33. Unsuccessful claim for injunction under TLA s. 90(2) – Caveator merely an unsecured creditor with no caveatable interest.

In EZY Global Ltd v Miller Crescent Pty Ltd & Ors [2019] VSC 815 (11 December 2019) Croucher J. the facts were –

 

  • The plaintiff invested in a project for development of a property of which the first defendant was registered proprietor.   The plaintiff advanced funds pursuant to a loan agreement with the first defendant which included a term that the first defendant “must apply the Loan solely for the purpose of the development of” the property.  The plaintiff asserted that: it had advanced funds in reliance on the representation contained in this term, which was also made in conversations with its director; the effect of the loan agreement and the discussions between the parties was that the first defendant held the land on a common intention constructive trust for itself and the plaintiff in proportion to its indebtedness pursuant to the loan agreement; and the plaintiff’s director had relied on an oral assurance that it would be unnecessary for the plaintiff to take a security interest in writing, creating a lien arising from an estoppel.
  • The plaintiff alleged that there had been breaches of the loan agreement and had commenced a County Court proceeding seeking to enforce this and other loan agreements, also seeking declarations that it had an interest in this and other properties.
  • The plaintiff lodged a caveat.  The interest claimed was a freehold estate on the ground of the loan agreement.  It was also notified that the second defendant had lodged a mortgage for registration.  Within 30 days of notification it applied pursuant to s. 90(2) of the Transfer of Land Act for an order restraining the Registrar of Titles from lodging this mortgage or for similar relief.  Section 90(2) provided –

“If before the expiration of the said period of thirty days … the caveator … appears before a court and gives such undertaking or security or lodges such sum as the court considers sufficient to indemnify every person against any damage that may be sustained by reason of any disposition of the property being delayed, the court may direct the Registrar to delay registering any dealing with the land for a further period specified in the order, or may make such other order (and in either case such order as to costs) as is just”.

The plaintiff offered an undertaking as to damages.

The application failed on the following grounds –

1.   The application under s. 90(2) was to be determined on the following principles –

(a) the plaintiff must establish a prima facie case giving rise to a serious question to be tried as to whether it has a caveatable interest in the land; [4]

(b) the plaintiff must show that the balance of convenience favours the maintenance of the caveat and the prevention of the mortgage being registered (or that there should be such other order as is just). [4]

2.   The plaintiff had not established a prima facie case giving rise to a serious question to be tried that it had a caveatable interest in the land.  The loan agreement contained no charging clause and it was common ground on the evidence that there was to be no written security given for the loan.  The evidence did not support the existence of a constructive trust or lien.  The caveator was merely an unsecured lender. [5], [72]-[80]

Comment.

This was not the typical application by a registered proprietor under s. 90(3) for removal of a caveat but rather an application under s. 90(2) by the caveator to create the same outcome as if its caveat was upheld, to which the same principles applied (see 1 above) with an undertaking as to damages.   It appeared that the caveator took this course because it tacitly acknowledged that its caveat was defective in not claiming any equitable interest in the property ([47]-[48]).  It relied on TL Rentals Pty Ltd v Youth On Call Pty Ltd [2018] VSC 105 where an interlocutory injunction was obtained to protect the priority of an equitable mortgage (Blog 13).  However, unlike that case, it failed because it had no arguable interest in the land.

Philip H. Barton

Owen Dixon Chambers West

27 April 2020

32. Where B wrongfully acquires monies from A, which B passes on to a third party, who uses such monies to purchase land of which it becomes registered proprietor – Or where B fraudulently transfers land owned by A to a third party who becomes registered proprietor – Caveat by A upheld if there is a constructive trust in A’s favour, but not if there is a mere equity to set aside the transfer – Contrast between AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd and Super Jacobs & Anor v Esera Faalogo & Ors.

In AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2019] VSC 688 (15 October 2019) Ginnane J. the facts were –

  • Esposito Holdings Pty Ltd (Esposito Holdings) agreed to sell and the first defendant (UDP) agreed to purchase the issued shares in a company. An arbitration occurred related to disputes arising under that agreement.  The arbitral award stated that Esposito Holdings had engaged in misleading and deceptive conduct contrary to s. 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) and director Mr Antonio Esposito was involved in the contravention within the meaning of s. 2(1) and for the purposes of s. 236 of Schedule 2.  The award also declared that on and from 31 January 2014 Esposito Holdings held the purchase price on constructive trust for UDP which had suffered loss of $54,144,847.
  • The plaintiff (AE Brighton) purchased and became registered proprietor of four properties.
  • There was prima facie evidence that, when Mr Esposito was also sole shareholder and director of AE Brighton, part of the purchase price received from UDP under the share sale agreement was paid by Esposito Holdings, possibly through another company controlled by Mr Esposito, to AE Brighton to purchase the properties, possibly in the case of one purchase through repayment of an earlier loan used for that purchase.
  • In 2018 the Supreme Court gave UDP leave to enforce the award and ordered that the award was given effect as a judgment of the Court.
  • UDP caveated over the properties on the grounds of an implied, resulting or constructive trust.
  • Subsequently AE Brighton entered a contract to sell two of the properties.

