23. Caveat based on constructive trust imposed due to theft.

Aust Café Pty Ltd v Thushara de Soysa & Ors [2019] VCC 237 (15 March 2019) Judge A. Ryan.

The facts were –

  • The second defendant was at all material times the registered proprietor of a property, mortgaged to the ANZ Bank from 2006 to 24 August 2016 and thereafter to Westpac.
  • The plaintiff operated a café where it employed the first defendant as a floor manager and, from August 2009 to February 2014, his then wife the second defendant as a food server.  The third defendant, now married to the first defendant, was also employed there.
  • According to the third defendant’s bank-statements between 29 November 2012 and 30 December 2013 $32,400 was transferred from her to the second defendant by regular payments of $600, said to represent spousal maintenance by the first defendant to the second defendant.
  • There was also evidence that between 22 February 2013 and 8 January 2014 payments of $600 were regularly made into the second defendant’s home loan account.
  • The plaintiff plead or affidavits filed on its behalf deposed that –
    • The first and second defendant had misappropriated moneys by undervaluing customer transactions, and the first defendant retained the extent of the undervaluation and distributed part of it to the second defendant;
    • The second defendant applied some of this money to pay off her mortgage;
    • She had admitted the misappropriation to a private detective retained by the plaintiff.
  • The second defendant plead or deposed –
    • that she had not stolen from the plaintiff but was instructed by its director to record large cash sales as low cash sales, because he did not want a high valuation of the business for Family Law purposes;
    • that the cash registers were cleared every 15 minutes and there was CCTV surveillance;
    • that the alleged admissions were inadmissible;
  • The plaintiff caveated over the property claiming a freehold estate on the grounds of “Implied, Resulting or Constructive Trust”.
  • The second defendant applied under the TLA s. 90(3) for removal of the caveat.

Judge Ryan held:

  1. A person who misappropriates funds held them from the time of receipt on constructive trust for the defrauded party. [20], [21], [24]-[26]
  2. Where those trust funds were used exclusively to acquire property, so long as the trust property could be traced and followed into other property into which it has been converted, that property remained subject to the trust. Further, equitable rights were not lost by the mere fact that the misappropriated funds were mixed with other funds. [20]
  3. The beneficiary may claim a charge over the acquired property to the value of the
    misappropriated funds. [20]
  4. Where the thief gave the funds to a volunteer recipient that recipient came under an equitable obligation once it had notice of the theft. [21]
  5. There were serious questions to be tried about: whether the second defendant colluded with the first defendant to defraud the plaintiff; whether she received stolen moneys via the third defendant; whether any stolen moneys were applied towards her mortgage repayments.  There was accordingly a serious question to be tried that the plaintiff had the interest in the property which it claimed. [28], [18]
  6. The balance of convenience favoured the plaintiff: the second defendant did not point to any current prejudice in dealing with her property beyond general disadvantage. The course which appeared to carry the lowest risk of injustice favoured maintenance of the caveat. [29]
  7. The second defendant was ordered to pay the costs of the application. [32]

Comment: This is a relatively unusual type of case. For completeness a longer list, taken from the author’s Leo Cussen Paper on caveats in July 2017, and including a case cited by her Honour, is –

“Constructive trusts imposed following breach of fiduciary duty or trust. Examples are: Dennis Hanger Pty Ltd v Brown, [2007] VSC 495 – a company maintained a caveat over a former employee’s land, he having used forged company cheques to make mortgage repayments; George v Biztole Corporation Pty Ltd, 26 February 1996, Ashley J – a caveat was maintainable where the alleged misappropriation was applied in making improvements to land already owned by the defaulting fiduciary; Dharmalingham v Registrar of Titles [2005] VSC 417 – a wife maintained a caveat over land given by her husband to his sister, on the grounds of “matrimonial property of caveator and husband fraudulently transferred to husband’s sister”. In Somerville v Nufarm Australia Ltd [2002] VSC 520 a caveat based on an alleged constructive trust over land of the wife of a former employee, who had gambled with his employer’s funds and paid proceeds to her, failed on the ground of no serious question whether the wife had active or constructive knowledge of her husband’s wrongdoing”. 

