Parwan Investments Pty Ltd (recs apptd) v Hooper & Anor [2024] VSCA 86, McLeish, Walker and Macaulay JJA, (6 May 2024).

In this case the Court of Appeal exhaustively considered the remedy of specific performance, and the nature of a Torrens system mortgage and of the equitable interest of a purchaser.

The facts were –

• In 2015 the Commonwealth Bank lent the appellant (Parwan) $850,000 to purchase an 88 ha. parcel of land (‘Lot 2’). Parwan became registered proprietor.  The bank registered its mortgage.
• On 21 October 2016, without the consent of the bank and so in breach of the mortgage, Parwan entered into a contract to sell 11 ha. of Lot 2 (the ‘Purchased Land’) to the first respondent (Hooper) for $900,001 with a deposit of $1. The contract –
  • made settlement conditional on registration of the plan of subdivision by 21 April 2018, obliging Parwan to use its best endeavours to obtain this and giving Hooper a right of termination if this date was not met;
  • specified settlement by the later of 21 March 2018 or 14 days after notice of registration of the plan;
  • was subject to a contemporaneous 24 month lease to Hooper of the Purchased Land.
• Hooper paid the deposit and the parties entered into the lease which provided that unless terminated it would thereafter continue as a periodic tenancy.
• In 2017 Hooper caveated over Lot 2 claiming an interest as purchaser.
• 21 April 2018 passed without Hooper electing to exercise the right of termination of the contract of sale.  It remained on foot with Lot 2 unsubdivided and so unable to be transferred to him.
• In 2018 Parwan executed an equitable charge over Lot 2 in favour of Hooper for $350,000, said to reflect the value of Hooper’s improvements.  In 2018 Hooper caveated based on this charge.
• Parwan subsequently defaulted on the loan and the money secured became immediately payable. On 13 March 2020 the bank appointed receivers of Lot 2.  Pursuant to the mortgage and their terms of appointment the receivers had power to take possession of and sell the land.  The bank instructed the receivers to sell Lot 2 and recover the secured money.
• In February 2021 Hooper commenced a proceeding seeking inter alia specific performance of the contract of sale.  Parwan counterclaimed seeking orders for vacant possession and a clear title.   Parwan sought summary judgment and gave Hooper a notice to vacate.
• Matthews AsJ granted partial summary judgment, namely on those aspects of the claim and counterclaim concerning specific performance, finding that the contract was not amenable to such relief, and so dismissing that claim as having no real prospect of success (Blog 63). Forbes J. vacated these orders, allowing Hooper’s claim to proceed (Blog 73).  Parwan now sought leave to appeal against the orders of Forbes J.