Ginnane J dismissed an application by AE Brighton for the caveats to be removed, but required the caveator to commence proceedings promptly to support its claim, on the following grounds –

  1. Where a trustee wrongfully used trust money to provide part of the cost of acquiring an asset, the beneficiary was entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It was irrelevant whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.  This principle was not reliant on proof of fraud, merely on breach of trust. [32]-[33]
  2. Based on this principle there was a prima facie case that the caveator had an estate or interest in the properties as a beneficiary under a constructive trust. This arose from money (ie the purchase money under the share sale agreement) obtained by Esposito Holdings as a result of misleading or deceptive conduct, from which the caveator suffered loss, held on trust by Esposito Holdings for the caveator, being paid in breach of trust by Esposito Holdings to AE Brighton which used it to purchase the properties.  While the evidence in the arbitration did not bind AE Brighton, because it was not a party to the arbitration, it was relevant in determining this prima facie case. [28], [36], [37], [38], [40], [41]
  3. AE Brighton had more than a mere equity, which was not an equitable estate and so not caveatable. [30]-[31]
  4. Although the court took into account that AE Brighton had entered into two contracts of sale, the caveats predated the contracts and AE Brighton had made no submission about how, taking into account the interests of the mortgagees and other caveators, the caveator’s security interest in the properties could be protected if the caveats were removed. Accordingly the balance of convenience favoured maintenance of the caveats on terms requiring the caveator to commence its proposed proceeding promptly. [42]-[43]

An application for leave to appeal against this decision has been lodged, the respondent’s application for security for costs being dismissed: AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 43.

In Super Jacobs & Anor v Esera Faalogo & Ors [2019] VSC 778 (3 December 2019) Daly AsJ the facts were –

  • The defendants were registered proprietors of a residential property. They were migrants, of limited means, not highly educated or familiar with legal or financial matters.  In 2016 they gave a general power of attorney to a mortgage broker who they believed was arranging finance for them to be secured against their property.
  • In 2017 the mortgage broker, the defendants’ claimed fraudulently, used the power to execute a contract of sale of the land to the plaintiffs who became registered proprietors in June 2018. The sale was not by auction or private treaty or advertised and had other unusual features.
  • The defendants received no funds from sale, subsequently discovered this transfer, and later in 2018 caveated on the ground of: “Registered proprietor(s) being entitled to possession of the certificate of title for the land and to prevent improper dealings”. This was one of the grounds of claim in the drop-down menu in the Registrar of Titles’ electronic lodgment service.
  • The plaintiffs applied for removal of the caveat and for an order for possession.

Daly AsJ removed the caveat, holding –

  1. Even if (which they denied) the plaintiffs obtained the property by fraud or improper dealing the caveators’ claim to have the transfer set aside on the grounds of a fraud by, or which could be sheeted home to, the registered proprietors was not an interest or estate in land. They did not hold an equitable interest in the property until the claim was made good in a court.  Until then their equitable right to assail the transfer for fraud was a ‘mere equity’, being a personal right of action.  On the same principle, if a mortgagee sold land in breach of its duties to the mortgagor the mortgagor had only an equity to set aside the pending transfer of land and could not caveat. [18]-[20], [28]-[32]
  2. Accepting for present purposes that the mortgage broker owed the defendants a fiduciary duty, and that as such, if (as they denied) the plaintiffs were knowingly concerned in the broker’s breach of trust, or were a knowing recipient of trust property (being the land), then the plaintiffs may be liable to the defendants pursuant to the principles in Barnes v Addy (1874) LR 9 Ch. App. 244 with the remedy of a remedial constructive trust. However, this did not convert the defendants’ potential claim into an equitable interest as opposed to a personal claim against the plaintiffs.  This was to be contrasted with an equitable interest arising from proprietary estoppel or a common intention constructive trust: in such a case the equitable interest arose from when the promise was relied upon or the common intention was given effect. [34]-[36]
  3. It was accordingly unnecessary to consider whether the caveat ought to be removed because the grounds of claim did not refer to an interest in land known to the law, or whether the caveat should be amended. [37]
  4. If the defendants had had an interest in the land the balance of convenience would have been in their favour. [17]

Comment.  Both cases considered the decision of the Full Court in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 that where, under the Torrens system, a mortgagee sells in breach of its duties to the mortgagor, the mortgagor has an equity to set aside the pending transfer of land, but until the equity is made good by bringing a successful claim the mortgagor has no equitable interest in the land and therefore no right to caveat.  The first case distinguished it.  The second applied it.

