Month: August 2025

Blog 98. Mortgagee takes priority over caveators purchasing under joint venture agreement.

Australian Commercial Mortgage Corporation Pty Ltd atf The Balmain Opportunity Trust v Negash [2025] VSC 502, Harris J. (19 August 2025).   This case concerns a unique purchase arrangement, whereby in substance a number of persons purchased off-the-plan pursuant to a joint venture agreement and/or contract, and whose caveatable interests were postponed to a subsequently registered mortgage.  The facts were –

  • In 2014 Emanda Pty Ltd (Emanda) entered into a contract to purchase land at Tarneit (the Property). Before settlement of its purchase it offered lots in the Property’s prospective subdivision for purchase.  There were two relevant documents: a Deed of Joint Venture Agreement (JVA) and a contract of sale.  The JVA provided –
    • “In exchange for the Contributor contributing to the venture costs and paying the additional contribution, the Contributor is herein granted an Option to Purchase the Nominated Lot and at the completion of the project and upon the Nominated Lot being available for sale, if the option to purchase is exercised …, the additional contribution will be credited towards the purchase of the Nominated Lot by the Contributor (as Purchaser) upon settlement of the sale … pursuant to a Contract of Sale, …” (Recital F);
    • “Emanda agrees to the Contributor joining the venture with Emanda to the extent of the Contributor contributing to the venture costs and paying the additional contribution in exchange for the Contributor being granted an option to purchase the Nominated Lot” (cl. 2.5);
    • that “ESVC amount” was:
      “The share in venture costs payable by each Contributor, which is calculated based on the total of the venture costs divided equally between each Contributor (subject to the number of Lots nominated to each Contributor)” (cl 1.3); .
    • that “additional contribution” was –
      “A sum of money payable toward the venture by the Contributor equivalent to the agreed value of the Nominated Lot, which is monies that will be later deemed as payment (or part payment …) of the Purchase Price for the Nominated Lot if the herein option is exercised ….” (cl. 1.3);

Clause 2.14.1 repeated this definition.

    • “The Contributor’s contribution is payable as follows:
      (a) an initial sum of money on signing of this Deed, as specified in the Schedule herein (“initial contribution”);

(b) a further sum is to be paid by the date set out in the Schedule (“second contribution”); and

(c) the balance of the contribution payable by the Contributor is to be paid in instalments as set out in the Schedule herein (“subsequent contributions”) …, as set out in the Schedule herein for the term of the venture with any balance owed …, to be paid in full at settlement.” (cl. 2.14.10)

    • The schedules to individual JVA’s varied between contributors. Each schedule provided for: the number, size and value of the lot; the ESVC amount, additional contribution and total contribution, and the dates and amounts of initial and second contributions.  Item 7(b) in the Schedule read –

“7. Contribution/s:

…

(b) ESVC Amount Total: The amount shown in item 4

(i) Subsequent contributions: Instalment Amount:
Date payable: Weekly Fortnightly Monthly Quarterly
*circle appropriate one.
Date of payment of
First Subsequent
Contribution: Thirty (30) days after the payment of the Second Contribution being on”

In many of the JVA’s, item 7(b) in the Schedule was uncompleted and it was difficult to reconcile the amounts stated under different headings in the document.

    • “The herein mentioned option to purchase is available to be exercised or waived by the Contributor once the Contributor receives notice by Emanda of the Nominated Lot being available for sale” (cl. 2.33.1);
    • that a contract of sale would be entered into simultaneous with execution of the deed (cl. 2.6).
  • The contract of sale provided for price, deposit and balance payable. Special condition 22 referred to “Instalment payments outlined in deed of agreement”, and stated:
    “The Purchaser and Vendor hereby agree that this Contract of Sale is subject to and conditional upon both parties entering into a deed of agreement for payments to be made by the Purchaser toward Development Costs.”

The court inferred that the “deed of agreement” was the JVA.