22. Caveats based on trusts alleged to arise in the domestic context – Muschinski v Dodds trust? Sale of land subject to caveat with requirement of retention of net proceeds to meet caveator’s future claim – Requirement in case of conflict of testimony that caveat be removed unless caveator commenced proceeding to establish interest – Power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on trusts – Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest though court order under that Act could have that effect – Comparison of procedures under TLA s. 90(3) and s. 89A – Indemnity costs against client and reserved against solicitor who lodged caveat.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

 

Karan is a case of a son with a caveatable interest in his parents’ property based on a Muschinski v Dodds constructive trust.

McRae is a dispute between real or alleged domestic partners concerning two properties, involving a Muschinski v Dodds constructive trust, with analysis by Derham AsJ of: (1) the balance of convenience where despite a caveatable interest it is necessary that a property be sold, and; in the case of a property not being sold, the law that, where a caveator has established a prima facie case but there is a conflict of testimony, the caveat would not be removed outright but may be ordered to be removed unless within a certain time a proceeding is issued to establish the caveator’s title.

Hermiz is a groundless claim for a Muschinski v Dodds constructive trust by the mother of a registered proprietor’s child, which also: ventilated why the TLA s. 90(3) procedure should be taken rather than that under s. 89A, and; attracted an order for indemnity costs against the caveator and reserved the caveating solicitor’s liability also to pay them.  This case reiterates that the power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on the principles of constructive trusts; and that the Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

The facts were –

  • Mrs Karan was the registered proprietor of a residential property. Her son Theo was registered proprietor of a neighbouring property where his parents and then his mother lived for many years.
  • She died, as administrator of her estate her other son Frank desired to sell the property, but Theo had caveated claiming an equitable estate in fee simple on the ground of an implied or constructive trust.
  • Frank applied under the Transfer of Land Act (TLA) s. 90(3) to remove the caveat. Theo was agreeable provided part of the sale proceeds was held in trust pending determination of his claim.
  • Theo alleged in substance:
    • residence in the property since 1988;
    • that Frank had used both properties to raise funds for business ventures on the basis of being responsible for the mortgage repayments which he subsequently ceased making leaving Theo to make some repayments;
    • payment of rates and outgoings including insurance;
    • expenditure on repairs, renovations and extensions;
    • in summary, total contributions of over $200,000.

Daly AsJ:

  1. Referred to a “Baumgartner constructive trust” (based on the High Court case of Baumgartner v Baumgartner (1987) 164 CLR 137, also known as a Muschinski v Dodds constructive trust, based on the High Court case of that name: (1984) 160 CLR 583)). The elements of this trust are that a constructive trust for the holding of a beneficial interest in land in particular shares may arise regardless of agreement or intention where:

(a)   A relationship or joint endeavour has broken down without any blame attributable to any party to it;

(b)   There has been a financial contribution by one or both parties to the relationship or to the joint endeavour;

(c)   In these circumstances, and in all the circumstances, it would be unconscionable for one party to the relationship or joint endeavour to retain a benefit greater than that party’s contribution. [7]

  1. Held that Theo had established a serious question to be tried that such a trust existed from before 2012, on the basis of arguments that:

(a)   he and their parents were involved in a joint endeavour whereby he made contributions to the property, which enabled him and his family to live rent free at the property, and enabled his parents to live rent free at his property;

(b)   they all pooled their resources to facilitate the joint endeavour;

(c)   the joint endeavour ended without blame upon the death of the parents; and

(d)   it would be unconscionable for the estate to retain the benefit of his contributions. [8], [14], [16]

  1. Ordered removal of the caveat on condition that all or part of the net sale proceeds be retained to meet any claim by Theo, who was also required to commence a proceeding to pursue his claim within a specified time. [3(k)], [18]-[20]

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

The chronology was –

  • The plaintiff (Zachary) was the registered proprietor of a property at Albion acquired in 2004 and of a property at Lara acquired in 2013, each encumbered by the same mortgage.
  • In January 2019 the defendant (Rachel) caveated over each piece of land claiming an interest in the land “as chargee” under an implied, resulting or constructive trust.
  • In March 2019 Zachary entered into a contract to sell the Albion property to be settled in May 2019.
  • He applied for removal of the caveats under the TLA s. 90(3).
  • He alleged that:
    • in 2012 she gave birth to their twins, but he had never lived with her as a couple in a de facto relationship and there was no agreement between them sufficient to give rise to a constructive trust;
    • until recently the children lived with her during the week and with him every weekend;
    • in January 2019 she had attempted to kill him leading to an intervention order.
  • Rachel alleged that:
    • they had resided in a ‘full emotional and sexual’ committed de facto relationship between 2002 and 2019 and were publicly known as such;
    • they pooled their income for joint expenses;
    • the properties were acquired during the course of the relationship;
    • she made financial contributions to their purchase and development;
    • Zachary always ‘indicated’ to her that she had an interest in both properties and was entitled to a half share of them;
    • his evidence as to residence with the children was incorrect and that she had not assaulted him.

