Blog 103. Caveat survives complicated proceeding involving the Law of Contract, Trust and Misleading or Deceptive Conduct.

Glen v Sherwood & Ors [2026] VCC 668, Judge A. Ryan.

This case involves a caveat to only a minor degree. However it is a comprehensive survey of the legal principles engaged when, following representations alleged to the misleading or deceptive, money is contributed to a joint venture which breaks down.

The facts were –

In 2011 the first defendant (Sherwood), Woodland and Whittingham applied for a patent for a metal detection system. They assigned the patent to a company (Goldwing), of which they were directors. Patents were subsequently granted in countries including Australia.
A business venture of development and commercialization of this system, mineral exploration and processing of intellectual property was formed. In about 2014 a partner in Pricewaterhouse Coopers (PwC), Tierney, joined the venture.
In 2017 the third defendant Alluvial Mining Pty Ltd (Alluvial) was incorporated. Sherwood and Woodland were its co-directors and equal shareholders.
Subsequently, Sherwood’s acquaintance Doreian invested $135,000 into the venture.
In around early 2018 the plaintiff (Glen) was invited to invest in the venture in an amount to be determined by him. Sherwood asserted that Glen was also invited to be the lawyer for the business, but Glen denied this.
On 26 March 2018 Sherwood told Glen that he, Woodland, Tierney, Adams (another financial investor) and Doreian, were developing the venture, which was worth $25 m.; and that in return for any investment Glen would receive shares in the company conducting the venture commensurate with the amount of his investment and based on the agreed value of the company (the March representations).
On 28 March 2018 Alluvial obtained an exploration licence.
At meetings on 6 and 7 April 2018: according to Glen but denied by Sherwood, Sherwood said that Tierney, in his capacity as a partner at PwC, had valued the business at $25 m.; Glen made a file note noting this independent valuation but with a footnote “NB: Due Diligence – need to view at least a basic statement of valuation with summary of the reasons behind that type of value.” In fact, because he trusted Sherwood and Sherwood had said there was no written valuation, Glen did not view a valuation (nor had Tierney valued the business). He also did not ask Tierney about it and Tierney (having been told by Sherwood of the $25 m. valuation) never disavowed it.
Sherwood represented to Glen on or about April to June 2018, and in subsequent conversations including on 30 July 2018 and 4 October 2018, that as further investment in the business Doreian had agreed to invest the proceeds of an insurance claim due to her.
On 25 April 2018 Glen obtained a bank loan to invest in the venture.
On 1 May 2018 Glen emailed Sherwood and Woodland inter alia stating in substance that: he was willing to be involved in the group; he would take some equity, quantum as yet undecided; it was urgent to formalise a Heads of Agreement/Memorandum of Understanding setting out at least the basic tenets of the agreement between the group of six (Sherwood, Woodland, Doreian, Adams, Tierney and himself) the business structure proposed, a business plan, and its aims and objectives; and thereafter a formal Shareholders Agreement could be finalised incorporating these matters.
On 30 May 2018 Glen emailed Sherwood stating that he hoped to reduce to writing the relevant aspects of the “Strategic Business Plan” and joint venture arrangement, and providing a detailed checklist of issues on which Sherwood was to give instructions to finalise the joint venture.
The second defendant (Geotic) was registered on 27 July 2018. Its co-directors were Sherwood and Woodland and its sole shareholder was Alluvial.
On 3 August 2018 Glen transferred $50,000 to Alluvial, being the first of 9 transfers to it totalling $375,000.
On 6 August 2018 Sherwood and Woodland entered a contract on behalf of the venture to purchase a rural property (Property) for $293,000. Sherwood had earlier told Glen that it contained extensive gold resources which the venture would excavate.
On 5 October 2018 Glen at Sherwood’s request paid $293,000 to settle the purchase in the name of Geotic. Adams subsequently moved there, living as a manager rent free.
On 8 July 2019 Doreian signed an agreement acknowledging that she held two Victorian exploration licences on trust for Arum 79 Pty Ltd. Glen made a file note recording that Doreian was holding the licences on –

“behalf of the ‘group’ [and] that the ELs will perform part of the overall ‘assets’ of the group. That the group will manage the ELs [and] that Simone [Doreian] is the ‘caretaker’ of the ELs for the group”.

On 9 July 2019 the group of six signed a Memorandum of Understanding (MOU) dated 25 June 2019, drawn by Glen, setting out the “business structure and plan” and (in cl. 2.4(b)) obligations to be performed by Sherwood, Woodland and their respective corporate entities. Clause 2.4 included critical steps to be undertaken by Sherwood including incorporation of a holding company; finalization of a share sale agreement removing Whittingham; and the shares in all subsidiary companies be transferred to the holding company (in which Glen was to be issued shares).
On 3 September 2019 Glen obtained a bank loan, part being paid to Alluvial.
On 22 October Sherwood emailed other group members inter alia advising of discussions with another possible joint venturer, Rogers, on initial terms of a working position and share purchase within their group, to be legally documented, and that “the total group value position based on today’s agreement is in excess of one hundred million dollars.”
Glen gave evidence that Sherwood told him that Rogers was buying in at $1 m. for a 1% share, so valuing the new company at $100 m. Tierney agreed that, in the context of Rogers investing, a higher valuation of $100 m. was discussed. Sherwood’s evidence was that the uplift in value of $75 m. is “not straightforward, it’s not just Bob, it’s the whole thing that goes together”.
On 27 December 2019 Sherwood emailed Glen and Tierney that amounts received by 31 December 2019 would receive share allocation at the valuation of $25 m. but that subsequent amounts would be recorded against the new company value or returned.
On 30 December 2019 Glen made his 7^th payment to Alluvial, on, he said, the understanding that the “new company value” was $100 m. He made his last such payment on 6 January 2020. His investment totalled $688,000.
During 2022 Sherwood ceased to provide information or to account to Glen.
On 8 May 2023 two exploration licenses were granted to Doreian for the use and benefit of Sherwood, Geotic and Alluvial.
In July 2023 there was widespread group concern about lack of progress and of (particularly from Sherwood) information. Tierney gave evidence about Sherwood failing to complete accounting records which were a necessary precursor to incorporation of a new holding company. A letter of demand to Sherwood from Doreian’s solicitors on 4 August seeking a refund of her investment and notifying her withdrawal from the venture was met on 18 August with dispute from Sherwood’s solicitors accompanied by an offer of $135,000 by Rogers to Doreian for transfer to him of the exploration licences granted on 8 May.
In August 2023 Glen caveated over the Property, claiming an interest pursuant to an implied, resulting or constructive trust, decided to leave the venture and commenced this proceeding.
Tierney subsequently withdrew from the venture.
On 20 November 2023 a deed of settlement was executed between Doreian, Sherwood, Woodland, Goldwing, Alluvial, Alluvial Enterprises (a subsidiary of Alluvial) and Geotic. The terms of the deed with Doreian included that: the business relationship between Doreian, Sherwood and Woodland and the companies had irretrievably broken down (Recital F); Sherwood would arrange repayment of $135,000 to Doreian (paragraph 1) and on receipt Doreian would transfer her exploration licences to Rogers; and Doreian’s interest in the business would be transferred to a third party nominee.
Glen did not become aware of the deed of settlement with Doreian until after issue of this proceeding. Sherwood did not tell him that Doreian’s investment had been repaid with funds provided by Rogers or that exploration licences held by her on trust for the joint venture were transferred to Rogers.

Glen sued Sherwood, Geotic and Alluvial Mining. Geotic counterclaimed for removal of the caveat.

Section 18(1) of the Australian Consumer Law (ACL) provided that:

“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

Sections 4(1) and s4(2) of the ACL were deeming provisions to the effect that a representation as to a future matter was taken to be misleading under s. 18 if the representor did not have reasonable grounds for making it.

Judge Ryan held –

Contract.

Any alleged oral agreement between the parties did not amount to an immediately binding contract, for the following reasons –

- The discussions lacked clarity, were flexible, and critical matters were omitted. A reasonable business person in the position of the parties would consider that these were simply conversations concerning Glen’s possible investment and future steps. The requisite contractual intention was lacking because the essential terms of the alleged contract were uncertain and incomplete, including the precise terms and obligations of any other party and their identities,
- Post-contractual conduct may be relied upon to determine the existence of an oral contract. However, the conduct relied upon by the plaintiff, being first the objective in the MOU cl. 1 to “reflect the verbal agreements and discussions that have been occurring between the parties prior to the formalisation of this written agreement”, and being an email dated 13 August 2019 from Sherwood to Glen saying “…. just making the formal funding call as per the shareholder agreement”, could not be construed as an acknowledgment by the defendants of the existence of an earlier binding oral agreement in the terms pleaded;
- the parties’ subjective intentions were inadmissible as an aid to construction.

[8], [81]-[90]

Discussion by Judge Ryan of the criteria for formation of a contract. [76] – [80]

The MOU did not create an immediately binding agreement. It fell within the third category of Masters v Cameron (1954) 91 CLR 353 namely:

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases. … Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract” because –

1. the following text of the MOU leads to a construction that it was not intended to be immediately binding:
  1. the heading being “Memorandum of Understanding (Business Structure and Plan)”;
  2. Recital cl. 6 stated that the parties “are desirous of joining together” etc (indicative of an intention to take future steps as opposed to a presently concluded agreement) and “developing and progressing a range of business projects” and developing “Potentially further yet unidentified subsidiary businesses” (both of which lacked completion and certainty and fitted with the document’s description as a business plan);
  3. Clause 1 dealt with the “Objects of the Business Structure and Business Plan”, a primary objective being to “set out in a very broad and preliminary way a business plan description” and sub-paragraph (e) provided to “set out broadly” etc. Such wording suggested merely a business plan;
  4. Clause 3.13(b) referred to any further purchase of shares in the ultimate holding company at a value to be determined in accordance with the provisions of a document not yet drawn for a company not yet in existence;
  5. Clause 7 referred to proposed projects noting that the business “proposes to enter into specific projects”, ie a future intention or plan;
  6. Clause 8 stated that the “in principle” arrangements referred to herein were to be provided for in a formal shareholder’s agreement: the term “in principle” carried some weight, particularly absent any other wording in the MOU suggesting it was immediately legally binding;
2. the context in which the parties were operating. A reasonable business person would have understood that the parties wished to record the state of their negotiations and set out a business plan detailing future steps to implement the joint venture, particularly where an earlier joint venture between the inventors of the patent was unresolved and subject to finalising a proposed share sale agreement.

