Lee v Yap  VSCA 297 (3 November 2021), Court of Appeal (Kyrou, McLeish and Walker JJA) is interesting because it deals with the scope of balance of convenience considerations. In particular the court clarified that the two-stage test (ie interest in land and balance of convenience) only informed how the court should exercise its discretion under the Transfer of Land Act s. 90(3) and did not subsume or restrict the power conferred by s. 90(3).
Before proceeding to the case, however, I welcome my first international follower Dr Jan Halberda of the Jagiellonian University, Krakow, Poland, founded in 1364. I met Jan at a Conference in 2016. I have sent him excerpts of the Transfer of Land Act with an explanation of the caveat procedure. I am reminded that Oliver Cromwell described English Law as a “tortuous ungodly jungle” and trust that Jan will not find that an apt description of this area of law.
This case is difficult to understand without listing the parties in connected proceedings –
This appeal –
Applicant Ms Lee (registered proprietor).
Respondents Eng Hock Yap, Sau Lin Kam, Eng Hing Yap (caveators),
Registrar of Titles.
The substantive proceeding (issued 2017) –
Plaintiffs Eng Hock Yap, Sau Lin Kam and Chin Huat Yap,
(Adam Yap was formerly the second plaintiff).
Defendants Ms Lee, Yap Brothers Holdings Pty Ltd, Eng Seng (Vincent) Yap, Eng Hing Yap.
2019 application in the substantive proceeding for appointment of receiver –
Applicants Eng Hock Yap and Adam Yap
Respondents As in substantive proceeding.
The facts were –
- The applicant (Ms Lee) was a director of Yap Brothers Holdings Pty Ltd (the ‘trustee’). In 2005 the trustee transferred a property in Glen Iris to her for no consideration. This property was subject to a mortgage and to caveats lodged by the above caveators.
- In the substantive proceeding it was alleged that this transfer was in breach of trust and held by Ms Lee on a resulting trust for the contributors of funds to the trustee, ie for the plaintiffs. They also claimed that this transfer, after the loss of the trust deed had been discovered by Ms Lee in 1998, occurred in breach of her duties to the trust.
- In 2019 an application was made in the substantive proceeding for appointment of a receiver to the trust to secure the trust property. On this application Ms Lee deposed that the trust assets included cash, shares, and properties in Carlton and Balwyn. The trustee’s directors also offered undertakings as to the assets of the trust. The defendants also filed proposed orders including a proposed undertaking not to deal with the Balwyn and Carlton properties and the shares, and an undertaking (the Proposed Undertaking) by Ms Lee not to sell or otherwise deal with the Glen Iris property, pending resolution of the substantive proceeding.
- At the receivership hearing, counsel for the applicants only sought that “the title deeds” (ie the duplicate certificates of title) of the Carlton and Balwyn properties be taken into control to prevent their use by way of mortgage deposit (ie, although the court does not say it, to prevent creation of an equitable mortgage). (Because the Glen Iris property was subject to a mortgage and its “title deeds” were not in the defendants’ possession). The application was abandoned on the defendants’ undertaking to lodge with the Prothonotary the title deeds to the Carlton and Balwyn properties and Ms Lee’s counsel giving an acknowledgement concerning trust distributions. The undertakings included in the defendants’ proposed orders were not sought, the Proposed Undertaking having been rejected.
- Later in 2019 the Court declared in the substantive proceeding that the trust had failed for uncertainty and the trustee held all its assets on resulting trust for those who had contributed property to the trustee at any time.
- In April 2021 Ms Lee entered into a contract to sell the Glen Iris property with settlement due in June. This required removal of the caveats. Correspondence between solicitors ensued, the upshot of which was that the caveators did not object to a sale for proper market value with the only outstanding issues being where the net proceeds of sale were to be held and what deductions were to be made before this pay in, in particular were agent’s fees and commission to be deducted? (The agent was the third defendant in the substantive proceeding).
- Following the breakdown of discussions Ms Lee sought removal of the caveats pursuant to the Transfer of Land Act s. 90(3). She offered an undertaking to the court at first instance and to the Court of Appeal to pay the net proceeds of sale, after discharge of the mortgage and usual sale expenses, into a solicitor’s trust account or into court.
- At the hearing before McDonald J. it was was common ground that the caveators had an arguable case of a caveatable interest. However, before considering the balance of convenience, the judge observed that: the reason why there was no undertaking at the receivership hearing to lodge the Glen Iris title deeds was because the bank had them; the Proposed Undertaking was designed to address the applicants’ concern that there was a risk that the trust property would not be preserved; and it had not been suggested at the receivership hearing that there was any risk of Ms Lee selling the property. His Honour also observed that her subsequent conduct in entering a contract of sale was therefore inconsistent with the basis upon which the application for the appointment of a receiver had not been pressed.
