from completing the sales the plaintiffs would suffer harm for which damages would be an inadequate remedy. It alleged that RNC should have sold properties over which it was first mortgagee because the sales of properties over which it held second mortgages would not reduce Beverly Farms’ net indebtedness to it.  It also complained about the conduct of the sales.
  • In the Writ and Summons the plaintiffs inter alia sought: injunctions restraining completion of the sales and any steps to sell any property, and; production of unredacted copies of the three contracts of sale.
  • On 24 April his Honour determined to hear the application as one for an interim interlocutory injunction to restrain both completion of the existing contracts of sale, and other sales, based on the material currently filed (pending the plaintiffs supplementing their evidence concerning applicability of the Deed and were ready for a full hearing of their Summons supported by this evidence) before further hearing the s. 90(3) proceeding. This was on the understanding that Lorna’s position was that if this interim injunction application failed the caveats would be removed.
  • On 24 April his Honour also heard the application for production of documents.
  • Evidence filed in the s. 90(3) proceeding was not treated as evidence in this proceeding.
  • Andrew deposed that the sales were defectively conducted attaining an undervalue.
  • Counsel for the plaintiffs argued that RNC had acted unconscionably because it knew before advancing any funds that: Beverly Farming’s income was mostly made in early summer; the first advance of funds occurred when Beverly Farming had forecast no or no significant income until January 2024 and accordingly it intended to use the Crop Lending Limit for working capital, including payment of interest, and; accordingly, Beverly Farming would breach the ICR Undertaking immediately.  Counsel also submitted that RNC was not required to advance the purchase monies for the Marnoo Property if that would cause Beverly Farming to breach cl. 10.5(b), and so RNC had acted unconscionably in later relying on that breach, ie it should never have advanced funds in the first place.

Gray J. dismissed the application for interim injunctions and did not determine the application for production, holding –

  1. The Court had a broad discretionary power to grant injunctions where just and convenient pursuant to the Supreme Court Act 1986 s. 37 (also the Supreme Court (General Civil Procedure) Rules 2015 r. 38.01) and as an incident of its inherent jurisdiction to preserve the subject matter of litigation and ensure the effective exercise of its properly invoked jurisdiction. [47]
  1. The general organising principles for applications for interlocutory injunctions were:
    1. The applicant must show a prima facie case for obtaining the relevant relief, ie not that the relief was more probable than not but rather a sufficient likelihood of success to justify the preservation of the status quo pending either trial or, if applicable, expiry of the interim injunction. The required strength of probability depended upon the nature of the rights asserted and the likely consequences of the order sought.  A prima facie case existed where, if the evidence remained as it was, there was a probability that the applicant would obtain relief at trial [48]-[49], [57];
    2. And the balance of convenience favoured an injunction being granted. The Court inquired whether the inconvenience or injury likely to an applicant on refusal of the injunction outweighed injury to the respondent if the injunction were granted.  The Court took the course apparently having the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who failed, or in failing to grant an injunction to a party who succeeded, at trial.  A weaker prima facie case generally required a stronger case on the balance of convenience.  Because the duration of restraint sought by an interim injunction was shorter, the balance of convenience, all other things being equal, was in this case more likely than otherwise to favour relief; [48], [51], [52], [57], [60]
    3. The Court would consider, whether as part of the balance of convenience inquiry or as a separate principle, whether the applicant had demonstrated irreparable injury for which damages would be inadequate compensation, this being presumed where an interest in land was in question; [53], [57]
    4. The Court would generally require the applicant to give the usual undertaking as to damages, moulded to fit the circumstances of the case, and if the undertaking offered was not worthwhile or meaningful this may weigh against granting the injunction. These circumstances may include the likelihood of the applicant’s insolvency, so requiring security to support the undertaking; [54]-[55], [57]
    5. Delay in seeking the injunction was a discretionary factor possibly weighing against granting it. [56], [57]

Most such applications were heard on affidavit material untested in any way, with the Court being unable to resolve disputed questions of fact and often having difficulty resolving conflicts and difficult questions of law. [50]

  1. There was no prima facie case, and on current evidence no prospect, that completion of the contracts would be restrained at trial, for two reasons. The first was that the Deed’s releases covered the unconscionable conduct claim, including the argument that RNC need not have advanced money at all. [2], [66], [67], [76], [77], [78]
  2. The second reason was no prima facie case that RNC had exercised its power of sale in breach of its duty of good faith and of s. 77.  Under general law, a mortgagee had a duty to exercise the power of sale in good faith and for the purpose for which it was conferred, ie it could not recklessly or wilfully sacrifice the mortgagor’s interest. Section 77 widened this duty to require the mortgagee to exercise this power in good faith and having regard to the interests of the mortgagor.  However, a mortgagee had the right to exercise it for its own benefit – it was obliged to obtain the best price consistent with its entitlement to realise its security.  But even where a specific duty of care to achieve market value applied (not claimed here), a controller acting under the Corporations Act 2001 (Cth) or mortgagee, acting in good faith, was not obliged to improve the property’s value, nor to secure market value or a better price by the method or timing of sale.  In such cases, the Court focused on the process of sale, not on whether market value was achieved. [2], [81], [82], [85], [90]
  3. In particular, the following did not give rise to a prima facie case of breach of duty –
    1. the fact that the properties sold were subject to second mortgages; [86]
    2. choice of the selling agent, ie RNC had not disregarded relevant factors and acted with lack of care; [87]-[88]
    3. the timing of the sales; [89]-[91]
    4. the description of the properties being sold; [92]-[94]
    5. the fact that the sales were private. A mortgagee could make a reasonable attempt to obtain market value by auction, private treaty, or public tender; [95]-[96]
    6. there was inadequate evidence of undervalue, even having regard to the non-disclosure of the prices by RNC. A sale at a very significant undervalue could be relevant to assessment of breach of duty, but mere non achievement of market value estimates was not in itself evidence capable of establishing breach. Even if the non‑disclosure founded an arguable claim of breach of duty under s. 77 this was insufficient to justify an interim injunction restraining settlement. [97]-[108]
  1. The balance of convenience was also against restraining completion of the contracts of sale, because –
    1. the evidence fell well short of establishing that if the status quo was preserved there was a good prospect of repayment of RNC’s and NAB’s debts; [114]-[116]
    2. it was uncertain that RNC could further extend the contractual settlement dates. The contracts were open to the interpretation that the extension power could be used only once; [117]-[118]
    3. the fact that RNC would not be paid in full from the sales was of no real significance; [119]
    4. although the Trotters had long farmed the land they had not established that damages would be an inadequate remedy for sales at an undervalue in breach of duty. The debt was so great, and the evidence of refinancing so inadequate, that sale of at least some properties seemed inevitable; [120]-[125]
    5. the plaintiffs had not established that their undertaking as to damages would be meaningful; [128]
    6. if the three sales were not settled on 30 April 2025 RNC faced risks in the other sales campaigns and of increased loss; [129], [131]
    7. the plaintiffs had delayed commencing this proceeding for a lengthy, mostly unexplained, period. [132]

