Blog 72. Caveat lapses under Section 89A(5) but caveator obtains injunction

Luna v V & A Luna Pty Ltd & Anor [2023] VSC 126 (22 March 2023), Derham AsJ.

This case is interesting for disparate reasons.  First it affirms that the time for a caveator to give notice under the Transfer of Land Act s. 89A(3)(b) to the Registrar of Titles that proceedings had commenced is strict.  Secondly it shows that the erstwhile caveator may still be able to obtain an injunction having similar effect to the caveat (albeit at the price of an undertaking as to damages).  Thirdly, evidence of the agreement or understanding underlying an alleged constructive trust being weak, his Honour reflected –

“At present, the agreement or understanding, or even assumption, upon which Pasquale provided this assistance is not fully spelled out in his evidence.  But I remind myself after long experience of Australians of Italian origin, that a patriarchal feature of their family arrangements often results in the father, and perhaps the mother as well, holding the family’s wealth either personally or through companies and trusts, with the intention of sharing that wealth either equally or according to the deserts of the members of the family who have contributed to it.”

The Transfer of Land Act s. 89A provides –

(1) … where a recording of a caveat … has been made … any person interested in the land affected thereby … may make application … to the Registrar for the service of a notice pursuant to subsection (3).

(3) Upon receiving any such application … the Registrar shall give notice to the caveator that the caveat will lapse … on a day specified in the notice unless in the meantime either—

(b) notice in writing is given to the Registrar that proceedings in a court or VCAT to substantiate the claim of the caveator in relation to the land and the estate or interest therein in respect of which the application is made are on foot.

(5) Upon the specified day, unless—

(b) notice in writing has been given to the Registrar that proceedings as aforesaid are on foot—

the caveat shall lapse …

The facts were –

  • The first defendant (the company) was the registered proprietor of a 20 acre farm at Wollert.  In 2018 the plaintiff (Pasquale) caveated claiming a freehold estate in it based on an implied, resulting or constructive trust.
  • On about 12 December 2022 Pasquale received a notice under s. 89A(3) dated 8 December stating that the caveat would lapse on the first moment of 17 January 2023 unless before that date he gave notice satisfying the requirements of s. 89A(3).
  • The solicitor for Pasquale deposed that on 16 January she telephoned the Land Registry Services – Secure Electronic Registries Victoria (SERV) and was informed by Tiffany in the specialist registration team that, notwithstanding the clear terms of the notice, the final day to respond to it was 17 January.
  • On 17 January (after the first moment) the solicitor filed a generally indorsed Writ and the notice under s. 89A(3)(b) was given.  The basis of the claim as indorsed (observed by his Honour to “have only a slight conformity with the facts as later revealed”) was largely related to an alleged partnership between Pasquale and his late parents Arturo and Vincenza.  Pasquale’s brother, the second defendant (Antonio), was sued as executor of their estate.
  • On 18 January the solicitor was informed by an employee of SERV that the caveat had lapsed.
  • On 23 January 2023, Pasquale issued a Summons.  The Summons sought, first, a declaration that the notice under s. 89A(3)(b) filed on behalf of Pasquale was valid and substantiated his interest in the land and so remained in force, alternatively that 50% of the net proceeds of any sale be held for his benefit pending the determination of the proceeding.
  • On 24 January a judge granted an interlocutory injunction in substance enjoining the defendants from dealing with the land pending final hearing and made further directions.   After the hearing the solicitor for the defendants informed the plaintiff’s solicitors and the court by email that the land had been sold pursuant to a contract of sale some time ago, but that completion of the sale was 24 months hence.
  • Shortly before the hearing on 17 March (see below) the plaintiff’s solicitors learnt of transactions which they alleged were in breach of the injunction, in particular a mortgage and issue of a new electronic title with different title particulars.  The plaintiff filed a Summons seeking that the defendants be dealt with for contempt of the January Order.
  • At that hearing before Derham AsJ on 17 March counsel informed his Honour that the land had been sold by a contract dated December 2022 for about $15 m.  This apparently required a mortgage to be lodged with a countervailing Bank Guarantee to secure the sale.
  • Pasquale deposed in substance that:
    • he worked with his parents from the time of a partnership in a delicatessen in 1969 to build their wealth for the benefit of the whole family. His contributions over the years enabled his parents to acquire properties that ultimately fed the purchase price of the land.  In 1989 he arranged for a family trust to be established with the company as trustee, being a discretionary trust of which the primary beneficiaries were Arturo and Vincenza.  Thus, his efforts and work over a lengthy period contributed indirectly to the purchase price of the land in 1989 and those contributions were made either (not fully spelled out) with the agreement, or on the understanding, that he would share equally with the other members of the immediate family in the wealth accumulated.
    • he contributed directly both his labour and money in establishing a house on the land, and maintaining it, on the assumption that he would retain an equal share in the ultimate wealth created through his and his family’s efforts.
  • Antonio filed an affidavit substantially disputing Pasquale’s affidavit.  This included that Pasquale had been made bankrupt (in fact in 2003) and discharged in 2006.

Counsel for Pasquale submitted inter alia that: it was reasonable for Pasquale’s solicitors to rely upon the representations of Tiffany in lodging the material required by s. 89A(3) on 17 January 2023; the Registrar should be estopped from lapsing the caveat; the court had an inherent jurisdiction to make orders ‘voiding the lapsing of the caveat’.

Derham AsJ in substance continued the injunction (while altering its wording), holding –

  1. The caveat lapsed at the commencement of 17 January 2023 by reason of the operation of s. 89A(3) and (5). The court had no power to reverse this. [15], [49], [55], [56]
  2. The evidence in support of the plaintiff being the beneficiary of a constructive trust of the land was, at present, rather frail and somewhat sketchy: the prima facie case was not strong. It sufficed, however, that the plaintiff show a sufficient likelihood of success that in the circumstances justified the practical effect of the injunction on the defendants.  His Honour doubted as a matter of principle the defendants’ argument that the plaintiff could not take an interest pursuant to a constructive trust where he was also a beneficiary of the family trust: if it was unconscionable in the circumstances for the trustee of the family trust to deny that he had a proprietary interest in the land, why would his being a beneficiary of that trust, particularly one with no vested interest in its assets, be a barrier?   This argument required further elucidation. [26], [75], [77]
  3. With respect to the plaintiff’s bankruptcy and the possibility that his interest in the land had vested in his trustee in bankruptcy, it would be in the parties’ power to inform the trustee and give him an opportunity of being joined as a party. It was not, in his Honour’s preliminary view, satisfactory for the defendants to use this vesting as a defence without joining the trustee as a party. [76]
  4. On the balance of convenience, in the current circumstances where the plaintiff’s proof of his rights was not strong, an interlocutory injunction may be granted because to withhold it would do him irreparable harm while (the contract of sale having a 24 month settlement date) to grant it would not greatly injure the defendants. Maintenance of the status quo would not harm the defendants but to deny the injunction could injure the plaintiff by denying him protection against dissipation of the value of the land. [78]
  5. The further continuation of the interlocutory injunction would be subject to the plaintiff complying with the requirement to file further evidence in support of his claim. [79]

Philip H. Barton
Owen Dixon Chambers West
Thursday, April 20, 2023

Blog 71. Caveat based on alleged Baumgartner constructive trust fails.

Sandich v Fasoulis & Anor [2023] VSC 65 (17 February 2023), John Dixon J.

  • The plaintiff, Ms Sandich, and her former husband were registered proprietors of a property in Kew.  The first defendant, Mr Fasoulis, married Ms Sandich in 2017 but they later separated.
  • Mr Fasoulis deposed that –
    • At the start of their marriage Ms Sandich solely occupied the Kew property and he shared his time between it and his property in Murrumbeena with his children.
    • The financial burden of supporting her and his children and running two households, quickly became untenable and he fell into serious financial difficulty.   He sold property including the Murrumbeena property and used the proceeds to pay debts including debts of Ms Sandich.
    • He and his children then moved to the Kew property until its sale by Family Court order, the contract of sale being dated 27 July 2022 and due for settlement on 20 February 2023.  He financially assisted in preparing the property for sale, undertaking substantial refurbishments costing an estimated $20,000, Ms Sandich having no money.
    • On 6 February 2023 Mr Fasoulis commenced family law proceedings against Ms Sandich seeking financial orders pursuant to s. 79(1) of of the Family Law Act.  The next day he through a solicitor lodged a caveat claiming an ‘Implied, resulting or constructive trust,’ the estate or interest claimed being a ‘freehold estate‘ and the prohibition on dealings being ‘absolutely.’
  • Ms Sandich applied under the Transfer of Land Act s. s. 90(3) for removal of the caveat.
  • Mr Fasoulis argued that there was a serious question to be tried that he was a beneficiary of a constructive trust based on Baumgartner v Baumgartner (1987) 164 CLR 137.  He deposed that: he discussed with Ms Sandich the benefit of undertaking substantial refurbishment of the Kew property so as to realise its maximum value; they discussed that getting the highest sale price would benefit both of them financially; and for this reason his funds were invested in the Kew property.  He did not depose that she said, or agreed, that such expenditure would entitle him to an interest in the property.