[8], [106]-[110]

Discussion by Judge Ryan of the construction of contracts. [92]-[97]

If the MOU had been a binding agreement her Honour would have found that its terms included cl. 2.4 and an implied term that each party would undertake all steps necessary to give effect to its provisions within a reasonable time. [113], [116]

If the MOU had been a binding agreement her Honour would have found that Sherwood breached cl. 2.4 because he either abandoned it or failed to undertake all necessary steps to progress the joint venture in a timely fashion. However, her Honour would not have found that he misused any sums from the Alluvial account, or that there was a breach related to Glen’s access to Alluvial’s bank account, and accordingly any terms related to this would not have been breached. [120]-[124]

Reliance damages were damages for wasted expenses incurred in anticipation of, and reliance on, the performance to a contract by another party. It was, however, insufficient that the plaintiff spent money in anticipation of, or reliance on, performance of a defendant’s contractual obligation; and that money was wasted or partly wasted after taking account of any benefit obtained by the plaintiff from the expenditure. It must also be shown that the money was wasted because of the breach of contract. In other words, the plaintiff would have recovered the money if that obligation had not been breached. [134]

Where the breach had resulted in (namely, caused or increased) uncertainty about the position of the plaintiff if the contract had been performed, then the discharge of the plaintiff’s legal burden of proof was facilitated by assuming (or inferring) in the plaintiff’s favour that, had the contract been performed, then the plaintiff would have recovered the expenditure reasonably incurred in anticipation of, or reliance on, the performance of the contract. The strength of this assumption or inference, and thus the weight of the burden placed on the party in breach to adduce evidence to rebut the inference in whole or in part, depended on the extent of the uncertainty resulting from the breach. [129], [135]-[136]

Assuming the defendants were in breach, there was uncertainty about the position of the plaintiff had the breach not occurred, ie because the business was not yet developed and commercialized its value and profitability remained highly speculative, and this gave rise to the facilitation principle. Applying that principle, the court should assume or infer that had the contract been performed Glen would have recovered the expenditure reasonably incurred in anticipation of its performance. Thus there was an increased burden on the defendants to adduce evidence to rebut the inference. They had not done so. Accordingly, if the MOU was a binding agreement breached by Sherwood her Honour would have found that Glen was entitled to reliance damages of $821,650.65, being the sum of $668,000 paid to the defendants and $153,650.65 paid by him in interest to borrow the sum paid to the defendants. [127], [138], [139], [140

Joint endeavour constructive trust.

The elements of a joint endeavour constructive trust were:

- a joint relationship or endeavour, in which expenditure was shared for the common benefit in the course of and for the purposes of which an asset is acquired; and
- the substratum of that joint relationship or endeavour had been removed or the joint endeavour prematurely terminated without attributable blame; and
- it would be unconscionable for the benefit of those monetary and non-monetary contributions to be retained by the other party to the joint venture.

[147]

Discussion by Judge Ryan of the law related to joint endeavour constructive trusts. [146]-[156]

There was a joint endeavour between the parties as regards the purchase of the Property. In reliance on the joint venture Glen paid the purchase price and invested a total of $688,000. As he had yet to receive any return on his investment he acted to his detriment in doing so. [158], [162], 163]

Three of the original six joint venturers (ie Doreian, Tierney and Glen) having left, the proposed joint venture outlined in the MOU between the six named participants had collapsed. No attributable blame causing the breakdown could be sheeted home to Glen. His decision to withdraw from the project was blameless having regard to the fact that by the time he decided to leave Tierney and Doreian had already left, and he had yet to receive any equity share or return on his investment. There was no hard evidence that the project was effectively underway and it was unlikely to be commercialised in the near future. [173], [175], [176]

Accordingly the defendants had not made good on the expectation they encouraged. [179]-[180]
It would be unconscionable for Geotic to retain the beneficial interest in the Property because –
1. Glen contributed the purchase price of the Property;
2. no other joint venturer contributed financially (Doreian did contribute $135,000 but had been repaid);
3. a payment by Adams recorded in the MOU long predated the formation of the joint venture;
4. of a dearth of evidence about the work of other joint venture parties and so it was difficult to assess their contributions;
5. the defendants retained the remaining assets of the joint venture;
6. retention by Geotic of its beneficial interest in the Property without having to account to Glen for his contribution towards the price, would give it an unintended and unconscionable windfall.

[189], [191], [192]

Having regard to the serious nature of conferring proprietary interests in persons other than the legal owner a constructive trust would not be imposed over property if other equitable remedies existed capable of doing full justice. [195]

A constructive trust in favour of Glen over the Property would not be the appropriate remedy, because an order for restitution of his payment to Geotic would sufficce to assuage Geotic’s conscience in equity. Orders imposing a constructive trust and transferring the Property would also entail the difficulty of non – parties being affected by them, including the joint venturers Adams (also residing there) and Woodland, and Rogers who said he had acquired exploration licences from Doreian and may also have purchased her interest in the joint venture. Proprietary orders would reduce the asset pool otherwise available to the remaining joint venture parties, who had a right to heard on this as a matter of procedural fairness, and for that reason alone a constructive trust would not be imposed and a transfer not be ordered. [197]-[199]

An additional reason for not imposing a constructive trust over the sum of $375,000 paid by Glen to Alluvial was that it had been expended, was no longer identifiable and Glen had not provided a schedule of traceable proceeds. Equity would not impose a constructive trust over dissipated or untraceable funds. [201]-[202]

Accordingly on the joint endeavour trust claim Glen was entitled to restitution of the sums he invested by way of equitable compensation because:

1. he paid the sum of $688,000 as contributions towards the joint venture;
2. the consideration for his investment had wholly failed;
3. the joint venture had broken down prematurely with no attributable blame on his part;
4. there were no applicable contractual provisions dealing with the treatment of the parties’ contributions in this event;
5. it would be unconscionable for the defendants to retain the benefit of Glen’s contributions because this could not have been intended in these circumstances.

[8], [174], [197], [199], [200], [203], [204]

No resulting trust.

The presumption of a resulting trust arose where A advanced money used to purchase property held in the name of B. The law presumed that A intended to maintain a beneficial interest over that property. This presumption could not, however, prevail over the actual intention of that party as established by the overall evidence. [206], [207], [209]

Glen’s payment of $293,000 used to purchase the Property attracted the presumption of resulting trust. However the presumption was rebutted by the fact that this contribution was made by Glen on the understanding that the Property was to be acquired for the benefit of the joint venture as a whole and not for him personally. It was a part of Glen’s overall investment. [208]-[211]

Were the payments of $375,000: subject to a trust; or loans; or (other than pursuant to a joint endeavour constructive trust) did they attract the remedy of equitable compensation or damages?

The payments of $375,000 were not advanced by Glen pursuant to a trust in his favour. They were invested for the benefit of the joint venture as a whole as opposed to for Glen personally, ie invested for business purposes, not as funds to be held separately or returned. Further, it was impossible to create a trust where the subject moneys had been expended, in this case in the course of developing of the business venture. [212]

Nor were the funds loans. [212]

Nor was Glen entitled (other than pursuant to a joint endeavour constructive trust) an order for damages or equitable compensation in the sum of $375,000, being in effect reimbursement of the moneys he paid to Alluvial which were applied towards expenses incurred by the joint venture. [213], [214]

Misleading or deceptive conduct.

The four steps in determining whether s. 18 of the ACL was breached were –

1. Identifying with precision the conduct said to contravene s 18(1).
2. Whether it was in trade or commerce.
3. Considering what meaning the conduct conveyed to its intended audience; and whether, if the pleaded conduct was said to amount to a representation, it was established by the evidence.
4. Whether the conduct, in light of the meaning it conveyed, was misleading or deceptive or likely to mislead or deceive, ie whether it had the tendency to lead into error. Whether conduct was misleading or deceptive was a question of fact to be determined objectively by a consideration of the impugned conduct in the circumstances in which it occurred.

The third and fourth steps required the court to characterise, as an objective matter, the conduct viewed as a whole and its notional effects, judged by reference to its context, on the state of mind of the relevant person or class of persons. That context included the immediate context being relevantly, all the words in the document or other communications and the manner in which those words are conveyed—not just a word or phrase in isolation—in the broader context of the relevant surrounding facts and circumstances.

[216]

Discussion by Judge Ryan of the law related to misleading or deceptive conduct under s. 18 of the ACL. [216]-[223]

By reason of ss. 4(1) and 4(2) of the ACL the representor (here Sherwood) was deemed not to have reasonable grounds unless evidence is adduced to the contrary. If such evidence was adduced the representee then had to prove that the grounds relied upon were not reasonable. The expression “reasonable grounds” meant that at the time the representation was made the representor had facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation. This was assessed objectively not be reference to the maker’s subjective state of mind. [218]

In an action for damages under s. 236 of the ACL the plaintiff must establish that the contravening conduct caused that person’s loss, ie only that the contravention was a, not the sole, cause of the loss and damages sustained. The plaintiff must show reliance on the conduct. [219]

Discussion by Ryan J. of the concepts of causation and reliance. [220]-[223], [280], [286]

As to compensation –

- In most cases the appropriate measure of loss caused by misleading and deceptive conduct was the measure of loss for the tort of deceit.
- The existence of a compensable loss and quantum was ascertained by inquiring whether and by how much that person was worse off as a result of acting or refraining from acting on an inducement of false representations by the other person.
- The amount of damages may be reduced under s236 if the person claiming contributed to the loss or damage by failing to take reasonable care.

