Month: December 2024

Blog 91. A NSW case and a pseudo-law case providing some light Christmas relief.

I do not normally deal with NSW cases, but a veteran Victorian lawyer has drawn my attention to an interesting NSW case which I first consider briefly.   Then I offer the light relief found in the most recent Victorian caveat case, replete with pseudo-law.

Cui v Salas-Photiadis [2024] NSWSC 1280, Hmelnitsky J.  Briefly the facts were –

  • The second defendant (Simpo) was the registered proprietor of land (the Land). On 27 February 2024 it as borrower entered into a Loan Agreement with the first defendant as lender.  Clause 17.1(a) provided:

‘[Simpo] grant[s] a security interest in the collateral to [the first defendant] to secure payment of the secured money.

This security interest is a mortgage of the land, … and a charge over the other collateral.

This security interest is also an encumbrance.’

‘Collateral’ was defined in the agreement as including ‘the land’, which itself was described as:

‘each on [sic] or more of the following that the context allows:

(a) the real property described in the [Finance Offer Schedule];

…’

The Finance Offer Schedule stated that the security included a ‘Mortgage by [Simpo] over the land detailed below’.  Underneath was a description of the Land and the words ‘2nd Registered Mortgage’.

  • Part of the secured money was amounts outstanding under construction contracts between a company associated with the lender and Simpo.
  • A form of mortgage to give effect to the security arrangement was executed but not registered.
  • On 12 April the plaintiff entered into a contract to purchase the land, which was improved by a home.
  • On 20 May the first defendant caveated claiming an interest as a ‘charge’ granted under the loan agreement.
  • Settlement ‘occurred’ on 28 June. However, in the words of the judge –

‘Bafflingly, no participant in the PEXA workspace noticed that the first defendant’s caveat had been lodged.  If they did, they did not appreciate the significance of it.  Instead, the parties blindly proceeded towards settlement in the usual way.’

  • The following day the incoming mortgagee received a requisition from Land Registry Services stating that the caveat prevented registration of the transfer and mortgage.
  • The plaintiff sought an order under s. 74MA of the Real Property Act 1900 (NSW) that the caveat be withdrawn.

Hmelnitsky J. declined to order that the caveat be withdrawn, holding –

  1. The caveat was not invalid for failure to specify the nature of the equitable estate or interest claimed sufficiently. His Honour referred to NSW authority which had itself quoted English authority which stated –

‘An equitable charge may, it is said, take the form either of an equitable mortgage or of an equitable charge not by way of mortgage.  An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so: … An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale: …’

His Honour said that these references acknowledged that an equitable charge may or may not take the form of an equitable mortgage.  [33], [34]

  1. Like Victoria, NSW has legislation (the Home Building Act 1989) s. 7D of which prohibits an agreement which, in substance, purports to give a person a legal estate in land to secure the performance of (ie payments under) a residential building contract. This agreement was unenforceable by reason of s. 7D to the extent it purported to secure the payment for residential building work. [40], [46], [47]
  2. However, as the loan agreement and mortgage created a valid and enforceable equitable mortgage in favour of the defendant to secure the repayment of loans other than the amounts due and payable under the construction contracts, to this extent the caveat was valid. The description in the caveat of the first defendant’s purported equitable estate or interest in the land remained correct (or sufficiently correct). [52], [54]

Comment:

Holding 1, appears to this blogger to be lenient to the caveator, but arguably a charge was created under the Loan Agreement.  The Victorian reader should stick to the options contained in the Victorian government publication ‘Guide to grounds of claim for caveats’.   But it is noted that, apart from various discrete ‘mortgage’ claims, in Victoria one can claim an interest as chargee based on a ‘charge contained in mortgage’.

As to holding 2, the similar Victorian legislation is s. 18 of the Domestic Building Contracts Act 1995.

 

Nelson v Greenman & Anor [2024] VSC 704, Gobbo AsJ. (15 November 2024)

The facts were:

  • Stephen Douglas was the registered proprietor of land at Koo Wee Rup.  He was bankrupted in 2019.  On the making of the sequestration order his interest in the land vested in the plaintiff under the Bankruptcy Act and in 2021 the plaintiff became its registered proprietor.  Between then and March 2024 were many legal twists and turns involving the Federal Court, the Sheriff, VCAT, the Supreme Court, and the police executing a warrant of possession on the third attempt.
  • In the course of the foregoing the first defendant caveated on the ground of an implied, resulting or constructive trust.  The plaintiff sought removal of the caveat under the Transfer of Land Act s. 90(3).