[2], [110], [112], [130], [133]

  1. The plaintiffs also failed to show a prima facie case for restraining sale of any of the farming properties. Their possible arguments for this injunction would have substantially overlapped those on the application for an injunction to restrain the sales. [44], [45]
  2. The injunction applications having failed, it was unnecessary and inappropriate to decide the application for discovery of unredacted contracts as part of an urgent Practice Court matter. It was unusual for an application for discovery to be determined in the Practice Court.  It could be renewed under ordinary case management processes. [3], [138]-[140]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 22, 2025

 

Blog 94. Common Endeavour Constructive Trust.

This Blog deals with RNC Nominees Pty Ltd v Trotter [2025] VSC 207 in which Gray J., after considerable analysis, found a prima facie case of a common endeavour constructive trust over three properties and, on an exhaustive consideration of the balance of convenience, declined to remove caveats.   This case was shortly succeeded by Trotter v RNC Nominees Pty Ltd [2025] VSC 224, which concerned an application for an injunction and will be the subject of the next Blog.

RNC Nominees Pty Ltd v Trotter [2025] VSC 207, Gray J.

The facts were –

  • The defendant’s husband, Gary Trotter (Gary), was the sole registered proprietor of three rural properties being ‘Hemphills’, ‘South-East’ and ‘Woods’. Two of these properties were largely black clays as was most of the third property.
  • A first registered mortgage over the properties was held by the National Australia Bank (NAB). In 2023 Gary mortgaged over 10 properties in total, including the three properties, owned by him or by associated persons or entities, operated as a farming business, to the plaintiff (RNC).  The mortgages were registered as second mortgages.   They secured money owed under a facility agreement between RNC and each of Beverly Farming Pty Ltd (Beverly Farming), Gary, the defendant Lorna Trotter (Lorna), and their son Andrew (Andrew), dated 24 May 2021.
  • On around 4 April 2024, Gary and Lorna, RNC and others entered a deed of forbearance. This deed recorded RNC’s debt as $7,197,591.97.  Lorna was an obligor under a relevant agreement and also a guarantor of this debt.
  • On 1 May 2024 RNC issued a default notice for $7,385,926.38 plus interest.
  • On 6 May it as mortgagee entered into possession of the three properties and other mortgaged properties and appointed agents, they also being receivers and managers of Beverly Farming.
  • On 21 February 2025 RNC entered into three contracts of sale of the three properties due for settlement on 7 April 2025. Special condition 18 in each contract provided that if the vendor was delayed or prevented from completing the contract by a caveat it could extend settlement for up to 6 months to enable it to remove the caveat or take other steps necessary to transfer title.
  • On 18 March 2025 Lorna caveated over each property on the grounds of ‘implied, resulting or constructive trust’.
  • As at 2 April 2025, the estimated payout figure under the NAB mortgage was $4,762,745.15.
  • RNC applied under the Transfer of Land Act s. 90(3) for removal of the caveats.
  • The caveator deposed –
    • When she married in 1974 Gary already owned Woods and owed certain debts. They soon bought another property registered in their joint names;
    • They had run a farm in partnership since their marriage, being a formal partnership between them from 1976, also conducted for 16 years to 2012 with Gary’s brother and his wife;
    • From the 1990s the brothers jointly owned Hemphills and another property. Gary became their sole registered proprietor in about 2012;
    • Gary acquired a further property in 1994;
    • Gary was given South-East by his mother in 2004;
    • The farming partnership was conducted on all these properties;
    • She contributed to work for the farming business in various ways, including on the three properties, this evidence being quite general;
    • During their marriage she and Gary always understood that they owned everything together and the farm properties were joint marital assets, this evidence being quite general.
  • Andrew deposed to a family understanding that his parents had contributed equally to their marriage, and that properties held in his father’s name were owned by each equally.
  • On 2 April 2025 Andrew obtained valuations (the valuations) of the three properties at $6,525,000 in total, which if attained would leave about $1.7 m. for RNC after discharge of NAB’s mortgage.
  • In an affidavit filed on 2 April, being the evening before the hearing, Andrew criticized the sales process including the marketing campaign. He gave oral evidence expressing further concerns, without objection or cross-examination.
  • Andrew gave evidence: of a record sale in February 2025 of a nearby property (Lot 5) rich in ‘black soil’, which he suggested would increase the values of the properties; and that a week after that sale the receivers and managers told him that they would enter contracts of sale unless they received unconditional refinancing offers that day. The valuations had referred to sales in the previous 24 months but not to the sale of Lot 5.  But they did refer to a recent sale of a property rich in black clays for $19,920 per hectare.  However, for location reasons the valuation did not ascribe this figure to the properties, though nonetheless ascribing relatively high values to attain $6,525,000.
  • Andrew’s affidavit exhibited a solicitor’s letter disputing the three contracts and referred to a financing agreement between RNC and Beverly Farming, allegedly breached by RNC and thus invalidating all its actions including appointment of the receivers and managers. The letter foreshadowed an application for an injunction and requested a delay in settlement.
  • Andrew gave evidence of steps taken to refinance all mortgage debts.