Derham AsJ held:

  1. The estate or interest claimed as chargee was likely to be the result of a legal error. [3]
  2. If Rachel’s testimony was accepted there was a sensible basis for, and a sufficient probability of, finding that there was a Muschinski v Dodds constructive trust over both properties to the extent of her having an equitable estate in fee simple as a co-tenant with Zachary. This basis was: her direct contributions to the acquisition of the Albion property; her contributions to the maintenance and mortgage payments of both properties. [17]-[19]
  3. Accordingly, while it was neither necessary or appropriate to determine disputed questions of fact, Rachel had a sufficient likelihood of success justifying the practical effect of maintaining the caveat over the Albion property or of requiring deployment of most of the net sale proceeds in reducing the mortgage. [13], [20]
  4. The interaction between the strength of the caveator’s case and the balance of convenience was such that the lowest risk of injustice, whatever the outcome of the disputes, lay in removal of the caveat at settlement on the proviso that the net proceeds of the sale were (after payment of certain credit card debts – see below) applied to reduce the mortgage (Zachary also undertaking not to withdraw loan monies under the mortgage). This outcome preserved most of the benefit of Rachel’s caveatable interest.  To withhold this protection would do her irreparable harm if she succeeded in establishing her claimed interests, while to grant it would not greatly injure Zachary if her claims failed. [4], [21], [22], [24]
  5. However, certain of Zachary’s credit card debts were first to be paid out of the sale proceeds because most were incurred during the relationship alleged by Rachel and some had been incurred in completing the Lara property and so would ultimately benefit Rachel if her constructive trust claim succeeded. [4], [23]
  6. As regards the Lara property, it was clearly established law that where a caveator established a prima facie case but there was a conflict of testimony the court would not order outright removal of the caveat but may order removal unless steps were taken to establish the caveator’s title within a certain time. Accordingly the caveat would be ordered to be removed unless the caveator commenced proceedings to establish her title within a month. [5], [25], [26]
  7. Having regard to offers made by each side before the hearing, which were each to some extent appropriate, the defendant was ordered to pay the plaintiff’s costs fixed at $1,400, being disbursements incurred in issuing the originating process and paying the search fees incurred in putting forward exhibits to his affidavit in support. [27]

 

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

The chronology was –

  • In 1998 the plaintiff (Hermiz) and the first defendant (Yousif) were sexually intimate leading to the birth of a child.  They ceased their relationship at about this time and Hermiz had never met the child.
  • Hermiz paid child support.  Yousif never provided him with any financial support.
  • Hermiz married his wife Dina in 2004.  In 2010 they purchased a residential property, became registered proprietors and subsequently cohabited there.
  • Yousif made no contribution to the property, or to any other asset owned by Hermiz, he made no promise about the property or declaration of trust or like arrangement concerning it, and no court order related to it.
  • In December 2018 Hermiz and Dina entered into a contract to sell the land with settlement due in February 2019.
  • In January 2019 Yousif lodged a caveat claiming an interest in the land pursuant to a court order under the Family Law Act.  There was no order giving such an interest.  The caveat was voluntarily removed.
  • On 1 February 2019 Yousif via a firm of solicitors lodged the caveat the subject of this proceeding claiming a freehold estate on the basis of an implied, resulting or constructive trust.  Hermiz’s solicitors wrote to Yousif’s solicitors expounding the absence of basis for the caveat and forshadowing an application for damages and indemnity costs.
  • Hermiz and Dina could not complete the sale, but gave the purchaser possession under a licence and also remained liable to keep up mortgage repayments.
  • Hermiz applied under the TLA s. 90(3) to remove the caveat.
  • Two days before the Supreme Court hearing Yousif filed an application in the Federal Circuit Court for a property order, in particular for an order that the net proceeds of sale of this property be held in trust pending final orders, supported by an affidavit including allegations referred to in 1 below.

