Blog 63. Mortgages/Charges and Caveats

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

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

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

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

The facts were –

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

Matthews AsJ made orders including for removal of the caveats –

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

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

The facts were –

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

Ginnane J held –

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

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, November 22, 2022

 

Blog 62. Caveators lost in blizzard, but obtain injunction.

Reindel & Ors v Confreight Pty Ltd & Ors (No 2) [2022] VSC 442, Daly AsJ (8 August 2022).

This case arises from the same development as that the subject of Blog 61.   It concerns imposition of caveats based on Barnes v Addy claims, no caveatable interest being found to exist. In the 1874 English case of Barnes v Addy (1874) LR 9 Ch. App. 244 at 251 – 252 Lord Selborne LC stated –

“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility.  That responsibility may no doubt be extended in equity to others who are not properly trustees, if … But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers … unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees”.

Subsequent cases have worked out the scope of these principles, known as the “first and second limbs of Barnes v Addy”, ie knowing receipt of trust property or dishonest assistance in a breach of trust (being an accessorial liability).

The facts were –

  • In around 2015 Messrs Reindel, Murone and Monson decided to carry out a multi – unit residential development in Windsor. A company (WDC) was incorporated to perform the development.  It was trustee of a unit trust in which Confreight Pty Ltd (Confreight) and Supply Chain Logistics (SCL) controlled respectively by Murone and Monson together held 35%, and an entity associated with Reindel held 65%, of the units.  In 2020 the development was completed and WDC was wound up with negligible return to Confreight and SCL.
  • Five residential units in the development valued at approximately $2 m. in total had been transferred by WDC, one to Reindel and four to a company controlled by him (Blizzard Winds).  On 3 February 2021 the liquidator wrote to the unit holders in the trust seeking information including on this transfer.  On 15 February 2021 the liquidator made his statutory report including stating that there were claims totalling over $2 m. by unsecured creditors.
  • In the first half of 2021 Confreight and SCL caveated over the five Windsor units and over a Toorak property of which Reindel’s wife Ms Runhardt had been registered proprietor since 2015. Relevantly the interest in land claimed was as beneficiary of an “implied, resulting or constructive trust”.
  • In July 2021 Reindel and associated parties commenced a proceeding under the Transfer of Land Act s. 90(3) to remove the caveats. The caveators opposed this and, if their opposition failed, applied to restrain the registered proprietors from dealing with the land pending the determination of their proceeding referred to below.
  • In August 2021 Confreight and SCL commenced a proceeding (the investors’ proceeding) alleging inter alia that: Reindel had caused WDC to transfer much cash and the Windsor units to himself and his associated entities for little or no consideration; by reason of his alleged breaches of fiduciary duty and of trust they were inter alia entitled to orders that property of the unit trust be transferred to WDC (in its capacity as trustee), and/or equitable compensation for the value of property transferred from WDC in breach of trust or for less than market value, and certain other relief.
  • The defendants to the investors’ proceeding in substance denied the allegations against them, alleging that transfers were in reduction of debts duly owing.
  • The plaintiffs in the investors’ proceeding also alleged that Reindel had used WDC’s funds for mortgage payments on and renovations to the Toorak property. Reindel admitted these payments into his and Runhardt’s joint account, and that payments were applied to paying the mortgage, but denied misappropriation.  The plaintiffs also alleged that Runhardt participated in Reindel’s breach of fiduciary duty and breach of trust by receiving trust property with knowledge of his breaches.  Runhardt basically denied all allegations concerning her.
  • On 14 September 2021 WDC’s liquidator applied to intervene in the caveat proceeding, supported by an affidavit exhibiting his letter of 3 February and his report. He subsequently did not pursue this application.
  • The caveat and injunction proceedings were heard in October 2021 with judgment reserved. Although no orders were made in the caveat or the investors’ proceeding that the evidence in one proceeding would stand as evidence in the other Daly AsJ would (footnote [92]) if necessary have ordered this now as for then (traditionally “nunc pro tunc”). Her Honour stated ([25]) that the findings and issues raised by the liquidator’s report and letter and WDC’s accounting records were a generally reliable guide to the affairs of WDC and the unit trust, although it was unnecessary for present purposes to determine whether the concerns raised therein had been established.  Her Honour noted ([64]) that the liquidator’s affidavit, his letter, his report and the accounting records revealed evidence of the transfers of Windsor units being for no consideration or at an undervalue, although it was premature to conclusively determine whether in breach of trust or otherwise invalid (also [34]).
  • In January 2022 the liquidator sought, inter alia, court approval to enter an agreement to assign certain unspecified causes of action to a Mr Baker – it was unclear but her Honour inferred that there was a substantial overlap between these causes of action and those in the investors’ proceeding ([31]). The liquidator also applied to be appointed as a receiver of the unit trust, deposing that he believed that this was necessitated by cl. 12.5 of the trust deed which provided that on its liquidation WDC ceased to be trustee of the trust.
  • Clause 37 of the trust deed provided:

“the rights of the trustee to indemnity for losses … and to recoupment for expenditure incurred shall … be limited to the monies and property comprising the Trust Fund … but this clause shall not be construed as in any way limiting the liability of any trustee (or of any director of a company which is a trustee hereof) to the unit holders for any breach of trust involving the dishonesty or wilful act or omission of that trustee or director.”

Daly AsJ removed the caveats but granted an interlocutory injunction restraining Reindel and Blizzard Winds from dealing with their residential units –

  1. The possibility of the caveators having a prima facie case of an interest in the land was undermined if they lacked standing to bring their claims in the investors’ proceeding, or this was in doubt. Generally the proper party to bring a claim to recover trust property was the trustee but this was subject to “special circumstances”, eg collusion between the third party wrongdoer and the trustee, insolvency of the trustee, or where the trustee was unwilling or unable to take action to recover trust property. There were real doubts whether the caveators had standing to, in effect, recover WDC’s property.  Alternatively, any claim for damages and/or equitable compensation would have to be calculated by reference to their shares in the unit trust.  [40]-[41], [46], [47]
  2. Confreight and SCL could also in their capacity as shareholders of WDC apply under s. 237 of the Corporations Act 2001 (Cth) to bring a derivative action to bring the claims in the investors’ proceeding on behalf of WDC. This application had not been made, although they had made an informal application for leave to continue the investors’ proceeding standing in the shoes of WDC in its capacity as trustee. [48]
  3. On the issue of standing, the position was somewhat fluid and far from clear cut. There was some doubt whether on its liquidation WDC remained as trustee of the unit trust or whether the liquidator was ready, willing, and able to pursue any claim by WDC against third parties for the benefit of the beneficiaries (and creditors) of the trust, but it appeared that liquidator had not reached a final position.  Clause 37 of the trust deed preserved the beneficiaries’ entitlement to pursue claims against the trustee and the directors, at least on their own behalf. And although the plaintiffs arguably needed curial leave to proceed with their claims in the investors’ proceeding to recover trust property, it was in the context of the current case neither necessary nor appropriate to determine the possible fate of this application for leave.  It was accordingly difficult for present purposes finally to resolve the question of standing and this undermined the caveats, given that the entitlement to lodge a caveat must exist at the time of lodgement. [55], [56], [57], [62], [63]
  4. The caveators must demonstrate a prima facie case, ie a probability of being found to have the asserted legal or equitable rights or interest in the land. The ‘prima facie case’ test was preferable to the ‘serious question to be tried’ test of such rights or interest. [69]-[70]
  5. The caveats over the Toorak property were unsustainable. Runhardt was alleged at most to have accessorial liability for Reindel’s (and WDC’s) alleged breach of trust.  In Barnes v Addy cases a constructive trust was only imposed over the property concerned on a curial determination to this effect.  Until then there was no proprietary interest, even where it was claimed that trust property could be “traced” to a particular (other) property.  Further, any “notice” Runhardt had of Reindel’s alleged breach of trust postdated her becoming registered proprietor of the Toorak property. [80]-[82], [91(c)], [138]
  6. Even if breach of trust or of fiduciary duty was established against Reindel or WDC, the liability of Blizzard Winds was (notwithstanding that Reindel was its sole director) only accessorial. Further, even if the transfers to Blizzard Winds were arguably tainted by fraud which could be sheeted home to it so it lost the protection of indefeasibility of title, and a court ultimately determined to impose a constructive trust over the units, the entitlement of a former registered proprietor to set aside a transfer for fraud was an in personam claim giving rise to a mere equity, not an equitable and so caveatable interest.  Accordingly the caveats over its property would also be removed. [83]-[87], [91], [94], [96], [138]
  7. The claim concerning the transfer to Reindel was also only an in personam claim incapable of supporting a caveat. [87], [91(a)], [94], [96], [138]
  8. However, Reindel and Blizzard Winds would be restrained from dealing with the units transferred to them. Runhardt would not be restrained from dealing with the Toorak property. [117]-[121], [133], [137], [138]