RNC did not tender evidence of sale prices but provided a confidential exhibit to the court before the hearing and sought to apply ex parte for it to be kept confidential.  The court required a formal application on summons supported by affidavit(s); this did not occur; and the confidential exhibit was not filed but a redacted version was filed not disclosing the purchasers or the prices.  Counsel for the caveator applied for disclosure, ultimately of just the sale prices.  Counsel for RNC submitted that the identities of the purchasers and the prices were market-sensitive information that might depress the future prices of the remaining seven properties.

Gray J. declined to remove the caveats, holding –

  1. The evidence supporting the existence of a joint endeavour constructive trust under which the caveator was a beneficiary, based on Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78 and Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59, was very superficial. The mere fact that the farming partnership involved the couple and that its operations occurred on various pieces of land did not give the caveator an interest in any particular piece of land.  Nonetheless, she had established a weak prima facie case of this trust.  However, this was the court’s preliminary view, based only on her limited evidence, uncorroborated by Gary and without RNC having a meaningful opportunity to respond.  This evidentiary weakness was also relevant to the balance of convenience. [21], [22], [25], [26], [27], [42], [43], [83]
  2. A joint endeavour constructive trust only arose where the substratum of a joint relationship or endeavour was removed without attributable blame, and where the benefit of money or other property contributed by one party on the basis and for its purposes would otherwise be enjoyed by the other party in circumstances not specifically intended or specially provided for, equity then preventing that other party from asserting or retaining this benefit to the extent unconscionable. In this case –
    1. The couple remained married and their farming endeavour had not come to an end or been ‘removed’; [30], [31]
    2. It was however debatable whether the farming endeavour continued, at least in its intended form: the appointment of receivers and managers and the control of the land by agents of the mortgagee in possession had arguably ‘removed’ the ‘substratum’; [31]
    3. This raised whether a joint endeavour constructive trust could be asserted against someone other than the ‘other party’ to the endeavour, in circumstances where that ‘other party’ was not the one retaining the benefit of the property – and whether in those circumstances it could be said to be ‘unconscionable’ for a third party mortgagee to ‘assert or retain the benefit of the relevant property’; [32]
    4. The court’s preliminary view was that these factors did not prevent the trust arising. Nonetheless, the court acknowledged: that Lorna’s asserted equitable interest arose because of the operation of the doctrine on the conscience of the sole registered proprietor Gary; RNC’s position was different, as its registration conferred indefeasibility on its rights, notwithstanding Lorna being beneficiary of a constructive trust, subject only to fraud or to an in personam claim by Lorna, neither being asserted here; and accordingly RNC’s interests probably had priority over Lorna’s asserted equitable interests; [34]
    5. Although these considerations did not preclude recognition of Lorna’s equitable interest they were relevant to the balance of convenience. [35]

    [30]

