Foreign money invested in property – whether trust created or mere loan – caveat removed but sale monies paid into trust.

Oz Envision Development Pty Ltd & Anor v Yuan (11 October 2018) [2018] VSC 607 McDonald J.   

The facts were –

  • In or about 2012 the defendant transferred$5.01 m. to enable the first plaintiff to acquire two properties. 
  • One property was subdivided into three units. 
  • In 2016 a deed of arrangement was entered into between the first plaintiff and the defendant whereby funds from the sale of this land were to be paid to the second plaintiff to enable it to undertake property development.
  • Contracts of sale of the three units for a total of $2,665,000 were entered into. 
  • The defendant caveated over both properties claiming that the advance of monies gave rise to a caveatable interest pursuant to an implied or resulting trust.

The plaintiffs alleged that the funds were merely a loan and so gave rise to no caveatable interest. 

The defendant, who was a Chinese National, deposed that:

  • the purpose of the payment was to invest $5 m. in Australia, this being required for the purpose of seeking  Australian residency;
  • the director of the first plaintiff was so appointed because he held the required residency status for directorship of a company in Australia which the defendant did not;
  • there was no discussion as to a loan including as to interest and that his intention was “that the money I paid to the First Plaintiff meant that the properties purchased by the First Plaintiff were my properties”. 

McDonald J held –

  1. There was a serious question to be tried that a caveatable interest existed based on a resulting trust.  There was no written loan agreement or evidence of a verbal loan agreement, and this absence was consistent with the terms of the deed.  Financial evidence of a loan, produced by the plaintiffs, in particular unaudited balance sheets of some weight, was nonetheless inconclusive. [8], [10]-[11], [13], [17]
  2. However, the balance of convenience favoured removal of the caveats because they were having a significant adverse effect upon the first plaintiff’s business, were preventing completion of the contracts, and were affecting the rights of the innocent purchasers. [17]-[19]
  3. Nonetheless, the proceeds of sale would not be distributed in accordance with the deed but would be paid into trust or an interest bearing account (in the solicitors’ names) pending trial.  The argument that this was contrary to the implementation of the deed was overcome by the first defendant’s allegations that he, being illiterate in English, had been induced to execute the deed by fraudulent misrepresentation by the director of the first plaintiff about its terms. [20]-[21], [23], [25]

Comment:

  1. From a non-legal aspect this case is a manifestation of the common phenomenon of foreign money being advanced to buy Australian property on terms not clearly documented.
  2. His Honour did not spell out the law of resulting trusts, but where property is put into the name of a non-contributor, or one of a number of contributors,to the purchase price, it is generally presumed to be held by the registered proprietor on trust for the contributors in proportion to their contributions, eg:Piroshenko v Grojsman [2010] VSC 240 (in which the claim failed on the facts).
  3. However, money lent for the purpose of being applied towards the purchase price of land does not, on being so applied, entitle the lender to an estate or interest in the land, unless the parties intended that the lender should have security for the loan: Simons v David Benge Motors Pty Ltd [1974] VR 585. 

Registered mortgagee defeats caveat based on alleged trust – Whether repeat caveat

National Australia Bank Limited v Nilsen & Anor [2018] VSC 368 (2 July 2018) Kennedy J.

The chronology was –

  • The plaintiff had a registered mortgage over land of which the registered proprietor was Petrina Pavlic. 
  • She died, her son William was her sole beneficiary, he obtained letters of administration and a new loan from the plaintiff with the mortgage as security.  He defaulted and became bankrupt.
  • The first defendant, who was William’s current or former de facto partner,caveated claiming an implied, resulting or constructive trust.
  • In 2017 a consent order of the Family Court was made between her, William and his trustee in bankruptcy providing for the transfer of the property to her contemporaneously with payment of $550,000 by her by 5 October 2017, with liberty to the trustee to sell in default of such payment.  No payment was made.
  • The plaintiff initiated a sale of the land to a third party with settlement due in May 2018 but subsequently extended to 4 July 2018
  • On 4 June 2018 a judge ordered that caveat be removed.
  • On 8 June 2018 the defendant again caveated on the same grounds as the first caveat. 
  • The plaintiff commenced further removal proceedings under the Transfer of Land Act s. 90(3).  The defendant argued that she had an interest pursuant to the Family Court Order which was different from, and arose subsequent to, the interest relied upon for the first caveat (which had been based on alleged contributions).  Shealleged, without evidence, that the trustee in bankruptcy had agreed to extend the time for her to pay the money to obtain the land and that this ongoing indulgence gave rise to a trust.