Derham AsJ held:

  1. Yousif had not discharged the burden of establishing a serious question to be tried (in the sense of a prima facie case) of the interest in land claimed in the caveat.  There was insufficient evidence of a Muschinski v Dodds constructive trust: her allegation of cooking, cleaning and supporting Hermiz financially whilst he studied for his Australian medical qualification more than a decade before purchase of the land did not reveal that it is or would be unconscionable for him to deny her an interest in the land. [32]-[37], [40], [41]
  2. On the dissolution of marriage or the breakdown of a de facto or domestic relationship, the scope of the Federal Circuit Court’s power to alter property interests was determined by legislation, in this case the Family Law Act s. 90SM, rather than by the principles of constructive trusts.  The Family Law Act did not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect. [38], [39]
  3. The balance of convenience was also against Yousif. [42]
  4. Hermiz was justified in applying under the TLA s. 90(3) as opposed to using the administrative procedure in s. 89A. The very reason for the summary procedure under s. 90(3) was to enable an application that avoided the delay involved under s. 89A. [44], [45]
  5. Indemnity costs would be awarded against Yousif because: the nominated basis of resulting, implied or constructive trust for lodging the caveat was without merit, and; she was using the caveat process as a bargaining chip. [52], [53]
  6. Leave would be reserved to Hermiz to claim costs against the solicitors who lodged the caveat. [54]

21. Options – Indemnity costs – Injunction against caveating

Pollard v Pollard [2019] VSC 21 (8 February 2019) Daly AsJ. 

Kuipers v Harrington (No 2) [2019] VSC 190 (25 March 2019) Derham AsJ.

 

These two cases are in contrast.  Pollard illustrates that a well drawn option to purchase creates a caveatable interest.  Kuipers illustrates a badly drawn option clause, no caveatable interest, and consequential award of indemnity costs and enjoining of the caveator. 

Pollard v Pollard [2019] VSC 21 (8 February 2019) Daly AsJ.  This was not a case under the TLA s. 90(3) but was a trial in which, if the defendant succeeded (as she did), she would have a caveatable interest.  The facts were –

·       In 2004 the parties entered into a deed inter alia concerning a property owned by a company and later by the plaintiff which included (cl. 5.7) that if the plaintiff wished to sell it he must first give the defendant the option to purchase it: at a value calculated by multiplying the annual gross rent paid by the tenants at such time by 10 times; but if it was untenanted, then at current market value established by sworn valuation; and the defendant was to be given at least 30 days’ prior notice in writing of such intention to sell, with her then to exercise her option to purchase within 21 days of receipt of such notice;

·    In 2009 the defendant lodged a caveat on the grounds of “As beneficiary of an option to purchase pursuant to a written agreement” then describing the agreement;

·    In February 2018 the plaintiff informed the defendant that the property was going on the market, stated its market value according to a real estate agent, and asked her intentions.  At that time the property was leased to a tenant;

·      Initially the defendant stated that she was not interested in purchasing the property and that the caveat would only be lifted at settlement of a sale.  Subsequently she confirmed that she wished to exercise her right to purchase at 10 times the current annual rent; 

·       The plaintiff commenced proceedings seeking removal of the caveat.   

Daly AsJ found or held –

1.    The plaintiff was obliged to give the defendant the option to purchase the property at the price calculated in accordance with the Deed, ie to give 30 days’ notice of intention to sell and concurrently to give the option to purchase the property at ten times the annual rental receivable at the time of the notice.  The obligation to offer the property to the defendant for sale at market value only arose if the property was untenanted. [32]

2.    The defendant was only obliged to respond to an offer made in accordance with the Deed.  No such offer was ever made.  She was not required to enquire whether the property was tenanted. [35]

3. The defendant was entitled to an order for specific performance of the plaintiff’s obligations. [34], [37]-[46]

 

Kuipers v Harrington (No 2) [2019] VSC 190 (25 March 2019) Derham AsJ.