  3. Although some cases had treated the joint endeavour constructive trust as superseding the common intention constructive trust, and some cases conflated them, the Supreme Court had treated the latter as a distinct doctrine. Having found a prima facie case of a joint endeavour constructive trust it was strictly unnecessary for the court to form a view on the existence of a common intention constructive trust, but if it existed its prospects of success were no stronger than those of establishing a joint endeavour constructive trust. [24], [25]
  4. Any proprietary interest held by Lorna existed even if there was no basis for subordinating RNC’s registered interests to her alleged interests or whether she might receive any return from the sale (also possibly relevant being that she was jointly and severally liable for Gary’s debt). [36]-[41]
  5. As to the application for disclosure of the sale prices –
    1. Section s. 90(3) of Transfer of Land Act did not confer jurisdiction to order production of the sale price information – it was unclear that s. 90(3) extended to procedural, interlocutory orders of this kind – it may be limited to dispositive orders relating to the caveat or dealings with the land; [48]
    2. But the court had power to order disclosure of documents (in unredacted form) in the nature of discovery orders under the Supreme Court (General Civil Procedure) Rules 2015 or the Civil Procedure Act 2010. Perhaps the court could have ordered discovery, but that power had not been invoked here; [49]
    3. The parties did not address whether RNC’s concerns could be allayed by the caveator agreeing to keep market-sensitive information confidential. Absent such safeguards, the court was disinclined to exercise its power, assuming it existed, to order disclosure of the prices. [50]
  6. In contrasting the potential injury to the respective parties from the caveats remaining or being removed, or (in other words) taking whichever course appeared to carry the ‘lower risk of injustice’ should the course chosen turn out to have been ‘wrong’, the balance of convenience favoured maintenance of the caveats at least for a limited time, on balancing:
    1. The weakness of Lorna’s prima facie case; [43], [63]
    2. The non-disclosure of prices – this led the court to assume in the Lorna’s favour that the prices were substantially below the valuations. Importantly, this non-disclosure supported her having further time to consider whether to sue RNC and the agents for breach of their duties.  On the assumption that the sales were for an undervalue, the removal of the caveats and consequent completion of the contracts could prejudice her as she was jointly and severally indebted to RNC for much more than the proceeds of sale, even if $6.525 m. had been achieved; [51], [52], [65], [66]
    3. A mortgagee exercising a power of sale under the Transfer of Land Act s. 77 owed duties at least to the registered proprietor and maybe also to the holder of an equitable interest through the registered proprietor. But even assuming the sales were well below $6.525 m. Lorna had not articulated a clear claim relating to the sale process; [55], [56]
    4. Nevertheless, because this was an urgent Practice Court application akin to an injunction application the court would on the balance of convenience weigh Andrew’s evidence about the sale process and alleged undervalue, notwithstanding that it was untested and that inferences of misconduct were impermissible against the agents, who were officers of the Court, without proper notice of this assertion and lack of evidence of breach of duty; [57]-[62], [64]
    5. The indefeasibility of RNC’s mortgage and the subordination of Lorna’s asserted equitable interests to repayment of RNC’s debt; [63]
    6. On an application for an injunction the court would consider whether damages were an adequate remedy. However damages were not an adequate remedy where rights to land were concerned.  Lorna may assert an interest over approximately seven other titles, and so even if it was inevitable that the current sales would give her no return, she could suffer prejudice from their sale at undervalue in the form of enjoyment of  her asserted equitable interests in the other properties.  As all the titles covered the farming business, and given the presumption of the special nature of an interest in land, damages were inadequate, or at the very least this was arguable; [67]-[69]
    7. The solicitor’s letter, which concerned the related dispute between RNC and Beverly Farming, carried no weight; [74]
    8. There was no convincing evidence of prejudice to RNC if the settlement was delayed, special condition 18 having very significant weight; [76], [77]
    9. There was no evidence that delay in repayment of RNC’s loan would cause it loss – the lapse of 9 months between its entry into possession of the land and into the contracts of sale could be due to market conditions or suggestive of no pressing need for a sale; [78], [79]
    10. The court gave little weight to Andrew’s refinancing evidence because it was superficial, unlikely to succeed within the next few weeks, and if Lorna had caveated simply based on needing additional time for refinancing this would be perilously close to an attempt to use a caveat as a ‘bargaining chip’; [81], [83]
    11. In summary the potential prejudice to Lorna of removing the caveats outweighed the lack of any imminent prejudice to RNC in maintaining them, provided she undertook to within a reasonable time, suggested by the court to be two months, sue the agents or RNC for alleged breach causing sales at an undervalue. The application for removal of the caveats would then return to court for further consideration. [84]-[87]

[62]

  1. Caveats should be proportionate and properly adapted to the interests sought for protection. Consideration should be given to amendment so that these caveats did not prohibit any dealings absolutely and without qualification. [88]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, June 3, 2025

 

Blog 93. Two reprise cases.

This Blog covers two relatively short cases which are related to previous Blogs.  Saad v Saad [2025] VSCA 29 (Whelan JA and Watson AJA) was an unsuccessful application for a stay of execution of the judgment of Gobbo AsJ in Saad v Saad [2025] VSC 15 ordering removal of a caveat, the subject of Blog 92, and alternatively for an injunction restraining dealing with the property pending determination of the caveators’ application for leave to appeal to the Court of Appeal.   Perpetual Ltd v Doyle [2025] VSC 70 (Irving AsJ) arose out of facts related to Downey as Trustee of the Bankrupt Estate of Robert Henry Bourne v Doyle [2023] VSC 664, the subject of Blog 82.

In Saad v Saad [2025] VSCA 29 the Court of Appeal dismissed the application (pursuant to Rule 66.16 of the Supreme Court (General Civil Procedure) Rules) for a stay, and the injunction application, noting:

  1. The decision at first instance was a discretionary judgment. The ultimate appeal could only succeed if an error of the kind described in House v The King (1936) 55 CLR 49 were established.  This would be very difficult. [42](a), (e).
  2. Being interlocutory, the existing decision, and the refusal of a stay, did not determine any issue against the applicants. There was no issue estoppel or res judicata. [42](b).
  3. The applicants’ claims were mutually inconsistent, and part of their case was, at the least, vague and uncertain. [42](d), (e), (f).
  4. Any uniqueness in the property attributable to it being a family compound was most probably already lost. [42](g))
  5. The balance of convenience strongly favoured refusal of a stay both because the caveat was preventing the elderly registered proprietor dealing with the land and because, even if the applicants’ claims were eventually established, monetary compensation was likely to be the adequate remedy. [42](c, (f), (h).
  6. The application for an injunction was refused for the same reasons. [43]

The court also reiterated two basic points related to applications under the Transfer of Land Act s. 90(3) for removal of caveats.

First, that although it had been observed that there was, as to the caveator’s claim to an interest in the land, no real difference between a serious question to be tried test and the prima facie case test, the latter was now preferred. [35]

Second, that although the courts had adopted the analogy of an interlocutory injunction and the consequent two stage test (ie had the caveator established: first, a prima facie case or serious question to be tried of having the claimed interest in the land, and; second, that the balance of convenience favoured maintenance of the caveat), s. 90(3) was broadly drafted, and accordingly the two stage test should only inform whether the court should exercise the discretion, not subsume or restrict the power conferred by s. 90(3). [36]

 

Perpetual Ltd v Doyle [2025] VSC 70 (Irving AsJ)

As background to this case it assists briefly to summarise parts of Downey as Trustee of the Bankrupt Estate of Robert Henry Bourne v Doyle [2023] VSC 664 (Downey), the subject of Blog 82.  In Downey –