The principle that the interest claimed in the caveat must be in existence at the time of its lodgment – it was not enough that the caveator had commenced proceedings which may result in such an interest being vested in him or her – was also asserted in Boensch v Pascoe [2019] HCA 49 which was the subject of Blog 29.

Philip H. Barton

Owen Dixon Chambers West

20 April 2020

 

31 Caveat by bankrupt on ground of “estoppel” removed.

In Official Trustee in Bankruptcy v Shaw & Anor [2019] VSC 681 (14 October 2019) John Dixon J.

The facts were –

·      In 2014 a sequestration order was made against the first defendant who was the sole registered proprietor of a residential unit and an associated car parking space.  In July 2019 the Official Trustee entered into a contract to sell the property with settlement due on 4 October 2019.  In August the bankrupt ceased to be registered proprietor of the land.  In September the Federal Court dismissed an application by the bankrupt for interlocutory injunctive relief directed at the Official Trustee’s decision to sell.

·       On 3 October 2019 the bankrupt lodged caveats over each property on the ground of “estoppel”. 

John Dixon J. ordered removal of the caveats on the following grounds –

1.   There was no serious question to be tried or prima facie case that principles of estoppel could give the bankrupt a claim to an interest in the land enforceable against the Official Trustee because –

(a)   under s. 58(1) of the Bankruptcy Act (Cth) all of his right, title and interest in the land vested in the Official Trustee whether as his property when he became bankrupt or as after-acquired property;

(b)  it was inconceivable that circumstances that would give rise to his estoppel extended before the time the bankrupt ceased to be the registered proprietor, because it was nonsensical to suggest that the registered proprietor had a claim against himself for an estate or interest in land pursuant to an estoppel;

(c)   the caveat was lodged for the improper purpose of preventing sale while he appealed the Federal Court decision.   The only proper purpose of a caveat was to prevent dealings with that property because of a claimed interest in it.

[44]-[48], [53], [55]

2.     The balance of convenience was against the caveator because –

(a)  it was frustrating the settlement of the contract, affecting the interests of a third party purchaser adversely, and if, as would be the consequence of significant delay, the sale was terminated there would be the prospect of prejudice to the caveator’s creditors;

(b)   he could not proffer an undertaking as to damages;

(c)   he had not explained why the caveat had been lodged so close to settlement.  He could still in the context of further Federal Court proceedings seek relief affecting the future conduct of the Official Trustee in relation to the proceeds of sale.

[55]-[58]

Philip H. Barton
Owen Dixon Chambers West
14 April 2020

 

30. Vendors agreeing to extend settlement date through act of agent with actual or ostensible authority – Not a formal variation of contract of sale required to comply with Instruments Act s. 126 but a waiver or estoppel – However caveator by withdrawing previous caveat had elected not to sue for specific performance but only to claim damages or was estopped from asserting the contrary – Caveat removed.

Chan & Anor v Liu & Anor [2020] VSCA 28 (25 February 2020) was a successful appeal from a decision of Forbes J [2019] VSC 650 upholding a caveat.  The facts were –