John Dixon J. ordered removal of the caveat with costs –

  1. The first defendant had not established a serious question to be tried of a caveatable interest because –
    1. The grounds of claim could not be made out against the joint-registered proprietor Ms Sandich’s former husband. There was no evidence that he was party to a joint endeavour or relationship. [21], [30]
    2. The claim was overstated in the form of a trust affecting the whole freehold estate. [30]
    3. There was no joint relationship or endeavour for improvement of the Kew property.  The first defendant had only contributed some $20,000 to tidying up the property for sale, which did not improve the property nor was a significant amount, in return for a promise that he be repaid out of the sale proceeds.  There was no evidence of any specific discussion or agreement that he would have any interest in the property.  He had conflated what he alleged to be contributions to the marriage with what he described as an agreement that he finance the cost of preparing the property for sale on the basis that he would be repaid out of the proceeds of sale. [20], [22], [24]-[26], [28], [30]
    4. If there was any pooling of resources to the parties’ common benefit it was in the circumstances of the marriage and not in relation to the improvement of the Kew property. [28]
    5. There was no unconscionability in not recognising that the first defendant had an equitable interest in the property, particularly where he contended that his expenditure was on the basis of a promise that he be repaid. [26]
  2. Claims under the Family Law Act s. 79 did not create caveatable interests in any land that may be part of the matrimonial assets. [27]
  3. Although the caveat was lodged as a bargaining chip in the Family Law proceedings the circumstances were not such as to warrant an order for indemnity costs against the caveator. [34], [37], [39], [42]

Philip H. Barton
Owen Dixon Chambers West
Tuesday, April 4, 2023

Blog 70. Solicitor disciplined concerning caveat – is lodgment of improper and baseless caveats by legal practitioners endemic?

Legal Services Commissioner v Souki [2022] VCAT 663 (17 June 2022)

This case was a proceeding by the Legal Services Commissioner against a solicitor including for drafting baseless caveats.  The solicitor pleaded guilty to a number of charges.  The form of Senior Member E. Wentworth’s decision was first to set out the Findings, second the Orders, third the Senior Member’s Reasons (27 paragraphs), and finally, occupying most of the decision, an “Appendix: Relevant Extracts from the Parties’ Submissions”.  The Appendix included agreed proposed penalties and the solicitor’s explanations.  The Senior Member stated (paragraph 20) –

“The Commissioner’s submissions noted that the lodging of such [improper or baseless] caveats by legal practitioners is ‘endemic’.  If that is so, it is a shameful matter for the legal profession.”

Last October I gave a paper on caveats at the Commercial Law Discussion Group Conference (being a Discussion Group of Victorian solicitors) and at least one experienced solicitor, without demur from the other solicitors present, disputed the word ‘endemic’, regarding it as unjustified.

The solicitor acted for three clients in a Supreme Court proceeding in which they were seeking to recover their investment in a gold bullion firm.  The facts related to the caveat charge (including the solicitor’s explanations) were –

  • The solicitor was a young practitioner who was in her early years of practice as a principal of her own law practice.
  • Her clients requested her to caveat over a property owned by a defendant in the Supreme Court proceeding.  They had no estate or interest in the property and were at most prospective judgment creditors.
  • The solicitor informed her clients that caveating was not possible as they had no caveatable interest, the clients were reluctant to accept that advice, the solicitor sought advice from counsel in conference with the clients, and counsel also told the clients that they had no caveatable interest.
  • The property was listed for sale and again the clients insisted on caveating.  The solicitor had a number of discussions with the clients about the issue, reiterating that no caveatable interest existed.
  • The clients then asked the solicitor to provide them with a pro forma caveat form.  Accordingly on 24 May 2017 the solicitor provided them with caveat forms she had prepared which: claimed that the clients had an ‘interest as chargee’ based on an agreement with the registered proprietor of that date; sought an absolute prohibition on dealings with the property; and erroneously listed the address for notices under the caveat as the property itself not the address of the clients (this error was attributable to the LEAP system and occurred without the foreknowledge of the solicitor).
  • The solicitor continued to reiterate to the clients that there was no basis for the caveats.
  • In July 2017 the clients lodged the caveats.

The solicitor was charged with professional misconduct in that she prepared and facilitated the lodgment of erroneous and defective caveats in the knowledge that the caveators had no estate or interest in the property capable of supporting a caveat.  She admitted that she facilitated this lodgment and that her conduct involved a substantial failure to reach or maintain a reasonable standard of competence and diligence which amounted to professional misconduct.  (The solicitor’s explanation included that, although she acknowledged that the provision of the pro forma caveat form was improper, changes to the LEAP and caveat process now meant that a pro forma caveat form could no longer be provided to clients).

The parties agreed that a reprimand, and an order that the solicitor complete an additional three CPD units on substantive property law and ethics, was an appropriate remedy.  The Tribunal imposed this penalty and also suspended the solicitor’s practising certificate for a month to be served concurrently with a suspension ordered in respect of another charge.  The Tribunal stated ([10]) that this suspension was in the interests of general deterrence and to signal the seriousness of the conduct.  It added ([22]) that if the matter had involved a more experienced practitioner or a higher degree of culpability, a more substantial interference with the right to practise would be have been warranted.

Philip Barton

Owen Dixon Chambers West

Tuesday, March 28, 2023

Blog 69. Claim for compensation under TLA s. 118 fails.

187 Settlement Road v Kennards Storage Management [2022] VSC 771, Gorton J., (14 December 2022)

Note: In this case Gorton J. dismissed a claim for compensation under s. 118 for alleged lodgment of a caveat “without reasonable cause”.   His Honour conducted an intricate analysis of the law.  In particular:

  1. His Honour pointed out that the commonly judicially approved test for “without reasonable cause”, ie whether the caveator did not have an honest belief based on reasonable grounds that it had a caveatable interest: sat comfortably with the text of s. 118 where there was some factual uncertainty but where the legal consequences were otherwise straightforward; but did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest.  In the latter case it was preferable simply to ask: was the caveat lodged “without reasonable cause”?
  2. His Honour dealt with the situation whether, even if a caveat was lodged without reasonable cause, it was just to order compensation if there was no causal connection between the caveat and any loss, or if by the time the caveat became a source of loss there was a proper basis for its lodgment.
  3. His Honour also dealt with the consequences, for the purposes of s. 118, of the prohibition on any dealings with the property and the claim of a freehold estate.
  4. His Honour considered complex issues of contractual interpretation and in what circumstances a right of first refusal, ie a conditional right to purchase under the contract, gave rise to a caveatable interest.

The facts were –

  • 187 Settlement Road Pty Ltd (187SR) was registered proprietor of land in Thomastown (the property).  GDM Self Storage Group Pty Ltd (GDM) owned the self-storage business conducted there.  Leslie Smith controlled both companies.   Kennards Storage Management Pty Ltd (KSM) was associated with Sam Kennard.
  • On 1 September 2015 187SR and KSM executed an agreement with a term of 5 years commencing that day, renewable at the option of either party.   Under the agreement: the “Centre” was defined to be the self-storage centre at the property and the “Business” was defined to be the operation of the Centre; 187SR agreed to develop and then maintain the Centre and KSM agreed to provide management services there and 187SR agreed to pay fees including a “performance incentive fee” if the property were sold.  Clause 16, headed “First and Last Right of Refusal”, provided that during and for 2 years after the end of that agreement the Owner (ie 187SR) must not, without first making the same offer to KSM (Offer), inter alia, sell Centre or the property (cl. 16(a)).  Under cl. 16(b) the Offer to sell was required to be in writing accompanied by a contract of sale specifying the purchase price, deposit, settlement date and any other material terms and KSM had 14 days to accept it.  Clause 16(c) provided that: “The Owner must not … sell … the Centre except at a … price not less than and on terms and conditions not more favourable to KSM than as specified in any Offer made pursuant to sub-clauses (a) and (b) above, provided that before offering to grant on such lesser terms to another party, those terms must be first offered to KSM, so KSM has the last … right to purchase all or any part of the Property or the Centre”.
  • Following construction the Centre commenced operation shortly thereafter in August 2019.  KSM operated the Business.  However, due to complications attributable to 187SR being a trustee company, Smith and Kennard then deemed it preferable for GDM (not 187SR) to own the Business (as occurred at certain premises in Cheltenham).  More particularly:
    • After KSM raised the potential problem of the trusteeship the chief financial officer of KSM emailed Smith on 27 November 2019 saying: “I see the new Mgmt agreement [that is, the agreement for the premises in Cheltenham] was signed with GDM Self Storage – could we adjust the Thomastown agreement to this ABN and then we should be sorted?”
    • On 2 December 2019 Smith responded: “We are OK for the TT [Thomastown] management agreement to be under GDM Self Storage as well”.
    • On 12 December 2019 a financial controller at KSM emailed Smith attaching a document (“the 2019 agreement”) and saying:

      “As discussed … please find attached new management agreement for Thomastown …. This is between KSM and GDM Self Storage and this agreement supersedes the old SSAMA dated 1st September 2015 with 187 Settlement Road.  Please sign and return, thanks.”