Kennedy J ordered removal of the caveat, holding –

  1. There was no serious question to be tried.  The Family Court order did not create any interest in the land in circumstances where no money had been paid.  In any event the bank’s interest as registered mortgagee defeated any unregistered interest. [27]-[28]
  2. The following balance of convenience factors also favoured removal –
    • The interests of the innocent purchaser;
    • Delay in disposing of the property;
    • The caveator had not commenced proceedings to substantiate her claim;
    • If she had a cause of action the caveator could sue the bank for damages;
    • The caveator had not paid the money ordered by the Family Court and there was no evidence of her capacity to do so;
    • Sale was the best chance of reducing the amount of approximately $2.7 m. owed. [31]-[40]
  3. The plaintiff also argued that s. 91(4), which provided that a lapsed or removed caveat shall not be renewed by or on behalf of the same person in respect of the ‘same interest’, was breached. Her Honour did not deal finally with this argument but stated that the better view appeared to be that this section did not apply because the source of the second caveat was the Family Court Order which postdated the first caveat.

Comment:

  1. As to her Honour’s statement that “The Family Court order did not create any interest in the land in circumstances where no money had been paid as provided for in that order” –

There is authority that a Family Court order can create an interest in land: Bell v Graham [2000] VSC 142 at [19]. However her Honour’s statement is authority for a different view if no money has been paid pursuant to the order. Presumably, however, if it had been paid the payor would have a lien giving rise to a caveatable interest: see eg SixBruce Pty Ltd v Milatos [2017] VSC 784 (See my earlier blog here)

  1. The fact that the sources of the two caveats was different did not mean that they were not in respect of the same interest: Layrill Pty Ltd v Furlap Constructions Pty Ltd[2002] VSC 51 at [9].

This blog concerns an application for costs by registered proprietors against a caveator, and a consequential application for costs by all against the caveator’s solicitor, and his application for costs against them

 

Sekhon & Anor v Chandyoke and Ors [2018] VSC 327 (19 June 2018) T Forrest J.

The plaintiffs were a married couple.  The first defendant was the wife’s mother who caveated over a property owned by the couple.  The first defendant’s solicitor was separately represented on an application that he personally bear costs.  The judge had previously ordered removal of the caveat.  The first defendant had been advised by previous counsel that she had no caveatable interest and by her solicitor that there were issues with the caveat, including that there was significant doubt about the caveatable interest and her right to impugned funds.  The defendant conceded that there was no proper basis on which she could have defended the application for removal of the caveat but blamed her solicitor.

His Honour held –

1.      The defendant was made aware on numerous occasions, by both counsel and her solicitor, that she probably had no caveatable interest over the property, but refused to instruct her solicitor to remove the caveat.  Her conduct in the litigation was obstructive and sharp – she demonstrated contemptuous disregard for the litigation.  She persisted with a near hopeless case for the collateral purpose of recovering funds she believed to have been stolen from her but which she knew or ought to have known were unrelated to the property.  There were special or unusual circumstances sufficient to warrant an order that she pay the plaintiff’s costs of the litigation on an indemnity basis. [39]-[40], [42]