  • By a contract dated 21 July 2018 the first respondent Zhenzhu Liu agreed to purchase a property in Burwood Highway, Burwood, from the applicants for $2,450,000 with settlement due on 22 July 2019.
  • Most of the discussions concerning the sale were between Mr Liu’s wife Yumei Feng and Xuehang Cheng who was a sales consultant employed by the selling agents.  Soon after the contract was entered into she asked through him whether the vendors would agree to extend settlement to 15 September 2019 without penalty.  After speaking to the second vendor he conveyed that the vendors would only agree to an extension to 22 August 2019.  Ms Feng again sought an extension to 15 September, Mr Cheng again sought the vendors’ consent and again confirmed that the vendors would extend settlement to 22 August 2019.  Further interaction to similar effect then occurred between the purchaser’s solicitors and the agents, and on 10 August 2018 the agents again stated that the vendors had agreed to extend the settlement date to 22 August 2019.
  • Mr Liu deposed that he and Ms Feng believed that the extension to 22 August 2019 was confirmed and that only the further request to extend settlement to 15 September 2019 was not, and that they were preparing their finances for settlement on 22 August 2019 in reliance on the agent’s representation.
  • On 10 August 2018 Mr Liu caveated claiming an interest in the property pursuant to the contract of sale.
  • In late 2018 the vendors requested the purchaser to temporarily ‘lift’ the caveat so that they could refinance.  The caveat was accordingly withdrawn and on 21 December 2018 a second caveat was lodged.
  • Between 12 June and 22 July 2019 the solicitors for both parties engaged in manoeuvres and negotiations including: the purchaser’s solicitor asserting that the vendors had previously agreed to a penalty free extension to 22 August 2019 and the vendors’ solicitor disagreeing; the vendors’ solicitors seeking more money; the purchaser’s solicitor stating his client had difficulty obtaining finance and asking that the vendors consider an extension of the settlement date and a deferred payment of part of the price.
  • On 22 July, following no settlement by 4.00 pm, the vendors’ solicitor at 5.19 pm served a 14 day notice of default and rescission.
  • On 9 August the vendors’ solicitor wrote to the purchaser’s solicitor confirming termination of the contract and forfeiture of the deposit.  No response was received.
  • On 20 August the vendors’ solicitor wrote again noting that as a result of the purchaser’s default his clients needed to re-sell and demanding withdrawal of the second caveat.  In response, on 22 August the purchaser withdrew the second caveat and his solicitor advised the vendors’ solicitor of this.  However, next day the purchaser’s solicitor wrote again stating that the withdrawal of the caveat was ‘without prejudice to any of the [respondent’s] rights under the contract or at all, which rights are fully reserved’.  The vendors’ solicitor responded that day stating that his clients were attempting to re-sell quickly and requesting that the purchaser not jeopardise or delay this re-sale.
  • On 27 August the vendors entered into a contract of re-sale to a third party.
  • On 3 September 2019 the purchaser lodged a third caveat claiming an interest in the property pursuant to the (original) contract of sale and next day his solicitor sent a notice to complete by 19 September 2019.  The vendors subsequently disputed the validity of these actions.  They subsequently applied under the Transfer of Land Act s. 90(3) to remove the caveat.

The court (Beach, Kyrou and Kaye JJA) gave leave to appeal and allowed the appeal, holding –

  1. The power of the court under s. 90(3) was discretionary and so to obtain leave to appeal the applicants must establish material error by the judge in the exercise of that discretion of the kind described by the High Court in House v The King (1936) 35 CLR 499. [41]
  2. The principles applicable under s. 90(3) were as stated by Warren CJ in Piroshenko v Grojsman [2010] VSC 240, (2010) 27 VR 489, ie that the caveator must persuade the court that:

(1)  there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and

(2)  that probability is sufficient to justify the caveat’s practical effect on the ability of the registered proprietor to deal with the property in accordance with normal proprietary rights.

But that these propositions were qualified by the fact that the discretion conferred by s. 90(3) was expressed broadly and enjoined the court to make such order as it thinks fit, and so the test adopted by the court ought not to restrict the statutory power.   Further, (1) and (2) are not mutually discrete: the exercise of the court’s discretion ultimately involved a synthesis of the Court’s conclusions on each. [42], [43], [75], [76]

  1. Where a purchaser had a right, in equity, to specifically enforce a contract of sale the purchaser thereby had an interest in the land, akin to an equitable interest, which may be protected by a caveat. [53]
  2. The parties had agreed that the specified settlement date be extended to 22 August 2019. Even if the vendors had insisted that the agent Mr Chan impose a condition on the extension of time, which he failed to do, for the purpose of the summary application under s. 90(3) it was appropriate to proceed on the basis that he had, at least, ostensible if not actual authority to enter into such an extension arrangement on behalf of the applicants.  Accordingly there was a serious issue to be tried that that ‘arrangement’ did not constitute a formal variation of the contract of sale (which would have been required to comply with s. 126 of the Instruments Act) but, rather, was a waiver of the stipulated settlement date of 22 July 2019 or founded an estoppel precluding the vendors relying on that date (instead of 22 August 2019). [55], [56]
  3. However, as to whether there was a serious issue to be tried that the purchaser, when he lodged the third caveat, had and continued to have the right to specifically enforce the contract, notwithstanding failure to pay the balance of purchase monies on 22 July 2019, as a consequence of which the vendors purported to rescind the contract –