  • Smith then signed and returned the 2019 agreement.  This was in the same terms as the 2015 agreement (even being dated and applying from 1 September 2015) with an additional clause providing that it superseded “Self Storage Asset Management Agreement dated 1st September 2015 between Kennards Storage Management Pty Ltd … and 187SR Pty Ltd …”.  This document also provided for “performance incentive fee” if the property were sold payable by GDM, calculated by reference to the EBITDA of the business.
  • In late September 2020, in response to Smith’s invitation, Kennard expressed interest in purchasing the property and the Cheltenham property.  Smith provided valuations, the valuation for the property being $19 m.
  • On 28 October Kennard emailed an offer to purchase the property for $16.2 m.  The email included: “This offer is made separately to the terms of the Management Agreement and does not forfeit any rights and obligations outlined by Clause 16 of the agreement”.
  • On 4 November 187SR obtained a signed “offer to purchase” the property for $18.5 m. from a third party.  On 5 November Smith informed Kennard of this and of his belief that the deal would be done with the third party at $19 m. and asked Kennard to consider his position.  On 6 November Kennard emailed: “I guess we should revert to the mechanism in the Management Agreement”.
  • On 6 November Smith signed and returned the offer to purchase to the third party, altering the price to $19 m., but stating that it was subject to his obligations to Kennard or KSM.
  • On 9 November Smith informed Kennard that he had received an offer at $19 m., that he had instructed solicitors to prepare contracts, and asked Kennard to advise his position. Kennard replied, saying: “Thanks Les.  Send it to us when its ready.”
  • On 10 November Kennard advised Smith that his company would not buy the Cheltenham property.
  • On 13 November Kennard instructed his solicitors to caveat over the property, leaving it to them to prepare the caveat documentation. The solicitors lodged a caveat by KSM prohibiting registration of any dealings with the property and claiming a “Freehold Estate”.
  • On 8 December Smith emailed Kennard that the third party had now also offered to purchase the Cheltenham property, also advising the gross offer for both properties, and stating “It is extremely important to the company to deal with both assets ….”, and “please advise what you would like to do in regards both properties”.
  • On 10 December Kennard sought the sale contract for both properties and stated

    “We should follow the process agreed and in accordance with the Right of Refusal outlined in the management agreement. …”

  • Smith did not provide to any contract to Kennard but on 23 December 187SR and GDM respectively agreed to sell the property and Business to the third party.
  • On 24 December Smith asked Kennard to remove the caveat. KSM alleged that it was a willing buyer for the property at $19m. and sought a written offer from 187SR in accordance with the 2015 agreement.  Dispute then arose about whether 187SR was required to make this offer, or whether any offer would require KSM to purchase both properties.  Then contracts were provided by 187SR and GDM, KSM raised whether it was being offered terms identical to those offered to the third party, KSM purported to accept the offers, argument erupted over whether acceptance was too late, and on 10 February KSM removed the caveat.  The sale to third party was completed on 19 February 2021.
  • 187SR sued KSM claiming compensation under the Transfer of Land Act s. 118.  It contended that the caveat was lodged without reasonable cause and delayed the completion of the sale to the third party giving rise to additional amounts it had to pay to its financier.

The Transfer of Land Act s. 118 provided:

Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.

KSM contended that because the “first and last right of refusal” granted by 187SR in the 2015 agreement was expressed to apply for 2 years after its end, it remained operative in 2020, because the 2015 agreement was only superseded by the 2019 agreement in December 2019, thereby giving it a caveatable interest.

His Honour accepted Kennard’s evidence that he believed that KSM had a right of first refusal and that it had not been complied with. 

GDM paid to KSM, under sufferance, the performance incentive fee claimed by KSM.  This did not account for rent payable by GDM to 187SR, but if this rent was to be taken into account in determining the EBITDA, then no performance incentive fee was payable.  GDM sued KSM for return of the performance incentive fee.  The proceedings were heard together.

Gorton J. dismissed the application under s. 118 and ordered the return of the performance incentive fee, holding –    

  1. Smith was acting on behalf of both 187SR and GDM when he participated in the exchanges preceding the 2019 agreement.  Conceptually, these communications, together with the signing of the 2019 agreement and the subsequent management of the Business by KSM, revealed that an agreement was reached that included Smith on behalf of 187SR agreeing that the 2015 agreement would be wholly discharged and replaced by the 2019 agreement.  This conclusion was compelled by: the change in the entity that was to own the business; the communications preceding the 2019 agreement; the text of the 2019 agreement, in particular the expression that it “supersedes” the 2015 agreement and the backdating of the 2019 agreement to 1 September 2015 and expressing that it was to commence from that date. [15], [20], [21]
  2. Accordingly from the time of execution of the 2019 agreement the parties were discharged from all obligations under the 2015 agreement, including any obligations imposed on 187SR by the 2015 agreement expressed to survive its termination. [20]-[22]
  3. Accordingly, although as at December 2020 GDM was obliged to give KSM a “first and last right of refusal” if it wished to sell the business, 187SR was not so obliged as regards sale of the property, whereby KSM did not have a caveatable interest. [23], [24]
  4. The test whether the caveat was lodged “without reasonable cause” within the meaning of s. 118 was often re-expressed as whether the caveator did not have an honest belief, based on reasonable grounds, that it had a caveatable interest. The re-expressed test sat comfortably with the text of s. 118 where, although there was some factual uncertainty, the legal consequences were otherwise straightforward.  However, it sat less comfortably where there was, as here, a complex legal dispute as to whether a first and last right of refusal, that the parties believed existed, was legally sufficient to give rise to a caveatable interest: it did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest.  If the caveator believed that he or she probably had a caveatable interest, but recognised that the position was uncertain, was that an honest belief in a caveatable interest?   In these circumstances, it was preferable to return to the text of the statute: was the caveat lodged “without reasonable cause”?  The fact that a caveat might be lodged with reasonable cause yet to protect an uncertain interest was apparent from previous authority. [25], [28], [29]
  5. Both parties believed that there was a contractual right of first refusal exercisable against 187SR, and through Smith 187SR incorrectly believed that it had complied with its obligations. [26], [27], [32]-[34], [37]
  6. If, however, contrary to his Honour’s view but nonetheless believed to be so by the parties, 187SR had still contractually been bound to make KSM an offer of first refusal, this right would not per se give rise to an equitable interest because it did not, of itself, give the holder the right to call for a conveyance. No interest would arise if the owner was still absolutely free to sell or not. [39]
  7. However, if a right of first refusal was expressed in positive terms that applied when a contingency was satisfied, then equity would ordinarily intervene once the contingency was satisfied. 187SR’s argument that cl. 16 of the 2015 agreement did not impose a positive obligation on it, on the satisfaction of a contingency, to make an offer to KSM, but merely prevented it from selling to anyone else unless it first made an offer to KSM, had force but the position was not without difficulty.  It was, at least, well arguable that if 187SR were to make an offer to sell the property, then it was positively obliged to make an offer on those terms also to KSM.  It was at least arguable that by signing the 6 November 2020 offer and manifesting a clear intention to sell the property on those terms, or by signing the 23 December 2020 agreements, both in circumstances where 187SR had informed the third party that KSM had a right of first refusal, 187SR fell under an enforceable contractual obligation to make an offer in those terms to KSM.  On balance, if the 2015 agreement had applied, a court probably would have ordered 187SR to offer to sell the properties to KSM on the terms contained in the 23 December 2020 intertwined agreements.  However, the matter was not straightforward. [27], [39], [40], [42]-[46]
  8. For the reasons set out above, by the time the caveat was lodged, having regard to the complexity of the legal argument as to whether cl. 16 would give rise to a caveatable interest, his Honour was not satisfied that KSM lodged the caveat without reasonable cause. It had reasonable cause. [47], [48], [52]
  9. Not detracting from this conclusion was that the caveat precluded all dealings with the property and claimed a freehold interest. If KSM was entitled to lodge a caveat, it was entitled to lodge one that precluded any dealings.  As to claiming a “freehold estate”, the right that KSM was asserting was the equitable right to obtain the freehold on a sale, and although perhaps it would have been more precise to claim a conditional right to purchase under the contract, this imprecision was insufficient to establish lack of reasonable cause. [49]
  10. Although it may be correct, as the caveat was lodged by KSM’s solicitors, to consider that KSM’s solicitors’ mind that was the mind of KSM for the purpose of determining reasonable grounds, even so, and even on the basis that the person preparing and lodging the document had legal training, the caveat was not lodged without reasonable cause. [50]
  11. Further, even if the interest asserted or wording used in the caveat rendered the caveat not lodged with reasonable cause, it would not be “just” to award 187SR any compensation unless it could be shown that this assertion or use caused any loss that would not have been caused anyway if the “right” interest were asserted or wording was used. This was not proved. [50], [65]
  12. The caveat was also not lodged prematurely. But in any event, by the time that the caveat interfered with 187SR’s intentions and, as 187SR alleged caused it loss, 187SR had signed the offers.  In reality, it was probably the maintenance of a caveat at a time when someone tried to register an instrument that caused loss, rather than the “lodging” of the caveat.  In any event, it would not be “just” for the purposes of s. 118 to order that a party pay compensation because a caveat was lodged prematurely if, by the time the caveat became a source of loss, there was a proper basis for its lodgement. [51], [65]
  13. Accordingly, 187SR’s claim for compensation under s. 118 failed. But, if this was incorrect, the process of determining compensation involved two steps: first to ascertain a date by which, but for the caveat, the sale of the business would have been completed; second to ascertain what loss KSM suffered, if any, by reason of the delay between that date and 19 February 2021 being the date of completion of the sale.  If there had been no caveat settlement would have taken place by 22 January 2021 and the loss from delay would have been $274,658 being the increased amount that 187SR had to pay to its financier. [52]-[54], [60], [63], [64]
  14. GDM was entitled to return of the “performance incentive fee” because it was not payable under the terms of the 2019 agreement. [79]

  Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, March 22, 2023


Blog 68. Court of Appeal allows appeal by caveator on ground of arguable contract of sale.

Ek v Red Eagle International Pty Ltd (atf Chunan Bai Hybrid Unit Trust) [2022] VSCA 254, Niall and Kennedy JJA., (18 November 2022) 

The facts were –

  • The respondent (Red Eagle) was registered proprietor of three adjoining buildings at 7 – 13 Carrington Road, Box Hill (the Properties).  Ms Cherry Pai was a director of Red Eagle.  In 2021 and early 2022 she negotiated with the applicant (Jade) concerning their sale.  Jade received a draft contract of sale and s. 32 Statement.  She later paid $3,000 to Red Eagle.
  • At a meeting between Cherry and Jade on 14 June 2022 a price of $12.15 m. was proposed and a ‘particulars of sale’ page was used to write down the discussion.  Jade subsequently texted Cherry a photo of the completed particulars which included that price and a handwritten amendment by Jade of the address, from ‘7 – 13 Carrington Road Box Hill’ to ‘7 – 15 Carrington Road, Box Hill’ (the ‘first particulars’).  However, Cherry subsequently explained that shop 15 was not on the title and so not for sale.
  • On 9 July 2022 Jade and Cherry met at Jade’s dental clinic.  Notwithstanding conflicting evidence of what occurred at this meeting it was undisputed that a revised ‘particulars of sale’ dated 9 July 2022 (the ‘9 July Particulars’) came into existence.  This recorded the following, with two handwritten notes (denoted NB)–

    Vendor: Red Eagle International Pty Ltd
    Purchaser: Jade Ek & or Nominee
    Street Address: 7 13 15 Carrington Road Box Hill 3128
    Purchase price: $11,850,000.00
    Deposit: $355,500.00 3 5% or ($592,500 @ 5%)
    Balance: $11,494,500.00 (9 12 months)
    N/B 3 – 5% Due 10/10/2022
    N/B On Market Value 2 yrs after settlement if Property appreciate (Jade) will give 300k

The amounts recorded for price, deposit and the balance were in Jade’s handwriting over whiteout.  Jade’s initials also appeared proximate to the entries of purchaser, street address, ‘3 – 5%’, and the notes.  At its bottom Jade’s signature appeared next to the Chinese characters for ‘purchaser’ (next to a date of 9 July 2022) and Cherry’s signature appeared next to the Chinese characters for ‘vendor’.

  • On 9 July Jade made a further payment of $12,500 to Cherry, and ultimately paid a total of $45,500 between June and 1 August (which she asserted was part payment of the deposit).
  • On 24 July 2022 Red Eagle entered into a contract of sale of the Properties with a new purchaser, Jun Chen, with settlement on 24 October 2022.  Cherry gave evidence that a 10% deposit was paid.  That contract was not in evidence, nor did Jun Chen give evidence.
  • On 2 August 2022 Jade caveated relying on an agreement with the registered proprietor dated 9 July 2022.
  • In September the net deposit paid by Jun Chen was released to Red Eagle and it used $62,750 of it to pay consulting fees related to the sale to Jun Chen.
  • Red Eagle applied to the County Court under the Transfer of Land Act s. 90(3) for removal of the caveat.  Cherry deposed that: at the 9 July meeting she and her husband insisted on a price of $12.15 m.; ‘we signed’ at the bottom of the first particulars of sale next to the Chinese character meaning vendor (which showed her intention to sell at $12.15 m.) and Jade signed the bottom of the page next to the Chinese character for purchaser; Jade then took the signed document back to her office and amended it in handwriting including the price and the deposit, then initialled the changes, and added the handwritten notes; after this Jade presented the amended page to Cherry who refused the amendments.
  • Jade deposed that while she was initially prepared to pay $12.15 m., this altered on realizing that Red Eagle could not sell 15 Carrington Road.  She deposed that: on 9 July she met with Cherry and Cherry’s husband; Jade said to Cherry that she was initially prepared to offer $12.15 m. for “the Carrington Properties” but that after discussions with her son, who was investing with her, we would only pay $11.85 m.; Cherry asked if she would consider paying her $300,000 if the Carrington Properties increased in value of at least that amount, to which Jade agreed; Cherry wanted Jade to sign that day; she told Cherry they could meet again later to sign a clean copy as the copy Jade had contained her previous offer; Jade then remembered she had electronic access to the one page she had sent to Cherry previously by sms, and so they went to her office and arranged for her staff to print it out; Cherry whited out the details and asked Jade to complete the price and other details, which she did except for the Chinese writing appearing at the bottom, which was done by Cherry; she asked Cherry what that writing was and she said it was “buyer” and “seller”; Jade signed where the buyer appeared and wrote the date “9/7/2022”; Cherry signed where the seller appeared; Jade believed that they had reached a concluded agreement.
  • Jade undertook to the court to pay 5% of $11.85 m. (in addition to amounts already paid).
  • On 21 October a County Court judge ordered Jade to remove the caveat by 4 November.  The judge reasoned inter alia: she reached her conclusion on a consideration of the particulars of sale, and so was not required to resolve disputed facts or matters of credit; the indicia of objective intention available from a consideration of the face of the particulars of sale did not support the argument that the parties intended the document to be a binding contract; these indicia included the absence of Cherry’s initials, including against changes to the price and deposit; at trial the caveator would have to establish that the amendments were agreed to by Red Eagle and in view of this lack of initialling Jade’s prima facie case in this regard was weak; the submission that it was left to the purchaser to decide whether to pay a deposit of 3%, 4%, 5% or something in between was not supported on the face of the document – there was nothing to indicate at whose election the amount of the deposit within that range can be decided – so the prima facie case on certainty in this regard was weak; as to the time for payment of the balance of price, a range was provided but without indication of who decided when; she rejected the contention that the terms were agreed but it was simply that the mechanism was not; it was objectively apparent from the existence of unresolved matters on the face of the document that the argument that the document was a final enforceable agreement was weak.
  • Jade filed an application for leave to appeal.  Her proposed grounds included first that the judge erred in finding that her prima facie case of an interest in land arising from an enforceable contract of sale was weak.  The particulars of this ground included that the judge erred by considering that the strength of the prima facie case was diminished by: (a) the term specifying the deposit as 3–5% of the price; (b) the term fixing settlement as 9 – 12 months after entry into the contract; (e) the fact that handwritten notations on the agreement had only been initialled by the purchaser and not on behalf of the vendor.
  • The Court of Appeal stayed the County Court order.