  • Some persons executed only one of the JVA or contract of sale.
  • The defendants which were legally represented gave evidence of paying over $2 m. in total under the contracts and deeds.
  • Emanda became registered proprietor of the Property in January 2017. It continued to offer interests in the land.  Contributors lodged caveats, the 1st to 9th defendants (being largely those caveating until early 2025) claiming a “freehold estate”, with those caveating in July 2025 claiming as “lienee” based on a purchaser’s lien.
  • Two companies (Perpetual and Balmain Fund Administration) were lenders. In May 2022, following contact from Emanda’s mortgage broker, Mr Darjai, a loan originator at Balmain Nb Corporation Ltd, Mr Logan, provided an indicative funding proposal.   On inquiry about the caveats Darjai in substance responded that: the director and primary representative of Emanda, Mr Seid, had asked his family members to caveat to protect Emanda’s interests; there were no agreements between Emanda and the caveators; the caveats were lodged on legal advice to meet the best interests of Mr Seid and the development; all caveats would be removed to facilitate refinancing; there were no third party investors; the caveats had been lodged because Mr Seid thought this would prevent any mortgagee from charging high penalty interest.
  • Logan gave evidence that he accordingly thought that the caveators had neither interests in the Property nor agreements with Emanda. There was also evidence that inquiries had been made of the municipal council on behalf of the prospective lenders.
  • On about 1 July 2022 Emanda entered into a loan agreement with Perpetual and Balmain Fund Administration secured by mortgage. On application by Emanda the Supreme Court ordered removal of the caveats to permit registration of the mortgage, with the caveators having the right to relodge their caveats thereafter.  The mortgage was registered in August 2022 and the caveats were relodged.
  • Emanda defaulted under the mortgage. The mortgage debt was assigned to the plaintiff (ACMC).  It exercised its power of sale as mortgagee by contract dated 23 December 2024 due for settlement on 10 August 2025.
  • In late June 2025 the contracts of sale and JVAs were terminated.
  • ACMC applied under the Transfer of Land Act s. 90(3) for removal of the caveats. On the day of the hearing it disclosed a sale price of $8.4 m. and a mortgage debt of about $7 m., leaving (after sale costs, tax and legal costs) little if any surplus.  During the hearing it filed an affidavit concerning its financial position.

The Sale of Land Act 1962 s. 29A(1) provided that

“For the purposes of this Act a contract is a terms contract if it is an executory contract for the sale and purchase of any land under which the purchaser is-

(a) obliged to make two or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land; or …”

Section 29P prohibited a vendor from mortgaging land subject to the terms contract, and s. 29S(1)(a) rendered such a contract voidable by the purchaser before completion.  Section 29S(1)(c) provided inter alia that a mortgagee with actual or constructive notice of the interest of such a purchaser could not exercise its remedies and must discharge the mortgage.  Section 29V(1) provided that constructive notice only existed if notice of the purchaser’s interest would have come to the mortgagee’s knowledge if the mortgagee had made: (a) a proper inspection of the relevant land; and (b) such inquiries as ought reasonably to be made by the mortgagee of the mortgagor as to the rights of any person in possession; and (c) inquiries of the relevant municipal council; and (d) such searches, inquiries and inspections in the Office of the Registrar of Titles and Registrar-General as reasonably ought to have been made.

Harris J. removed the caveats, holding –

  1. A caveatable interest could exist in unsubdivided land, but on subdivision the caveatable interest was limited to the particular lot sold. [37]
  2. There was a serious question to be tried that the purchasers had equitable interests in the Property in the form of purchasers’ liens. These were based on their payments to Emanda as vendor, which, on termination of the contracts of sale and JVAs, were required to be repaid and secured by equitable liens. [35], [38], [39], [41], [49], [50]
  3. It was unnecessary to determine the significance of the fact that following rescission of the contracts “freehold interest” was no longer an accurate description of a caveator’s interest. [42]
  4. These contracts were arguably terms contracts. [52], [59]
  5. ACMC did not have actual notice of the JVAs and of the contracts of sale. It did not have constructive notice within the meaning of s. 29S(1)(c) by reason of ss. 29V(1)(a) – (c) but whether it had such notice by reason of s. 29V(1)(d) was a difficult question.  The search of the Registry showed the reason for the caveats, which referred to liens and freehold interests – but these did not reflect the existence of a terms contract.  It was, however, arguable that a mortgagee with notice of any contract giving rise to interests in the land was required by s. 29V(1)(d) to inquire as to what the contract underlying the purported interests (in this case freehold interest) was.  There was therefore an arguable case under the Sale of Land Act. [54], [57]-[59]
  6. The balance of convenience was against maintenance of the caveats. This was chiefly because ACMC as first registered mortgagee had priority to the sale proceeds leaving very little surplus, and in light of the affidavit filed on its behalf ACMC had sufficient financial resources to satisfy any compensation awarded pursuant to the Sale of Land Act.    Further reasons supporting this conclusion on the balance of convenience were that if the sale was not completed there would be prejudice to the purchaser without the likelihood of any greater surplus of funds. [60]-[63]
  7. There would be no order as to costs, owing to the mortgagee’s right of indemnity. [65]