The chronology was –

·         The plaintiffs owned a 38.38 ha. property at West Rosebud.  On 4 April 2014 they and the first defendant executed a Heads of Agreement and a Deed of Agreement”.  Under the Deed the first defendant was to facilitate development of the property by subdividing it into ten acre lots, in return for transfer to him of one such lot.  Clause 7 of the Deed purported to give the first defendant the plaintiffs’ consent to the lodgement of a caveat over the land to ‘better secure the opportunity’ for the first defendant to develop it;

·         The Heads, described by his Honour as “an ill drawn document ([14]) –

·         Recited that:

·    the seller has agreed to grant to the option holder a three-year call option for the properties to either purchase the properties, source a joint venture partner or investor, source a funder to develop them or to source an ultimate buyer/buyers.  This was the only reference in the document to a period of three years for exercise of the call option;

·     if the option holder exercised the call option, the seller and the ultimate buyer and/or their nominees must enter into an unconditional contract of sale;

·     the option holder was entitled to earn the profit margin between the seller and buyer less any relevant costs, fees, and commissions due to third parties.

·         Defined:

·    “Expiry Date” of the Heads as “three years from the commencement date” (but the term “Expiry Date” was not subsequently used in the document);

·      “Option Call” as an irrevocable offer to enter into a REIV sale contract with an ultimate buyer.

·      Provided, in a Payment Agreement”, that for facilitating the subdivision the first defendant would receive a ten acre parcel;

·         Provided that “the seller grants to the option holder an irrevocable right and option: (a) to require the seller to enter into a contract of sale with either the option holder or the ultimate buyer (cl. 2.1(a)); (b) to nominate a person or entity as selected buy (sic) the option holder to enter into a contract as the ultimate buyer, to purchase the property or properties listed on this agreement and on the terms contained in this agreement”; (cl. 2.1(b));

·   Provided: that the “call option” may be exercised during the term of the agreement by notice (cl. 2.2); the option holder, the first defendant, must pay the seller (the plaintiffs) $1 which is deemed to be a holding deposit towards the purchase of the properties” (cl. 2.8); “This agreement can only be terminated by either of; the expiry of this agreement, or by mutual consent of both parties (cl 2.11);

·       Provided that (cl. 4):

“The seller consents and grants to the option holder and the ultimate buyer, an interest in the property for the purpose of securing the development approval, and when a Contract is offered, the option holder and/or the ultimate buyer are authorised to lodge a caveat on the title of the property, a) but the caveat shall be discharged in favour of mortgages to be lodged for a contract of purchase, b) the caveat will protect any equitable interest of the option holders until settlement of the contract by the ultimate buyer; c) cost of removal will be paid by the lodger of the caveat”.

·     Nothing then occurred until 2018 when, after the plaintiffs had entered into a contract to sell the land to someone else, the first defendant lodged a caveat claiming a freehold estate in the land pursuant to an agreement dated 4 April 2014;

·     On an application by the plaintiffs to remove this caveat Daly AsJ found that the caveator’s prospects of maintaining a claim for an interest in the land were modest at best and on the  balance of convenience the caveat should be removed;

·       A month after this removal the first defendant lodged a second caveat claiming an interest as chargee apparently on the ground that the Heads created a charge;

·    The plaintiffs applied under the Transfer of Land Act s. 90(3) to remove the caveat.  Before filing the summons the plaintiffs’ solicitors wrote foreshadowing an application for indemnity costs. 

Derham AsJ held –

1.    On its proper construction, the option right, if any, conferred by the Heads was limited to three years from the date of the agreement. [20]

2.    However the Heads were uncertain, and therefore void and unenforceable, because 

(a)    it was unclear who was responsible to pay the option holder the ‘profit margin’, how it was to be calculated or what if any costs were to be taken into account;

(b)     the price at which the land was to be sold was to be determined by later agreement;

(c)     many terms of the subsequent REIV sale contract were unknown;

(d)     the nomination provision was uncertain in its reference to “on the terms contained in this agreement” which were unidentified; and

(e)   it was unclear whether the contract of sale to be entered into was to be between the plaintiffs, the option holder and the ultimate buyer under which the option holder was to be paid some unidentified profit margin. [21]

3.    The wording of clause 4 (consent to caveat) was unclear as to what interest in the property was purportedly granted and it appeared that the right to lodge a caveat did not arise until a contract was offered to the sellers. [23]

4.    There was accordingly no serious question to be tried that the Heads gave the caveator a caveatable interest because:

(f)      there was no charging clause;