[219], [221], [223]

The March representations were genuine representations as to the then state of affairs and not misleading or deceptive given the circumstances in which they were made. [227], [274]

The representation by Sherwood to Glen on or around 6 April 2018 that Tierney had valued the business at $25 m. was untrue and thereby Sherwood engaged in misleading or deceptive conduct. It was made during the course of commercial negotiations relating to the investment and structure of the proposed joint venture business and so in trade or commerce. Glen relied on this representation: he made the decision to invest in the joint venture business in part because of this representation. His negligence, if any, did not sever the causal link. [247], [248], [275], [276], [279], [281], [293], [294]

The representation by Sherwood to Glen concerning Doreian agreeing to invest the proceeds of an insurance claim due to her was about a future matter, being her potential intention to invest when she received the proceeds. However, Sherwood did have reasonable grounds for making this representation and accordingly this conduct was not misleading or deceptive. [254], [273]

The representation by Sherwood that Rogers had agreed to invest $1 m. in the business, and so the business would be worth $100 m., was untrue and so misleading or deceptive as he did not agree to invest in the business at all. Glen relied on this representation in investing further moneys, being keen to take up shares at the prior valuation of $25 m. [278], [282], [293]

The representations by Sherwood or around 27 December 2019 as to investment before 31 December 2019 attracting shares at a proportion compared with a valuation of $25 m., and subsequent investment attracting shares at a proportion compared with a valuation of $100 m. were made during the course of commercial negotiations relating to the investment and structure of the proposed joint venture business and so in trade or commerce. Glen relied on them in deciding to invest. His negligence, if any, did not sever the causal link. [266]-[267], [279], [293], [294]

Where money was paid as a consequence of misleading conduct, the loss so suffered included not only that money but also the cost of borrowing it or the loss from its investment. Judgment would accordingly be entered against Sherwood for damages of $688,000 for misleading or deceptive conduct. [8], [295]

Caveat

Glen had a proper basis for lodging the caveat to protect his equitable interest in the Property. [8], [296], [297]

Philip H. Barton

Owen Dixon Chambers West

Thursday, October 22, 2026

Blog 102. A Federal Court case concerning a caveat, equitable priorities and much else besides.

Credit Suisse AG v Gu (No 3) [2026] FCA 439, Cheeseman J.

This is the first Blog covering a Federal Court case, gratefully brought to my attention by a follower of this Blog. I use the word “gratefully” advisedly – as I traversed its 476 paragraphs I did not always experience this feeling! I occasionally reflected that, having done sundry misdeeds and contemplating whether to stop entirely, Macbeth said –

“I am in blood Stepp’d in so far, that, should I wade no more, Returning were as tedious as go o’er.” (Act 3, Scene 4)

This case is a long priority contest between three parties covering multiple grounds with a minor caveat element. No Victorian cases are cited, but the principles enunciated apply equally in Victoria. This Blog has been very difficult to format within the limits of WordPress, particularly in the case of the subsections of s. 121 of the Bankruptcy Act, and my friend Frank, who is responsible for putting the Blog into cyberspace, says it has taken 5 years off his life.

The facts were –

In 2017 Mr Gu entered a contract to purchase a residential property in Sydney (the Property) for $10 m. with a $1 m. deposit.
In March 2017 Credit Suisse agreed to advance $6 m. to Gu for this purchase.
At that time Gu was a director of i-Prosperity Pty Ltd (IPPL). On 3 and 15 March and 13 April monies were transferred from IPPL’s accounts into Gu’s HSBC account (the First, Second and Third IPPL Sums). On 18 April $3.2 m. was paid from that account to a solicitor’s trust account. That day $500,000 was also transferred from IPPL into that trust account (the Fourth IPPL Sum). On 21 April trust monies in the sum of $3,654,987.14 were applied by those solicitors towards the purchase price and acquisition costs.
The sale settled. On or about 3 May 2017 Gu became registered proprietor of the Property subject to Credit Suisse’s mortgage. The mortgage provided that the mortgagee’s consent was required before any further interest in the property was granted (cl. 5.7(c)).
Subsequently, $280,000 of IPPL’s funds were paid to Credit Suisse as follows: $200,000 on 12 May 2017, $30,000 on 5 July 2019 and $50,000 on 22 January 2020 (the Fifth, Sixth and Seventh IPPL Sums). Credit Suisse treated those sums as credits to the current account associated with the mortgage facility, applying them to meet interest due.
In June 2019 a series of related agreements involving Gu and Great Lands Investment Pty Ltd (Great Lands) were made. One was a loan agreement dated 28 June by which it lent him $3 m. repayable after two months secured inter alia by an unregistered mortgage over the Property, as to which a caveat was lodged that day. The loan agreement provided for a lower interest rate of 2% per month in the ordinary course, but in cll. 5.4, 5.5 and 5.7(a)(ii) stipulated a higher interest rate of 4% per month upon default, with compounding and capitalisation in the default regime.
Within Great Lands Mingjie (Jason) Zhang had authority to act in relation to this loan including in relevant discussions with Gu. IPPL on behalf of Gu paid Jason Zhang $700,000 on 20 September 2019 and $500,000 on 6 February 2020 (the Jason Zhang payments).
On 10 March 2020 four persons (the Hu Parties) sued IPPL and another company seeking repayment of monies invested pursuant to a convertible debenture arrangement. The Hu Parties obtained a freezing order for $5,750,000 against the defendants.
On 15 April 2020 this proceeding was settled on terms including payment by the defendants of an agreed sum. Following non-payment the Hu Parties obtained judgment on 14 May 2020 for $5,761,972.60. (the First Judgment Debt).
The parties to this litigation then negotiated during which Gu proposed that i‑Prosperity Capital Management Pty Ltd (IPCM) grant security over its assets in the Hu Parties’ favour. Their solicitor responded by seeking particulars of those assets and their value. The Hu Parties generally interrogated the financial information provided by IPPL and Gu, including proposed security, and conducted a title search disclosing the registered mortgage and the Great Lands caveat.
A draft Deed of Guarantee and Indemnity (the Hu Deed) between the Hu Parties (described as the Beneficiaries), Gu and IPCM (described as the Guarantors) and IPPL was circulated. On 1 June Gu’s solicitor sought to delete cl. 7.2 of the draft while otherwise preserving the broader package of the proposed deal. The Hu Parties’ solicitor refused this deletion, but that solicitor’s contemporaneous communications revealed that the caveat’s purpose was to provide the most uninvasive form of security pending payment on 30 June 2020, when the caveat would be removed immediately.
On or about 2 June 2020 the Hu Deed was executed. It recited or provided –
- the Hu Parties’ concern that the First Judgment Debt would be unpaid and their desire to pursue further relief (Recital D);
- for a standstill agreement lasting until 30 June 2020 (Recital E);
- that Gu and IPCM guaranteed payment of the First Judgment Debt by 30 June, indemnified the Hu Parties against loss from non-payment, and undertook not to dissipate assets pending payment (cls. 1.1, 5, 8);
- Clause 7, headed “Security” provided:

“7.1 Security for Beneficiaries
The Beneficiaries agreeing to the Guarantee Proposal … is subject to and conditional upon I[P]CM entering into a general security deed under which I[P]CM agrees to grant a security interest in and over all of the I[P]CM’s … property to the Beneficiaries …

7.2 Caveat
Gu hereby grants to the Beneficiaries a caveatable interest in the [Property] … and consents to the Beneficiaries lodging and maintaining a caveat on the title to the Property until … the Judgement Debt has … been paid and discharged in full.

7.3 No security for the Guarantors
The Guarantors have not taken, and will not take, security from the Debtors for or in consideration of the Guarantors assuming their obligations …”

The Hu Parties agreed to forbear from enforcement of the First Judgment Debt, or commencing certain proceedings until after 30 June 2020.

On or about 3 June the Hu Parties caveated, consistently with cl. 7.2.
In mid 2020 IPPL went into liquidation.
The First Judgment Debt was not paid by 30 June 2020. The Hu Parties sued Gu and IPCM as guarantors and on 21 August 2020 obtained judgment against Gu for $5,929,897.86 (the Second Judgment Debt).
In early 2021 the Property was sold by receivers appointed by Credit Suisse. Over $5.5m remained after they and it were paid out (the Surplus Funds). This proceeding concerned entitlements to those funds.
On 10 August 2021 Gu became bankrupt.
On 17 January 2022 a Deed of Assignment and Sale was executed by which Gu’s trustee in bankruptcy assigned to the Hu Parties the trustee’s right to pursue claims under ss. 120 and 121 of the Bankruptcy Act against Great Lands and others.
On 28 January 2022, the Hu Parties’ solicitor gave notice of this assignment.

Section 121 of the Bankruptcy Act provided (omitting headings) –

“(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:“(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a) the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and

(b) the transferor’s main purpose in making the transfer was:

(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or

(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.

…

(2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.

…

(3) Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.

…

(4) Despite subsection (1), a transfer of property is not void against the trustee if:

(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and

(b) the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and

(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.

…

(4A) For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:

(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or

(b) having kept such books, accounts and records, has not preserved them.

…

(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

…

(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.

…

(9) For the purposes of this section:

(a) transfer of property includes a payment of money; and

(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

Section 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy)) permitted the trustee in bankruptcy to assign a right to sue conferred by the Act and s. 100-5(4) provided that if such a right is assigned, a reference in this Act to the trustee in relation to the action was taken to be a reference to assignee.

Legal issues raised were –

Whether clause 7.2 of Hu Deed created an equitable charge and if so what amounts it secured.
Whether the Great Lands mortgage was void against Gu’s trustee in bankruptcy, and by assignment the Hu Parties, by reason of s. 121(1) of the Bankruptcy Act, including whether Great Lands established the good faith defence under s. 121(4).
The Great Lands mortgage being void against the Hu Parties, what consideration must be repaid to it by them under the Bankruptcy Act s. 121(5) and s. 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy))?
Whether the Higher Interest Rate clauses in the Great Lands loan were void and unenforceable as a penalty.
If the Great Lands mortgage had remained operative, would the Jason Zhang payments have reduced Gu’s debt to Great Lands under its loan?
If the Great Lands mortgage had remained operative, would it have covered costs?
Whether, on the assumption that Great Lands had a surviving secured claim under the its loan and mortgage, these should be denied enforcement by reason of People’s Republic of China (PRC) law.
The legal principles for determining questions related to movement of monies.
Was IPPL the beneficiary of a purchase monies resulting trust?
Was IPPL the beneficiary of a constructive trust based on Black v S. Freedman?
Was IPPL the beneficiary of a constructive trust arising from Gu’s breaches of fiduciary or directors’ duties?
Was IPPL subrogated to the rights formerly held by Credit Suisse by reason of the Fifth, Sixth and Seventh IPPL Sums?
Was IPPL subrogated to Great Lands’s position by the Jason Zhang payments?
Who between the Hu Parties and Great Lands had priority to the Surplus Funds?
Who between the Hu Parties and IPPL had priority to the Surplus Funds?
Who between IPPL and Great Lands had priority to the Surplus Funds?