In the course of removing the caveat with indemnity costs Gobbo AsJ. grappled with documents and concepts relied on by the caveator including: the argument that the property was Christian ministry headquarters involving the DOUGLAS Stephen Ross Estate Trust of which the first defendant was the Special Trustee, and the Koo Wee Rup Ministry Trust; that the Special Trustee was formalised by trust deed which included the property; that the DOUGLAS Stephen Ross Estate Trust was a Life Estate in Fee Simple; that under the Trusts (Hague Convention) Act 1991 (Cth) whoever held a title to the property held it on behalf of the trust; accordingly the property was exempt property held in a trust by the bankrupt for someone else, ie the Koo Wee Rup Ministry, as described in the Bankruptcy Act s. 116; as to certain public figures described as the ‘Living Man’ or ‘Living Woman’; and many others.

Her Honour described the caveator’s affidavit as ‘34 pages of nonsensical quasi‑legal concepts and phrases, Bible quotes and references to organisations and entities with unconventional titles or descriptions’.  Her Honour rejected an application by the caveator to remove the case to ‘the People’s Court of Terra Australis’.   The blogger also learnt that there is now a body of literature on the rise of ‘pseudo-law’ being ‘a collection of legal-sounding but false rules that purport to be law’, being ‘integrated and separate legal apparatus’ with its own confounding legal theories, constituting an ‘alternative legal universe’. Her Honour lists exotic varieties of this ‘doctrine’.

The legal points of value in this case were as follows.  Her Honour stated that at its highest, the first defendant’s case appeared to be that the plaintiff had no entitlement to possession as legal owner because the land was legally transferred to a trust.  However, in Douglas v Nelson [2024] VSC 116 Quigley J held it not to have been established that the bankrupt had made a valid transfer of the legal ownership of the title to the land to any trust entity, referring to the law on when equity would recognise the assignment of property without consideration.  Gobbo AsJ also dealt with: the circumstances in which silence could constitute acceptance of an offer sufficient to establish a contract, and; the jurisdictional basis of the office of Associate Justice.

Merry Christmas

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 10, 2024

Blog 90. Caveat removed – no common intention constructive trust

Marinos v Mellissinos & Ors [2024] VSC 642, O’Meara J.

The facts were –

  • In about 1987 the first defendant (Despina) and her husband John (the parents) purchased a residential property in Reservoir.
  • In 2008, their daughter the plaintiff (Kalliopi) purchased the property from them for $450,000 financed by a Citigroup mortgage.
  • The parents lived at the property John dying in 2012.  Kalliopi and her brother the second defendant George also lived there.  The third to fifth defendants were in effect other family members who had lived there until recently.
  • In about 2018 the mortgage was ‘refinanced’ with Pepper Finance (Pepper) for $648,000, which Kalliopi claimed neither to have known of until 2021 nor to have benefited from.  She claimed that George had conspired with others to obtain the refinancing and drawn down $220,000 ostensibly for Despina.
  • On learning about the ‘refinancing’ Kalliopi complained to AFCA, which determined that errors had led to wrong refinancing, whereby Pepper was required to reduce her debt to $383,688 and adjust the interest rate.
  • On 6 March 2024 Despina caveated claiming an implied, resulting or constructive trust.
  • The property was sold on 10 May.  The sale was uncompleted.
  • On 25 September Despina’s solicitors asserted among other things: that (as allegedly confirmed by Kalliopi in her submissions to AFCA) George had made all repayments to Citibank (claimed to be on behalf of Despina) and that the property was transferred to Kalliopi to protect it from George who Kalliopi had asserted  “had implicated their parents in his finances and now the house was at risk”; George had made all further mortgage repayments (again on behalf of Despina); Despina had lived there since 1987, had made all property-related expenses, and had paid Citibank about $125,000 to avoid it taking possession for mortgage arrears; that accordingly Kalliopi held the property on trust for Despina.
  • On 10 October Kalliopi commenced an application under the Transfer of Land Act s. 90(3) to remove the caveat.
  • On about 11 October the defendants left the property.
  • On 16 October Pepper Finance notified Kalliopi that $21,483.58 was due by 23 October with subsequent monthly repayments of $2,444.11.  Kalliopi deposed that she could not pay this and so anticipated a mortgagee’s sale.
  • Kalliopi deposed that: she and the first to fourth defendants continued to live on the land after settlement of her purchase; this was an informal family arrangement, there being no written agreement or contract; her parents agreed to pay towards the utilities and rates in lieu of rent without discussion of any timeframe; she owed George nothing.   She also disputed that she had not made any mortgage repayments.
  • Despina deposed that:
    • her understanding of the ‘agreement’ reached in February 2008 was that: the house would belong to the parents; the family would continue to live there; George would pay the mortgage on behalf of the parents; the parents would meet all other expenses;
    • this agreement was performed until 2021, but she did not know why George stopped paying the mortgage then;
    • sometime after John’s death she paid $65,000 in loan arrears to forestall the bank taking possession;
    • later she paid loan arrears of about $60,000;
    • she could not locate documents evidencing these payments;
    • she was unaware of the circumstances of 2018 refinance but received around $220,000 which she gave to George because he said Kalliopi owed him this sum.