(g)     the call option was void for uncertainty;

(h)     the time for exercise of the call option had expired; and

(i)   the sellers’ consent to caveat was little better than a contractual consent to lodge a caveat in certain circumstances, which had not arisen and, if they had, would not give rise to an interest in the land. [24] 

5.    The balance of convenience also favoured removal of the caveat. [26]

6.    Indemnity costs were awarded against the caveator.  His Honour comprehensively recited the principles governing an award of indemnity costs.  An order for indemnity costs warranted by: the nominated basis for lodging the caveat, ie a charge, was untenable; the pre-summons warning; the caveator was attempting to use the caveat as a bargaining chip. [33]-[35]

7.    The first defendant would be enjoined against lodging any further caveat on the basis of the Heads or the Deed because the lodgement of the second caveat was frivolous, vexatious and an abuse of process.  The caveator had shown a profound disregard of the absence of any underlying basis for the second caveat and displayed that he was ready, willing and able to continue to disrupt any sale.  There was accordingly a prima facie case that he would continue to lodge caveats if not restrained. The balance of convenience also favoured the grant of an injunction. [36]-[37]

20. No one gets costs

Glenis & Anor v Ikosedikas & Ors (No 2) [2018] VSC 324
(15 June 2018), T. Forrest J.

This is the costs decision (apparently not released online until late January) in the case of this name ([2018] VSC 278) covered in blog post 17.  The defendants alleged that in 2011 the first plaintiff entered into a loan agreement consolidating previous loans with a then balance of about $250,000.  The agreement gave the lender the right to caveat over certain residential land owned by both plaintiffs if the loan was not repaid that year.  By 2018 the debt was unpaid and inflated by interest.

In March 2018 the plaintiffs entered into a contract to sell that land for $1.995 m.  It was subject to a registered mortgage securing loans currently over $2 m., though apparently another property owned by the second plaintiff was linked to this mortgage.    

In April 2018 the defendants caveated.  The plaintiffs successfully applied to remove the caveat.   His Honour held that the existence of the loan agreement established a serious question to be tried but that, notwithstanding the substantial debt, the balance of convenience favoured the registered proprietors both because of the delay in caveating until after the contract of sale and because the registered mortgage rendered the caveat worthless. 

Both parties now unsuccessfully applied for costs.  His Honour held –

  1. The plaintiffs had engaged in sharp practice in that: they took advantage of the defendants’ dilatory response to restructure their affairs so that the property was mortgaged to its full value and another property (not the subject of the caveat) was now owned virtually outright.
  2. The caveators were not entitled to costs: his Honour knew of no authority that a caveator demonstrating a serious question to be tried but losing on the balance of convenience was entitled to costs.

19. Foreign money invested in property – whether trust created or mere loan – caveat removed but sale monies paid into trust.

Oz Envision Development Pty Ltd & Anor v Yuan (11 October 2018) [2018] VSC 607 McDonald J.   

The facts were –

  • In or about 2012 the defendant transferred$5.01 m. to enable the first plaintiff to acquire two properties. 
  • One property was subdivided into three units. 
  • In 2016 a deed of arrangement was entered into between the first plaintiff and the defendant whereby funds from the sale of this land were to be paid to the second plaintiff to enable it to undertake property development.
  • Contracts of sale of the three units for a total of $2,665,000 were entered into. 
  • The defendant caveated over both properties claiming that the advance of monies gave rise to a caveatable interest pursuant to an implied or resulting trust.

The plaintiffs alleged that the funds were merely a loan and so gave rise to no caveatable interest. 

The defendant, who was a Chinese National, deposed that:

  • the purpose of the payment was to invest $5 m. in Australia, this being required for the purpose of seeking  Australian residency;
  • the director of the first plaintiff was so appointed because he held the required residency status for directorship of a company in Australia which the defendant did not;
  • there was no discussion as to a loan including as to interest and that his intention was “that the money I paid to the First Plaintiff meant that the properties purchased by the First Plaintiff were my properties”. 