 

Philip H. Barton

Owen Dixon Chambers West

Tuesday, September 2, 2025

Blog 97. Caveat claiming equitable charge survives.

Formquip Nirvana Pty Ltd v Memphis Property Co Pty Ltd & Anor [2025] VSC 348, Cosgrave J. (16 June 2025).   This case is a valuable analysis of the distinction between an equitable mortgage and an equitable charge, and of how a charge may be created, this being relevant to whether an interest in land claimed in a caveat was identical to that in a lapsed caveat contrary to the Transfer of Land Act 1958 (TLA) s. 91(4).  His Honour also reminds us of the concept of hypothecation. As stated in Sackville and Neave, Australian Property Law, 10th ed, 2016, p. 1079 –

“A hypothecation is the type of security which gives the creditor power over the encumbered property only in the event of default. The creditor does not take a transfer of ownership and is not entitled to possession … a Torrens system mortgage is properly classed as a hypothecation …”

I also refer to: Hycenko v VHY Enterprises Pty Ltd & Ors [2020] VSC 834; Southside Industries (Aust) Pty Ltd v D. B. Cls-B1 Pty Ltd & Anor [2023] VSC 187SR; and Symbion Pty Ltd v Sellers [2023] VSC 441.

The facts were –

  • The directors of Formquip Project Management Pty Ltd (Project Management) were Messrs Stone and Bishop. They were also the directors of the plaintiff (Nirvana) until July 2024 when Stone became sole director.
  • Nirvana was the registered proprietor of land in Bulleen being developed into 31 residences (the Property). It had entered into 14 contracts for sales off-the-plan.
  • The Property was mortgaged to a mortgagee (Payton) registered in July 2022.
  • The directors of the first defendant (Memphis) were Mr and Mrs Crozier. Memphis alleged that it had lent Nirvana $1m. for construction work on the Property pursuant to an agreement (Loan Agreement) made on about 29 December 2022 between it, Project Management and Nirvana (as varied or novated), by which Nirvana had charged and mortgaged the Property to it.  It alleged that this agreement was in writing and implied from: a deed dated 29 December 2022 (the First Deed); an email dated 17 January 2023 (the email), and; another deed executed in January 2023 (the Second Deed) by agreement backdated to 29 December 2022.
  • The parties to the First Deed were Project Management as borrower and Memphis as lender agreeing to lend $1 m., the loan commencing on 29 December 2022 and being repayable six months later. Its schedule referred to “Security” and Nirvana, but its body referred to neither.  It was executed by Stone on behalf of Project Management but unexecuted by Memphis.
  • The email was from the then solicitors for Nirvana including to Bishop and Stone. It stated:

“We confirm your instructions that the Borrower will be Formquip Nirvana Pty Ltd ATF Formquip Nirvana Trust and not Formquip Project Management Pty Ltd as per your previous instructions given that Formquip Nirvana will be providing a second mortgage over 118–120 Manningham Road, Bulleen, Vic.

Bishop forwarded it to Mr Crozier.

  • The Second Deed was signed by Stone and Bishop on behalf of Nirvana and by the Croziers on behalf of Memphis. Its parties were Nirvana as borrower and Memphis as lender.  The principal sum was $1 m. advanced or to be advanced by 29 December 2022 for the purpose of working capital for Nirvana, repayable six months later.  Clause 5 provided:

“IN consideration of the Lender entering into this Deed, and in order to secure the obligations of the Guarantor herein the Guarantor hereby CHARGES AND MORTGAGES in favour of the Lender the property described in Item 9 of the Schedule (“the Mortgaged Premises”).”