Cheeseman J. held –

Whether clause 7.2 of Hu Deed created an equitable charge and if so what amounts it secured.

Whether cl. 7.2 of the Hu Deed created an equitable charge or other proprietary security interest, or merely the right to caveat, was a question of construction to be determined objectively by reference to its text, context and purpose, requiring a reading of the instrument as a whole. Relevant considerations included the presence or absence of the familiar language of charge or mortgage, the place of the clause within the instrument, the evident commercial purpose of the transaction, and whether the clause was directed only to the practical support of a caveat or to conferring a present security interest.
1. In favour of an equitable charge or other proprietary security interest was:
  1. the words of present grant in cl. 7.2;
  2. the heading “Security”;
  3. the linkage between the caveat and payment in full of the First Judgment Debt;
  4. the commercial purpose of the Deed as a forbearance and security arrangement. However, those considerations were not determinative: construing a commercial instrument did not require that every phrase be forced to perform independent proprietary work – the starting point remained the legal effect actually produced by the text read as a whole, not the avoidance of semantic redundancy. [58], [59]
2. In favour of a mere right to lodge and maintain a caveat was:

1. 1. Clause 7.2 did not employ the familiar language of charge or mortgage; nor expressly confer any right of realisation. In the setting of a solicitor-drafted commercial deed concerned at least partly with the provision of security, those omissions were significant and enhanced by the immediate adversarial setting of the Deed as a negotiated standstill. Clause 7.2 was capable of operating merely as employing a caveat as a practical restraint on dealings with the Property;
  2. The text and structure of cl. 7. Clause 7.1 expressly required IPCM to enter into a general security deed. By contrast, cl. 7.2 did not require Gu to grant security in those terms. Clause 7.3 reinforced that contrast in the way in which the subclauses of cl. 7 were framed;
  3. The commercial setting and course of negotiations. The Hu Parties were insisting on a package of protections rather than merely personal promises of payment. They were being asked to forbear until 30 June but continuing to seek information about the proposed security and unprepared simply to rely on Gu’s assurances of payment or of no undisclosed dealings. A caveat would impede dealings with the Property thereby reducing their informational disadvantage;
  4. The broader structure of the Deed. Read as a whole it was apt to establish a regime of guarantees, forbearance and preservation of assets pending payment. In that setting, cl. 7.2 was more naturally understood as part of that preservation regime rather than as conferring a proprietary security interest;
  5. The existence of the Credit Suisse mortgage and in particular the requirement in its cl. 5.7(c). [42], [60]-[72], [75]

In conclusion, the correct interpretation of cl. 7.2 was (b). [36], [38], [39], [74], [76], [470]

If, however, the Hu Deed did create an equitable charge, it would, on its proper construction, secure all amounts for which Gu became liable to the Hu Parties under it including the First Judgment Debt, interest and liabilities arising under the indemnity in cl. 5. Although the contractual liabilities under the Deed merged in the Second Judgment, such that the Hu Parties could not again sue on the underlying causes of action, the security was not lost by that merger while the judgment remained unsatisfied. The charge would continue to secure Gu’s liabilities as crystallised in the Second Judgment. [32], [81]-[87]

Whether the Great Lands mortgage was void against Gu’s trustee in bankruptcy, and by assignment the Hu Parties, by reason of s. 121(1) of the Bankruptcy Act, including whether Great Lands established the good faith defence under s. 121(4).

As to the challenge by the Hu Parties to the Great Lands mortgage based on s. 121(1) of the Bankruptcy Act:
1. For the purposes of s. 121, the grant of a mortgage or charge may constitute a transfer of property. The Hu Parties carried the onus of establishing that it was void under s. 121(1); [97], [98], [103]
2. The Hu Parties could not, by force that section alone, succeed to the position of a mortgagee or other proprietary claimant to the Surplus Funds. Rather, the statutory question was whether that mortgage was void against the trustee and, if so, whether the trustee’s statutory right to recover property or obtain restitution had been validly assigned to the Hu Parties and may now be enforced by them; [99]
3. The requisite purpose of the transferor may be established directly from the facts and circumstances of the transaction, or indirectly by operation of statutory presumptions; [104]
4. Establishment of insolvency, or impending insolvency, bore directly upon the purpose inquiry under s. 121(1); [105]
5. Great Lands having conceded that Gu was insolvent or about to become so when its mortgage was granted, the presumption in s. 121(2) applied and Gu’s main purpose in granting the mortgage was taken to be that described in s. 121(1)(b). The Great Lands mortgage was accordingly, subject to it establishing a good faith defence, void against the Hu Parties pursuant to s. 121(1); [107]-[108], [198], [471]

As to whether Great Lands established its good faith defence under s. 121(4) –
1. The transferee bore the onus of establishing each element in ss. 121(4)(a), (b) and (c); [109], [114]
2. The requirements in ss. 121(4)(b) and (c) were expressed in objective terms. The statutory question was not exhausted by the transferee’s assertion of its subjective belief. The inquiry was whether, on the facts known to the transferee at the time, the transferee proved that the relevant inference was not one that it could reasonably draw. This prevented the defence from succeeding by reason of the transferee’s wilful blindness, but it may be possible, in certain circumstances, for the defence to succeed even in the case of the transferee’s honest ineptitude; [119]
3. In applying ss 121(4)(b) and (c), the ordinary principles for drawing of inferences from proved facts applied. Where direct proof was unavailable, a reasonable and definite inference on the balance of probabilities may be drawn from proved facts, not being a matter of conjecture, guesswork or surmise. In the case of a corporate transferee, the inquiry proceeded by reference to the knowledge of the natural persons who had acted on its behalf in negotiating, arranging or implementing the transaction, applying ordinary principles of attribution; [120]-[121].
4. As to whether Great Lands as the transferee, had established the element of value for the purposes of s.121(4)(a) –
  1. The property transferred was the mortgage itself, ie, the proprietary interest granted over the Property to secure the $3 m. advanced not merely a chose in action to recover a fixed principal sum. It was a proprietary security interest securing a bundle of monetary rights defined by the Great Lands transaction documents, including contingent and accruing interest liabilities; [125]
  2. The term “consideration” imported its ordinary legal and commercial meaning; [129]
  3. Where, as here, the mortgage secured an expanded and potentially escalating set of liabilities, including interest liabilities, the market value of the proprietary interest transferred could not simply be equated with principal alone. It secured liabilities beyond the $3 m. advanced. The same conclusion followed from the Great Lands Loan. Great Lands had failed to discharge its onus under s. 121(4)(a). [133], [135], [136], [162]
5. Great Lands failed to discharge its onus under s. 121(4)(b). The proscribed purpose was reasonably inferable from facts known to it; [153], [156], [157], [162]
6. Great Lands failed to discharge its onus under s. 121(4)(c). Gu’s insolvency or impending insolvency was reasonably inferable at the time of the transfer. [158]-[161], [162].
7. The defence under s. 121(4) accordingly failed. [162], [198], [471]

The Great Lands mortgage being void against the Hu Parties, what consideration must be repaid to it by them under the Bankruptcy Act s. 121(5) and s. 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy))?

As to the consideration to be repaid to Great Lands under s. 121(5) and s. 100-5 of the Insolvency Practice Schedule:
1. Great Lands bore the onus of proving the value of the consideration to be refunded; [167]
2. The Jason Zhang payments were accepted and treated by those concerned as being on account of Gu’s indebtedness under the Great Lands loan, and not as partial redemptions of an investment by Zhang. There was a binding arrangement to this effect – any contemplated written instrument was no more than a fuller record of an arrangement already concluded and implemented (ie this was not in the “third class” described in Masters v Cameron). Accordingly they must be brought to account in determining the refund; [186], [187]
3. As to the content of that arrangement in allocating those loan repayments between principal and interest, Zhang and Gu were proceeding on the footing that the relevant interest provisions were those in the Great Lands loan, including the higher interest rate, whereby the payment of $700,000 would comprise $200,000 of interest and $500,000 of principal and the payment of $500,000 would comprise $450,000 of interest and $50,000 of principal. However (see below) the higher-rate default provisions were void as penalties, entailing adjustment of the parties’ agreed allocation. Thus the excess amounts would be brought to account instead as reductions of principal, and so the payment of $700,000 would reduce principal by $532,328.77 and the payment of $500,000 would reduce principal by $274,461.61; [188]-[192]
4. With this gross reduction of principal by $806,790.38 the amount to which Great Lands was entitled was $2,193,209.62 being the amount equal to the value of the consideration of $3,000,000 given by Great Lands for the transfer avoided, less $806,791 repaid. [193], [199], [471]
In giving effect to this statutory entitlement the relief to which Great Lands was entitled would be moulded to avoid double recovery and ensure that it did not both retain the benefit of those payments and obtain a refund of the same value. This remedial outcome followed from the absence of any surviving proprietary security interest held by either Great Lands or the Hu Parties in the Surplus Funds. [194]
The amount to which Great Lands was entitled under s. 121(5) did not include any interest possibly recoverable by Great Lands if it had enforced its personal rights under the loan, rather than receiving the statutory repayment under s. 121(5). Interest was not payable on the amount due under s. 121(5), nor under s. 51A of the Federal Court of Australia Act 1976 (Cth). [196]-[197], [199]

Whether the Higher Interest Rate clauses in the Great Lands loan were void and unenforceable as a penalty.