The Court of Appeal gave leave to appeal, allowed the appeal and dismissed the application under s. 90(3), holding –

  1. Because the court’s power under s. 90(3) was discretionary an applicant for leave to appeal against an exercise of that discretion must establish an error of the kind identified in House v The King (1936) 55 CLR 499. [22]
  2. The critical issue was whether the parties signed the 9 July Particulars (which include a revised price of $11.85 m.) or the (earlier) first particulars. This could only be resolved at trial. [16]
  3. The judge hearing the caveat removal application was not required to consider that a trial judge might consider the absence of Cherry’s initials in determining whether Cherry had really executed the 9 July Particulars. Not only was this not required, it was ordinarily inappropriate for a judge to enter into resolution of the underlying factual dispute on this sort of application, particularly where this turned on findings on credit of witnesses.  Accordingly, the judge was not in a position to assess the key issue of whether the parties signed the 9 July Particulars or the first particulars.  The judge had endeavoured to reach a finding about the strength of the key issue in the case and in so doing had considered the absence of Cherry’s initials without regard to the other evidence. [25]-[26]
  4. Even if the judge was in a position to assess the merits of the key issue, there could be no assessment on a prima facie basis, or otherwise, by only having regard to one isolated piece of evidence. The judge thereby erred in her treatment of the evidence that the 9 July Particulars had only been initialled by the purchaser. [27]
  5. The judge’s reasoning that the ranges for the deposit (3% – 5%) and settlement date (9 – 12 months) meant that the prima facie case on certainty was ‘weak’, because there were ‘unresolved matters’, was also flawed. A contract was only uncertain if the court could not put any definite meaning on it.  The objection that one party was left to choose whether to perform a contract was distinguishable from the situation where the contract gave one party choice of or discretion in the manner of performance.  The identification of the person given the choice to determine the figure within the range specified for the deposit or time of settlement was capable of resolution, consistent with the general approach of upholding contracts: there was authority, for example, that it is the promisor who usually had the right to elect which of the methods of performance to choose (although this may need modification as regards time for settlement, given this depended on mutual obligations).  Issues of contractual construction of the 9 July Particulars were ultimately to be determined by the trial judge, but this said nothing about whether the 9 July Particulars gave rise to a binding contract in the first place. [28], [29], [33], [34]
  6. Each of the absence of Cherry’s initials and the specification of the deposit and time of settlement ranges played a significant, if not determinative, role in the judge’s assessment of the prima facie case. They also affected the judge’s assessment of the balance of convenience.  Accordingly grounds 1(a), (b) and (e) were sustained. [36]-[37]
  7. Given the urgency of the case and the Court of Appeal having before it the evidence and submissions that were before the judge, it was appropriate for the Court to exercise afresh the discretion under s. 90(3). [39]
  8. For the reasons given in holding number 5 Red Eagle’s submissions concerning failure to agree on the deposit and settlement date were unmeritorious. Also unmeritorious was its submission that there was a failure to agree on the mechanism for determining market value to ascertain whether the additional $300,000 was payable. Courts were routinely called upon to determine the market value of properties and would readily supply machinery when parties failed to state the basis for determining value. [40]-[41]
  9. As to any argument about reliance on material which post-dated the contract, post-contractual conduct could in limited circumstances be admissible on whether the parties intended a contract to be binding. There was conflicting material which could only be tested at trial. [42]
  10. In summation, the 9 July Particulars raised a serious question to be tried of whether Jade had the interest claimed. [43]
  11. The balance of convenience favoured maintenance of the caveat having regard to: evidence that available properties of this nature in this location were very rare; evidence of Jade’s business needs; an assessment of the interests of the other purchaser; the vendor dissipating part of the released deposit to third parties (to which Jade’s undertaking as to damages was relevant); Jade’s undertaking to pay an amount equal to 5% of $11.85 m. and to prosecute a proceeding for specific performance. [44], [45], [47], [48]
  12. Accordingly, although the matter was finely balanced, the lower risk of injustice was to maintain the caveat. [49]


Philip H. Barton

Owen Dixon Chambers West

Tuesday, March 14, 2023

Blog 67. Caveator relying on forged document pays indemnity costs.

Iceland Properties Pty Ltd v Palta & Anor [2022] VSC 734, McDonald J. (28 November 2022).

The facts were –

  • The plaintiff (Iceland) was registered proprietor of a property. Its sole director was Mr Gill. The first defendant (Palta) alleged that on 2 July 2018 he entered a loan agreement with Iceland and Gill, clause 8 of which gave him a charge and the right to caveat.  He relied on a particular document with a signature page, which he produced, being a photocopy (the copy) of the alleged original (the original) which he did not produce.
  • In 2019 Palta caveated on the basis of that alleged charge.
  • In 2020 Palta commenced County Court proceedings to enforce this agreement. However, from October 2020 Gill alleged that he had not signed this document and that it was forged.  He pleaded that it appeared that his signature had been taken from another document and superimposed.  Palta’s solicitors responded that this plea was denied and scandalous.
  • In 2022 Iceland applied under the Transfer of Land Act s. 90(3) for removal of the caveat.
  • Palta deposed that on or about 27 or 28 July 2018 he and Gill had signed the original in the presence of a Mr Handa in the Epping Plaza Shopping Centre carpark, and that Gill had retained it and a few days later given him (Palta) a photocopy, which he exhibited to his affidavit. He further deposed concerning the background of this alleged signing.
  • Handa, whose signature appeared three times as a witness on the copy, deposed: to this meeting at the Epping Plaza carpark; how he came to be there; that Palta asked him to witness the signing of some documents; to events at the time of signing; that he watched Gill and Palta sign a document the front page of which said “loan agreement”, and that he then signed the signing page as a witness three times. He deposed that the front page and the signing pages on the copy exhibited to his affidavit was the same as in the document he witnessed.
  • On the second day the matter was before the court, 18 November 2022, McDonald J. raised with counsel for Palta that it appeared that the two signatures of Gill on the copy were identical, whereas, in contrast, there were slight differences in the signature of Handa, and that the identical signatures of Gill, allegedly made in a carpark, and the manner of their presentation, constituted prima facie evidence of forgery.
  • The proceeding was adjourned to 25 November. In the interim an expert report was filed on behalf of Iceland concluding that Gill’s signature from a lease was placed onto the copy (twice) through a cut and paste manipulation, and so it was extremely likely that no original existed.
  • At the adjourned hearing counsel for Palta conceded that, based on the expert’s report, Gill’s signature on the copy was forged. However, he submitted that Palta had still discharged the onus of establishing a probability, on the evidence before the Court, of being found at trial to have an interest in the property pursuant to the 2 July 2018 loan agreement.  He submitted that the copy was a copy of an original which was in fact signed by Gill.  He submitted that on the evidence currently before the Court, there was a probability that at trial Palta would establish that: (1) Gill signed the original in the presence of Palta and Handa at Epping Plaza in late July 2018; (2) he took the original away; (3) he then photoshopped his own signature over his genuine signature, so as to afford grounds for subsequently contending that the agreement was unenforceable; (4) in or around mid-August 2018 he provided the copy to Palta.

Gill acknowledged that before July 2018 Palta had advanced funds to Iceland or him on particular terms.   In August 2022, Iceland, Gill and others entered into a deed of settlement of litigation requiring Gill to pay $6.5 m. by 1 December 2022.   He had paid a 10% deposit and contended that the caveat was impeding his ability to raise finance to pay the balance.

McDonald J. ordered removal of the caveat with indemnity costs, holding –

  1. There was not a probability that at trial Palta would establish that he had an interest as a chargee of the property. The matters raised by his counsel were a very tenuous basis for the asserted caveatable interest and any probability was insufficient to justify the practical effect of the caveat on the ability of Iceland to deal with its property. [24]-[35]
  2. If it had been necessary to consider it, the balance of convenience would also have favoured removal of the caveat, particularly relevant being that a prima facie case, if any, was weak and that the caveat was a significant impediment to Gill obtaining finance. The lower risk of injustice was to order removal of the caveat, notwithstanding that it was common ground that Palta had advanced funds to Gill, the circumstances of the present case being quite unusual.  There was accordingly very significant risk of injustice if the caveat remained. [36]-[40]
  3. The caveator would be ordered to pay indemnity costs.  On the first two court days the caveator had resisted the removal of the caveat on the basis of an agreement which he now conceded was forged, having notice of this contention for over two years without taking steps to establish the authenticity of the agreement, then accepting that the agreement was forged but nonetheless asserting on a very tenuous basis that Gill was the perpetrator.  It should have been readily apparent to the caveator before the first day of hearing that the agreement on which he relied was forged. [41]-[44]

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, March 7, 2023

Blog 66. Caveats to restrain sales and freezing orders.