McDonald J held –

  1. There was a serious question to be tried that a caveatable interest existed based on a resulting trust.  There was no written loan agreement or evidence of a verbal loan agreement, and this absence was consistent with the terms of the deed.  Financial evidence of a loan, produced by the plaintiffs, in particular unaudited balance sheets of some weight, was nonetheless inconclusive. [8], [10]-[11], [13], [17]
  2. However, the balance of convenience favoured removal of the caveats because they were having a significant adverse effect upon the first plaintiff’s business, were preventing completion of the contracts, and were affecting the rights of the innocent purchasers. [17]-[19]
  3. Nonetheless, the proceeds of sale would not be distributed in accordance with the deed but would be paid into trust or an interest bearing account (in the solicitors’ names) pending trial.  The argument that this was contrary to the implementation of the deed was overcome by the first defendant’s allegations that he, being illiterate in English, had been induced to execute the deed by fraudulent misrepresentation by the director of the first plaintiff about its terms. [20]-[21], [23], [25]

Comment:

  1. From a non-legal aspect this case is a manifestation of the common phenomenon of foreign money being advanced to buy Australian property on terms not clearly documented.
  2. His Honour did not spell out the law of resulting trusts, but where property is put into the name of a non-contributor, or one of a number of contributors,to the purchase price, it is generally presumed to be held by the registered proprietor on trust for the contributors in proportion to their contributions, eg:Piroshenko v Grojsman [2010] VSC 240 (in which the claim failed on the facts).
  3. However, money lent for the purpose of being applied towards the purchase price of land does not, on being so applied, entitle the lender to an estate or interest in the land, unless the parties intended that the lender should have security for the loan: Simons v David Benge Motors Pty Ltd [1974] VR 585. 

18. Registered mortgagee defeats caveat based on alleged trust – Whether repeat caveat

National Australia Bank Limited v Nilsen & Anor [2018] VSC 368
(2 July 2018) Kennedy J.

The chronology was –

  • The plaintiff had a registered mortgage over land of which the registered proprietor was Petrina Pavlic. 
  • She died, her son William was her sole beneficiary, he obtained letters of administration and a new loan from the plaintiff with the mortgage as security.  He defaulted and became bankrupt.
  • The first defendant, who was William’s current or former de facto partner,caveated claiming an implied, resulting or constructive trust.
  • In 2017 a consent order of the Family Court was made between her, William and his trustee in bankruptcy providing for the transfer of the property to her contemporaneously with payment of $550,000 by her by 5 October 2017, with liberty to the trustee to sell in default of such payment.  No payment was made.
  • The plaintiff initiated a sale of the land to a third party with settlement due in May 2018 but subsequently extended to 4 July 2018
  • On 4 June 2018 a judge ordered that caveat be removed.
  • On 8 June 2018 the defendant again caveated on the same grounds as the first caveat. 
  • The plaintiff commenced further removal proceedings under the Transfer of Land Act s. 90(3).  The defendant argued that she had an interest pursuant to the Family Court Order which was different from, and arose subsequent to, the interest relied upon for the first caveat (which had been based on alleged contributions).  Shealleged, without evidence, that the trustee in bankruptcy had agreed to extend the time for her to pay the money to obtain the land and that this ongoing indulgence gave rise to a trust.

Kennedy J ordered removal of the caveat, holding –

  1. There was no serious question to be tried.  The Family Court order did not create any interest in the land in circumstances where no money had been paid.  In any event the bank’s interest as registered mortgagee defeated any unregistered interest. [27]-[28]
  2. The following balance of convenience factors also favoured removal –
    • The interests of the innocent purchaser;
    • Delay in disposing of the property;
    • The caveator had not commenced proceedings to substantiate her claim;
    • If she had a cause of action the caveator could sue the bank for damages;
    • The caveator had not paid the money ordered by the Family Court and there was no evidence of her capacity to do so;
    • Sale was the best chance of reducing the amount of approximately $2.7 m. owed. [31]-[40]
  3. The plaintiff also argued that s. 91(4), which provided that a lapsed or removed caveat shall not be renewed by or on behalf of the same person in respect of the ‘same interest’, was breached. Her Honour did not deal finally with this argument but stated that the better view appeared to be that this section did not apply because the source of the second caveat was the Family Court Order which postdated the first caveat.