  • On 16 October 2007 the defendant (Doyle), who was the registered proprietor of land in Ardcloney Drive, Sunbury (the Land), transferred it to Robert Bourne who became its registered proprietor.
  • It appeared that between 16 October 2007 and 10 July 2014 Doyle occupied the Land under an informal licence granted by Bourne. On 7 March 2014 she caveated over it claiming that the “registered proprietor holds his interest as trustee for the Caveator pursuant to a constructive trust and/or a declaration of trust from the registered proprietor made on 16 October 2007”.
  • On 10 July 2014 a sequestration order was made over Bourne’s bankrupt estate and the plaintiff was appointed as his trustee.
  • In 2016 a sequestration order was made over the Doyle’s bankrupt estate and the Official Trustee in Bankruptcy was appointed as her trustee.
  • On 28 March 2023 the plaintiff terminated any informal licence held by Doyle.
  • On 3 May 2023 the plaintiff became the registered proprietor of the Land and was informed that the Official Trustee agreed to permit Doyle’s caveat to lapse.
  • The plaintiff issued a proceeding for recovery of possession and under s. 90(3) of the Transfer of Land Act (TLA) for removal of the caveat. Doyle claimed or deposed inter alia that: in 2006 she purchased the Land on trust for her children; in 2007 she purchased another property but agreed with Bourne that he would act as bare trustee for both properties and would after approximately two years reconvey the Land to her as co-trustee for her children; Bourne paid no consideration for the transfer to him; she never transferred her children’s beneficial interest in the Land to Bourne; although she had no personal interest in the Land the caveat had to be lodged in her name personally (rather than in her name as trustee for her children).

Irving AsJ. refused the application for possession but granted the application for removal of the caveat, holding in brief summary (the full holding is in Blog 82) –

  1. The Land was vested in the plaintiff as Bourne’s trustee in bankruptcy.
  2. To the extent that Doyle had any interest in the Land as trustee, that interest had vested in her trustee in bankruptcy.
  3. Doyle accordingly had no prima facie case of the interest claimed in the caveat.

The case the subject of this Blog, Perpetual Ltd v Doyle [2025] VSC 70, concerns land at Powlett Street Sunbury (the Property), being the “other property” referred to the previous case.  In this case Doyle alleged or the uncontested facts were –

  • When Bourne purchased the Property she entered an agreement with him that he would borrow funds for the purchase and be the registered proprietor holding it on trust for her, she holding her interest therein on trust for her daughters. Although the loan was to be taken out in his name she and/or her daughters would remain responsible for the mortgage repayments and outgoings.
  • In December 2007 Bourne mortgaged the Property to the plaintiff (Perpetual) to secure a loan of $347,700.00. The mortgage was registered.
  • More than 6 years later Doyle caveated claiming an implied, resulting or constructive trust on the ground of a constructive trust.
  • Bourne became bankrupt. His trustee in bankruptcy, Downey, became registered proprietor of the Property.
  • In 2023 Perpetual issued a default notice to Bourne, who did not rectify the default, and it now sought to sell the Property as mortgagee in possession.
  • In 2024 the Supreme Court dismissed an application by Doyle for an injunction to prevent the sale.
  • Perpetual applied under the Transfer of Land Act s. 90(3) for removal of the caveat. The second defendant was Doyle’s trustee in bankruptcy, who argued that any interest of Doyle in the property had vested in it.
  • An exhibit to an affidavit filed by Perpetual included a table of repayments of the Perpetual loan with numerous entries from at least 10 January 2011 to 5 January 2018 recording payments by either ‘Ms Maureen Doyle’ or ‘M Doyle’.

Irving AsJ. dismissed Doyle’s application that he recuse himself from hearing the application.

Irving AsJ. ordered removal of the caveat, holding –

  1. An order for possession was not a precondition of Perpetual (or any applicant) having standing to apply for relief under s. 90(3). Perpetual had standing to bring the application. [61], [66]
  2. As to her standing to oppose Perpetual’s application, Doyle did not assert that she had standing because of her asserted status as trustee for her daughters – she relied on her alleged trustee status to argue that the Property was not an asset in which her trustee in bankruptcy could claim an interest. However, it was appropriate to hear her on Perpetual’s application because she was the named caveator, Perpetual did not argue that she should not be heard, and the question whether any interest she had in the Property had vested in her trustee was unresolved. [63]
  3. There was no credible evidence that Doyle’s trustee had agreed to annul her bankruptcy. [64]
  4. Doyle’s claim to being the beneficiary of a constructive trust was grounded on her alleged agreement with Bourne referred to above. If left to her evidence alone, absent documentary evidence, there would not be a serious question to be tried that this trust existed.  However, one possible inference from the table of loan repayments was that she had been responsible for at least some loan repayments, leading to the further inference of a trust.  In order to accept that inference the court must be satisfied that it was more likely than other possible inferences.  She had so satisfied the court.  The combination of her evidence and Perpetual’s evidence of loan repayments raised real questions about Doyle’s interest in the Property, and so raised a serious question to be tried. [67]-[69]
  5. However the balance of convenience did not favour maintenance of the caveat because: Perpetual’s interest in the Property had priority over any interest of Doyle’s; her caveat was lodged long after registration of its mortgage; it had no notice of existence of a trust when it took its mortgage; Doyle’s trustee in bankruptcy asserted that any proprietary interest she had vested in it;  any surplus sale proceeds remaining after discharge of the mortgage would be dealt with under s. 77 of the Transfer of Land Act; Doyle’s application for an injunction prohibiting the sale had been dismissed; although Doyle asserted that the Property was required for a family home she did not depose by whom; she had not produced any tenancy agreement to support her assertion that the Property was tenanted; she had not explained the legal basis for her asserted right to let or occupy the Property; and her submissions about the Property’s poor condition were unsupported, apparently at odds with photographic evidence, and any suggested repair works were unfunded. [71]-[75]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, May 20, 2025

Blog 92. No proprietary estoppel.