A provision requiring payment upon default was not penal merely because engaged by breach. The question was whether the stipulated consequence was out of all proportion to, or exorbitant or unconscionable having regard to, the legitimate interest which the provision was designed to protect. A clause increasing the rate of interest on default, or one providing for compound interest, was not necessarily penal. The inquiry was fact specific. [204]
The higher interest rate clauses were void and unenforceable as a penalty. The combined effect of the increase from 2% per month to 4% per month, plus compounding and capitalisation upon default, imposed a substantially more onerous liability than before default, and Great Lands did not establish a legitimate interest justifing it. The consequences were out of all proportion to, or exorbitant or unconscionable having regard to, Great Lands’ legitimate interest in repayment which the provisions were designed to protect. [205], [209]

If the Great Lands mortgage had remained operative, would the Jason Zhang payments have reduced Gu’s debt to Great Lands under its loan?

These payments were to be brought to account in reduction of Gu’s debt to Great Lands under its loan. [212]

If the Great Lands mortgage had remained operative, would it have covered costs?

Costs properly proved to be secured by the Great Lands mortgage would be recoverable. [213]

Whether, on the assumption that Great Lands had a surviving secured claim under its loan and mortgage, these should be denied enforcement by reason of People’s Republic of China (PRC) law.

The arrangements whereby Great Lands drew the funds lent to Gu did not involve the movement and use of RMB (the official currency of the PRC) funds in China in a manner engaging PRC foreign exchange controls and related provisions of PRC law: ie the proper characterization of the transaction did not involve the movement and use for the purpose of effecting what was, in substance, the provision of value to Gu in Australia outside the ordinary channels contemplated by such controls. The relevant documents recorded two distinct loan agreements, only one being the Great Lands loan. There was no applicable PRC civil law illegality, nor any basis in public policy or clean hands, for refusing enforcement of the Great Lands loan or mortgage. The transactions were also not tainted by PRC criminal law. [252], [253], [257], [260]-[262]

The legal principles to be applied in determining questions related to movement of monies.

The Court was required to determine questions related to the movement of monies. The following principles applied:
1. Factual issues were to be determined by reference to the whole of the evidence bearing upon the movement, application and character of the relevant monies, including the agreed facts, the contemporaneous banking records and solicitors’ trust account records, the witness evidence concerning those records, and the later accounting and ledger materials.
2. The inquiry was one of inference from the proved facts and the documentary record considered as a whole. Where direct proof was unavailable, factual findings were possible by inference from proved facts, including contemporaneous documents, but the inference must be a reasonable and definite inference on the balance of probabilities and not a matter of conjecture, guesswork or surmise; it was insufficient that the evidence permitted competing inferences of equal probability.
3. Primary recourse should ordinarily be had to any available contemporaneous documents, and findings should if possible be reasoned from contemporary materials, objectively established facts and the apparent logic of events rather than from demeanour alone.
4. To the extent that the competing characterisations include an allegation of misappropriation or other serious wrongdoing, the evidence must be scrutinised with appropriate care before such an inference was drawn, consistently with Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336, as reflected in s 140 of the Evidence Act 1995 (Cth). This approach did not alter the standard of proof, but directed a court not lightly to make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of serious wrongdoing.
5. Later bookkeeping descriptions and ledger labels were relevant, but not conclusive of the underlying legal character of a transaction; their weight depended upon their provenance, consistency and objective reliability.
6. In particular, to characterise a payment as a loan it was necessary to identify objective facts supporting the conclusion that the payment was made on terms for repayment. The essence of a loan was an advance of money coupled with an obligation of repayment. Neither a formal written loan agreement nor an agreement for interest were essential. But nor did the mere use of expressions such as “director loan”, without more, establish a concluded loan arrangement.
7. Where, as here, monies passed through an intermediate mixed account before transfer to the solicitors’ trust account, the tracing inquiry was to be undertaken by reference to orthodox equitable principle and not by treating later ledger classifications as dispositive. [275]-[278]

Was IPPL the beneficiary of a purchase monies resulting trust?

1. Funds sourced from IPPL were applied in the acquisition of the Property;
2. Those funds were not advanced to Gu under a concluded loan agreement;
3. The passage of funds through the Gu’s account did not alter their character as IPPL funds applied toward the acquisition. This conclusion accorded with orthodox tracing principles for trust money passing through a mixed account. If allocation of any deficiency within a mixed trust fund as between competing trust claimants was in question, there would be proportionate distribution rather than a first-in, first-out application of the rule in Clayton’s Case. [169], [176], [193].
4. Later accounting records and a ledger reclassification exercise did not reliably reflect the legal character of the underlying transactions at the time of payment.
5. Accordingly, with the qualification that $20,000 was withdrawn from Gu’s account after deposit of the First IPPL Sum and not applied toward the acquisition, the First to Third IPPL Sums formed part of the $3.2 m. transferred from Gu’s account to the solicitors’ trust account on 18 April 2017, and the Fourth IPPL Sum was also paid directly into that trust account that day. The total of IPPL Funds traced into the acquisition of the Property was $1,045,246.14. [337]-[341], [349]

1. Where property was acquired in the name of one person with money provided by another, equity may presume a resulting trust; rebuttable by evidence that the provider intended that the recipient take a beneficial interest, or that the money was provided on some different basis (eg gift or loan). The critical inquiry was the actual intention of the provider at the time of the purchase, objectively ascertained. The relevant evidence included the acts and declarations of the parties before or at the time of the purchase, or so immediately thereafter as to form part of the transaction, and the provider’s intention at the time may be proved by admissible evidence directed to that question.
2. The presumption was not displaced by material that was merely neutral, equivocal, or otherwise incapable of demonstrating an intention inconsistent with beneficial acquisition.
3. If the monies were provided on a footing inconsistent with beneficial acquisition, no resulting trust arose merely because they were later applied in the purchase.
4. Costs incidental to the acquisition may be treated as part of the relevant contribution.

[346]-[348], [352]-[354]

Subject to the deduction of $20,000, the First to Fourth IPPL Sums were contributions to the price in the requisite sense. There was insufficient evidence to displace any presumption of a trust. Accordingly Gu held the Property pursuant to a purchase money resulting trust for IPPL to the extent of $1,045,246.14 and any traceable accretions to that amount, reflected in the Surplus Funds. [349]-[351], [353], [354], [472]

Was IPPL the beneficiary of a constructive trust based on Black v S. Freedman?

A constructive trust based on Black v S. Freedman [1910] HCA 58; 12 CLR 105 arose where money had been stolen. It attached immediately to the money and adhered to it and its traceable product. The equitable obligations arose at the time of theft or, in the case of a volunteer recipient (regardless of notice), upon acquisition of knowledge. The trust was institutional rather than remedial. [272], [364]-[366]
The said funds of $1,045,246.14 were misappropriated by Gu from IPPL, not lent, given or having a consensual basis entitling him beneficially to retain or use them. Accordingly to this extent a constructive trust of the Black v S. Freedman kind existed. [368], [369], [372], [373], [374], [472]

Was IPPL the beneficiary of a constructive trust arising from Gu’s breaches of fiduciary or directors’ duties?

As a director of IPPL Gu owed fiduciary duties to it under ss. 180, 181 and 182 of the Corporations Act. However a mere breach of fiduciary or statutory duty did not establish that the impugned property or its traceable proceeds were held on constructive trust for the company. Such a breach may only give rise to a right in equity to impeach the transactions and obtain personal or ancillary equitable relief – a mere equity or other personal equitable claim, such as an account of profits or equitable compensation, not a proprietary interest.

[264], [271], [273], [274], [357], [380], [382]-[384]

If the facts found did not support a purchase money resulting trust or a Black v S. Freedman constructive trust, Gu’s breaches of fiduciary and statutory duty would not have given rise to an immediate institutional constructive trust. On that conditional footing, and treating the impugned payments as dealings effected by Gu acting within the scope of his authority to cause IPPL to make payments, albeit in breach of duty, those dealings were at most voidable, with IPPL having a mere equity to impeach the transactions or obtain other equitable relief. [386]

Was IPPL subrogated to the rights formerly held by Credit Suisse by reason of the Fifth, Sixth and Seventh IPPL Sums?

As to subrogation –
1. Subrogation was an equitable remedy by which a person who had discharged, in whole or in part, a secured debt owed by another may be treated in equity as standing in the position of the creditor, to the extent of discharge. In a general sense, it was the process by which one party was substituted for another so that the former may enforce the latter’s rights against a third party for that party’s own benefit. The remedy was not confined to a single fixed category but was fashioned by reference to the particular circumstances and the nature of the unconscionability arising from retention of the payment without recognition of the payer’s position; [388]
2. Where an existing security was discharged, the equitable foundation of subrogation was unconscionability not unjust enrichment. It was unconscionable for a mortgagor, or those claiming through the mortgagor, to treat the payment as simply discharging the encumbrance, rather than preserving the benefit of the security for the person whose funds discharged the debt. A presumption existed that a third party discharging a mortgage intended to keep it for its own benefit, rebuttable by objective circumstances that the payment was made on some other basis, including as an unsecured advance; [389]-[390], [401]
3. Subrogation may also be available if funds were applied under a defective transaction, or in circumstances defeating the position of the person whose money was used. Relief in these circumstances did not depend upon proof of payer subjectively intending to take an assignment of the security but upon whether, absent subrogation, it would be unconscionable for the defendant to deny the proprietary interest claimed; [391]
4. The subrogated party being treated in equity as standing in the position of the original secured creditor, the original charge was not necessarily assigned or kept alive for all purposes, but equity regulated the parties’ legal relations as if the benefit of the security had been preserved and assigned to the payer to the extent necessary to prevent unconscionability. Equity did not treat the subrogated party as having acquired a wholly new interest at the time of payment, but treated the existing security as continuing for such party’s benefit, so enjoying to the extent of discharge the benefit of the pre-existing security and its priority. [392]

The payments from its funds were applied in reduction of Gu’s indebtedness under the mortgage and it was presumed that IPPL intended to keep the Credit Suisse mortgage alive for its own benefit. The other parties failed to discharge the onus of rebutting that presumption by proving objective circumstances showing the payments were made on another basis, such as any arrangement obliging Gu to repay them as loans or unsecured advances. IPPL was in equity subrogated to the rights formerly held by Credit Suisse to the extent of $280,000 and so acquired an proprietary interest in the Surplus Funds. [401], [409], [410], ]420], [421], [422], [472]

Was IPPL subrogated to Great Lands’s position by the Jason Zhang payments?