In the Matter of Ausun Property CBD Pty Ltd (In Liquidation) [2022] VSC 541, Riordan J., (24 May 2022); Rowell v Torbeckin Pty Ltd & Anor [2022] VSC 624, Forbes J., (18 October 2022)

These cases have the common thread of a caveator attempting to block a sale, the second case being a reminder that a caveat removal application may morph into another form of restraining application.  In Ausun a caveat blocking completion of a sale by a Receiver and Manager was removed.  In Rowell a caveat was removed by consent and the caveator then unsuccessfully applied for a freezing order.


In In the Matter of Ausun Property CBD Pty Ltd (In Liquidation) [2022] VSC 541 the facts were –

  • Ausun Property CBD Pty Ltd (Ausun) was trustee of a unit trust (the Trust).  Its sole director was Li Zeng.  The unitholders were a company, whose sole director was also Li Zeng, and Ziqian Wang.  The trust deed provided in substance that a unitholder was not entitled, merely by the holding of units, to the transfer of any property comprising the trust fund, or to interfere with the trustee’s powers to deal with the trust fund, or to exercise any rights in respect thereof.
  • Ausun was registered proprietor of land in South Melbourne (the Properties).  It obtained planning permission to redevelop the land.  In 2020 Li Zeng returned to China and had not since returned to Australia.
  • On 25 August 2021 Ausun was wound up for non-payment of a debt of approximately $12,000.  The liquidator attempted to interact with Li Zeng about delivery of books and records and attendance at his office.   Over the next few months: a solicitor for Li Zeng stated that he was awaiting instructions to seek orders to terminate the liquidation, then ceased to act and Li Zeng was uncontactable; the debt was repaid; the solicitor recommenced acting for Li Zeng and again foreshadowed an application to end the liquidation, subsequently seeking more time; the liquidator formed the view that it was critical for the assets to be realised and applied for an order appointing him Receiver and Manager of the trust assets;  Li Zeng’s solicitor commenced acting in this proceeding then ceased to act; on 19 November 2021 the receivership orders were made; from November 2021 Li Zeng ceased making payments under the first mortgage on the Properties.
  • On 11 March 2022 the Receiver entered a contract to sell the Properties with settlement due on 25 May 2022.  In the contract the purchaser acknowledged that the Receiver was selling as such and included clauses 15.4 – 15.8 making provision for eventualities if the Receiver was later found not to have the right to sell.
  • Li Zeng then engaged new solicitors who lodged a caveat on behalf of a unitholder and Li Zeng over the Properties and proposed to apply to terminate the liquidation.
  • A mortgagee foreshadowed exercising the power of sale if the current sale fell over.
  • The Receiver applied under the Transfer of Land Act s. 90(3) to remove the caveat and the Li Zeng and the unitholders applied for orders terminating the winding up and for injunctions restraining sale of the Properties.

The caveator argued that there was a serious question to be tried that the Receiver had breached his fiduciary duty in entering into the contract of sale: without properly consulting with Li Zeng; before being satisfied that Ausun was insolvent – alleging it would not be insolvent if certain debts owed to related companies were not enforced; and before properly investigating whether payment of a particular debt would be resolved.  It also argued that there was a serious question to be tried whether the purchaser had notice of the breach of fiduciary duty via the inclusion of clauses 15.4 – 15.8 in the contracts, as to which the caveators desired discovery.

Riordan J. ordered removal of the caveat and dismissed the other applications, holding –

  1. There was no serious question to be tried of a breach by the Receiver of fiduciary duty. The Receiver had acted properly in selling the Properties. [61]-[63], [68]
  2. The inclusion of clauses 15.4 – 15.8 in the contracts was insufficient to give notice of any otherwise unknown breach of duty. [64]-[65], [68]
  3. There was no serious question to be tried merely by reason of the assertion, without more, that the caveator desired discovery.  There may be circumstances where there was sufficient basis for suspicion of notice by the purchaser such that the Court would maintain a caveat until after discovery, but they did not exist here.  Although there was evidence that the amount expended by Ausun on the Properties exceeded the sale price, it was not contended that the sale price was below the Properties’ true value and there was no evidence that the Properties would be of greater value in the hands of Ausun. [66]-[67]
  4. The balance of convenience was against maintenance of the caveat. [61]
  5. The orders sought by Li Zeng and the unitholders would not be made. [68]-[69]

In Rowell v Torbeckin Pty Ltd & Anor [2022] VSC 624 the plaintiff registered proprietor entered a contract of sale due for settlement on 17 October 2022.  On 12 September the first defendant caveated over the property.  On 12 October the plaintiff filed an application under the Transfer of Land Act s. 90(3) to remove the caveat, returnable on 14 October.  By the morning of hearing the caveator had not filed any affidavit material, although in correspondence its solicitors had focused on the plaintiff’s alleged wrongdoing and the need for a restraining order to compel discharge of a debt he allegedly owed to it arising from breach of fiduciary duties as director and from misappropriation.  While the hearing was stood down the caveator provided an affidavit, and the parties agreed that the caveat would be removed and that the first defendant would bring an application returnable on 17 October for an order under Order 37A of the Supreme Court (General Civil Procedure) Rules 2015 freezing the net proceeds of sale.  Forbes J. dismissed the application, holding that the first defendant had not established a good arguable case or a real risk of dissipation of funds.

  Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, February 28, 2023


Blog 65. Mother v Daughter. Mother’s caveat based on constructive or resulting trust survives.

Dolan v Dolan & Anor [2022] VSC 543, Ierodiaconou AsJ, (14 September 2022) concerns a dispute between mother and daughter over property of which the daughter was registered proprietor, the mother being held to have a caveatable interest based on a constructive or resulting trust.  The facts were –

  • In about 1998 the first defendant (Christine) and other persons purchased land at Lorne (the parent title) for $105,000 with Christine being registered as to a half interest.   They agreed to subdivide it into two blocks, with her taking one.  She deposed that she contributed $52,500 towards the purchase.  The plaintiff (Shannan), who was Christine’s daughter, deposed that she contributed $20,000 towards the purchase, and it was common ground that Shannan paid Christine $20,000 at about the time of purchase.
  • Due to her age and income Christine could not obtain a loan to fund construction of a house.   However, a Bendigo Bank employee advised that if she transferred her interest in the parent title to Shannan an acceptable loan could be secured in Shannan’s name.  Christine deposed that Shannan accepted her proposal to make this transfer so that Shannan could obtain a loan on Christine’s behalf, but that both before and after subdivision she (Christine) would continue as beneficial owner, and that Shannan also accepted other proposed terms relating to the transfer.  Shannan denied accepting this proposal.  .
  • In 2001 Christine transferred her moiety in the parent title to Shannan, the consideration stated in the Transfer being as “An Agreement to Transfer”.   Following subdivision, one block (the property) was transferred to Shannan, the consideration in that Transfer being stated as “In pursuance of an Agreement between the Transferors for partition of the said land …”, and Shannan in 2003 became registered proprietor of this block.  The bank established a loan account in Shannan’s name with an overdraft limit of $140,000 secured by a mortgage.
  • Christine deposed that the costs for acquisition of the parent title and construction and fit‑out of the house were funded primarily from her personal resources and from the loan account, Shannan only contributing about 7% of overall build costs.   Christine also deposed to making mortgage repayments and that she paid all outgoings including council rates, home insurance, and for maintenance and improvement.  Shannan deposed that the overall build costs were largely drawn down from the loan account, that from 2004 to 2006 she made loan payments, and that Christine did not use her personal resources to fund these costs.
  • Upon completion of the house in 2003/2004 Christine, Shannan, and another family member took up residence.  Shannan left in 2006.  In 2021 Christine caveated on the ground of ‘implied, resulting or constructive trust’.  Shannan applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

Ierodiaconou AsJ dismissed the application, holding –

  1. There was a serious question to be tried that Christine was the beneficiary of a common intention constructive trust (she alleged as to 93% of the equitable title). This was supported by: her deposing to the required common intention or agreement; reference to an agreement in the Transfer (her Honour appears to state in the Transfer to Shannan of the subdivided block, but quaere this is a slip for the Transfer to Shannan from Christine); and Christine’s contribution to loan repayments.  Moreover, it appeared to be common ground that Christine contributed most of the purchase price of the parent title and that for many years she made payments into the mortgage loan account and resided on the property. [69], [71]
  2. There was a serious question to be tried that Christine was the beneficiary of a resulting trust (she alleged as to 65% of the equitable title) arising from her contributions to the purchase price of the parent title and to construction and fit-out.  Disputes about whether there was an agreement on the nature of Christine’s interest in the property, whether the presumption of advancement applied, and whether, as Shannan alleged, Christine was guilty of fraud, could only be resolved at trial. [69], [72], [75]
  3. The balance of convenience favoured maintenance of the caveat because of: Christine’s long residence; her age; evidence of her investing her life savings into the property; the fact that Shannan proposed to sell the property with vacant possession with only $20,000 from the net proceeds being distributed to Christine pending resolution of the dispute; Christine’s claim of a substantial interest in the property; and Christine’s inability to buy another property or rent one in Lorne. Any hardship for Shannan could be met by Christine’s undertaking to maintain mortgage and property expense payments, which would maintain the status quo of many years, and Christine being required within 7 days to commence a proceeding to establish her interest in the property. [76]-[78]
  4. There would be an order for amendment of the caveat to assert Christine’s claim to a 93% interest in the property. [80]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, February 21, 2023

Blog 64. Agreement concerning land insufficient to give rise to caveatable interest.