       Philip H. Barton

          Owen Dixon Chambers West

        Monday, November 7, 2022

Blog 61. Caveator narrowly escapes blizzard.

Reindel & Ors v Confreight Pty Ltd & Ors (No 1) [2022] VSC 163, Daly AsJ (4 April 2022).

This case is interesting for several reasons.  First, Daly AsJ discusses the subtle difference between the competing tests of ‘prima facie case’ or ‘serious question to be tried’ for a caveator to hold a sufficient interest in land in proceedings under the Transfer of Land Act s. 90(3).  Her Honour comes down on the side of the former.  (However it is difficult to think of any case in which a court held that a caveator satisfied one and not the other test).    Second, her Honour conducts a long survey of the authorities on creation of equitable charges.  Third, her Honour summarises principles of contractual interpretation.  The facts were –

  • A company developed land including for 69 residential units.  Reindel and a company of which he was director (Blizzard Winds) were the registered proprietors of one and four units respectively.  Another company (ABPC) was controlled by Baker.
  • Reindel and Baker had a long, complicated and contentious financial association culminating in a written agreement alleged by Baker and denied by Reindel to have been made between ABPC and Reindel on 11 September 2020 (2020 facility agreement).  Although Reindel’s electronic signature appeared on this document he denied signing it, alleging that Baker had affixed it without his authority.  The agreement recited that the Lender (ABPC) had agreed to provide the Borrower (Reindel) with a “secured term loan facility” of $498,956.  It defined: “Finance Document” as “this agreement, the Security Document and any other document designated as such by the Lender and the Borrower”; “Security” as “any mortgage, charge (whether fixed or floating, legal or equitable) … or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect”; and “Security Document” as ”the right to take an assignment or a legal charge in the agreed form, executed or to be executed by the Borrower or by (sic)”.  It included –

“8.1 The Borrower confirms the Security outlined in schedule A (or once entered into, will create): (a) valid, legally binding and enforceable Security for the obligations expressed to be secured by it; and (b) subject to registration, perfected Security over the assets expressed to be subject to security in it.

8.2 The security will be held by the appointed representative in favour of the Lender, until the loan has been repaid in full

8.3 It is agreed the Lender has the priority and ranking expressed to be created in the Security Document and ranking ahead of all (if any) Security and rights of third parties except those preferred by law”

Schedule A provided under the heading “Security”:

“The apartments listed below are registered in the name of the Borrower and/or Blizzard Winds Pty Ltd … It is therefore agreed that in the event of default, the Lender can immediately register a secured charge against each or any of the following apartments.  To the maximum value of the capitalized loan amount plus accrued interest Lot 203, 204, and 205 James Street Windsor 3181 Lot 502 and G12 White Stret (sic) Windsor 3181”

  • Baker alleged that Reindel owed $563,966.77 under this agreement. A proceeding was on foot in which each claimed that the other person, or a company controlled by the other person, owed the claimant money.  Reindel admitted receiving $498,956 from ABPC, but said that this was in reduction of a previous debt owed by Baker.
  • ABPC had not registered any charge. It caveated over the above five units as chargee under the 2020 facility agreement.  Reindel applied under the Transfer of Land Act s. 90(3) to remove those caveats.

Daly AsJ upheld the caveat over Reindel’s unit and removed the caveats over those of Blizzard Winds –

  1. The caveator must demonstrate a prima facie case, ie a probability of being found to have the asserted legal or equitable rights or interest in the land. There must be a sufficient likelihood of success to justify the maintenance of the caveat and the preservation of the status quo pending trial.  The ‘prima facie case’ test was preferable to the ‘serious question to be tried’ test.  The difference between the tests was one of degree, yet material, recognising the potentially adverse consequences to a registered proprietor of constraint from dealing with the property in circumstances where a caveator was generally not required to provide an undertaking for damages. [20]-[22]
  2. The question whether Reindel signed or authorised the signing of the agreement and the characterisation of the payments to him were matters for trial. [24], [75]
  3. The 2020 facility agreement was to be construed: with reference to what a reasonable business person with knowledge of the context and purpose of the transaction would have understood those terms to mean (Reindel and Baker were experienced businessmen); and avoiding commercial absurdity and commercial inconvenience as far as the language of the agreement allowed. Further, a court would endeavour to enforce rather than destroy a bargain, unless the agreement’s terms were so vague and confusing as to render ascertainment of the parties’ common intention impossible. [46]-[48]
  4. Courts would, consistent with the principles governing the construction of commercial contracts, adopt a liberal approach to the construction of instruments such as the 2020 facility agreement, and would generally strive to give effect to a clause purporting to confer a security interest in property, even if ambiguously or inelegantly expressed. [49]
  5. The 2020 facility agreement evidenced a common intention by Reindel and ABPC that any sums advanced pursuant to it were secured on the units referred to in Schedule A upon default by Reindel, and that upon default ABPC would be entitled to register a “charge” over the units. There was at least a prima facie case of an immediate intention to create an equitable charge because –
    1. The reference in the recitals to the provision of a “secured term loan facility” evidenced the purpose of the transaction and guided its construction.
    2. “Security” was defined expansively and consistently with what someone engaged in property development would understand a security to be.
    3. The definition of “Security Document” referred to an instrument to give effect to the agreement between the parties, rather than of itself creating a proprietary interest.
    4. Although the language of cl. 8.1 was clumsy, there was a prima facie case that, when read with Schedule A, the parties intended the “Security” referred to in Schedule A to be the borrower’s then unencumbered interest in the units enumerated in Schedule A. The reference to a “secured charge” being registrable upon default was merely a machinery provision in aid of enforcement in the event of default, and not an agreement to provide future security requiring further consideration.
    5. The creation of any charge over the units was not dependent on execution of a further document capable of registration. Because Part IV of the Transfer of Land Act only provided for registration of a charge securing payment of an annuity nothing further (notwithstanding what the agreement appeared to contemplate) could be done to register the charge.
    6. The entitlement to an equitable charge arose on default, not at the time of entry into the agreement. The relevant clause was “apt to create an equitable charge”.
    7. The units were sufficiently identified without reference to particulars of title.
    8. The definitions of “Security Document” and “Finance Document” did not detract from the conclusion that the agreement conferred an immediate equitable interest in the units on ABPC, because: the definition of “Security Document” was incomplete and unintelligible in attempting to equate a document with a proprietary interest; the term “Security Document” was not referred to in Schedule A; while the term “Security Document” was referred to in cl. 8.3, that clause was not concerned with the existence or creation of ABPC’s security interest but with its priority; and the term “Finance Document” was not referred to in cl. 8.1 or Schedule A, but only in other not presently relevant clauses. [59]-[63], [67], [68], [71]-[73]
  6. Accordingly the caveator had a caveatable interest in Reindel’s unit. However, notwithstanding that Blizzard Winds’ units were enumerated in Schedule A, even if Reindel entered the agreement he did not do so on behalf of Blizzard Winds. Accordingly the caveator had no caveatable interest in its units. [26], [59], [74], [75]
  7. The balance of convenience favoured maintenance of the caveat over Reindel’s unit. On the one hand there was evidence of an executed agreement and of funds advanced without repayment, a counterclaim advancing ABPC’s claims was well underway, and the caveat assisted ABPC in giving notice of its claim to other claimants.  On the other hand there was no evidence that Reindel needed to sell or encumber his unit. [75]

