Month: February 2023

Blog 66. Caveats to restrain sales and freezing orders.

In the Matter of Ausun Property CBD Pty Ltd (In Liquidation) [2022] VSC 541, Riordan J., (24 May 2022); Rowell v Torbeckin Pty Ltd & Anor [2022] VSC 624, Forbes J., (18 October 2022)

These cases have the common thread of a caveator attempting to block a sale, the second case being a reminder that a caveat removal application may morph into another form of restraining application.  In Ausun a caveat blocking completion of a sale by a Receiver and Manager was removed.  In Rowell a caveat was removed by consent and the caveator then unsuccessfully applied for a freezing order.

 

In In the Matter of Ausun Property CBD Pty Ltd (In Liquidation) [2022] VSC 541 the facts were –

  • Ausun Property CBD Pty Ltd (Ausun) was trustee of a unit trust (the Trust).  Its sole director was Li Zeng.  The unitholders were a company, whose sole director was also Li Zeng, and Ziqian Wang.  The trust deed provided in substance that a unitholder was not entitled, merely by the holding of units, to the transfer of any property comprising the trust fund, or to interfere with the trustee’s powers to deal with the trust fund, or to exercise any rights in respect thereof.
  • Ausun was registered proprietor of land in South Melbourne (the Properties).  It obtained planning permission to redevelop the land.  In 2020 Li Zeng returned to China and had not since returned to Australia.
  • On 25 August 2021 Ausun was wound up for non-payment of a debt of approximately $12,000.  The liquidator attempted to interact with Li Zeng about delivery of books and records and attendance at his office.   Over the next few months: a solicitor for Li Zeng stated that he was awaiting instructions to seek orders to terminate the liquidation, then ceased to act and Li Zeng was uncontactable; the debt was repaid; the solicitor recommenced acting for Li Zeng and again foreshadowed an application to end the liquidation, subsequently seeking more time; the liquidator formed the view that it was critical for the assets to be realised and applied for an order appointing him Receiver and Manager of the trust assets;  Li Zeng’s solicitor commenced acting in this proceeding then ceased to act; on 19 November 2021 the receivership orders were made; from November 2021 Li Zeng ceased making payments under the first mortgage on the Properties.
  • On 11 March 2022 the Receiver entered a contract to sell the Properties with settlement due on 25 May 2022.  In the contract the purchaser acknowledged that the Receiver was selling as such and included clauses 15.4 – 15.8 making provision for eventualities if the Receiver was later found not to have the right to sell.
  • Li Zeng then engaged new solicitors who lodged a caveat on behalf of a unitholder and Li Zeng over the Properties and proposed to apply to terminate the liquidation.
  • A mortgagee foreshadowed exercising the power of sale if the current sale fell over.
  • The Receiver applied under the Transfer of Land Act s. 90(3) to remove the caveat and the Li Zeng and the unitholders applied for orders terminating the winding up and for injunctions restraining sale of the Properties.

The caveator argued that there was a serious question to be tried that the Receiver had breached his fiduciary duty in entering into the contract of sale: without properly consulting with Li Zeng; before being satisfied that Ausun was insolvent – alleging it would not be insolvent if certain debts owed to related companies were not enforced; and before properly investigating whether payment of a particular debt would be resolved.  It also argued that there was a serious question to be tried whether the purchaser had notice of the breach of fiduciary duty via the inclusion of clauses 15.4 – 15.8 in the contracts, as to which the caveators desired discovery.

Riordan J. ordered removal of the caveat and dismissed the other applications, holding –

  1. There was no serious question to be tried of a breach by the Receiver of fiduciary duty. The Receiver had acted properly in selling the Properties. [61]-[63], [68]
  2. The inclusion of clauses 15.4 – 15.8 in the contracts was insufficient to give notice of any otherwise unknown breach of duty. [64]-[65], [68]
  3. There was no serious question to be tried merely by reason of the assertion, without more, that the caveator desired discovery.  There may be circumstances where there was sufficient basis for suspicion of notice by the purchaser such that the Court would maintain a caveat until after discovery, but they did not exist here.  Although there was evidence that the amount expended by Ausun on the Properties exceeded the sale price, it was not contended that the sale price was below the Properties’ true value and there was no evidence that the Properties would be of greater value in the hands of Ausun. [66]-[67]
  4. The balance of convenience was against maintenance of the caveat. [61]
  5. The orders sought by Li Zeng and the unitholders would not be made. [68]-[69]