Item 9 referred to the “Mortgaged Premises” and to a second ranking mortgage over the Property.

  • In June 2024 another mortgage to Payton was registered.  In August 2024 caveats were lodged by persons surnamed Mifsud each claiming an interest as chargee.
  • On 2 October 2024 Memphis caveated claiming an interest as mortgagee pursuant to the Loan Agreement.
  • Later in October another company controlled by Stone (Boutique) caveated claiming an interest as chargee.
  • In December 2024 Memphis commenced a Supreme Court proceeding inter alia claiming relief attributable to being an equitable mortgagee of the Property.
  • On 8 January 2025 Memphis’ caveat lapsed through a notice from the Registrar of Titles under the TLA s. s. 89A which Memphis alleged it had neither received nor known of. It then lodged a second caveat, claiming an interest as chargee pursuant to the Loan Agreement.
  • Nirvana issued a proceeding including seeking removal of the caveat under the TLA s. 90(3), in part arguing that the second caveat contravened s. 91(4), which provided that a caveat that had lapsed or been removed by court order shall not be renewed by or on behalf of the same person in respect of the same interest.
  • Nirvana argued that the caveat was impeding it obtaining further finance and thus the development. Stone deposed that:
    • Payton’s initial finance was exhausted but a new financier had agreed to lend $4.8 m. to complete the development provided its debt was fully secured on the Property which was prevented by Memphis’ caveat (however, the proposed agreement with the new financier referred to different title details from those in the court documents);
    • this further funding “would allow Nirvana to complete the development and perform its obligations under the 14 contracts of sale…”, and that “[t]he financier requires such completion to occur on or before 30 September 2025”, which could not occur if the caveat remained;
    • the relevant planning permit expired on 7 October 2025;
    • Nirvana was required to enter a section 173 agreement with the municipality for which the caveator’s consent was required.

In his affidavit Stone requested that, due to commercial sensitivities, details of the new financier and any party involved in the development not be revealed to Memphis.

  • Counsel for Memphis submitted: the loan was from Memphis to Nirvana which charged and mortgaged the Property in its favour; the word “Guarantor” in cl. 5 of the Second Deed was an error for “Borrower”; notwithstanding the ostensible terms of the deeds it was apparent that Nirvana was the borrower from the intended effect of cl. 5, the Second Deed being created shortly after the email confirming that Nirvana (not Project Management) was the borrower.
  • Counsel for Nirvana submitted: there was no such error in cl. 5; the loan was a “three-way arrangement” with Project Management as borrower and the Second Deed being executed so as to obtain a guarantee from Nirvana; but the Second Deed was irremediably defective principally because Nirvana as principal borrower could not also be a guarantor.
  • Counsel for Memphis relied on Australian Secured & Managed Mortgages Pty Ltd v Horizon Hotels Pty Ltd (“Horizon Hotels”) [2022] NSWSC 1647, where the following clause in an agreement was held to create an equitable charge:

“The applicant/s hereby charges and mortgages to and in favour of … Highmore the applicant’s interest in any and all assets and real property owned by the applicant/s individually or jointly (including the security offered) to secure payment by the applicant/s to … Highmore of the fees and any and all other monies due to … Highmore by the applicant/s including all amounts that … Highmore may incur in connection with the enforcement and/or preservation of its rights under this agreement.”