Philip H. Barton
Owen Dixon Chambers West
Friday, October 28, 2022

Blog 60. De facto partner v former wife – No constructive trust.

Seaborne v Lester & Anor [2022] VSC 52, Irving AsJ (17 February 2022)

The facts were –

  • Andrew Lester (Lester) and the first defendant were divorced. In 2019 the Family Court made final property orders contemplating that he would pay her over $2 m.
  • Lester failed to comply with these orders and enforcement proceedings ensued resulting in consent orders in June 2020 including that: he would pay her $750,000 within 90 days and $313,000 within 90 days thereafter; and contemporaneously with the first payment she would transfer her interest in a Unit in Richmond to him and he would discharge the mortgage over it.
  • She alleged that when the parties were negotiating the June 2020 orders he informed her: that he proposed to obtain a loan to enable the first payment; and that just before agreement was reached he told her that he could not obtain a loan and that he intended to transfer the Unit to his de facto partner the plaintiff so that the plaintiff could obtain a loan on security of the Unit.
  • The first defendant also alleged that her consent to the June orders was induced by the plaintiff’s representation that if she so consented the plaintiff would on security of the Unit obtain a loan to be applied by Lester to satisfy the June orders.
  • Lester paid the first defendant the $750,000 required. The plaintiff deposed that Lester informed her that he had done this.  The first defendant transferred her interest in the Unit to Lester.
  • Subsequently, on 11 September 2020, the plaintiff purchased the Unit from Lester for approximately $980,000 and became registered proprietor.
  • In July 2021 the first defendant caveated over the Unit on the grounds of implied, resulting or constructive trust. The plaintiff applied for an order under the Transfer of Land Act s. 90(3) that the caveat be removed.
  • At the hearing the court permitted the caveator to rely on, but gave little weight to, her unsworn affidavit apparently asserting that: Lester transferred the Unit to the plaintiff to place it beyond the reach of his creditors including the caveator; Lester had an interest in the Unit pursuant to a trust by virtue of his de facto relationship with the plaintiff and of his significant contributions to the Unit; the Unit had been transferred to the plaintiff for an undervalue and so she held it or part thereof on trust for Lester; and in consenting to the June 2020 orders the first defendant relied on the plaintiff’s representation that the plaintiff would do everything she could to ‘get you everything you’re owed’.
  • It appeared that the first defendant claimed that Lester owed her $200,000.

Irving AsJ held –

  1. There was no serious question to be tried of the trust alleged. At its highest, the first defendant had asserted a debt of $200,000 owed by Lester under the 2020 orders.  The assertion that the plaintiff held an interest in the Unit on trust for Lester, inferred from the relationship between the plaintiff and Lester and the purchase price, was unsubstantiated.   Even assuming the plaintiff held an interest on trust for Lester this would not give the first defendant an interest in the Unit. [48]-[50], [53]
  2. There was no serious question to be tried that the first defendant had an interest in the Unit via a remedial constructive trust based on the first defendant’s (unsubstantiated) historical financial and non-financial contributions to the property, she having transferred her interest in the Unit to Lester on the payment of $750,000. [51], [53]
  3. The balance of convenience favoured removal of the caveat. The claim for $200,000 could be met by an award of damages, was modest when compared with the value of the Unit, and Lester was not the registered proprietor. [54]-[55]

Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, October 18, 2022

Blog 59. Mother and Son.

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

These cases concern the same piece of land.  The first case deals with the uncommon points of an application under the Transfer of Land Act s. 90(3) being brought by Summons in an existing proceeding, rather than by Originating Motion and Summons, and with abuse of process.  The second case is more routine, there being a dubious caveatable interest but the balance of convenience favouring removal of the caveat, nonetheless raising two interesting points not explicitly touched on by Gorton J.  First, the solicitors lodging the caveat could not decline to accept service: Transfer of Land Act ss. 89(4) and 113(3) (Blog 49).  Second, in weighing the balance of convenience his Honour could have considered whether, as there was also a purchaser, the caveator was able to give the undertaking as to damages (Blog 56).

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

The facts were –

  • The plaintiff was the mother of the defendant.
  • In August 2018 the son purchased a property for $650,000 after obtaining a bank loan secured by a mortgage guaranteed by his mother. Work started to construct townhouses on the property.
  • Loan repayments fell into default, the bank took steps to enforce the mortgage, and with its agreement the son in November 2021 entered into a contract for sale for $865,000, with a 10% deposit that was paid, with settlement due on 21 January 2022.
  • On 17 January 2022 the mother lodged a caveat. The son applied for its removal under s. 90(3) of the Transfer of Land Act.  The mother produced a 2018 declaration of trust to the court which she alleged, and he denied, was signed by him.
  • On 17 February after an opposed hearing a judge ordered removal of the caveat.
  • On 21 February the mother commenced a proceeding seeking, inter alia, a declaration that the proceeds of the sale were held on trust for her and equitable compensation.  She made an interlocutory application to restrain the distribution of the proceeds of sale.  The selling agent deposed that the value of the property was $850,000 – $900,000 and that the sale was for market value.   The mother produced a valuation that the underlying unencumbered value of the property was $760,000 but that it was worth $1 m. with the planning permit and settlement of sale of three dwellings before the end of 2022.   She also produced an affidavit in which the deponent swore that he would lend money to her and otherwise assist her completing the development, and lend money to her ‘to repay any outstanding home loans’.
  • The hearing of the interlocutory application on 25 February (the caveat not yet being removed) expanded from one seeking restraint of distribution of the proceeds of sale to one seeking restraint of the sale until trial. The judge however only ordered that the net proceeds of sale to be held in the son’s solicitor’s trust account until trial or further order.
  • On 27 February the mother lodged another caveat asserting the same interest as the previous one. The son made a further application under s. 90(3), by Summons in the proceeding commenced by his mother.