This Blog deals primarily with Saad v Saad & Anor [2025] VSC 15 in which Gobbo AsJ removed a caveat claimed to be justifiable on the basis of proprietary estoppel.  However, in passing I mention Milenkovic v Milenkovic [2024] VSC 763 in which alleged (and disputed) delay in lodging a caveat and other matters were held not to give rise to the defence of laches against a claim for proprietary estoppel.

 Saad v Saad & Anor [2025] VSC 15, Gobbo AsJ.  (31 January 2025)

The facts were as follows.

  • The plaintiff (Khadigi) and her husband Abboud (the couple) had 13 children including the first defendant (Waleed) who was married to the second defendant (Hala).
  • In 1975 the couple became registered proprietors of 179 Union Street Brunswick West (the Land).
  • In 1983 Waleed purchased a property elsewhere.  In about 1986 Abboud encouraged him to purchase 181 Union Street (No. 181), which adjoined the Land.  In 1986 the defendants became registered proprietors and residents of No. 181, which had its own driveway and was divided from the Land by a fence.
  • Waleed deposed that from 1982 he was the primary income earner in the family, paying his entire wages to Abboud who used them for all family expenses, including property related expenses of the Land.
  • The couple determined to develop the Land with a double story dwelling and a granny unit.  In about 1987 Abboud requested Waleed to provide 57.7 sq. m. (the parcel) from No. 181 to enable this development.
  • The defendants each deposed to the existence of an agreement made in 1987 (the alleged 1987 Agreement), which Khadigi denied.   Waleed deposed –
    • In late 1987 Abboud explained his development intentions and showed him architectural plans.  Abboud said in effect –
    • for the development he needed approximately a further 1.22 metres running along the entire boundary, which he asked Waleed to provide by changing the common boundary;
    • this development would provide a ‘family complex’ for the benefit of the entire family;
    • there would be no dividing fence but rather a shared driveway and communal gathering space for the family;
    • both new dwellings would be utilised for the benefit of the entire family.
    • Because the couple’s only income was Centrelink benefits, Abboud asked him to continue making financial contributions to the family for the costs of this development.
    • Abboud further said in effect that –
      • if Waleed provided the parcel and contributed to the development’s financial costs by continuing providing his earnings to Abboud, he would receive a proprietary interest in the Land commensurate to this parcel and his financial contributions;
      • “if either of us determined to sell our respective properties in the future, we would offer the property to the other party for purchase at first instance”.
    • He agreed to Abboud’s proposal.  This agreement was not documented, he trusted his father, and the family was very close during Abboud’s life.
    • Abboud told Khadigi of this Agreement and it was openly discussed within the family.
    • Waleed paid his business earnings, being financial contribution toward the costs of the development, to Abboud in Khadigi’s presence.  Relying on the alleged 1987 Agreement, he paid his parents 60% – 70% of his earnings from July 1987 to 1996. And (he subsequently deposed) he “continued to provide Abboud with [his] entire wages and earnings”.   He contributed $120,000.
    • After the development was completed Khadigi said in effect that “if it wasn’t for you helping us with providing the land and money, then we wouldn’t be where we are”.
    • He disputed her evidence that in 1988 he agreed to make a gift of the parcel.   Before April 2023 she had not told him that she did not agree with this Agreement or refer to the parcel as a “gift”.
  • Hala deposed –
    • Abboud handed her a document which he asked her to sign but which she could not read or understand.  He told her that it was to transfer a small part of the land between the two properties for the development.
    • Abboud said that he intended to build these properties for the benefit of the family, and that her and Waleed’s contributions would not be lost because they would have an ownership in the Land and, if it was ever to be sold it would be to them for a price taking into account their contributions.
  • Waleed’s brother Khaldoun deposed that: he discussed with Abboud the need for Waleed to transfer some land for the development; Abboud told him that Waleed would be contributing to construction costs; between 1989 and 1996 he frequently witnessed Waleed giving cash to Abboud for the construction costs and for repayment of an ANZ loan;  it was common knowledge that in accordance with Lebanese custom Waleed as the oldest son would have the first right to purchase the Land.
  • Khadigi substantially denied the contents of the above affidavits, denied that the defendants were promised an interest in the Land, and deposed that the parcel was a gift.  She also relied on affidavits of her sons Saad, Bessim and Zafir.  Their evidence included that they were told that the Land was to go to Saad and had never heard of the alleged 1987 Agreement, which Agreement would have been contrary to Lebanese culture.
  • Khadigi and Zafir deposed that the construction of the development was funded from the proceeds of sale of another property, plus (as deposed to by Khadigi) loans from family and friends.
  • A plan of consolidation was prepared.  In January 1988 a Transfer of the parcel recorded the consideration as $500 (which Waleed deposed was determined by Abboud but not paid, Khadigi also deposing to non-payment), with stamp duty of $70 on an assessed value of $5,000.  The duty was paid and the Transfer was registered in January 1988.
  • In 1989 the couple borrowed $62,000 from the ANZ bank secured by a mortgage over both pieces of land.  Simultaneously they entered another ANZ mortgage (the collateral mortgage) using the same security for a loan of $33,200.  The collateral mortgage named Waleed and Zafir as the customers.  Whether the named parties in fact entered into the mortgages, the reason for the mortgages and the underlying debts which they secured were disputed.
  • The plan of consolidation and mortgages were registered in 1991.
  • Abboud died in 2016.
  • In August 2023 Khadigi entered a contract to sell the Land and Saad caveated over it claiming as purchaser.
  • On 25 September 2023 the defendants caveated over the Land claiming an implied, resulting or constructive trust.
  • In September 2023 the defendants’ then solicitors wrote inter alia: asserting that Khadigi “holds on trust for our client (sic) the portion of land at 179 Union Street, Brunswick West VIC 3055 … consolidated on or about 31 January 1991”; advising that “our client’s [sic] portion has now been secured by caveat lodged by our office”; and stating that an in principle agreement had been reached in relation to their clients’ interest, which was set out including that “Our client is [sic] to obtain a valuation in relation to their portion of your client’s property” upon receipt of which Khadigi would pay “our client” the said value in return for withdrawal of the caveat; and stating that that firm was drafting an Agreement outlining the above for signing.  The letter did not refer to an option to purchase.
  • In October 2023 those solicitors forwarded a draft deed (Deed) to Khadigi’s solicitors which included that the caveat would be withdrawn in exchange for payment of $750,000.
  • Waleed’s affidavit did not explain why the solicitor’s letter was sent.  He deposed that he did not see the Deed before it was sent.  Hala’s affidavit did not refer to the letter or Deed.
  • Khaldoun caveated over the Land in January 2024 alleging an implied, resulting or constructive trust.  He withdrew this caveat in April 2024.
  • Khadigi applied under the Transfer of Land Act s. 90(3) for removal of the defendants’ caveat.  Subsequently the defendants issued, but had not yet served, an Originating Motion against her claiming relief related to the alleged 1987 Agreement, which allegedly founded a proprietary estoppel or constructive trust either based on unconscionability or common intention.  Evidence was given that the parcel was now worth $50,000.