Cosgrave J. declined to remove the caveat, holding –

  1. Although “Guarantor” was referred to in cl. 5, the Second Deed did not otherwise refer to a guarantor in its description of parties or schedule. Further: Nirvana’s lawyers had prepared it and to that extent it could be construed against Nirvana contra proferentem; there was no evidence that Mr Crozier obtained professional advice about either deed; it was undisputed that Nirvana was the registered proprietor of the Property, that Memphis had lent $1 m. in connection with its development, not repaid, and that as confirmed in the email (sent by a director of Nirvana to Memphis) Nirvana had instructed its solicitors that Nirvana not Project Management was the borrower. [39]-[40]
  2. Accordingly, notwithstanding issues with the documentation, the caveator had raised a serious question of having an equitable charge, cl. 5 of the Second Deed being materially similar to that in issue in Horizon Hotels. The email was important in confirming the thrust of Memphis’ case that by agreement the borrower would not be Project Management but Nirvana which would grant security to Memphis.  Even if there was some uncertainty and the Second Deed did not accurately represent the agreement, the party to be charged signed it consistently with Memphis’ case. [37], [41]
  3. Because the relevant clause referred to both charging and mortgaging, the Second Deed created two different types of interest in the property which could attract protection by a caveat. More particularly –
    1. Whereas an equitable charge was a pure hypothecation not entitling the chargee to foreclosure on default, an equitable mortgage was a mixed hypothecation giving the mortgagee potential full beneficial ownership through the process of foreclosure. [52], [57]
    2. The creation of a charge did not require any specific wording. It sufficed that the grantor manifested an immediate intention to create a charge by using words, such as “will charge”, creating a present intention to charge land specified as security. [57]
    3. Further, an agreement to execute a registrable instrument upon request transferring to one party another’s estate and interest in land by way of security created a specifically enforceable right to call for a legal mortgage, which was a species of equitable mortgage. [57]
  4. Notwithstanding Nirvana alleging that its urgent need for finance was being forestalled by the caveat the balance of convenience did not favour its removal because:
    1. Nirvana would still be impeded by five prior interests. There was no evidence of the position of the registered mortgagee or other caveators, in particular the size of their debts or willingness to be paid, or of project completion costs; [63]-[64]
    2. If the caveat remained the new financier could still register a security interest with likely priority subsequent to the other claimed security interests; [65]
    3. Stone did not expressly depose that the only way to complete the project by 30 September 2025 was with the asserted further finance, or that without it the project would not be completed; [66]
    4. If the new financier registered a mortgage with priority over Memphis (and potentially over other parties claiming interests in the Property) then Memphis could not only lose its priority but the security interest itself. The Court could not assess with reasonable confidence whether if its caveat was removed Memphis would be repaid, absent evidence both of the debts owed to the registered mortgagee and other caveators and evidence enabling comparison of total construction and development costs with the likely proceeds of sale.  The Court suspected non-payment, with Memphis suffering serious potential damage; [67]-[68]
    5. The new finance documentation exhibited was unclear and uncertain because much was redacted or entirely missing. Evidence was lacking on both the final terms of the building contract and whether the prospective new financier approved it.  Hence it was uncertain whether the building would proceed even if the caveat was removed; [69]
    6. There was no compelling rationale for the confidentiality sought. The Court could have been asked to preserve confidentiality by for example placing an affidavit or exhibit in a sealed envelope with no access without curial leave.  However, Nirvana had acted unilaterally by withholding documentation without sufficient explanation. [70]
    7. The discrepancy in title details between the proposed new finance facility and the court documents was unexplained. [71]

    [72]

  5. Subject to hearing the parties the proceeding would be dismissed with costs taxed on the standard basis. [73]

 

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 19, 2025

 

Blog 96. Prima facie case of implied, resulting or constructive trust but caveat removed on balance of convenience.

Barnard v Otten [2025] VSC 313, Irving AsJ (3 June 2025)