The mother among other things: stated that the property was hers and that she intended to appeal against the decision of 17 February; relied on material which had been before the court on 25 February; and referred to her recent proposal to the bank to repay the arrears, finish the development, and sell the property, not yet eliciting the bank’s substantive response.

Gorton J. held –

  1. Although an application under s. 90(3) was normally made by Originating Motion and Summons it could be made by Summons in an existing proceeding. The filing of the Summons amounted to the bringing of ‘proceedings in a court against the caveator for the removal of the caveat’ as those words in s. 90(3) were to be understood.  This outcome was supported by s. 8(1) of the Civil Procedure Act 2010.  It was significant that the Summons was brought in a proceeding between the two relevant parties relating to their rights. [5]
  2. A second interlocutory application for the same relief was an abuse of process if it would be unjustifiably oppressive to the other party, or would bring the administration of justice into disrepute. Ordinarily, an abuse of process was associated with commencement of a proceeding or application, rather than its defence.  However although an application under s. 90(3) was not commenced by the caveator, the caveator was treated as if the caveator were the moving party seeking an interlocutory injunction.  Accordingly, in substance, it was the caveator who was potentially abusing the process of the court by supporting a second caveat identical to a removed caveat.  The maintenance of this caveat was an abuse of process. [13]-[15]

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

Another caveat was lodged on 13 April 2022, ie nine days after the previous decision, by the first defendant Madappilly claiming a freehold estate based on an agreement with the son dated 5 August 2020.  Further –

  • On lodgment of the caveat Madappilly’s solicitors wrote to the son’s solicitors stating their instructions that the son was attempting to sell the property in breach of the Constructive Trust Agreement and Construction Contract both dated 5 August 2020, under which agreements approximately $300,000 was owed to Madappilly.
  • They provided copies of these documents. The ‘Construction Contract’ was undated and purportedly signed on 5 August 2020.  It was a contract between the son, one of two other alleged joint venturers (see further below), and a company associated with Madappilly, in which the son and one of the other parties declared that they intended to enter a contract to build townhouses on the property and appointed the company as building supervisor.  It provided that the company would be paid a deposit of $300,000 upon execution of the agreement, and that it could charge for services at an hourly rate left blank.  It then stated that the son and the joint venturer would ‘permit’ the company ‘to have equitable and beneficial interest in the land, pending making the deposit of $300,000’ and would when requested transfer the land “to [the company] to [the company’s] interest”.
  • In the ‘Constructive Trust Agreement’, dated and purportedly signed on 5 August 2020, the son declared that he intended to enter into a contract to purchase the property and that he confirmed that he held Madappilly’s interest in the property and/or benefits accrued or to accrue in respect of that interest upon trust for Madappilly absolutely subject to the terms and conditions set out in this deed. Madappilly’s interest was defined to mean ‘full interest in the… Property as tenants-in-common’.
  • The son’s solicitors stated that he denied having signed these documents and that ‘[t]he builder who actually was doing the construction on the property is not aware of your client’.
  • The son sought an order under the s. 90(3) for removal of the caveat. Madappilly’s solicitors advised that they were not instructed to accept service and did not hold instructions to continue to act.
  • Madappilly, who described himself as building supervisor, deposed that –
    • In around mid-2019 he entered into an oral joint venture agreement with the son and two others; and the son undertook and represented to them that the son would pay the mortgage and other outgoings, would provide $150,000 towards the completion of the joint-venture, and that when the development was completed it would be sold;
    • In reliance on those promises, he and the other two people jointly invested ‘around $500,000’ in the joint-venture in work and materials, and implicitly that the four persons were to share the net profits of sale.
  • The son identified the builder he had dealt with, deposed that he did not know who Madappilly was, and denied entering any joint venture agreement.
  • Madappilly produced to the court a valuation that the property was in its current state worth approximately $1 m. and that if $209,500 was spent completing the project the property could be sold for $1.635 m.
  • The net sale proceeds were under $140,000.

Gorton J. held –

  1. The interest asserted by the caveator in his affidavit sat uneasily with any interest based on the agreements purportedly signed on 5 August 2020. The arrangements contained in the Construction Contract were entirely inconsistent with the affidavit evidence and at best gave a caveatable interest to the company not Madappilly.  The Constructive Trust Agreement was unusually worded, and read strictly did not give Madappilly an equitable interest but confirmed that the son held Madappilly’s interest on trust for Madappilly.  It was difficult to reconcile the two documents.  Madappilly could not explain caveating asserting an interest based on an agreement reached on 5 August 2020 but now relying on an oral joint venture arrangement entered into the previous year.  Turning to Madappilly’s evidence: he did not identify to what extent he contributed to the ‘around $500,000’, and so, even if his evidence was accepted did not establish the extent of his beneficial interest; and he produced no documents supporting provision of work and materials.  Because of the inconsistency between what had been advanced by his solicitors and what was now advanced in court there was   reason to doubt his version of events. [8]-[10], [15]-[17]
  2. The court inferred that Madappilly either through his previous solicitors or now advanced arrangements known by him to be incorrect. However, in light of the affidavit material filed there was an issue to be tried that Madappilly had an equitable interest in the property, albeit one difficult to establish. [5], [17]
  3. The balance of convenience favoured removal of the caveat ([25]) –
    1. The alleged sum required to complete the project was said to be pursuant to the unproduced Building Contract and was unclear whether inclusive of landscaping expenses. [18]
    2. It the contract of sale was completed the son could discharge the mortgage and stop interest running. [18], [24]
    3. The contract of sale was on its face unimpeachable (note that his Honour states that the contract price was $850,000, but this seems to be a slip). [19]
    4. The property was not the residence of either party and if the caveat was removed and the sale completed Madappilly would retain a cause of action against the son for damages. [20]
    5. There was no evidence that the purchaser was other than bona fide for value without notice of the caveator’s alleged interest, the contract of sale being apparently specifically enforceable giving the purchaser an equitable interest and giving a claim for damages against the son if the sale did not proceed. Madappilly had not offered to indemnify the purchaser or the son against any liability in damages if the caveat remained.  In one sense, the same issues arose as in a priority dispute between Madappilly and the purchaser, it being relevant that Madappilly had not caveated until after the contract of sale. [19], [22], [23]
    6. There was no evidence that Madappilly or the other alleged joint venturers had the means to complete the development. [21]

       Philip H. Barton

       Owen Dixon Chambers West

       Friday, October 13, 2022

 

Blog 58. Online Auction – No contract, no caveatable interest.

Maverick Signs Pty Ltd v Cetinkaya & Anor [2022] VSC 27, Ierodiaconou AsJ (4 February 2022) is a standard offer and acceptance case, interesting because arising from an online auction. The facts were –

  • The plaintiff appointed an agent, whose employee was Falconer, to sell its land. The first defendant (the caveator) deposed that on 14 August 2021 he asked Falconer if he could purchase the land for $1.25m. with a 6 month settlement.
  • On 9 September an auction using the online platform AuctionNow occurred.  The Terms and Conditions of the platform included:

In Schedule 1:

“11. The User may upload approved amendments to the contract through the Site and such amendments must include written evidence from the vendor of their legal representative accepting such alterations to the contract…”

In Schedule 3, that the following procedure applied to a User who placed a Successful Bid:

“1. The contract for purchase and sale of the Property will be sent to you electronically by the Vendor as soon as practicable after the close of the Auction.
2. The User must sign the contract for sale and purchase of the Property via the electronic software, docusign or in any other manner agreed to between the User and Agreement immediately after the Auction.