(a)  Under the doctrine of election, a party confronted by two truly alternative or inconsistent rights or sets of rights (such as the right to avoid or terminate a contract and the right to affirm it and insist on performance of it) may lose one of those rights by election by acting in a manner which is consistent only with that party having chosen to rely on the other alternative or inconsistent right; [60]

(b) Ordinarily, a caveat removal application, being in the nature of an application for an interlocutory injunction, was not an occasion for the final determination of disputed factual issues, or of the substantive claims which the caveat sought to protect, and so it was not appropriate or necessary for the court to determine conclusively whether there was a binding election.  In the circumstances of the case, it was sufficient that there were strong grounds for concluding that the purchaser had made an unequivocal election not to retain his right to specific performance but, rather, to treat the contract of sale at an end, and pursue a claim for damages ([57], [59], [63], [67], [71]) for the following reasons –

(i)       the purpose of the lodgement of the second caveat was to protect the right of the purchaser to specific performance; [64]

(ii)   on 9 August the purchaser was placed on clear notice that the vendors took the position that the contract had been terminated.  Then, in the context of neither seeking to rebut nor respond to that position, he on 22 August withdrew the second caveat in response to the demand that he do so that the vendors could re-sell.   At this point it was strongly arguable that, in those circumstances, the purchaser’s conduct in withdrawing the caveat was an election no longer to claim a right to specific performance, which was an essential pre-condition to maintaining the second caveat.  That proposition was reinforced by the email of 23 August reiterating that the vendors were attempting to re-sell the property.  There was no assertion by the purchaser at any time before the re-sale on 27 August that the vendors were precluded from doing so because the purchaser had a right to specific performance; [65]

(iii)  the context in which the purchaser’s solicitor emailed on 23 August stating that the withdrawal of the caveat was done ‘without prejudice’ etc militated strongly against the proposition that the purchaser thus preserved his right to specific performance.  The only purpose served by the removal of the second caveat was to enable the applicants to re-sell the property, which re-sale would be directly inconsistent with any potential right of the purchaser to specific performance, and the email of 23 August did not suggest that the rights sought to be preserved included a right to specific performance or that the vendors could or should not re-sell. [66]

(c) For the same reasons there was a strong basis for concluding that the purchaser, by his conduct between 9 August and 27 August 2019, was estopped from contending that he continued to have a right to seek specific performance of the contract of sale.  He represented that he did not seek to maintain a caveatable interest in the property, so implying that he no longer sought to pursue a right to specific performance; by his withdrawal of caveat on 22 August, and his conduct at that time, he enabled the vendors to re-sell; if he was now permitted to depart from this representation the vendors would suffer detriment, namely, the loss of the contract of re-sale and exposure of them to a claim in damages (or other relief) by the new purchaser. [69], [71]

6.   The degree of likelihood of success in the proceeding was relevant to evaluation of the balance of convenience.  The above conclusions on election and estoppel were  of critical significance in an assessment of the balance of convenience against the fact that retention of the caveat would prevent completion of the contract of re-sale.   The balance of convenience accordingly favoured removal of the caveat. [73], [74], [77]

7.    The vendors’ further argument that, insofar as the parties had arranged, in August 2018, for the settlement date to be extended to 22 August 2019, nevertheless the conduct of the respondent between June 2019 and 22 August 2019 in some way rendered the extension of time nugatory, raised a question of fact which the court could not determine. [79]-[82]

Comment:

This case is interesting for the following reasons –

1.     In cases of contracts of sale the caveator/purchaser will often win or lose depending on whether there was a contract at all or if there had been whether it had been repudiated.  In this case the caveator lost because by the withdrawal of the second caveat he had given up the right to specific performance by affirmation or by estoppel.

2.    The court (paragraph 3 above) states that the right to specific performance is an “interest in land, akin to an equitable interest”.  The words “akin to” are interesting and are based mainly on Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332–3.  Older cases simply said that a specifically enforceable contract of sale confers an equitable interest on the purchaser (eg Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd. R. 712, based on earlier authorities). 

3.   The principle that on a caveat removal application it is not appropriate or necessary for the court to determine conclusively whether a particular legal event would happen (see paragraph 5(b) above) is normally applied in favour of caveators, ie that the caveator has only to show a serious question to be tried.  In this case the Court of Appeal turned this principle on its head by applying it in favour of the registered proprietor, ie it was sufficient that the registered proprietor showed only “strong grounds” for there being a binding election. 

Philip H. Barton
Owen Dixon Chambers West
7 April 2020