The exhibit to Despina’s affidavit, including cheque stubs and similar documents, did not appear to support payments by George.

O’Meara J. ordered that the caveat be removed, holding –

  1. The first defendant had not demonstrated a prima facie case that it was probable that a court would find that any such ‘agreement’ as she alleged was made in 2008 and subsequently implemented, and that she would be found to have the equitable interest asserted, having regard to:
    1. her argument that the plaintiff should have responded better to her claims was invalid because: the plaintiff was disadvantaged by her late service of material; the plaintiff denied that she had an interest in the property; since caveating she had not commenced proceedings and when she did belatedly produce an affidavit the exhibited contemporaneous documentary material allegedly supporting her claims was exceedingly ‘slim’ as well as ambiguous; [31]
    2. while the financial arrangements relating to the property were murky, she bore the onus of showing that, on the evidence, her claims were probable; [31]
    3. the best source of evidence concerning the second defendant’s alleged payments pursuant to the ‘agreement’ was himself, but although the affidavits included significant claims related to him, and he appeared to be in in the first defendant’s ‘camp’, he had without reason filed no material.  This was a significant matter to be taken into account in considering the weight of the evidence relied upon by the first defendant; [32]-[34]
    4. whether or not the consideration referred to in sub-paragraph (c) was taken into account:
      1. the plaintiff broadly disputed: the first defendant’s claims of an ‘agreement’; the alleged payments by the first and second defendants and her late father pursuant to that agreement; the first defendant paying $60,000 and $65,000 in respect of ‘arrears’; [35]
      2. none of the few contemporaneous documents produced by the first defendant appeared clearly to support the proposition that the second defendant made any payment towards the mortgage.  The documents produced relating to payments to Citibank appeared to involve payments by either her late husband or from their joint account; [35]
      3. no documents had been produced in support of the first defendant’s claims that of paying rates, utilities, insurance, maintenance costs, or mortgage arrears; [35]
    5. even if any of the first defendant’s evidence could be described as ‘uncontested’ the court was not bound to accept it; [36]
    6. the form in which the first defendant deposed to an ‘agreement’ would be inadmissible at trial; [37]
    7. the contemporaneous documentary material produced by the first defendant was not necessarily indicative of the so called ‘agreement’.  The plaintiff’s evidence was that the first and second defendant and his partner paid her no rent and the categories of payment which the plaintiff acknowledged were identified, and not denied, as being ‘in lieu of rent’.  Accordingly there was a specific alternative explanation for any payments, making considerably more sense than the proposition propounded by the first defendant, not supporting her having an equitable interest in the property; [38]-[41]
    8. the letter of 25 September omitted any clear assertion of an ‘agreement’ in 2008 founding the first defendant having an equitable interest; [42]
    9. the material given to ACFA was not inconsistent with the plaintiff’s claim. [47]

[48]

O’Meara J. stated the legal principles of common intention constructive trusts. [20]-[21]

  1. The balance of convenience also supported the plaintiff because: no defendant now lived at the property; maintenance of the caveat would continue to erode any equity in the property; the first defendant had offered no undertaking as to damages or to file a Statement of Claim and no proposal for payment of the mortgagee. [50]-[51]
  2. There would be considerable force in the proposition that any further caveat would be an abuse of process attracting indemnity costs. [55]

Philip H. Barton
Owen Dixon Chambers West
Wednesday, December 4, 2024