Where the original secured creditor remained unpaid and continued to have use for the security, any entitlement of a third-party payer to stand in that creditor’s position could not operate in a presently enforceable way in competition with the creditor’s subsisting rights. This conclusion was reinforced here by the further finding that the Great Lands Mortgage was void against the trustee. In light of both this finding, and that the Jason Zhang payments were to be brought to account in reduction of Gu’s indebtedness to Great Lands, IPPL had no present entitlement to compete with Great Lands while Gu’s debt to Great Lands remained unpaid. Accordingly IPPL’s Great Lands subrogation claim only mattered if Great Lands’ own entitlement did not exhaust the Surplus Funds. Accordingly IPPL had not established any presently enforceable right of subrogation to the position formerly held by Great Lands under its mortgage. [424], [425], [428], [431], [473]

Who between the Hu Parties and Great Lands had priority to the Surplus Funds?

As to priority between equitable interests:

1. The earlier in time would usually prevail if the merits were equal;
2. Nonetheless the Court must search for the better equity, and the holder of the later equity bore the onus of showing some circumstance sufficient to displace the earlier equitable interest. What was required is not mere lateness or absence of notice, but some act, default or other circumstance of tangible and distinct significance affecting the justice of the competing claims, assessed in light of the whole of the conduct and surrounding circumstances. The entire conduct of each party with an equitable interest must be taken into account;
3. The position of the second equitable claimant was not preferred simply because that claimant took their securities without notice of the first encumbrance, or because of both that fact and that the second claimant acquired a later interest for value;
4. Mere failure by the holder of a prior equitable interest to caveat did not, without more, constitute postponing conduct. [91], [444]-[447], [462], [463]
As to priority between the Hu Parties and Great Lands to the Surplus Funds:

1. Neither held any secured proprietary interest therein and as unsecured creditors of Gu their entitlement of either to participate in the Surplus Funds was subject to the statutory order of payment in bankruptcy. [194]-[195]
2. But Great Lands’ entitlement to refund under s. 121(5) of $2,193,209.62 took priority over the claims of unsecured creditors including the Hu Parties. The purpose of the statutory scheme would be undermined if a party’s entitlement to recovery of consideration for a transfer voided under s. 121 could be eroded by rateable participation with unsecured creditors. This priority reflected how the statutory scheme had balanced competing policy imperatives: the cost of voiding transfers pursuant to s. 121(1) and thereby enlarging the pool of unsecured creditors against the transferor was offset by the transferee’s closely confined entitlement to recover lost consideration pursuant to s. 121(5) above and beyond the claims of unsecured creditors. [433], [434], [474]

Who between the Hu Parties and IPPL had priority to the Surplus Funds?

As to priority between IPPL’s interests and those of the Hu Parties:
1. Each of IPPL’s equitable interests arose, for priority purposes, when each came into existence, because each arose by operation of law upon the application of IPPL’s funds, independent of discretionary curial intervention. This was in the case of –
  1. the purchase money resulting trust, by 3 May 2017 at the latest;
  2. the Black v S. Freedman constructive trust, immediately upon the wrongful taking and misapplication of the funds;
  3. subrogation to Credit Suisse, when IPPL’s funds were applied to reduce the mortgage debt. [438], [439], [440], [441], [458]
2. IPPL did not represent to the Hu Parties either positively, or by omission in circumstances calling for disclosure or otherwise, that it had no beneficial interest in the Property. Mere non-disclosure of IPPL’s now-established proprietary claims did not constitute such a representation, still less one displacing its earlier equitable position. This was reinforced by the fact that the Hu Parties had entered the Hu Deed because they desired within a narrow period of forbearance to use the leverage available to obtain the best security and practical protection for satisfaction of the First Judgment Debt, not because of confidence in Gu or in the accuracy of what they had been told. And, even if it was reasonably foreseeable that a person in the Hu Parties’ position might rely on an assumption of the kind alleged, they did not in fact so rely. [452], [453], [454], [455], [460]
3. Also material was that the claim of the Hu Parties to postponement was on a different basis from that existing if they had succeeded in establishing an equitable charge or other security. They did not by force of s. 121 alone succeed to the position of a mortgagee or other proprietary claimant; rather, the statutory question was whether the Great Lands Mortgage was void against the trustee and its consequences. That difference told against any broad conclusion that IPPL should be postponed simply because the Hu Parties later obtained contractual protections and, as assignees, statutory rights arising from the trustee’s position. [456]
4. Accordingly interests of IPPL were not postponed to any interest claimed by the Hu Parties. [457], [460], [475]

Who between IPPL and Great Lands had priority to the Surplus Funds?

IPPL’s interests were not postponed to that (on the assumption that it retained a competing equitable interest) of Great Lands. IPPL did not by acquiescence or silence convey that it had no interest or assented to the creation or priority of the Great Lands Mortgage. The knowledge of Gu was not attributable to it. Its failure to caveat was not postponing conduct. [464]-[467]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, July 29, 2026

Blog 101. Application to amend caveat fails.

Gold Road No 9 v Karakulahian [2026] VSC 152, Barrett AsJ

The facts were –

The first defendant (Karakulahian) and his son (the Karakulahians) were the registered proprietors of land in Glen Iris (Property).
Mr Elliott was the director of the plaintiff (Gold Road). John Haddad was a friend of Karakulahian and of Elliott.
Karakulahian deposed that:
- in about mid-2022 he said to Haddad that Haddad could use the Property or its proceeds of sale to assist him (Haddad) in purchasing land in Tullamarine;
- after several weeks Haddad said that he had found a buyer of the Property, Elliott, and that Haddad and Elliott then negotiated its sale, without his involvement, he giving no instructions related to preparation of the contractual documents;
Elliott deposed that Haddad did need finance, that he had no involvement in arrangements between Haddad and Karakulahian, and that he said to Karakulahian that Gold Road would:
- purchase the Property by paying $500,000 to the Karakulahians and issue to Karakulahian certain units in a unit trust (the said units);
- on-sell the property; and
- then pay Karakulahian $500,000 if this was available after payment of: Gold Road’s liabilities to the first mortgagee and its liabilities in respect of the agreement with the vendors; normal costs of sale; and holding costs pending on-sale (‘the deductions’).

and that Karakulahian said that this arrangement was acceptable to him.

Gold Road tendered a document titled ‘Glen Iris Offer to Purchase and Profit Share’. The offered price was $1 m. with a first payment of $500,000 and a second payment of $500,000 ‘at settlement of the resale of the store to a third party’. The document provided:
- that that the ‘Developer’ would establish a unit trust in which it held a controlling class of unit, and with a separate class of unit for vendor equity and vendor profit share, and the trust deed would document the rights, obligations and priorities of each party;
- the vendor would contribute the balance of the second and final settlement payment as vendor equity;
- all rights related to payment of vendor’s equity or the vendor profit share would depend on the terms of the final class of units;
- the Developer would restructure and secure the debt at its sole and absolute unfettered discretion.

The Karakulahians signed this document.

On 20 December 2022 the contract of sale of the Property to Gold Road was executed. This inter alia recorded the price as $1 m. with a deposit of $10 and the balance payable at settlement with the handwritten note ‘refer to Special Condition 18’. This Special Condition in substance provided that at settlement the vendors (not just Karakulahian) would receive the said units and that $499,990 would be transferred to a bank account nominated by them.
Karakulahian deposed that:
- the Karakulahians signed the contract at the request of Haddad, who he trusted, without him reading it beforehand or receiving explanation of it, he thinking that the price was $1 m. and not being told about any additional special conditions; and ‘John explained this to me, and I took his word for it’;
- neither vendor received any money at settlement, but that he had been told by Haddad that $500,000 was paid directly to him by Elliott.
However, evidence was led showing that on 20 December Karakulahian directed solicitors at settlement to transfer the full amount to the Elias Haddad account, and that a solicitor told Karakulahian and Haddad that the settlement funds would be used for settlement of the Tullamarine land.
The sale to the plaintiff was completed on 4 January 2023. Karakulahian provided to Gold Road a ‘Certificate of Waiver of Independent Legal, Financial and Taxation Advice’, which he deposed not to recall signing.
Gold Road was registered as proprietor of the Property subject to a mortgage to another company. Karakulahian deposed that he did not know the terms of the mortgage.
Haddad died in 2023.
In 2024 Karakulahian caveated claiming an interest as chargee.

In 2025 Gold Road applied for removal of the caveat under the Transfer of Land Act s. 90(3). Elliott deposed that the expected sale price of the Property would not cover all the deductions, and that payment of mortgage interest and holding costs were eroding its equity in the Property.

Counsel for Karakulahian sought leave to amend the caveat to claim a freehold estate based on an implied, resulting or constructive trust. Karakulahian relied in part on unconscionability based on Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 in support of his caveatable interest alleging, or at least suggesting, that Elliott and Haddad acted unconscionably in the sale.

During the hearing counsel proposed an alternative amendment to claim a freehold interest over a moiety of the title.

