The main case in this Blog is UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (in liq) (No 2) [2021] VSC 711 (29 October 2021), Richards J which concerns priorities. See also Blog posts 13 and 45.
For completeness I first mention Antonie v Leith [2021] VSC 662 (15 October 2021), Matthews AsJ, which simply concerned whether a loan had been repaid. An agreement, the terms of which were disputed, was made for the plaintiff to lend money to her sister the defendant or their mother, with provision for the plaintiff to lodge a caveat in respect of the loan. The loan was made, the caveat was lodged, and money equalling the loan amount was paid to the plaintiff by their mother in November 2018, leading to the defendant seeking removal of the caveat. The plaintiff characterized the repayment not as being of the loan but as an advancement of the defendant’s entitlement under their mother’s Will which would be eventually be repaid to the mother’s estate by deduction from the defendant’s share of the estate. Matthews AsJ held that the November 2018 payment was of the loan and removed the caveat.
The case the subject of this Blog is a sequel to AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2019] VSC 688 and [2020] VSCA 235, the subject of Blogs 32 and 40. Those cases had upheld UDP’s caveat over AE Brighton’s land grounded on a constructive trust arising from AE Brighton’s use of the moneys to which UDP was entitled. Further, in UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (in liq) [2021] VSC 528 (26 August 2021) Richards J. held that UDP could trace the proceeds of the constructive trust into the land. The land was sold and the net proceeds of sale, after payment out of UDP’s interest, which interest had priority over all other unregistered interests, remained in court.
The case the subject of this Blog was a dispute about entitlement to the funds in court between two of the holders of later unregistered interests, Temelkovski and Hagit Pty Ltd (Hagit). The relevant facts were –
- In 2013 AE Brighton entered a contract to purchase the land.
- Before settlement of the contract of sale Temelkovski and AE Brighton entered an agreement on 5 November 2013 under which he agreed to make available a cash advance facility secured by a mortgage over the land and other security. The mortgage was executed on this date, with AE Brighton’s sole director Mr Esposito executing it on the company’s behalf. Temelkovski did not register it or lodge a caveat.
- The contract of sale was settled on 21 November 2013 and AE Brighton became registered proprietor on 2 December 2013. It drew down on the facility between 4 December 2015 and 25 September 2018.
- In early March 2018 Hagit offered to lend money to Mr Esposito’s wife Violeta Esposito, who by then was the sole director of AE Brighton. Mr Esposito represented to Hagit that the security would include a second unregistered mortgage over the land. Hagit’s solicitors conducted a title search which revealed two registered mortgages and two caveats by holders of unregistered interests other than that of Temelkovski. Mr Esposito represented to Hagit that neither the caveats nor any other security interests would affect Hagit’s proposed security.
- Ms Esposito signed the relevant documents on 5 March 2018. The security included a caveat and unregistered mortgage over the land. The mortgage identified the mortgagor as ‘Violeta Stojcevski’ (by which name she was also known).
- On 5 March 2018 Hagit advanced the funds to Ms Esposito. On 6 March 2018 it caveated over the land.
- On 2 October 2019 Temelkovski caveated over the land based on the 2013 mortgage.
- Between 8 and 12 October 2021, relying on an authority given, Hagit ‘amended’ the mortgage by replacing the mortgagor’s name of ‘Violeta Stojcevski’ with AE Brighton’s name.
Her Honour held that Temelkovski had priority –
- AE Brighton’s mortgage to Temelkovski remained an equitable mortgage notwithstanding that predated AE Brighton becoming registered proprietor of the land. A valid charge could be granted over future property. [15]
- The general rule for resolving competing equitable interests in land was, where the merits were equal, that the first interest in time had priority. However, the earlier interest could be postponed to the later by disentitling conduct by owner of the earlier interest. The better equity was determined having regard to the conduct of each party in relation to their respective interests, a comparison of that conduct in all the relevant circumstances, and general considerations of fairness and justice. The mere failure of the holder of the earlier interest to caveat did not dictate its postponement to the holder of a later interest who had searched the Register: it was but one circumstance to be considered. [33]
- Temelkovski had the better equity. Assuming, notwithstanding its subsequent amendment of the mortgage, that Hagit’s equitable interest dated from 5 March 2018, it postdated Temelkovski’s interest. Temelkovski’s interest was not postponed because:
the mortgage was critical to Temelkovski’s decision to lend as it was the primary security; his failure to caveat was by itself insufficient to postpone;
no other conduct of Temelkovski had led Hagit to accept the land as security in the belief that Temelkovski’s interest did not exist – there were no dealings directly between them;
the land was not the primary security for Hagit’s loan;
the title search gave Hagit notice that the land was substantially encumbered, demonstrating that it was prepared to take a significant risk in accepting the property as security. [35]-[40], [43].
Philip H. Barton
Owen Dixon Chambers West
Tuesday, April 5, 2022