 Gobbo AsJ ordered removal of the caveat, holding –

  1. Khaldoun’s affidavit was unpersuasive because: he did not explain the circumstances surrounding his caveat or its withdrawal despite the possibility that his claimed interest was inconsistent with the rights asserted by the defendants; it contradicted Waleed’s evidence, particularly on the option. [63]
  2. No party’s version of events was consistent with the mortgage documents. [88]
  3. The defendants had not established a prima facie case of Waleed’s alleged financial contributions to the development.  The court could not safely conclude that Waleed had made any financial contributions to the Land pursuant to the alleged 1987 Agreement or otherwise. [89], [105]
  4. The solicitor’s letter was inconsistent with the rights now asserted by the defendants. [97], [106], [112]
  5. The position taken in the Deed was inconsistent with the case now advanced by the defendants. [107], [112]
  6. Waleed’s assertion that after the Land was sold an agreement was reached with Khadigi concerning any claim over the Land was untenable.   The assertion that the alleged 1987 Agreement included an option to purchase was inconsistent with the solicitor’s letter, the Deed, and with Waleed’s demand to Khadigi not to carry out the sale to Saad.  The demand for payment of $750,000 was also inconsistent with the terms of the alleged 1987 Agreement, in particular as to any option to purchase.  Permitting the sale to Saad to proceed (in return for payment of $750,000) was also inconsistent with the argument that removal of the caveat would be unjust because depriving the defendants of their intended family complex on the Land and No. 181. [108], [109]
  7. A contract was not binding and enforceable if one of its essential terms had not been agreed.   Although the court was required in construing a commercial contract to approach its task in a commonsense way to attempt to give effect to the bargain, it may encounter ambiguity so obscure as to indicate no agreement, leading to a particular contractual provision be held void for uncertainty.  This was so with the alleged option to purchase.  The court could not be satisfied of a prima facie case of the alleged 1987 Agreement including the option to purchase – the existence of which was critical to maintenance of the caveat. [115]-[117], [122]
  8. The defendants had not established a prima facie case of an implied, resulting or constructive trust over the whole of the Land in the terms of the alleged 1987 Agreement.  Their evidence of it was ambiguous and too general to establish a prima facie case save of the transfer of the parcel.  In particular: its existence was disputed; assuming it existed it was disputed whether the couple or just Waleed had a proprietary interest, and whether in all the Land or limited to the value of the parcel or to the value of Waleed’s financial contributions, and whether the agreement included an option to purchase. [127], [128]
  9. If a caveator established a prima facie case but there was a conflict of testimony the court may order removal of the caveat unless the caveator took steps to establish the caveator’s title within a certain time.  However, as stated in holding 8, as to the whole of the Land there was no prima facie case  [128]
  10. The caveators had only established a prima facie case of the transfer of the parcel, although not necessarily pursuant to the alleged 1987 Agreement.  At its highest their interest in the Land was limited to value of the parcel, being $50,000.  It was inappropriate to maintain the caveat when that interest could be protected by payment of $50,000 into trust pending determination of the terms on which the parcel was transferred. [125]
  11. The balance of convenience also favoured removal of the caveat because: of the contract of sale to Saad; Khadigi was elderly and needed the sale proceeds to purchase a residence; she had agreed to pay $50,000 into a solicitor’s trust account or into court; the defendants would have continued access to No. 181 notwithstanding the sale; the foregoing outweighed the defendants’ desire to purchase the Land to develop their own family compound. [137], [138]

Gobbo AsJ stated the legal principles of: common intention constructive trusts ([51], [52]); proprietary estoppel ([53]-[57], [121); and contractual interpretation ([115]-[120]).

Philip H. Barton

Owen Dixon Chambers West

Wednesday, February 26, 2025

Blog 91. A NSW case and a pseudo-law case providing some light Christmas relief.

I do not normally deal with NSW cases, but a veteran Victorian lawyer has drawn my attention to an interesting NSW case which I first consider briefly.   Then I offer the light relief found in the most recent Victorian caveat case, replete with pseudo-law.

Cui v Salas-Photiadis [2024] NSWSC 1280, Hmelnitsky J.  Briefly the facts were –

  • The second defendant (Simpo) was the registered proprietor of land (the Land). On 27 February 2024 it as borrower entered into a Loan Agreement with the first defendant as lender.  Clause 17.1(a) provided:

‘[Simpo] grant[s] a security interest in the collateral to [the first defendant] to secure payment of the secured money.

This security interest is a mortgage of the land, … and a charge over the other collateral.

This security interest is also an encumbrance.’