4. The deposit being 10% of the purchase price or such other amount agreed to in writing by the Vendor prior to the close of the auction, will need to be paid as directed by the Vendor or Vendors [sic] Agent as soon as practicable after the close of the Auction.
…”

  • In a subsequent County Court proceeding the caveator pleaded that Falconer stated: at the commencement of the auction, in effect, that unless the vendor or bidder refused to sign the contract following the auction, the auctioneer must not accept any bid or offer made after the property had been knocked down to the successful bidder; during the auction, that the land was “on the market”; at the end of the auction, that the land had been sold to bidder number 6.
  • The caveator made the winning bid of $1.25m. At 1.16pm he received an automated email from AuctionNow stating that the property had sold for $1.25m.
  • The caveator deposed that at 1.20pm Falconer congratulated him on the purchase and said that the contract would be sent shortly. The caveator deposed, and the vendor disputed, that: he reminded Falconer of a previous discussion concerning changing the settlement date; Falconer said he would get the vendor to agree to the settlement terms and that part-payment of the deposit would not be an issue provided the balance was paid shortly thereafter.
  • At 1.31pm the caveator received an email from the agent with a link to an unsigned copy of the contract and a section 32 Statement.
  • The caveator deposed, and the vendor disputed, that at 1.41pm Falconer said that the vendor had accepted the amendments to the contract and to make the amendments on the contract and get it back to him as soon as possible.
  • The caveator deposed that at 2.21pm Falconer said to him that he needed the contract returned to which the caveator replied that he needed access to his computer and printer to make the agreed amendments and would be at his office shortly upon which he would provide the amended contract.
  • At 2.55pm the caveator received an email with a link to the contract.
  • At 3.00pm the caveator texted Falconer that he was restarting his computer.
  • The caveator deposed that at 3.17pm he rang Falconer saying that he was having issues with his printer and would provide a signed copy shortly, with Falconer replying that he had no issue with this.
  • The caveator deposed that he orally requested Falconer and then Falconer’s employer to provide trust account details to enable part-payment of the deposit, without response.
  • At 3.38pm the caveator paid $12,500, being part-payment of the deposit, by EFT.
  • At 3.40pm the caveator received an email which said that the contract was void.
  • Meanwhile the vendor had entered a contract of sale with a third party, the deposit being paid at 3:49pm.
  • At 3.58pm the caveator emailed the agent’s office, attaching a contract with a price of $1.25m., stating that the attachment was as discussed with Falconer and requesting an executed copy. The attachment contained handwritten amendments, which the vendor deposed were unauthorized: making the deposit not payable “on acceptance of this offer” but “payable by bank cheque of which $12,500 has been paid by EFT.  Fee (sic) attached receipt”; and altering settlement from 11 October 2021 to 8 March 2022.
  • The caveator caveated alleging the existence of a contract of sale and issued a County Court proceeding for specific performance. The vendor applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

Ierodiaconou AsJ held –

  1. There was no serious question to be tried. There was no written evidence that vendor accepted alterations to the contract of sale.  The caveator was not assisted by the provision in the AuctionNow terms that payment of the deposit was required ‘as soon as practicable’ after the auction – this was subject to the subsequent written contract of sale.  And even if the change in settlement date had been accepted by Falconer’s earlier alleged representation, this representation was overtaken by the written contract of sale and the caveator’s agreement to the AuctionNow terms including Schedule 1 Item 11.  [40], [43], [44], [46]-[49].
  2. Even if the caveator had established a serious question to be tried, the balance of convenience was against him, there being an executed contract of sale between the vendor and the third party with which the caveat interfered. [53]

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, June 21, 2022

Blog 57. Amendment of caveat – proprietary estoppel?

Goldberg v Campbell & Shaw and Anor [2022] VSC 24, Randall AsJ (3 February 2022) was the fourth round in the legal bout between Mr Mathers and Mr McColley or his estate.  The first two rounds were at VCAT under Part IV of the Property Law Act (ie co-ownership disputes).  The third round was Matthews AsJ’s decision in Goldberg v Campbell and Shaw & Anor [2021] VSC 647, the subject of Blog 51.  As that decision lies in the background of the decision of Randall AsJ it assists to summarise and supplement it, as follows –

  • Norman Mathers and Alexander McColley were registered proprietors as tenants in common in equal shares of a residential property.  Mathers deposed that they had on 29 March 2005 entered into a deed of arrangement whereby McColley could live there rent-free for life, or until he permanently vacated the property, on the proviso that he execute a will devising his share in the property to Mathers.
  • McColley lived there until August 2016.  He never made the contemplated will.
  • On 10 March 2017 Mathers caveated claiming a freehold estate on the grounds of an agreement with McColley dated 5 August 2016.
  • In the first VCAT decision, on 21 September 2017, the Tribunal found that Mathers had at that time no claim to a freehold estate in McColley’s moiety but also found that Mathers gained ‘a right to an equitable remedy against a threatened disposition of [McColley’s] half interest in the land which would put it out of his power to devise it by will’ under the deed and noted that ‘[p]recisely how the right should be classified is not clear’.
  • The second VCAT decision was dated 21 August 2019.  McColley died on 7 December 2019 leaving a will made in 2008.  Goldberg, who was his executor and beneficiary, obtained probate of this will.

Goldberg sought orders under s. 90(3) of the Transfer of Land Act for removal of the caveat and other relief.  Matthews AsJ ordered removal of the caveat but granted a stay pending any application to amend the caveat, holding –

  1. There was no evidence of an agreement dated 5 August 2016. In any event an application to amend the caveat by amending the date of the agreement to 29 March 2005 would not avail the caveator for various reasons.
  1. However, it was “highly likely that [Mathers] does have a prima facie case that he has a freehold estate in Mr McColley’s half-share of the Property on the grounds of a constructive trust arising from the doctrine of proprietary estoppel” (at [44]). McColley had made a promise as to the future acquisition of ownership of his moiety by Mathers on which Mathers had been induced to rely to his detriment.  This trust came into existence at the time of reliance: a credible argument existed that the constructive trust came into existence when McColley commenced living at the property rent‑free after entering into the deed, or possibly the trust came into existence when McColley made his will.
  1. The balance of convenience favoured maintenance of the caveat provided it was amended to assert this trust.

The caveator duly filed a summons under s. 90(3) to amend the grounds of claim in the caveat by substituting for ‘agreement with the following parties and date’ ‘constructive trust arising from the doctrine of proprietary estoppel’ or ‘implied, resulting or constructive trust’ or ‘estoppel’.  Despite Matthews AsJ’s use of the words “high likelihood” Randall AsJ refused to allow the amendment.