Comment:

  1. As to her Honour’s statement that “The Family Court order did not create any interest in the land in circumstances where no money had been paid as provided for in that order” –

There is authority that a Family Court order can create an interest in land: Bell v Graham [2000] VSC 142 at [19]. However her Honour’s statement is authority for a different view if no money has been paid pursuant to the order. Presumably, however, if it had been paid the payor would have a lien giving rise to a caveatable interest: see eg SixBruce Pty Ltd v Milatos [2017] VSC 784 (See my earlier blog here)

  1. The fact that the sources of the two caveats was different did not mean that they were not in respect of the same interest: Layrill Pty Ltd v Furlap Constructions Pty Ltd[2002] VSC 51 at [9].

17. An application for costs by registered proprietors against a caveator, and a consequential application for costs by all against the caveator’s solicitor, and his application for costs against them

 

Sekhon & Anor v Chandyoke and Ors [2018] VSC 327 (19 June 2018) T Forrest J.

The plaintiffs were a married couple.  The first defendant was the wife’s mother who caveated over a property owned by the couple.  The first defendant’s solicitor was separately represented on an application that he personally bear costs.  The judge had previously ordered removal of the caveat.  The first defendant had been advised by previous counsel that she had no caveatable interest and by her solicitor that there were issues with the caveat, including that there was significant doubt about the caveatable interest and her right to impugned funds.  The defendant conceded that there was no proper basis on which she could have defended the application for removal of the caveat but blamed her solicitor.

His Honour held –

1.      The defendant was made aware on numerous occasions, by both counsel and her solicitor, that she probably had no caveatable interest over the property, but refused to instruct her solicitor to remove the caveat.  Her conduct in the litigation was obstructive and sharp – she demonstrated contemptuous disregard for the litigation.  She persisted with a near hopeless case for the collateral purpose of recovering funds she believed to have been stolen from her but which she knew or ought to have known were unrelated to the property.  There were special or unusual circumstances sufficient to warrant an order that she pay the plaintiff’s costs of the litigation on an indemnity basis. [39]-[40], [42]

2.      To justify an order that the solicitor bear the costs it was unnecessary to establish dishonesty, obliquy or similar – misconduct, default or serious or gross negligence sufficed.  Although the solicitor was at times dilatory he acted for a very difficult client, who directly or indirectly obstructed the fair hearing of the caveat withdrawal application.  The solicitor on several occasions advised the client in effect that it was very likely she would lose and warning of the consequences.  It was also doubtful that the defendant would have taken advice no matter how forceful.  The principles applying to the application, whether under r 63.23 of the Supreme Court Rules or s 29 of the Civil Procedure Act showed that a non-party costs order was prima facie unjust, required caution and should only be made in a clear case.  This was not such a case. [41]

 

Sekhon & Anor v Chandyoke and Ors [2018] VSC 435 (7 August 2018) T Forrest J

 

This case was related to the previous application by the plaintiffs and the first defendant that the first defendant’s solicitor pay costs, which failed in the case referred to above.  The solicitor sought indemnity costs based on two offers before the costs hearing: 

(a) An offer to the plaintiffs on 23 March 2018 open for five days that the solicitor pay the plaintiffs’ costs of the proceeding fixed in the sum of $7500 within two business days;

(b) An offer to the plaintiffs and the defendant on 14 May 2018 open for five days that the application for costs against the solicitor be dismissed and the plaintiffs and defendant pay his costs of the application fixed in the sum of $6000 with a stay of 30 days.

His Honour held –

1.      The general rule that costs followed the event applied and so the plaintiffs and the first defendant were liable to pay the solicitor’s costs on a standard basis.  These costs would be awarded against the plaintiffs alone from 28 March, being from when it was reasonable for the solicitor to commence preparations for his defence, to 5 April, and against the plaintiffs as to half and the first defendant as to half from 6 April, being the date the first defendant filed a notice of waiver and intention to participate in the costs proceedings.   Notwithstanding that the solicitor was dilatory at times this did not justify application of any exceptions to the normal costs rule.  His Honour noted – “Solicitors cannot pick and choose their clients and ought not be judged too harshly when the sins of their clients are sought to be visited upon them”. [9]-[11], [16]-[18]

2.     Indemnity costs would not be awarded because rejection of the:

(a)   first offer was not unreasonable because it preceded any affidavit from the solicitor explaining his conduct; [13]

(b)   second offer was not unreasonable because, being an offer to undertake joint liability, neither party could accept the offer alone: they were an unlikely coalition and it would be unfair to penalise one for the unreasonableness of the other. [14]