‘Collateral’ was defined in the agreement as including ‘the land’, which itself was described as:

‘each on [sic] or more of the following that the context allows:

(a) the real property described in the [Finance Offer Schedule];

…’

The Finance Offer Schedule stated that the security included a ‘Mortgage by [Simpo] over the land detailed below’.  Underneath was a description of the Land and the words ‘2nd Registered Mortgage’.

  • Part of the secured money was amounts outstanding under construction contracts between a company associated with the lender and Simpo.
  • A form of mortgage to give effect to the security arrangement was executed but not registered.
  • On 12 April the plaintiff entered into a contract to purchase the land, which was improved by a home.
  • On 20 May the first defendant caveated claiming an interest as a ‘charge’ granted under the loan agreement.
  • Settlement ‘occurred’ on 28 June. However, in the words of the judge –

‘Bafflingly, no participant in the PEXA workspace noticed that the first defendant’s caveat had been lodged.  If they did, they did not appreciate the significance of it.  Instead, the parties blindly proceeded towards settlement in the usual way.’

  • The following day the incoming mortgagee received a requisition from Land Registry Services stating that the caveat prevented registration of the transfer and mortgage.
  • The plaintiff sought an order under s. 74MA of the Real Property Act 1900 (NSW) that the caveat be withdrawn.

Hmelnitsky J. declined to order that the caveat be withdrawn, holding –

  1. The caveat was not invalid for failure to specify the nature of the equitable estate or interest claimed sufficiently. His Honour referred to NSW authority which had itself quoted English authority which stated –

‘An equitable charge may, it is said, take the form either of an equitable mortgage or of an equitable charge not by way of mortgage.  An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so: … An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale: …’

His Honour said that these references acknowledged that an equitable charge may or may not take the form of an equitable mortgage.  [33], [34]

  1. Like Victoria, NSW has legislation (the Home Building Act 1989) s. 7D of which prohibits an agreement which, in substance, purports to give a person a legal estate in land to secure the performance of (ie payments under) a residential building contract. This agreement was unenforceable by reason of s. 7D to the extent it purported to secure the payment for residential building work. [40], [46], [47]
  2. However, as the loan agreement and mortgage created a valid and enforceable equitable mortgage in favour of the defendant to secure the repayment of loans other than the amounts due and payable under the construction contracts, to this extent the caveat was valid. The description in the caveat of the first defendant’s purported equitable estate or interest in the land remained correct (or sufficiently correct). [52], [54]

Comment:

Holding 1, appears to this blogger to be lenient to the caveator, but arguably a charge was created under the Loan Agreement.  The Victorian reader should stick to the options contained in the Victorian government publication ‘Guide to grounds of claim for caveats’.   But it is noted that, apart from various discrete ‘mortgage’ claims, in Victoria one can claim an interest as chargee based on a ‘charge contained in mortgage’.

As to holding 2, the similar Victorian legislation is s. 18 of the Domestic Building Contracts Act 1995.

 

Nelson v Greenman & Anor [2024] VSC 704, Gobbo AsJ. (15 November 2024)

The facts were:

  • Stephen Douglas was the registered proprietor of land at Koo Wee Rup.  He was bankrupted in 2019.  On the making of the sequestration order his interest in the land vested in the plaintiff under the Bankruptcy Act and in 2021 the plaintiff became its registered proprietor.  Between then and March 2024 were many legal twists and turns involving the Federal Court, the Sheriff, VCAT, the Supreme Court, and the police executing a warrant of possession on the third attempt.
  • In the course of the foregoing the first defendant caveated on the ground of an implied, resulting or constructive trust.  The plaintiff sought removal of the caveat under the Transfer of Land Act s. 90(3).

In the course of removing the caveat with indemnity costs Gobbo AsJ. grappled with documents and concepts relied on by the caveator including: the argument that the property was Christian ministry headquarters involving the DOUGLAS Stephen Ross Estate Trust of which the first defendant was the Special Trustee, and the Koo Wee Rup Ministry Trust; that the Special Trustee was formalised by trust deed which included the property; that the DOUGLAS Stephen Ross Estate Trust was a Life Estate in Fee Simple; that under the Trusts (Hague Convention) Act 1991 (Cth) whoever held a title to the property held it on behalf of the trust; accordingly the property was exempt property held in a trust by the bankrupt for someone else, ie the Koo Wee Rup Ministry, as described in the Bankruptcy Act s. 116; as to certain public figures described as the ‘Living Man’ or ‘Living Woman’; and many others.

Her Honour described the caveator’s affidavit as ‘34 pages of nonsensical quasi‑legal concepts and phrases, Bible quotes and references to organisations and entities with unconventional titles or descriptions’.  Her Honour rejected an application by the caveator to remove the case to ‘the People’s Court of Terra Australis’.   The blogger also learnt that there is now a body of literature on the rise of ‘pseudo-law’ being ‘a collection of legal-sounding but false rules that purport to be law’, being ‘integrated and separate legal apparatus’ with its own confounding legal theories, constituting an ‘alternative legal universe’. Her Honour lists exotic varieties of this ‘doctrine’.

The legal points of value in this case were as follows.  Her Honour stated that at its highest, the first defendant’s case appeared to be that the plaintiff had no entitlement to possession as legal owner because the land was legally transferred to a trust.  However, in Douglas v Nelson [2024] VSC 116 Quigley J held it not to have been established that the bankrupt had made a valid transfer of the legal ownership of the title to the land to any trust entity, referring to the law on when equity would recognise the assignment of property without consideration.  Gobbo AsJ also dealt with: the circumstances in which silence could constitute acceptance of an offer sufficient to establish a contract, and; the jurisdictional basis of the office of Associate Justice.

Merry Christmas

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 10, 2024