Randall AsJ held –

  1. The court had power to amend the grounds of claim in a caveat. [26]
  2. In determining the amendment application the court would consider four factors. The first was the nature of the amendment, ie whether to amend the interest claimed and not just the grounds of claim or the scope of the protection.  In favour of the caveator this application was only to amend the grounds. [30]
  3. The second factor was the circumstances in which the error was made. As to this:
    1. From the words quoted above in VCAT’s first decision it was clear that the Tribunal considered that the deed provided some kind of right to Mathers. It was accordingly reasonable for Mathers to understand that the deed was the basis of the caveatable interest, particularly as the court noted the caveator’s submission that a fine distinction existed between the deed being the source of the proprietary interest and the deed containing a promise of the proprietary interest by reason of a constructive trust arising from proprietary estoppel. [37]
    2. It was not unreasonable to infer that Mathers’ solicitors had advised him that he had a freehold estate in the property arising from the deed. By deposing that the solicitors had advised him to lodge a caveat Mathers had probably not waived privilege. [39]-[40]
    3. The circumstances of the error in the grounds of claim did not favour either party given that after the VCAT proceedings there was on the one side no application to remove, and on the other side no application to amend, the caveat. [38], [41]
  4. The third factor was the principle that the Court ‘should not readily act in a way which might encourage the belief that caveats could be imprecisely formulated and then “fixed up later”’. The amendment would simply clarify the basis of the freehold estate claimed in the caveat and the court again noted the matters set out in Holdings 3a and 3c.  The third factor accordingly did not defeat the caveator. [45]-[47], [115]
  5. The fourth factor was the overall merits of the claim for a caveatable interest as sought by the amendment, engaging the same considerations as on an application for the removal of a caveat in the terms sought. To establish proprietary estoppel Mathers had to establish the following elements ([90]), stating also the outcome:
      1. A representation by McColley that he would confer an interest in property on Mathers.
        This representation was made in the deed and the fact that it was subject to contingencies was irrelevant. [92], [94]
      2. Mathers reasonably believed or expected that he presently had, or in the future would acquire, an interest in the property.
        The representation being expressly in the deed, this element was established. [95]
      3. McColley knew or intended that Mathers defendant would hold that belief or expectation and would act or abstain from acting in reliance on it.
        Given that the deed was executed by both men this element was established. [96]
      4. That Mathers reasonably acted to his detriment and changed his position in reliance on his expectation or belief. As to this –
        1. Mathers carried the burden of proof. [97]
        2. In certain previous cases the representees had improved the property and rendered services to the representors. Mathers did neither but simply contended that he permitted McColley to live in the property rent-free alone, it being however highly unlikely that Mathers would if the representation had not been made have lived there, and that he refrained from applying for its sale and division of proceeds, there being however no evidence that he intended to exercise this right and indeed he had opposed it. [100], [109]
        3. Generally one co-owner was not required to pay rent to another co-owner for use and occupation of a property.  Exceptions to this were: actual ouster; constructive ouster; a claim by the occupant for contribution for improvements to the property; breakdown of relationship rendering cohabitation unreasonable or not practicably sensible. These exceptions were inapplicable.  The other exception was where there was a lease between the occupying and non-occupying co-owner.  However, the deed did not constitute a lease because it did not confer exclusive possession.  Accordingly the fact that Mathers did not claim rent was irrelevant because McColley was not liable to pay it anyway. [101]-[108]
        4. Mathers had not voluntarily contributed to the maintenance and upkeep of the whole of the property. He successfully claimed half those costs in the second VCAT proceeding. [110]

        Accordingly Mathers failed on this issue. [111]

      5. The detriment was such that it would be unconscionable for McColley’s estate to depart from his representation.
        By reason of (d) this element was not established. [111]

Accordingly Mathers had not established a prima facie case of proprietary estoppel to support the proposed amendment [112], [115].  It was unnecessary to consider whether there was a prima facie case of a constructive trust arising by reason of proprietary estoppel [112].

Comment: In [112] the court appears to draw a distinction between proprietary estoppel and constructive trust arising by reason of proprietary estoppel.  However, proprietary estoppel gives rise to a constructive trust – see Blog 54 and McNab v Graham [2017] VSCA 352. 

       Philip H. Barton

          Owen Dixon Chambers West

        Thursday, June 2, 2022

Blog 56. No contract of sale, no caveatable interest – Undertaking as to damages?

Wright & Ors v Insert Pty Ltd & Ors [2022] VSC 1, M. Osborne J (11 January 2022)

In this case M. Osborne J. comprehensively dispatched a caveat based on an alleged contract of sale.  His Honour’s thorough reasoning was: no arguable case of a contract (Holdings 1 – 3); non – compliance with s. 126 of the Instruments Act (Holding 4); no part performance (Holding 5); no estoppel (Holding 6); even if there was a prima facie case of an enforceable contract, there was not a prima facie case that a court would grant specific performance of that contract, because the vendors had, after the alleged contract with the caveator, entered a contract with an innocent purchaser, and the caveator arguably would have lost priority to that innocent purchaser (Holdings 7, 8, 10); the caveator would not have been defeated by the doctrine of laches (Holding 9); if the caveator had established a sufficient prima facie case the court would, in assessing the balance of convenience, have required an undertaking as to damages of substance (Holding 11); in any event the caveator failed on the balance of convenience (Holding 12).

This case is interesting for two reasons.  First, where there is no prima facie case of a contract of sale, a court will normally cease its analysis at this point.  M. Osborne J. went further, stating ([87])–

“It is also something of an oversimplification to characterise the critical question as whether the Purchaser has a prima facie case that it has an enforceable contract of sale; in fact, the Purchaser must establish that it has a prima facie case that it has an enforceable contract of sale in respect of which the Court will order specific performance.

The second interesting point is that, if the balance of convenience had been decisive, his Honour would have required, as part of the caveator attaining a credit balance, an undertaking as to damages.  As part of the exercise of judicial discretion the court can require such an undertaking from a caveator – his Honour notes this in footnote 22 of his judgment.  However, whereas undertakings as to damages are universally required from applicants for interlocutory injunctions, they are uncommon in caveat cases.  In Boensch v Pascoe [2019] HCA 49, the subject of Blog 29, the plurality of the High Court noted that, although a caveat was conceived as “a statutory injunction to keep the property in statu quo until [the caveator’s] title shall have been fully investigated”, unlike an application for interlocutory injunction it did not at least in the first place have to be supported by an undertaking as to damages.

 Footnote 22 to M. Osborne J.’s judgment continues that “invariably such an undertaking is required” citing a 1995 text and Harvey v Emery [2021] VSC 153.  That this statement is limited to where there are third party rights is elucidated by the following passage in Harvey v Emery (the subject of Blog 36) at [48] –

“Thirdly, neither by their affidavit, nor their submissions, did the defendants offer any undertaking as to damages, notwithstanding that such an undertaking is invariably required when a caveator is permitted to maintain a caveat in circumstances where third party rights will be detrimentally affected.”