Barrett AsJ declined to permit the amendment to the caveat and ordered that it be removed, holding –

1. The caveator did not have an interest in the Property as a chargee. [27], [43]
2. The court had a discretion to permit amendment of the caveat. Four factors relevant to exercise of the discretion and their application in this case were:
  1. Whether the amendment was to the interest claimed, or just to the grounds. As to the former the authorities were in conflict, holding that amendment was either impossible or possible but only in special or exceptional circumstances. [26(a)]
    The proposed amendment was to the interest claimed, and so the Court would be less inclined to permit it than otherwise and would likely allow it only in special circumstances. This weighed heavily against the amendment application having regard to the other discretionary factors. [28], [38]
  2. The circumstances in which the error was made. [26(b)]
    Although a lawyer had drafted the caveat, there was no evidence of the instructions given to the lawyer, and so no evidence whether: the drafter made an egregious error in describing the interest as chargee, or; the caveator’s instructions were consistent with the existence of a charge, or; another explanation existed. This weighed against the Court’s discretion to permit the amendment, on which the caveator bore the burden of proof. [39]
  3. Courts should not readily act in a way which might encourage the belief that caveats can be imprecisely formulated and ‘fixed up later’. [26(c)]
    This factor weighed against permitting the amendment. [40]
  4. The overall merits of the claim for a caveatable interest. [26(d)]
    The merits of the claimed interest were not so strong as to support amendment. It was unclear precisely how a caveatable interest was said to arise from Amadio-type unconscionable conduct, or what special disability the caveator suffered from, and there was inadequate explanation of Gold Road’s knowledge of, and taking advantage of, any such special disability. [41]

1. Accordingly the application to amend the caveat failed. [37], [42]

Philip H. Barton

Owen Dixon Chambers West

Thursday, April 30, 2026

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

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

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

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

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

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

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

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

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

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

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

Windeyer J. stated at 558 – 559 –

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

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

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

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

Then in the history of this Blog –

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

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

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

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

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

Each party held a valid equitable interest in the funds. The fact that KKJA held an unregistered mortgage and Yan Shi held a charge did not per se improve KKJA’s position. The question was whether in all of the circumstances the presumption that the earlier interest holder had priority had been displaced. [5]
While the mere failure to lodge a caveat was not of itself sufficient to displace the presumption that the earlier interest holder had priority, a failure to lodge a caveat may amount to postponing conduct if there were circumstances indicating the need or desirability of doing so to protect that person’s interests, and where the omission led to subsequent interest holders suffering detriment through relying on the absence of any caveat or other registered interests. [18], [40], [46]

In all of the relevant circumstances, in particular, the absence of any evidence of anything but an arms length relationship between KKJA and the borrowers (ie no evidence that KKJA’s failure to caveat was reasonable or at least understandable), its failure to register its mortgage or caveat amounted to postponing conduct. There was no evidence explaining why KKJA should rely upon representations by borrowers that they would not further encumber the property (if any such representations were in fact made), but KKJA’s failure to caveat armed the borrowers with the capacity to do so. It was difficult to see what more Yan Shi could have done. She suffered detriment as a consequence of KKJA’s failure to caveat. It would be unconscionable for KKJA to maintain its priority over the funds. [6], [39], [42]-[43], [45], [48].

Philip H. Barton

Owen Dixon Chambers West

Wednesday, November 12, 2025

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

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

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

The facts were –

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

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

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

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

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

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 8, 2025

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

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

In 2014 Emanda Pty Ltd (Emanda) entered into a contract to purchase land at Tarneit (the Property). Before settlement of its purchase it offered lots in the Property’s prospective subdivision for purchase. There were two relevant documents: a Deed of Joint Venture Agreement (JVA) and a contract of sale. The JVA provided –
- “In exchange for the Contributor contributing to the venture costs and paying the additional contribution, the Contributor is herein granted an Option to Purchase the Nominated Lot and at the completion of the project and upon the Nominated Lot being available for sale, if the option to purchase is exercised …, the additional contribution will be credited towards the purchase of the Nominated Lot by the Contributor (as Purchaser) upon settlement of the sale … pursuant to a Contract of Sale, …” (Recital F);

- “Emanda agrees to the Contributor joining the venture with Emanda to the extent of the Contributor contributing to the venture costs and paying the additional contribution in exchange for the Contributor being granted an option to purchase the Nominated Lot” (cl. 2.5);

- that “ESVC amount” was:
  “The share in venture costs payable by each Contributor, which is calculated based on the total of the venture costs divided equally between each Contributor (subject to the number of Lots nominated to each Contributor)” (cl 1.3); .

- that “additional contribution” was –
  “A sum of money payable toward the venture by the Contributor equivalent to the agreed value of the Nominated Lot, which is monies that will be later deemed as payment (or part payment …) of the Purchase Price for the Nominated Lot if the herein option is exercised ….” (cl. 1.3);

Clause 2.14.1 repeated this definition.

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

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

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

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

“7. Contribution/s:

…

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

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

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

- “The herein mentioned option to purchase is available to be exercised or waived by the Contributor once the Contributor receives notice by Emanda of the Nominated Lot being available for sale” (cl. 2.33.1);

- that a contract of sale would be entered into simultaneous with execution of the deed (cl. 2.6).
The contract of sale provided for price, deposit and balance payable. Special condition 22 referred to “Instalment payments outlined in deed of agreement”, and stated:
“The Purchaser and Vendor hereby agree that this Contract of Sale is subject to and conditional upon both parties entering into a deed of agreement for payments to be made by the Purchaser toward Development Costs.”

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

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

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

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

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

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

Harris J. removed the caveats, holding –

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

Philip H. Barton

Owen Dixon Chambers West

Tuesday, September 2, 2025

Blog 97. Caveat claiming equitable charge survives.

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

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

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

The facts were –

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

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

Bishop forwarded it to Mr Crozier.

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

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

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

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

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

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

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

Cosgrave J. declined to remove the caveat, holding –

Although “Guarantor” was referred to in cl. 5, the Second Deed did not otherwise refer to a guarantor in its description of parties or schedule. Further: Nirvana’s lawyers had prepared it and to that extent it could be construed against Nirvana contra proferentem; there was no evidence that Mr Crozier obtained professional advice about either deed; it was undisputed that Nirvana was the registered proprietor of the Property, that Memphis had lent $1 m. in connection with its development, not repaid, and that as confirmed in the email (sent by a director of Nirvana to Memphis) Nirvana had instructed its solicitors that Nirvana not Project Management was the borrower. [39]-[40]
Accordingly, notwithstanding issues with the documentation, the caveator had raised a serious question of having an equitable charge, cl. 5 of the Second Deed being materially similar to that in issue in Horizon Hotels. The email was important in confirming the thrust of Memphis’ case that by agreement the borrower would not be Project Management but Nirvana which would grant security to Memphis. Even if there was some uncertainty and the Second Deed did not accurately represent the agreement, the party to be charged signed it consistently with Memphis’ case. [37], [41]
Because the relevant clause referred to both charging and mortgaging, the Second Deed created two different types of interest in the property which could attract protection by a caveat. More particularly –
1. Whereas an equitable charge was a pure hypothecation not entitling the chargee to foreclosure on default, an equitable mortgage was a mixed hypothecation giving the mortgagee potential full beneficial ownership through the process of foreclosure. [52], [57]
2. The creation of a charge did not require any specific wording. It sufficed that the grantor manifested an immediate intention to create a charge by using words, such as “will charge”, creating a present intention to charge land specified as security. [57]
3. Further, an agreement to execute a registrable instrument upon request transferring to one party another’s estate and interest in land by way of security created a specifically enforceable right to call for a legal mortgage, which was a species of equitable mortgage. [57]
Notwithstanding Nirvana alleging that its urgent need for finance was being forestalled by the caveat the balance of convenience did not favour its removal because:
1. Nirvana would still be impeded by five prior interests. There was no evidence of the position of the registered mortgagee or other caveators, in particular the size of their debts or willingness to be paid, or of project completion costs; [63]-[64]
2. If the caveat remained the new financier could still register a security interest with likely priority subsequent to the other claimed security interests; [65]
3. Stone did not expressly depose that the only way to complete the project by 30 September 2025 was with the asserted further finance, or that without it the project would not be completed; [66]
4. If the new financier registered a mortgage with priority over Memphis (and potentially over other parties claiming interests in the Property) then Memphis could not only lose its priority but the security interest itself. The Court could not assess with reasonable confidence whether if its caveat was removed Memphis would be repaid, absent evidence both of the debts owed to the registered mortgagee and other caveators and evidence enabling comparison of total construction and development costs with the likely proceeds of sale. The Court suspected non-payment, with Memphis suffering serious potential damage; [67]-[68]
5. The new finance documentation exhibited was unclear and uncertain because much was redacted or entirely missing. Evidence was lacking on both the final terms of the building contract and whether the prospective new financier approved it. Hence it was uncertain whether the building would proceed even if the caveat was removed; [69]
6. There was no compelling rationale for the confidentiality sought. The Court could have been asked to preserve confidentiality by for example placing an affidavit or exhibit in a sealed envelope with no access without curial leave. However, Nirvana had acted unilaterally by withholding documentation without sufficient explanation. [70]
7. The discrepancy in title details between the proposed new finance facility and the court documents was unexplained. [71]
[72]
Subject to hearing the parties the proceeding would be dismissed with costs taxed on the standard basis. [73]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 19, 2025

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

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

The facts were as follows –

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

Irving AsJ ordered removal of the caveat, holding –

A joint endeavour constructive trust arose where there was a joint relationship or endeavour; an asset was acquired in the course thereof; the joint relationship or endeavour was prematurely terminated; one party had made financial or non-financial contributions for the purpose thereof; and it would be unconscionable to permit the other party to retain the benefit of the relevant property where the contributions were made in circumstances where it was not specifically intended that the other party should so enjoy it. [49]
A common intention constructive trust arose where there was a common intention or understanding that a person would acquire an interest in property and that person has acted to his or her detriment in reliance on that intention or understanding. [50]
Equity would presume that a person held property on resulting trust, proportionate to the contribution, where another person contributed to its purchase and the property was held in the name of the first person. If the contributor was the parent of the person holding the property, a rebuttable presumption of advancement arose. [51]
The caveator established a prima facie case of an interest in the Property by virtue of an implied, resulting or constructive trust, because –

1. her evidence was of providing monies pursuant to an agreement with the couple to purchase a property together sufficient to subdivide and accommodate a granny flat for Sharon and Declan;
2. her provision of $85,000 in purchase monies was undisputed, although the evidence of whether this was a gift to Rhianna conflicted;
3. a granny flat was established which Sharon and Declan occupied;
4. notwithstanding Carl disputing any agreement to jointly purchase the Property, and that the $85,000 was a contribution and not a gift, a prima facie case of Sharon’s asserted interest sufficed;
5. conflicts in evidence were to be resolved at trial.