In Rowell v Torbeckin Pty Ltd & Anor [2022] VSC 624 the plaintiff registered proprietor entered a contract of sale due for settlement on 17 October 2022.  On 12 September the first defendant caveated over the property.  On 12 October the plaintiff filed an application under the Transfer of Land Act s. 90(3) to remove the caveat, returnable on 14 October.  By the morning of hearing the caveator had not filed any affidavit material, although in correspondence its solicitors had focused on the plaintiff’s alleged wrongdoing and the need for a restraining order to compel discharge of a debt he allegedly owed to it arising from breach of fiduciary duties as director and from misappropriation.  While the hearing was stood down the caveator provided an affidavit, and the parties agreed that the caveat would be removed and that the first defendant would bring an application returnable on 17 October for an order under Order 37A of the Supreme Court (General Civil Procedure) Rules 2015 freezing the net proceeds of sale.  Forbes J. dismissed the application, holding that the first defendant had not established a good arguable case or a real risk of dissipation of funds.

  Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, February 28, 2023

 

Blog 65. Mother v Daughter. Mother’s caveat based on constructive or resulting trust survives.

Dolan v Dolan & Anor [2022] VSC 543, Ierodiaconou AsJ, (14 September 2022) concerns a dispute between mother and daughter over property of which the daughter was registered proprietor, the mother being held to have a caveatable interest based on a constructive or resulting trust.  The facts were –

  • In about 1998 the first defendant (Christine) and other persons purchased land at Lorne (the parent title) for $105,000 with Christine being registered as to a half interest.   They agreed to subdivide it into two blocks, with her taking one.  She deposed that she contributed $52,500 towards the purchase.  The plaintiff (Shannan), who was Christine’s daughter, deposed that she contributed $20,000 towards the purchase, and it was common ground that Shannan paid Christine $20,000 at about the time of purchase.
  • Due to her age and income Christine could not obtain a loan to fund construction of a house.   However, a Bendigo Bank employee advised that if she transferred her interest in the parent title to Shannan an acceptable loan could be secured in Shannan’s name.  Christine deposed that Shannan accepted her proposal to make this transfer so that Shannan could obtain a loan on Christine’s behalf, but that both before and after subdivision she (Christine) would continue as beneficial owner, and that Shannan also accepted other proposed terms relating to the transfer.  Shannan denied accepting this proposal.  .
  • In 2001 Christine transferred her moiety in the parent title to Shannan, the consideration stated in the Transfer being as “An Agreement to Transfer”.   Following subdivision, one block (the property) was transferred to Shannan, the consideration in that Transfer being stated as “In pursuance of an Agreement between the Transferors for partition of the said land …”, and Shannan in 2003 became registered proprietor of this block.  The bank established a loan account in Shannan’s name with an overdraft limit of $140,000 secured by a mortgage.
  • Christine deposed that the costs for acquisition of the parent title and construction and fit‑out of the house were funded primarily from her personal resources and from the loan account, Shannan only contributing about 7% of overall build costs.   Christine also deposed to making mortgage repayments and that she paid all outgoings including council rates, home insurance, and for maintenance and improvement.  Shannan deposed that the overall build costs were largely drawn down from the loan account, that from 2004 to 2006 she made loan payments, and that Christine did not use her personal resources to fund these costs.
  • Upon completion of the house in 2003/2004 Christine, Shannan, and another family member took up residence.  Shannan left in 2006.  In 2021 Christine caveated on the ground of ‘implied, resulting or constructive trust’.  Shannan applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

Ierodiaconou AsJ dismissed the application, holding –

  1. There was a serious question to be tried that Christine was the beneficiary of a common intention constructive trust (she alleged as to 93% of the equitable title). This was supported by: her deposing to the required common intention or agreement; reference to an agreement in the Transfer (her Honour appears to state in the Transfer to Shannan of the subdivided block, but quaere this is a slip for the Transfer to Shannan from Christine); and Christine’s contribution to loan repayments.  Moreover, it appeared to be common ground that Christine contributed most of the purchase price of the parent title and that for many years she made payments into the mortgage loan account and resided on the property. [69], [71]
  2. There was a serious question to be tried that Christine was the beneficiary of a resulting trust (she alleged as to 65% of the equitable title) arising from her contributions to the purchase price of the parent title and to construction and fit-out.  Disputes about whether there was an agreement on the nature of Christine’s interest in the property, whether the presumption of advancement applied, and whether, as Shannan alleged, Christine was guilty of fraud, could only be resolved at trial. [69], [72], [75]
  3. The balance of convenience favoured maintenance of the caveat because of: Christine’s long residence; her age; evidence of her investing her life savings into the property; the fact that Shannan proposed to sell the property with vacant possession with only $20,000 from the net proceeds being distributed to Christine pending resolution of the dispute; Christine’s claim of a substantial interest in the property; and Christine’s inability to buy another property or rent one in Lorne. Any hardship for Shannan could be met by Christine’s undertaking to maintain mortgage and property expense payments, which would maintain the status quo of many years, and Christine being required within 7 days to commence a proceeding to establish her interest in the property. [76]-[78]
  4. There would be an order for amendment of the caveat to assert Christine’s claim to a 93% interest in the property. [80]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, February 21, 2023

Blog 64. Agreement concerning land insufficient to give rise to caveatable interest.