In the instant case the facts were –

  • The four plaintiffs were the registered proprietors of a residential property.  The sole director of the first defendant (Insert) was Shaw.  In 2020 the plaintiffs entered into a contract of sale with Shaw.  He did not pay the balance of purchase monies, the vendors rescinded in July/August 2021 and the deposit was forfeited.
  • Although the vendors had an estate agent, one vendor, Nicholas Wright (Wright), continued with their authority to negotiate directly with Shaw, generating a proposed sale with settlement on 4 October 2021.  However, between 1 and 4 October Wright requested Shaw to do various things, with little response.
  • On 7 October Wright texted Shaw asking whether he was in or out and that a sale could occur possibly that day.  Shaw replied within 30 minutes ‘In’.  Some hours later Wright texted that he was taking it that Shaw was out “unless I get a commitment today”.  A conversation then occurred in which Shaw assured Wright that he was serious about purchasing and had finance, to which Wright responded that there was no contract until a deposit was paid and a contract signed.
  • At 3:50pm on 7 October a conveyancing clerk (the conveyancer), associated with the solicitors acting for Insert and Shaw, emailed the vendors’ solicitor stating her understanding that the clients had been communicating, that the purchase by Shaw was to proceed, and requesting that the vendors’ solicitor advise his clients’ instructions.
  • On 8 October at 6.51pm the vendors’ solicitor emailed in substance that: no contract existed but his client would enter a new contract if put in the same position as if the previous contract had been substantially performed; a draft contract and vendor statement prepared by him could be downloaded from the internet; ‘Our client is prepared to consider entering into a contract with your client on the following terms’ then setting out a price of $4,838,500 and how it was calculated, the deposit and when payable, settlement date, and that a director’s guarantee was required; and ‘this email is not an offer capable of acceptance’.
  • Between 11 and 22 October the parties communicated, including as to clarification of the email of 8 October and communication between Shaw and his financier (the financier).   On 19 October the financier offered a 6 month loan of $3,881,250 subject to verification by it and due diligence.
  • Shaw deposed that on 25 October he stated to Wright that Insert accepted the terms contained in the 8 October email, that the purchase would proceed on that basis, and that Wright agreed that if the financier accepted those terms the financier would issue a PEXA invitation for settlement on 28 October.
  • Shaw also deposed that later on 25 October the financier informed him that it would fund the purchase on the terms of the 8 October email.  He also deposed that later that day he informed Wright that the financier had confirmed finance, and Wright replied that if a PEXA settlement appointment was not set up that day he would sell to someone else next day, and in consequence he (Shaw) requested the financier to open a PEXA transaction that day for settlement on 28 October.  (In fact a PEXA workspace was established on 26 October by Insert’s lawyers).  Wright deposed that he had one telephone discussion with Shaw that day in which Shaw promised that a PEXA transaction would be set up, but he denied that he agreed to sell the property to Shaw in the event that the financier accepted the terms and he denied that Shaw said that a PEXA workspace would be set up for settlement on 28 October.
  • On 25 October, after emails about the terms of any contract, the conveyancer at 3:33pm advised that Shaw was agreeable to proceed on the terms set out in the 8 October email, and she sought a written contract and vendor statement.  At 4:21pm the vendors’ solicitor replied asking when Shaw proposed to settle, noting that the proposed settlement date in the 8 October email was that very day.  The email also stated the solicitor’s statement of the process to be followed, including that he would provide a contract of sale once the details of Shaw’s proposal were confirmed, and that on receipt of the signed contract and a 5% deposit he would submit the ‘offer’ to his client, and that a contract would be formed when he returned the fully signed contract to the conveyancer by way of exchange.
  • On 27 October Insert executed a mortgage to the financier and a PEXA invitation was given for a settlement proposed for 28 October.  The vendors’ solicitor did not accept the invitation and on 27 October advised that the vendors had signed a contract of sale with a third party.  This contract was due for settlement on 17 January 2022.
  • On 28 October Insert caveated on the ground that it had an interest as purchaser pursuant to a contract dated 25 October.
  • Following an application by the vendors under Transfer of Land Act s. 89A(1) Insert commenced, but did not serve, a County Court proceeding seeking a declaration that it had an equitable interest in the property under a contract of sale.  The vendors commenced a proceeding under s. 90(3).

Although the caveat stated that the contract was made on 25 October counsel for the caveator argued that it was made on 7 October 2021.

The vendors deposed that the extent of authority given by them to Wright was to negotiate on their behalf, not to bind them to sell.  The caveator argued that any non-compliance with the Instruments Act s. 126 was overcome by part performance, namely: it executing the mortgage to the financier; it incurring liability to pay the financier $330,878 for fees and prepaid interest; and the opening of the PEXA transaction workspace.

Shaw deposed that if he did not obtain specific performance he would lose the ability to make a profit of $4.2m. in developing the land.

M. Osborne AsJ held –

  1. No contract was made on 7 October 2021.  At its highest, Shaw’s evidence that he was ‘in’ evidenced that he wanted to purchase.  To determine whether an agreement had been reached it was permissible to have regard to subsequent communications: those post 7 October were all inconsistent with such an agreement – in particular the conveyancer’s emails of 11 and 25 October and the caveat itself. [73]
  2. The email chain did not evidence a contract made on 25 October, and in fact contradicted it, particularly the emails of 8 October at 6:51pm and 25 October at 3:33pm and 4:21pm. [70]
  3. As to Shaw’s evidence that, notwithstanding these emails, by their conversations on 25 October he and Wright agreed on a sale for $4,838,500, with no deposit, and with settlement on 28 October subject to the financier agreeing to finance the purchase on the terms of the 8 October 2021 email:
    1. although on an interlocutory application the court would not definitively reject this evidence yet an assessment of it was relevant to whether there was a prima facie case;
    2. in this regard Shaw’s evidence was: disputed by Wright’s evidence; in disconformity or inconsistent with emails that day; uncorroborated in any significant way by contemporaneous documentary evidence; not adverted to by Insert’s solicitors in their email of 29 October; and entailed (notwithstanding Shaw having defaulted under the 2020 contract) Wright agreeing to sell subject to a condition wholly for Shaw’s benefit, which was then satisfied by establishment of a PEXA settlement appointment three days later with no deposit or signed contract, with the consequence that the property was taken off the market despite negotiations with other purchasers. [71]
  4. Even if there was an agreement, s. 126 of the Instruments Act was not complied with.  Even if (which the court did not decide) the co-vendors had cloaked Wright with ostensible authority to bind them to sell on terms negotiated by him, this was not in writing and so did not comply with s. 126. [75]-[77]
  5. Non – compliance with s. 126 was not in this case overcome by part performance.   The doctrine of part performance permitted enforcement of an oral contract where there were acts undertaken which of their own nature were unequivocally referable to a contract of the kind alleged.  Such acts must be such as to change the relative positions of the parties in relation to the subject matter of the contract.   Each act relied on here, particularly the mortgage and opening of the workspace, was a unilateral act of the supposed purchaser, readily explicable as preparatory to the making of an agreement and not changing the purchaser’s relative position to the property.  It was also difficult, the loan not having been drawn down, to accept that Insert had incurred a liability of $330,878.  The evidence at most suggested possible payment of a non-refundable application fee of $5,000. [78], [79], [81]-[83]
  6. For related reasons the purchaser’s argument that the vendors were estopped from denying the enforceability of the alleged contract was rejected.  Even on the most favourable view of the evidence for the purchaser, there was no clear and unequivocal representation that a legally binding contract of sale existed, no detrimental reliance (unless, of which the court was not satisfied, substantial fees had been incurred to the financier), and no evidence of the vendors knowing that such fees were being incurred on the faith of a representation by them.  Moreover, the period of any detrimental reliance was two days at most, such that the equity said to arise was wholly disproportionate to the minimum equity necessary to ameliorate the detrimental reliance. [84]-[86]
  7. It was an oversimplification to characterise the critical question as whether the purchaser had a prima facie case of an enforceable contract of sale of land: it must establish such a case in respect of which the court would order specific performance.  Ordinarily such a prima facie case sufficed to establish a prima facie case for specific performance, land being of a sufficiently unique character as to make damages an inadequate remedy, even land purchased as part of the business of a property developer. [87], [89]
  8. However, here the basic position (set out in the holding 7) was complicated by the third party contract, rendering this in essence a priority dispute between Insert and that purchaser (there being no evidence of that purchaser having notice of any interest of Insert’s in the land).  As to this –
    1. priority was accorded to the competing equitable interest created first in time, save where conduct by the holder of the prior interest rendered this inequitable;
    2. the failure to lodge a caveat may in certain circumstances constitute postponing conduct;
    3. although Insert alleged that the contract was made on 7 or 25 October, the caveat was not lodged until 28 October, being the day after the third party contract, and from 7 October onwards not only, while knowing that vendor’s agent was negotiating with other parties from at least 4 October, did Insert fail to assert that it had an enforceable agreement, the solicitors’ communications were to the contrary effect.  If Insert had made this assertion there was every reason to believe that the vendors would not have entered into the third party contract.  There might therefore have been considerable force in the proposition that any interest of Insert was postponed to that of the third party, in which case, specific performance would not have been ordered. [90]-[93]
  9. Further, the doctrine of laches required that those seeking equitable remedies, such as specific performance, use due diligence, where on notice or otherwise knowing that prejudice could arise to a defendant or third party if the claim was not pursued.  However, mere delay not occasioning prejudice was insufficient.  Any prejudice here was most likely to have occurred in the periods from 7 October onwards and from 25 October onwards.   Accordingly, the delay in initiating legal proceedings and prosecuting the claim for specific performance was insufficient to establish laches (but was relevant to the balance of convenience). [94]-[96]
  10. For the foregoing reasons, the caveator had not established a prima facie case of the existence of a legally enforceable agreement for sale with sufficient likelihood of specific performance to justify the maintenance of the caveat and the preservation of the status quo pending trial. [97], [105]
  11. In assessing the balance of convenience, had the court been minded to maintain the caveat this would have only been on the basis of an undertaking as to damages of substance, ie by Shaw not Insert. [99]
  12. Even if the caveator had established a prima facie case it would have failed on the balance of convenience because:  Shaw was open to a monetary solution; Insert’s pursuit of the claim for specific performance was marked by lack of urgency; Insert could sue for damages.  This was particularly so when assessed in light of the weakness of Insert’s claim and (as the effect of not removing the caveat would be to equivalent to enjoining the vendors from settling the third party contract) interference with the third party’s rights. [96], [100]-[105]

   Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, May 25, 2022

 

Blog 55. Alleged unconscionable dealing/undue influence – no caveatable interest established.

Pryse v Castleman & Anor [2021] VSC 833, Ierodiaconou AsJ (14 December 2021)

The facts were –

  • Gweneth Pryse had three children: the plaintiff Raymond, his sister Lorna, and his other sister the first defendant Colleen.
  • A farm at Walpeup dating at least from the lives of Gweneth’s late parents consisted of land in various Lots.  In 1994 Gweneth became registered proprietor of Lots 52 and 53.  Raymond worked on the farm.
  • In 2013 Gweneth and Raymond discussed the possibility of her giving him Lots 52 and 53.  In September 2013 he had an argument with Colleen’s husband about this.  In October 2013, Gweneth met twice with a solicitor to obtain independent legal advice on the transfer, eliciting letters of advice dated 2 and 18 October 2013 described by her Honour as “forthright and frank”.  The solicitor subsequently deposed in the caveat removal proceeding that: he was not the family solicitor; at the first meeting he conferred with Gweneth for over an hour and did not doubt her capacity to understand his advice and give instructions; on his recommendation she agreed to go away and think about the matters he had raised; during the second meeting it was apparent that Gweneth had understood and considered these matters; she wanted the farm to go to her son who had worked it all his life and wanted to keep the farm together and in the family.
  • After the advice Gweneth transferred the two Lots to Raymond who became registered proprietor. They executed a deed of agreement regarding the transfer of the land.  At this time he was aged 61 and she was aged 85.
  • In 2013 (it appears after executing the transfer) Gweneth moved from the farm to a house owned by Raymond in Walpeup.  Lorna also lived there.  Gweneth was physically frail.
  • In 2014 Colleen applied to VCAT to have an administrator and guardian appointed for Gweneth.  Three medical reports were produced, including from Drs Vowels and Wardill.  Dr Wardill met with Gweneth at her home.
  • In August 2014 Colleen sought leave to withdraw the VCAT application.  Initially VCAT refused to give leave as it was not satisfied that this would be in the best interests of the proposed represented person.  However, at the conclusion of the hearing leave was granted.
  • Gweneth died on 8 July 2021.  On 7 October Raymond executed a contract to sell the two Lots.  On 20 October Colleen lodged a caveat over them.  Raymond commenced this proceeding under the Transfer of Land Act s. 90(3) for removal of the caveats.  Settlement of the purchase was due on 15 December, being the day following the hearing.

Ierodiaconou AsJ held –

  1. The law on where a transaction would be set aside for unconscionable dealing was as stated by Mason J. in Commercial Bank of Australia v Amadio (1983) 151 CLR 447 –

    “… if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interest, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in doing so is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that the situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.”  [41]

  2. Given the independent legal advice, there was no serious question to be tried of unconscionable dealing.  This was reinforced by the fact that the proposed transfer was discussed in the family and that Lorna deposed that Gweneth said she would give the land to Raymond. [43]
  3. In equity, a transaction, whereby a donor transfers property to a donee (or recipient), is voidable if the result of undue influence exercised by the recipient over the mind of the donor. [44]
  4. There was no serious question to be tried that the transfer was the result of undue influence.  Against the suggestion that Gweneth was not exercising her own free will was –
    (a)   the independent legal advice;
    (b)   the Wardill report indicated that Gweneth had capacity;
    (c)  Lorna deposed that her mother was “sharp as a tack until the day she died”.  [45]-[46]
  5. The doctrine of laches may have been applicable in light of the matters agitated before VCAT.  However it was unnecessary to consider this further. [48]
  6. The balance of convenience favoured removal of the caveat so that the sale could proceed.  Colleen had established no prejudice to her if the caveat was removed and there should be no order regarding preservation of the sale proceeds. [51]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, May 18, 2022

Blog 54. Proprietary estoppel/Trusts

Groom v Leafbusters Pty Ltd (in liq) [2021] VSC 765, Cavanough J (20 November 2021).

Olsen v Olsen [2022] VSC 95, Ierodiaconou AsJ, (1 March 2022).

Konkoly v Konkoly & Anor [2022] VSC 74, Irving AsJ, (23 February 2022).

These cases concern trusts, mainly what Cavanough J compendiously described as the “common intention constructive trust (by way of proprietary estoppel)” (Groom v Leafbusters Pty Ltd (in liq)) at [4].  In that case caveats were lodged over a property based on various forms of trust.  In a long judgment following a final hearing, ie not a proceeding under the Transfer of Land Act s. 90(3), Cavanough J found that the claims of the caveator to an interest in land failed on the facts.  His Honour also stated certain legal points, one of which was engaged in the other two cases which were proceedings under s. 90(3).  In Olsen the caveator established a serious question to be tried of an interest in land based on proprietary estoppel or a constructive trust.  In Konkoly the caveator failed to establish a serious question to be tried of any interest in land. Continue reading “Blog 54. Proprietary estoppel/Trusts”