[7], [66], [73]

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

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 05, 2025

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

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

The facts were –

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

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

The Court had a broad discretionary power to grant injunctions where just and convenient pursuant to the Supreme Court Act 1986 s. 37 (also the Supreme Court (General Civil Procedure) Rules 2015 r. 38.01) and as an incident of its inherent jurisdiction to preserve the subject matter of litigation and ensure the effective exercise of its properly invoked jurisdiction. [47]

The general organising principles for applications for interlocutory injunctions were:

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

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

There was no prima facie case, and on current evidence no prospect, that completion of the contracts would be restrained at trial, for two reasons. The first was that the Deed’s releases covered the unconscionable conduct claim, including the argument that RNC need not have advanced money at all. [2], [66], [67], [76], [77], [78]
The second reason was no prima facie case that RNC had exercised its power of sale in breach of its duty of good faith and of s. 77. Under general law, a mortgagee had a duty to exercise the power of sale in good faith and for the purpose for which it was conferred, ie it could not recklessly or wilfully sacrifice the mortgagor’s interest. Section 77 widened this duty to require the mortgagee to exercise this power in good faith and having regard to the interests of the mortgagor. However, a mortgagee had the right to exercise it for its own benefit – it was obliged to obtain the best price consistent with its entitlement to realise its security. But even where a specific duty of care to achieve market value applied (not claimed here), a controller acting under the Corporations Act 2001 (Cth) or mortgagee, acting in good faith, was not obliged to improve the property’s value, nor to secure market value or a better price by the method or timing of sale. In such cases, the Court focused on the process of sale, not on whether market value was achieved. [2], [81], [82], [85], [90]
In particular, the following did not give rise to a prima facie case of breach of duty –
1. the fact that the properties sold were subject to second mortgages; [86]
2. choice of the selling agent, ie RNC had not disregarded relevant factors and acted with lack of care; [87]-[88]
3. the timing of the sales; [89]-[91]
4. the description of the properties being sold; [92]-[94]
5. the fact that the sales were private. A mortgagee could make a reasonable attempt to obtain market value by auction, private treaty, or public tender; [95]-[96]
6. there was inadequate evidence of undervalue, even having regard to the non-disclosure of the prices by RNC. A sale at a very significant undervalue could be relevant to assessment of breach of duty, but mere non achievement of market value estimates was not in itself evidence capable of establishing breach. Even if the non‑disclosure founded an arguable claim of breach of duty under s. 77 this was insufficient to justify an interim injunction restraining settlement. [97]-[108]

The balance of convenience was also against restraining completion of the contracts of sale, because –
1. the evidence fell well short of establishing that if the status quo was preserved there was a good prospect of repayment of RNC’s and NAB’s debts; [114]-[116]
2. it was uncertain that RNC could further extend the contractual settlement dates. The contracts were open to the interpretation that the extension power could be used only once; [117]-[118]
3. the fact that RNC would not be paid in full from the sales was of no real significance; [119]
4. although the Trotters had long farmed the land they had not established that damages would be an inadequate remedy for sales at an undervalue in breach of duty. The debt was so great, and the evidence of refinancing so inadequate, that sale of at least some properties seemed inevitable; [120]-[125]
5. the plaintiffs had not established that their undertaking as to damages would be meaningful; [128]
6. if the three sales were not settled on 30 April 2025 RNC faced risks in the other sales campaigns and of increased loss; [129], [131]
7. the plaintiffs had delayed commencing this proceeding for a lengthy, mostly unexplained, period. [132]

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

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

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 22, 2025

Blog 94. Common Endeavour Constructive Trust.

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

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

The facts were –

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

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

Gray J. declined to remove the caveats, holding –

The evidence supporting the existence of a joint endeavour constructive trust under which the caveator was a beneficiary, based on Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78 and Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59, was very superficial. The mere fact that the farming partnership involved the couple and that its operations occurred on various pieces of land did not give the caveator an interest in any particular piece of land. Nonetheless, she had established a weak prima facie case of this trust. However, this was the court’s preliminary view, based only on her limited evidence, uncorroborated by Gary and without RNC having a meaningful opportunity to respond. This evidentiary weakness was also relevant to the balance of convenience. [21], [22], [25], [26], [27], [42], [43], [83]
A joint endeavour constructive trust only arose where the substratum of a joint relationship or endeavour was removed without attributable blame, and where the benefit of money or other property contributed by one party on the basis and for its purposes would otherwise be enjoyed by the other party in circumstances not specifically intended or specially provided for, equity then preventing that other party from asserting or retaining this benefit to the extent unconscionable. In this case –
1. The couple remained married and their farming endeavour had not come to an end or been ‘removed’; [30], [31]
2. It was however debatable whether the farming endeavour continued, at least in its intended form: the appointment of receivers and managers and the control of the land by agents of the mortgagee in possession had arguably ‘removed’ the ‘substratum’; [31]
3. This raised whether a joint endeavour constructive trust could be asserted against someone other than the ‘other party’ to the endeavour, in circumstances where that ‘other party’ was not the one retaining the benefit of the property – and whether in those circumstances it could be said to be ‘unconscionable’ for a third party mortgagee to ‘assert or retain the benefit of the relevant property’; [32]
4. The court’s preliminary view was that these factors did not prevent the trust arising. Nonetheless, the court acknowledged: that Lorna’s asserted equitable interest arose because of the operation of the doctrine on the conscience of the sole registered proprietor Gary; RNC’s position was different, as its registration conferred indefeasibility on its rights, notwithstanding Lorna being beneficiary of a constructive trust, subject only to fraud or to an in personam claim by Lorna, neither being asserted here; and accordingly RNC’s interests probably had priority over Lorna’s asserted equitable interests; [34]
5. Although these considerations did not preclude recognition of Lorna’s equitable interest they were relevant to the balance of convenience. [35]
[30]
Although some cases had treated the joint endeavour constructive trust as superseding the common intention constructive trust, and some cases conflated them, the Supreme Court had treated the latter as a distinct doctrine. Having found a prima facie case of a joint endeavour constructive trust it was strictly unnecessary for the court to form a view on the existence of a common intention constructive trust, but if it existed its prospects of success were no stronger than those of establishing a joint endeavour constructive trust. [24], [25]
Any proprietary interest held by Lorna existed even if there was no basis for subordinating RNC’s registered interests to her alleged interests or whether she might receive any return from the sale (also possibly relevant being that she was jointly and severally liable for Gary’s debt). [36]-[41]
As to the application for disclosure of the sale prices –
1. Section s. 90(3) of Transfer of Land Act did not confer jurisdiction to order production of the sale price information – it was unclear that s. 90(3) extended to procedural, interlocutory orders of this kind – it may be limited to dispositive orders relating to the caveat or dealings with the land; [48]
2. But the court had power to order disclosure of documents (in unredacted form) in the nature of discovery orders under the Supreme Court (General Civil Procedure) Rules 2015 or the Civil Procedure Act 2010. Perhaps the court could have ordered discovery, but that power had not been invoked here; [49]
3. The parties did not address whether RNC’s concerns could be allayed by the caveator agreeing to keep market-sensitive information confidential. Absent such safeguards, the court was disinclined to exercise its power, assuming it existed, to order disclosure of the prices. [50]
In contrasting the potential injury to the respective parties from the caveats remaining or being removed, or (in other words) taking whichever course appeared to carry the ‘lower risk of injustice’ should the course chosen turn out to have been ‘wrong’, the balance of convenience favoured maintenance of the caveats at least for a limited time, on balancing:
1. The weakness of Lorna’s prima facie case; [43], [63]
2. The non-disclosure of prices – this led the court to assume in the Lorna’s favour that the prices were substantially below the valuations. Importantly, this non-disclosure supported her having further time to consider whether to sue RNC and the agents for breach of their duties. On the assumption that the sales were for an undervalue, the removal of the caveats and consequent completion of the contracts could prejudice her as she was jointly and severally indebted to RNC for much more than the proceeds of sale, even if $6.525 m. had been achieved; [51], [52], [65], [66]
3. A mortgagee exercising a power of sale under the Transfer of Land Act s. 77 owed duties at least to the registered proprietor and maybe also to the holder of an equitable interest through the registered proprietor. But even assuming the sales were well below $6.525 m. Lorna had not articulated a clear claim relating to the sale process; [55], [56]
4. Nevertheless, because this was an urgent Practice Court application akin to an injunction application the court would on the balance of convenience weigh Andrew’s evidence about the sale process and alleged undervalue, notwithstanding that it was untested and that inferences of misconduct were impermissible against the agents, who were officers of the Court, without proper notice of this assertion and lack of evidence of breach of duty; [57]-[62], [64]
5. The indefeasibility of RNC’s mortgage and the subordination of Lorna’s asserted equitable interests to repayment of RNC’s debt; [63]
6. On an application for an injunction the court would consider whether damages were an adequate remedy. However damages were not an adequate remedy where rights to land were concerned. Lorna may assert an interest over approximately seven other titles, and so even if it was inevitable that the current sales would give her no return, she could suffer prejudice from their sale at undervalue in the form of enjoyment of her asserted equitable interests in the other properties. As all the titles covered the farming business, and given the presumption of the special nature of an interest in land, damages were inadequate, or at the very least this was arguable; [67]-[69]
7. The solicitor’s letter, which concerned the related dispute between RNC and Beverly Farming, carried no weight; [74]
8. There was no convincing evidence of prejudice to RNC if the settlement was delayed, special condition 18 having very significant weight; [76], [77]
9. There was no evidence that delay in repayment of RNC’s loan would cause it loss – the lapse of 9 months between its entry into possession of the land and into the contracts of sale could be due to market conditions or suggestive of no pressing need for a sale; [78], [79]
10. The court gave little weight to Andrew’s refinancing evidence because it was superficial, unlikely to succeed within the next few weeks, and if Lorna had caveated simply based on needing additional time for refinancing this would be perilously close to an attempt to use a caveat as a ‘bargaining chip’; [81], [83]
11. In summary the potential prejudice to Lorna of removing the caveats outweighed the lack of any imminent prejudice to RNC in maintaining them, provided she undertook to within a reasonable time, suggested by the court to be two months, sue the agents or RNC for alleged breach causing sales at an undervalue. The application for removal of the caveats would then return to court for further consideration. [84]-[87]

[62]

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

Philip H. Barton

Owen Dixon Chambers West

Tuesday, June 3, 2025

Caveats Victoria

Blog 103. Caveat survives complicated proceeding involving the Law of Contract, Trust and Misleading or Deceptive Conduct.

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Blog 102. A Federal Court case concerning a caveat, equitable priorities and much else besides.

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Blog 101. Application to amend caveat fails.

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

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

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

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Blog 97. Caveat claiming equitable charge survives.

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

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

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Blog 94. Common Endeavour Constructive Trust.

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