A. P. Welco Holdings Pty Ltd & Anor v Canterbury Hills Pty Ltd & Anor [2022] VSC 490, Button J., (24 August 2022) concerns an unsuccessful attempt to eke a caveatable interest out of a Memorandum of Agreement (MOA) concerning land.  It also confronts the problem of the PEXA drop down menu having limited options for description of the caveatable interest.

The facts were –

  • The defendants were registered proprietors of five parcels of land.  It was not proposed that the first plaintiff purchase the land.  The plaintiffs alleged the existence of a contract in substance to develop the land (the Agreement) between the first plaintiff and the defendants, being, insofar as in writing, constituted by a ‘Memorandum of Agreement’ (MOA).  The plaintiffs alleged that the terms included: access to the defendants’ project consultants, internal staff, and documents to enable a feasibility assessment by the first plaintiff of a project; access to the land; the defendants not advertising or negotiating with any other party to market the land; the defendants permitting the first plaintiff or its nominee to, without purchasing it, subdivide the land and then develop and sell the lots; payment to the defendants of $40 m.; the first plaintiff having carriage of the development, providing development and marketing expertise and funding for development; the parties preparing and entering a “Final Agreement” (known as the  “Staged Asset Sale Agreement”) after which the first plaintiff would pay land outgoings and for insurance; and an obligation to act in good faith.
  • The plaintiffs alleged that, pursuant to the Agreement, the first plaintiff and the defendants worked towards concluding the Staged Asset Sale Agreement, drafts being exchanged, but that on 21 December 2021 the defendants wrongfully repudiated the Agreement, which repudiation was not accepted.
  • The relief sought by the plaintiffs included an order for, or in the nature of, specific performance of the Agreement requiring the defendants to provide a signed form of the Final Agreement contemplated by the Agreement, substantially the same as the form of a particular document sent to the defendants with any agreed additions or variations.
  • The defendants, in substance, denied the existence of large components of the Agreement.
  • The first plaintiff caveated over the land on the ground of an agreement with the registered proprietor(s) dated 20 May 2021.  The defendants applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

The estate or interest claimed in the caveat was described as ‘Interest as Covenantee of a Restrictive Covenant’.  The plaintiffs accepted that this description was inapt but, referring to a Land Use Victoria document stating the options in the drop-down form on PEXA, submitted that the PEXA lodgment portal lacked any option corresponding to the particular equitable interest allegedly held by the first plaintiff.

The plaintiffs argued that although the MOA did not itself confer any proprietary interest the first plaintiff had an equitable interest in the land because: it was a binding agreement for the development and subsequent sale of the land (and not merely an agreement to negotiate accompanied by limited rights); and, because the MOA was a contract whose subject matter was land, which contained obligations with a substantial connection with the land, and which provided for its ultimate sale after subdivision with sharing of proceeds, the potential availability of an order for specific performance of the MOA gave the first plaintiff an equitable interest.

Button J. removed the caveats, holding –

  1. The arguments that the MOA was an immediately binding agreement for the development and sale of the land, that the first plaintiff was a party to it, and that it had not already been terminated by the time the caveat was lodged, were insufficiently strong to establish a prima facie case of an equitable interest. Approaching the matter on a summary basis it appeared that the plaintiffs only a very weak case that the MOA was an agreement for development of land and of no fixed duration. [64], [65], [80], [87], [90], [101]
  2. Further, any potential the first plaintiff had of obtaining specific performance of the MOA did not suffice to establish a prima facie case of an equitable interest. The mere availability of an equitable remedy such as specific performance in relation to a contract concerning land did not give rise to a proprietary interest in land. [59], [63], [75], [77]
  3. The deeming provisions of the Duties Act 2000 did not give rise to an equitable interest. [102]-[105].
  4. Even if the plaintiffs had established a prima facie case the balance of convenience was against them. [110]
  5. The PEXA system did not contain an available option directly corresponding with the nature of the equitable interest claimed by the first plaintiff, and so this case was distinguishable from other caveat interest misdescription cases.  However by reason of the holdings referred to above it was unnecessary to consider whether an order could have been obtained for amendment of the caveat. [106]

       Philip H. Barton

          Owen Dixon Chambers West

        Thursday, February 16, 2023