The facts were as follows –

  • Rhianna Otten was the daughter of Sharon Otten and sister of Declan Otten. Rhianna was until her death on 1 April 2024 the partner and fiancée of the plaintiff (Carl) (the couple).  Carl deposed –
    • Before 2018 the four of them discussed purchasing a property, including initially in Rhianna’s name, then to be subdivided and part be transferred into Sharon’s name. But the couple did not pursue this because of difficulty finding land and cost.
    • Rhianna and Declan opened a joint bank account (the joint account) into which Sharon made deposits. This account was not used to pool funds for a property purchase.  Sharon and Rhianna did not agree to purchase a property.
    • In around 2020 the couple purchased a house at Corio (the Property) for $416,000, negotiated by Rhianna, using a loan from a financier secured by first mortgage and an $85,000 gift from the sale of Sharon’s house at Melton described by Sharon as an ‘early inheritance’. Rhianna became its registered proprietor.  The couple and children lived in the house.
    • With the couple’s agreement Sharon purchased, he believed using her proceeds of sale, and placed, a moveable granny flat onto the Property, into which Sharon and Declan moved in mid-2021, living rent free and not contributing to mortgage repayments.
    • Until 1 April 2024 the couple made all mortgage repayments, being about $80,000, from their joint finances and also paid all rates, insurance and utilities bills. Sharon paid for gas supply to the granny flat.
  • On the other hand Sharon deposed –
    • Following the sale of her property she had approximately $220,000.  She agreed to Rhianna and Declan opening a bank account in their names so that she (Sharon) could make deposits to protect that money from her other daughter Taylah.  She paid $100,000 into this joint account in October 2018.
    • In 2018 Sharon and Rhianna began discussing property purchase. She (Sharon) suggested finding land with subdivision potential, to be purchased in Rhianna’s name and then subdivided so that sufficient for a granny flat could transferred into her (Sharon’s) name.  They then involved Declan and Carl in their discussions.
    • She paid $70,700 into the joint account in November 2019 and a further $25,907.50 between March 2018 and February 2020.
    • The four persons created a Facebook group chat containing discussions about purchasing a property together.
    • On 16 December 2020 the Property was purchased in Rhianna’s name using her (Sharon’s) contribution of $85,000 and the mortgage loan.
    • She neither sought legal advice nor caveated because she was clear about her agreement with Rhianna. The couple and the children moved into the Property.   The granny flat was subsequently constructed using Sharon’s funds from the joint account and she and Declan moved in.  They did not contribute to loan repayments.
    • The granny flat was not portable and its cost of relocation would exceed initial construction costs.
    • At least fortnightly Rhianna borrowed money from Sharon and Declan for living expenses.
  • Rhianna died intestate. Subsequently her aunt made one mortgage repayment.  Carl became registered proprietor of the Property in his capacity as administrator of Rhianna’s estate.  The mortgage was in default with interest accruing inducing a default notice.  Carl engaged an agent to sell the Property, requiring vacant possession.
  • Carl and Sharon were in dispute about possession of the Property. The mortgagee issued notices to vacate to her.
  • Sharon caveated over the Property claiming an implied, resulting or constructive trust with an absolute prohibition on dealing with it.
  • Carl applied under the Transfer of Land Act 903 for removal of the caveat. He also sought possession, which was dismissed because the Property had been vacated.

Irving AsJ ordered removal of the caveat, holding –

  1. A joint endeavour constructive trust arose where there was a joint relationship or endeavour; an asset was acquired in the course thereof; the joint relationship or endeavour was prematurely terminated; one party had made financial or non-financial contributions for the purpose thereof; and it would be unconscionable to permit the other party to retain the benefit of the relevant property where the contributions were made in circumstances where it was not specifically intended that the other party should so enjoy it. [49]
  2. A common intention constructive trust arose where there was a common intention or understanding that a person would acquire an interest in property and that person has acted to his or her detriment in reliance on that intention or understanding. [50]
  3. Equity would presume that a person held property on resulting trust, proportionate to the contribution, where another person contributed to its purchase and the property was held in the name of the first person. If the contributor was the parent of the person holding the property, a rebuttable presumption of advancement arose. [51]
  4. The caveator established a prima facie case of an interest in the Property by virtue of an implied, resulting or constructive trust, because –
    1. her evidence was of providing monies pursuant to an agreement with the couple to purchase a property together sufficient to subdivide and accommodate a granny flat for Sharon and Declan;
    2. her provision of $85,000 in purchase monies was undisputed, although the evidence of whether this was a gift to Rhianna conflicted;
    3. a granny flat was established which Sharon and Declan occupied;
    4. notwithstanding Carl disputing any agreement to jointly purchase the Property, and that the $85,000 was a contribution and not a gift, a prima facie case of Sharon’s asserted interest sufficed;
    5. conflicts in evidence were to be resolved at trial.

[7], [66], [73]

  1. However, the balance of convenience favoured removal of the caveat because: the mortgagee’s intention to sell the Property was undisputed and the caveat depressed the price; although the caveat claimed an absolute prohibition Sharon’s interests in the Property were at most not asserted to be to the whole Property; Sharon could claim on the funds remaining after the mortgagee was paid out. [7], [67]-[71], [73]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 05, 2025