A. P. Welco Holdings Pty Ltd & Anor v Canterbury Hills Pty Ltd & Anor [2022] VSC 490, Button J., (24 August 2022) concerns an unsuccessful attempt to eke a caveatable interest out of a Memorandum of Agreement (MOA) concerning land.  It also confronts the problem of the PEXA drop down menu having limited options for description of the caveatable interest.

The facts were –

  • The defendants were registered proprietors of five parcels of land.  It was not proposed that the first plaintiff purchase the land.  The plaintiffs alleged the existence of a contract in substance to develop the land (the Agreement) between the first plaintiff and the defendants, being, insofar as in writing, constituted by a ‘Memorandum of Agreement’ (MOA).  The plaintiffs alleged that the terms included: access to the defendants’ project consultants, internal staff, and documents to enable a feasibility assessment by the first plaintiff of a project; access to the land; the defendants not advertising or negotiating with any other party to market the land; the defendants permitting the first plaintiff or its nominee to, without purchasing it, subdivide the land and then develop and sell the lots; payment to the defendants of $40 m.; the first plaintiff having carriage of the development, providing development and marketing expertise and funding for development; the parties preparing and entering a “Final Agreement” (known as the  “Staged Asset Sale Agreement”) after which the first plaintiff would pay land outgoings and for insurance; and an obligation to act in good faith.
  • The plaintiffs alleged that, pursuant to the Agreement, the first plaintiff and the defendants worked towards concluding the Staged Asset Sale Agreement, drafts being exchanged, but that on 21 December 2021 the defendants wrongfully repudiated the Agreement, which repudiation was not accepted.
  • The relief sought by the plaintiffs included an order for, or in the nature of, specific performance of the Agreement requiring the defendants to provide a signed form of the Final Agreement contemplated by the Agreement, substantially the same as the form of a particular document sent to the defendants with any agreed additions or variations.
  • The defendants, in substance, denied the existence of large components of the Agreement.
  • The first plaintiff caveated over the land on the ground of an agreement with the registered proprietor(s) dated 20 May 2021.  The defendants applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

The estate or interest claimed in the caveat was described as ‘Interest as Covenantee of a Restrictive Covenant’.  The plaintiffs accepted that this description was inapt but, referring to a Land Use Victoria document stating the options in the drop-down form on PEXA, submitted that the PEXA lodgment portal lacked any option corresponding to the particular equitable interest allegedly held by the first plaintiff.

The plaintiffs argued that although the MOA did not itself confer any proprietary interest the first plaintiff had an equitable interest in the land because: it was a binding agreement for the development and subsequent sale of the land (and not merely an agreement to negotiate accompanied by limited rights); and, because the MOA was a contract whose subject matter was land, which contained obligations with a substantial connection with the land, and which provided for its ultimate sale after subdivision with sharing of proceeds, the potential availability of an order for specific performance of the MOA gave the first plaintiff an equitable interest.

Button J. removed the caveats, holding –

  1. The arguments that the MOA was an immediately binding agreement for the development and sale of the land, that the first plaintiff was a party to it, and that it had not already been terminated by the time the caveat was lodged, were insufficiently strong to establish a prima facie case of an equitable interest. Approaching the matter on a summary basis it appeared that the plaintiffs only a very weak case that the MOA was an agreement for development of land and of no fixed duration. [64], [65], [80], [87], [90], [101]
  2. Further, any potential the first plaintiff had of obtaining specific performance of the MOA did not suffice to establish a prima facie case of an equitable interest. The mere availability of an equitable remedy such as specific performance in relation to a contract concerning land did not give rise to a proprietary interest in land. [59], [63], [75], [77]
  3. The deeming provisions of the Duties Act 2000 did not give rise to an equitable interest. [102]-[105].
  4. Even if the plaintiffs had established a prima facie case the balance of convenience was against them. [110]
  5. The PEXA system did not contain an available option directly corresponding with the nature of the equitable interest claimed by the first plaintiff, and so this case was distinguishable from other caveat interest misdescription cases.  However by reason of the holdings referred to above it was unnecessary to consider whether an order could have been obtained for amendment of the caveat. [106]

       Philip H. Barton

          Owen Dixon Chambers West

        Thursday, February 16, 2023

Blog 63. Mortgages/Charges and Caveats

This Blog covers three recent cases of interaction between caveats and securities taken over land.  In Launch Concept Developers Pty Ltd v Di Mauro & Ors the registered proprietor failed to have caveats based on charges temporarily removed so that it could refinance.   In Hooper v Parwan Investments Pty Ltd (recs apptd) caveats based respectively on a contract of sale and a charge were removed to permit sale by receivers appointed by a mortgagee bank.  In BD78 Pty Ltd & Anor v FGK3GEN Pty Ltd & Anor a caveat based on an equitable mortgage was removed to permit the registered proprietors to refinance by paying out a registered mortgage, on condition that the debt secured by the equitable mortgage was repaid and an amount calculated for interest was paid into court or into trust to be released by agreement or court order.

In Launch Concept Developers Pty Ltd v Di Mauro & Ors [2022] VSC 512, Moore J., (1 September 2022):

  • The plaintiff was registered proprietor of properties at Portland and Elsternwick.
  • The Portland property was subject to a registered first mortgage to a third party securing a debt of approximately $434,000.
  • The first and second defendants had lent money to the plaintiff secured by mortgages over the Elsternwick property and, ranking after the registered first mortgage, charges over the Portland property. The Elsternwick mortgage was in default.
  • Caveats had been lodged over the Portland property based on these charges.
  • The principal of the first defendant’s loan was $390,000, the sum outstanding was approximately $550,000, and interest was running at 23% per annum. The principal of the second defendant’s loan was $55,000, the sum outstanding was approximately $90,000, and interest was running at 36% per annum.
  • The estimated value of the Elsternwick property was only $600,000 and accordingly these debts exceeded the value of that property.
  • The plaintiff desired to refinance by discharging the Portland mortgage (which was in default) in favour of a new registered mortgage securing a loan of $520,000 but incurring less interest than under the current mortgage.
  • The plaintiff sought orders under the Transfer of Land Act s. 90(3) for removal of the Portland caveats to permit this new mortgage but with the caveators being permitted to re-caveat thereafter.
  • At the hearing the parties led differing evidence of the value of the Portland property. However, it was agreed that: on the plaintiff’s valuation plus estimate of building costs, taking into account both the Elsternwick and Portland properties, there would be total equity remaining of about $230,000; on the defendants’ valuation the remaining equity would be approximately $100,000.
  • Moore J. dismissed the application. The caveators indisputably had a caveatable interest and the balance of convenience was in their favour.  The proposed new mortgage would secure about $85,000 more than the existing mortgage and the caveators would suffer practical detriment from losing priority in this amount.  Even assuming that the remaining equity in both properties would be about $230,000, this was marginal given the plaintiff’s apparently parlous financial circumstances, there being no evidence of likely improvement.

Hooper v Parwan Investments Pty Ltd (recs apptd) [2022] VSC 285, Matthews AsJ (2 June 2022). 