- Counsel for Ms Lee submitted that a significant balance of convenience consideration was her preparedness to pay the net proceeds of sale into court. The judge stated that viewed in isolation this submission had force but that it was necessary to include in the assessment her conduct in entering into a contract of sale in light of the resolution of the receivership application. He observed that it was extremely unlikely that the applicants would have abandoned the receivership application if there was any prospect of Ms Lee being free to sell the Glen Iris property.
His Honour stated that the “gravamen” of the resolution of the receivership application was that the three properties would not be dealt with until the determination of the substantive proceeding (the “gravamen finding”). Accordingly his Honour stated that the balance of convenience strongly favoured the maintenance of the status quo.
- As to a submission that it was relevant that Ms Lee would suffer financial prejudice if the sale did not proceed the judge stated in substance that any adverse financial consequences were of her own making.
- Ms Lee sought leave to appeal.
The Court of Appeal granted an application for an extension of time to appeal, granted leave to appeal and allowed the appeal, holding –
- The court reiterated caveat removal principles in standard terms (see eg Blog 1). -
- Because the court’s power under s. 90(3) was discretionary an applicant for leave to appeal against an exercise of that discretion must establish error of the kind identified in House v The King (1936) 55 CLR 499. 
- In dealing with the Proposed Undertaking the judge was aware that it was never given but that it was relevant to understanding how the receivership application came to be resolved. It was not legally irrelevant to the caveat removal application. The judge had not treated it as decisive, rather the judge treated as significant the manner in which the receivership application had been resolved. -
- The proposition that the judge erred in giving substantial weight to a factor which did not on proper analysis bear upon the balance of convenience, namely the Proposed Undertaking, was erroneous. This argument proceeded on a mistaken understanding of what matters a court could permissibly consider when dealing with an application under s. 90(3). Although the courts had adopted the two stage test (ie that the caveator must estate a serious question to be tried of an interest in the land and that the balance of convenience favoured maintenance of the caveat) s. 90(3) was drafted broadly and enjoined the court to make such orders as it thought fit. The two-stage test could only inform the court in considering whether to exercise the discretion conferred on it in any particular case and, if it chose to do so, what form that exercise should take. This test did not subsume or restrict the power conferred by the statute. What a court may consider as going to the balance of convenience was unconfined. Thus, in assessing the balance of convenience it was open to the judge to have regard to the manner in which the receivership application was resolved and the assumptions that underpinned that resolution. -
- The gravamen finding, which was based in part on the Proposed Undertaking, was erroneous. On its face that finding could potentially be understood as either a finding: that the parties had agreed to resolve the receivership application on the basis that the Glen Iris property would not be dealt with, or; (a somewhat strained reading of the finding) that Ms Lee’s conduct of the receivership application had induced the applicants to believe that the Glen Iris property would not be dealt with, based on which they agreed not to pursue their application. Neither finding was open on the evidence. There was no evidence suggesting an agreement of that kind and the rejection by the receivership applicants of the Proposed Undertaking suggested to the contrary. The receivership hearing was conducted in a way suggesting that the concern was not with the Glen Iris property, but with the Carlton and Balwyn properties. The gravamen finding treated Ms Lee as being constrained in the manner she would have been constrained had she given the Proposed Undertaking. -
- The gravamen finding plainly played a significant if not determinative role, infecting the judge’s assessment of the balance of convenience. [6(c)], 
- As to the judge’s reliance on the proposition that Ms Lee was the author of the circumstances she faced, a statement of that kind could be made in any case where the registered owner entered a contract of sale before removal of a caveat, and it was not a significant factor. It could also be said that the receivership applicants were authors of their circumstances because they had rejected the Proposed Undertaking. 
- As the Court of Appeal had before it the submissions and evidence that were before McDonald J, and as the matter was urgent, it was appropriate for it to make the orders that his Honour ought to have made, ie exercise afresh the s. 90(3) discretion, and not remit the matter. Ms Lee would plainly suffer immediate financial prejudice if the caveats were not removed and there was no real evidence that the caveators would suffer prejudice if the caveats were removed. The balance of convenience favoured the removal of the caveats provided appropriate steps were taken to preserve the proceeds of sale. The undertaking proferred by Ms Lee’s counsel sufficed. -
Philip H. Barton
Owen Dixon Chambers West
Thursday, February 17, 2022