The Court of Appeal granted leave to appeal and allowed the appeal, holding –

1. A mortgage registered under the TLA constituted the mortgagee as the registered proprietor of a security interest in the land. Except in the case of fraud, the registered proprietor of land (including a registered mortgagee) held it absolutely free from all encumbrances, with two exceptions not presently relevant, but subject to various specified rights including the interest of a tenant in possession. [48], [49]
2. Until the discharge from the secured money, the registered first mortgagee had the same rights in law and equity as a mortgagee of general law land in whom the legal interest was vested (with the mortgagor retaining the right to quiet enjoyment until default). [50]
3. A registered mortgagee had, upon default in payment of the principal sum or interest secured, statutory powers to enter and sell the land to enforce its security interest. But the mortgagee could instead appoint a receiver to the land and vest that receiver with powers of sale.  Where a mortgage was (as here) made by deed and the power of sale was activated the mortgagee had a statutory power to appoint a receiver.  This power may also (as here) be conferred by the mortgage document itself following non-compliance with a default notice. [50]-[52]
4. Receivers appointed pursuant to such mortgage provisions were the agents of the mortgagor. This, however, was a ‘special and limited agency’ eg. because the receiver was appointable and removable by the mortgagee and could in many ways act independently of the mortgagor or at the direction of the mortgagee.  It was not an ordinary agency because in exercising powers (including of sale) the receiver was appointed for the mortgagee’s not the debtor’s benefit. [53], [54]
5. Specific performance in its narrow and strict sense assumed an executory or preliminary agreement to do something to put the parties in the legal position which the agreement intended, eg specific performance of a contract of sale of land to compel the vendor to execute and deliver a transfer, enabling its registration. [55]
6. Enforcement of the performance of an executed contract was not specific perform­ance in this strict sense, nonetheless described as ‘relief approximate to specific performance’. [56]
7. Specific performance was unavailable if damages were an adequate remedy; but damages were generally an inadequate remedy against a vendor failing to complete a sale. [57]
8. Possible defences to an action for specific performance were –
   1. that fulfilment of the contract was likely to require continual curial supervision: however, this was not an automatic bar – much depended on the period of performance of the obligations and the number and detail or complexity of the terms to be performed. Courts often exercised a supervisory jurisdiction on applications by trustees, receivers and administrators; and completion of a contract had been ordered against vendors who were also required to use best endeavours to register a plan of subdivision – the prospect of some supervision in those circumstances had not prevented the specific performance order; [58]
   2. impossibility of performance, ie a prospect that the defendant would lack power to comply with the proposed order. The rationale for this defence was that equity would not specifically enforce the impossible, eg obtaining the apparently unobtainable consent of a third party.   So, although a vendor must use best endeavours to obtain any necessary consent to sale, including taking necessary proceedings, and an order for specific performance could be made conditional on such consent being obtained, there would be no such order if it was sufficiently clear that consent was unobtainable; [59]-[61]
   3. futility of performance, ie a possible insufficient probability that the order would sufficiently benefit the plaintiff to render it just; [59]
   4. hardship suffered by a third party, eg where specific performance of a contract of sale of an interest in land would prejudice another person interested therein but not a party to the contract. A court may also refuse specific performance if it was probable that this order would involve a breach of contract with a third person. [62], [63]
9. Although it was often said that a contract of sale of land gave the purchaser an equitable interest therein, this only meant that the purchaser had acquired certain equitable rights to its specific performance, and that these and related rights extended, for example, to rights to obtain injunctions and other such relief against the vendor and third persons in appropriate circumstances.  So, under a specifically enforceable contract of sale of land an equitable interest was created immediately.  In other words, in this context, a purchaser’s equitable interests were commensurate with the extent of equity’s protection of them. [64], [65]
10. In this case, the circumstances in which a trial court would exercise its discretion included:
    1. the bank (not a party to the proceeding) was the registered proprietor of a first mortgage with an indefeasible legal security interest in the land;
    2. by contract subsequent to this registration Parwan sold a part of Lot 2 conditional on registration of a plan of subdivision creating the title to the land sold;
    3. the contract was without the bank’s consent and so Parwan’s entry into and performance of it would breach the mortgage;
    4. following Parwan’s default the bank appointed receivers to enforce its security interest, who wished to sell Lot 2 and who had given notice to terminate the lease;
    5. it could not be assumed that registration of the plan of subdivision could or would occur;
    6. Parwan had possibly breached it obligation to use best endeavours to obtain such registration;
    7. the bank was not obliged to discharge its mortgage until fully paid;
    8. the mortgage debt would not be discharged by payment of the amount owing to Parwan under the contract of sale; and
    9. after the proceeding commenced the bank refused consent to the sale. [67]
11. An order for specific performance in the strict sense would be that Parwan execute and deliver to Hooper a transfer of the subdivided portion of Lot 2 corresponding to the Purchased Land. But, before that, Parwan would have to perform the following contractual promises:
    1. use its best endeavours to prepare and register a plan of subdivision containing a lot corresponding with the Purchased Land (the ‘subdivision obligation’), and;
    2. assuming this succeeded, procure a discharge of mortgage enabling Hooper’s registration as proprietor free of encumbrances (the ‘mortgage discharge obligation’), and;
    3. to do this, either pay out the whole mortgage debt, and so compel discharge, or not so pay but persuade the bank to discharge the mortgage at least partially – in this sense completion of the contract depended Parwan’s ability to compel the bank (a third party to the contract of sale) to discharge the mortgage at least in part or the bank consenting to doing so. [68]-[70]
12. Having found that Parwan had not established that subdivision was impossible, Forbes J. in effect assumed successful navigation of performance of the subdivision obligation. [73]
13. Forbes J. –
    1. assumed that, once subdivision occurred, the bank might (perhaps should), because Parwan could raise money to pay it out from sale of lots, consent to discharge the mortgage insofar as it affected the lot comprising the Purchased Land (ie. a partial discharge), even though the sale of the Purchased Land would not suffice to discharge the mortgage debt; [76]
    2. and reasoned that so, because hypothetically the bank might agree to release the mortgage, this possibility met the argument that specific performance had no reasonable prospect of success. [77]

The proposition that, for Parwan to show Hooper’s lack of such real prospect, it should also show that the bank would not consent to the sale, which it was not obliged to do, after a subdivision it was actively resisting, appeared somewhat fantastic and artificial.  In any event, the proper inference from the evidence was that the bank would not give such consent.  This sufficed to require that the appeal be allowed. [79]

14. Accordingly, the judge ought not to have allowed the appeal from the associate judge’s decision on the basis that, in order to demonstrate Hooper’s lack of a real prospect of obtaining an order for specific performance, Parwan was required, but failed, to expressly address the bank’s attitude to a partial discharge of mortgage on the assumption that a plan of subdivision had been registered. [81]
15. However, a more fundamental barrier to an order for specific perform­ance was that –
    1. the bank’s interest had priority to Hooper’s potential equitable interest (ie to the extent that the contract was amenable to an order for specific performance) and so this potential interest could not defeat the bank’s immediate entitlement to enforce its legal interest; [83]
    2. an order for specific performance would cause the bank hardship because the caveats referable to Hooper’s right to specific performance would prevent the bank recovering its debt while (presumably funded by it) the receivers pursued registration of the plan of subdivision, with the bank then waiting to see whether the subdivided lots (including the Purchased Land) could be sold in such a sequence that the entire mortgage debt was recovered before the mortgage was discharged. Such an order would safeguard the interest of a subsequent, unregistered interest-holder (Hooper), contrary to Parwan’s obligations under its mortgage, in preference to the immediately exercisable rights of the prior registered proprietor (the bank).  An order with this effect would upend priorities in the Torrens title system; [84]
    3. hardship to a third party being a reason for declining specific performance, such hardship to the bank would be virtually certain to lead a court to so decline. [85]
16. There was accordingly no real prospect of Hooper obtaining an order for specific performance at trial. Summary judgment would be granted on Hooper’s claim for specific performance and for injunctions restraining sale of the Purchased Land, and on the counterclaim.  Orders would be made enabling sale of the Purchased Land including for removal of the caveats and distribution of the proceeds of sale. [86], [87]

 

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 8, 2025