The facts were –

  • In 2015 the first defendant (Parwan) entered a contract to purchase a residential property (the Property) with funds obtained from a bank pursuant to a loan agreement with a facility amount of $850,000. On 16 December 2015 it became registered proprietor of the Property subject to a registered mortgage securing the loan.
  • On 21 October 2016 Parwan and the plaintiff (Hooper) entered into a contract of sale of part of the land (Purchased Area) for $900,001, with settlement on 21 March 2018 unless the Purchased Area was a lot on an unregistered plan, in which case settlement was due on the later of 21 March 2018 or 14 days after notice of registration of the plan. Special Condition 7.1 of the contract made settlement conditional on Parwan subdividing the Property within 18 months from the day of sale and required that it use its best endeavours to achieve this.
  • The contract of sale also provided that it was subject to a lease between Parwan and Hooper. That day Parwan agreed to lease the Purchased Area to Hooper for 24 months and thereafter, unless terminated in accordance with the Residential Tenancies Act, to continue as a periodic tenancy, and that each party must comply with that Act.
  • In 2017 Hooper caveated over the Property claiming an interest as purchaser under the contract of sale.
  • In 2018 Parwan executed a deed of charge in favour of Hooper creating an equitable charge over the Property securing payment of $350,000, said to reflect the value of Hooper’s improvements to the Property.  In 2018 Hooper caveated over the Property claiming an interest as chargee based on this document.
  • On Parwan falling into default of mortgage repayments the bank in 2020 appointed receivers of the Property. Thereafter Parwan acted through the Receivers.  In 2021 the Receivers applied to the Registrar of Titles under the Transfer of Land Act s. 89A for a lapsing notice to remove the caveats.
  • On 7 July 2021 Parwan gave Hooper a notice to vacate the Property pursuant to s. 91ZZB of the Residential Tenancies Act, stating the reasons as the receivership and the intent to offer the Property for sale with vacant possession immediately after the termination date specified in the notice. Hooper did not vacate.
  • Subdivision had not occurred. The bank and Receivers did not consent to sale of the Purchased Area to Hooper.  As at 3 December 2021 the mortgage debt was over $1.1m.
  • Hooper commenced a proceeding seeking specific performance of the contract of sale and certain declarations. Parwan filed a Defence and Counterclaim.  Parwan also issued a Summons applying for summary judgment under the Civil Procedure Act ss. 61, 62 and 63 on certain aspects of its pleading, which effectively mirrored the relief sought by Hooper, a declaration concerning the lease, and alternative relief in the form of removal of the caveats.

Matthews AsJ made orders including for removal of the caveats –

  1. Although the appointment of the Receivers extended only to the Property and was not in respect of the whole company, they had standing to counterclaim and press the Application contained in the Summons in the name of the registered proprietor Parwan. Both the mortgage and s. 420 of the Corporations Act gave the Receivers broad powers. [31]-[36]
  2. Although the contract of sale was binding Hooper’s claim for specific performance turned on whether the Property could be subdivided and on whether the sale could be settled given the bank’s attitude and in particular whether it would discharge its mortgage. The weight of evidence was that because the Receivers and the bank did not consent to the sale Parwan was unwilling to, and could not effect, subdivision or transfer whereby it refused to perform its contractual obligations.  In such circumstances the remedy of specific performance would probably require supervision by the court, which was usually a reason not to grant specific performance.  Further even if Parwan took steps towards subdivision, its achievement was outside its control.  A further barrier to specific performance was that Parwan could not deliver clear title to Hooper by redeeming the mortgage, which had priority over Hooper’s interest as purchaser and the mortgage debt now exceeded the purchase price.  When the foregoing barriers, particularly impossibility of settlement because the mortgage would not be discharged, were combined there was no real prospect of specific performance. [57]-[65]
  3. There was a prima facie case of the interest claimed in the purchase caveat. On the balance of convenience –
    1. neutral factors were: (a) that, although the bank desired sale, no contract of sale to a third party yet existed; (b) Hooper’s claim that he remained in possession of the Purchased Area, which in light of the evidence was questionable; (c) possible VCAT enforcement proceedings by the local municipality, on which there was a paucity of evidence; (d) Parwan’s offer to pay the net proceeds of sale into court or a trust account pending determination of Hooper’s claims.
    2. Hooper’s proposed undertaking to pay the difference between the price for the Purchased Area and the mortgage debt did not affect the balance of convenience because it was ambiguous and failed to articulate relevant factors including Hooper’s capacity to pay.
    3. the balance of convenience favoured removal of the caveat because of strong evidence of fundamental barriers to specific performance (and so any remedy for breach of contract would be for damages in lieu of specific performance). [66]-[72], [75]-[79]
  4. Although there was a prima facie case of the interest claimed in the charge caveat Hooper would retain the protection of the charge even without the caveat, there being no evidence that it could not be satisfied out of net proceeds remaining after payment under the bank’s mortgage. Accordingly, the balance of convenience overwhelmingly favoured removal of this caveat on condition that the net proceeds of sale were paid into court or a trust account.  [81]-[83]
  5. Parwan was entitled to summary judgment on its application for a declaration that the Lease Agreement had been validly determined. [91]

BD78 Pty Ltd & Anor v FGK3GEN Pty Ltd & Anor [2022] VSC 361, Ginnane J (23 June 2022)

The facts were –

  • In August 2020 the plaintiffs agreed to sell land to the first defendant for $12.7m. The contract had not yet been settled.
  • The plaintiffs also borrowed $6.9m. from third parties and in September 2020 a mortgage securing that loan was registered.
  • On 5 October 2020 the plaintiffs and the first defendant entered a loan agreement under which the first defendant lent $1.9m. to the plaintiffs secured by an instrument of mortgage over the land which was only to be registered if there was an Event of Default (cl. 8.2(b)). The agreement:
    • permitted the lender to caveat over the land to record its equitable interest as mortgagee (cl 8.2(a));
    • defined “Repayment Date” as the earlier of settlement of the contract and termination of the contract for any reason other than breach of it by the lender;
    • because the land was on an unregistered plan of subdivision, in substance made settlement due 14 days after notice to the purchaser of its registration. If the plan was not registered by 31 August 2022 either party could end it before registration with refund of the deposit (Special Condition 14);
    • made interest payable on the Repayment Date unless the Loan and all other “Secured Money” was repaid on that date (cl. 3). The agreement defined “Interest Rate” and “Default Interest Rate”.
    • defined certain matters as an “Event of Default” and in cl. 10.1 stated “Effect of Event of Default”.
  • On 11 March 2022 the first defendant caveated over the land claiming an interest as mortgagee and stating the prohibition as “unless I/we consent in writing”.
  • The plaintiffs were in default under the registered mortgage and in May 2022 the mortgagee foreshadowed issue of a Callup Notice unless a definite payment date was stated.
  • On 17 June the first defendant served a Notice of Default alleging two Events of Default under the loan agreement, the first being a change of effective control of the borrower. The notice demanded repayment of $1.9m. with interest on that amount and on the “Secured Money” pursuant to cl 10(1) of the loan agreement.
  • The plaintiffs desired to refinance the first mortgage loan on 24 June and to repay the first defendant in return for withdrawal of its caveat. The plaintiffs applied under the Transfer of Land Act s. 90(3) for removal of the caveat, which they contended was preventing this refinancing.  The hearing commenced on 20 June.

Ginnane J held –

  1. As the first defendant’s mortgage was at least an equitable mortgage it had a caveatable interest. [5], [8], [17]
  2. An Event of Default, to at least a degree sufficient for this application, had been established namely a change of control in the shareholding of the borrowers. [16], [21], [27]
  3. The question of whether the plaintiffs could repay the loan amount of $1.9m. before the ‘Repayment Date’ had been overtaken by the service of the Notice of Default. Clause 3 made no provision for early repayment, even following a Notice of Default, and it was arguable that it had to be read with cl. 10 which mandated interest at the ordinary rate when early repayment occurred.  It was reasonably arguable that the plaintiffs were obliged to pay interest on $1.9m. but only at the ordinary rate of 5%. [16], [27], [28], [30]
  4. The first mortgagees had foreshadowed possible enforcement of their rights, which may prejudice both the plaintiffs and first defendant. Further, if the Notice of Default and demand for repayment had not been served, a Repayment Date only two months away (on 31 August 2022) may have been reached based on non-registration of the plan of subdivision, in which case the contract could have been terminated with no interest payable.  The caveat would accordingly be removed on condition that the plaintiffs repaid $1.9m. and paid interest at 5% ($169,758.56) into court (thereby giving the first defendant some security for additional claims for payment) to be released by agreement or court order.  As such security existed no undertaking as to damages by the plaintiffs was necessary. [31], [32], [34]
  5. Because the caveat was removed by court order the first defendant could not, by reason of the Transfer of Land Act s. 91(4), lodge another caveat in respect of its same interest under the loan agreement, but could have done so if the existing caveat had been withdrawn. [33]

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, November 22, 2022