2.      To justify an order that the solicitor bear the costs it was unnecessary to establish dishonesty, obliquy or similar – misconduct, default or serious or gross negligence sufficed.  Although the solicitor was at times dilatory he acted for a very difficult client, who directly or indirectly obstructed the fair hearing of the caveat withdrawal application.  The solicitor on several occasions advised the client in effect that it was very likely she would lose and warning of the consequences.  It was also doubtful that the defendant would have taken advice no matter how forceful.  The principles applying to the application, whether under r 63.23 of the Supreme Court Rules or s 29 of the Civil Procedure Act showed that a non-party costs order was prima facie unjust, required caution and should only be made in a clear case.  This was not such a case. [41]

 

Sekhon & Anor v Chandyoke and Ors [2018] VSC 435 (7 August 2018) T Forrest J

 

This case was related to the previous application by the plaintiffs and the first defendant that the first defendant’s solicitor pay costs, which failed in the case referred to above.  The solicitor sought indemnity costs based on two offers before the costs hearing: 

(a) An offer to the plaintiffs on 23 March 2018 open for five days that the solicitor pay the plaintiffs’ costs of the proceeding fixed in the sum of $7500 within two business days;

(b) An offer to the plaintiffs and the defendant on 14 May 2018 open for five days that the application for costs against the solicitor be dismissed and the plaintiffs and defendant pay his costs of the application fixed in the sum of $6000 with a stay of 30 days.

His Honour held –

1.      The general rule that costs followed the event applied and so the plaintiffs and the first defendant were liable to pay the solicitor’s costs on a standard basis.  These costs would be awarded against the plaintiffs alone from 28 March, being from when it was reasonable for the solicitor to commence preparations for his defence, to 5 April, and against the plaintiffs as to half and the first defendant as to half from 6 April, being the date the first defendant filed a notice of waiver and intention to participate in the costs proceedings.   Notwithstanding that the solicitor was dilatory at times this did not justify application of any exceptions to the normal costs rule.  His Honour noted – “Solicitors cannot pick and choose their clients and ought not be judged too harshly when the sins of their clients are sought to be visited upon them”. [9]-[11], [16]-[18]

2.     Indemnity costs would not be awarded because rejection of the:

(a)   first offer was not unreasonable because it preceded any affidavit from the solicitor explaining his conduct; [13]

(b)   second offer was not unreasonable because, being an offer to undertake joint liability, neither party could accept the offer alone: they were an unlikely coalition and it would be unfair to penalise one for the unreasonableness of the other. [14]

 

Injunction against future caveating

 

Lendlease Communities (Australia) Ltd v Juric & Anor [2018] VSC 107
(8 March 2018)  T Forrest J.

The Registrar was directed to remove a caveat lodged by the first defendant who had no possible interest in or connection with the land, but claimed an interest as “adverse possession by exclusive occupation” – he had lodged the caveat because of a long-standing grudge against the plaintiff and others.  In 2015 a court had ordered that a previous caveat lodged by him over land owned by entities in the Lendlease group, on the same untenable ground as the current caveat, be removed.  The plaintiff also obtained an injunction restraining the defendant for 5 years from lodging any further caveat over the land, over any titles derived from its titles and over any other land of the plaintiff.  The Judge observed that “the impugned caveat was lodged as some type of pre-emptive bargaining strike in his claim for one trillion dollars plus prime city real estate”.

 

 

Caveat removed because nothing remaining after discharge of prior registered mortgage

Glenis & Anor v Ikosedikas & Ors [2018] VSC 278 (30 May 2018) T Forrest J.

The defendants alleged that in 2011 the first plaintiff entered into a loan agreement consolidating previous loans with a then balance of about $250,000.  The agreement gave the lender had the right to caveat over certain residential land owned by the plaintiffs if the loan was not repaid that year.  The first plaintiff said that his signature on the agreement was forged but did not dispute a debt which by April 2018 had with compound interest risen to between $450,000 and $690,000.

In March 2018 the plaintiffs entered into a contract to sell that land for $1.995 m.  It was subject to a registered mortgage securing loans with current balances of over $2 m. though apparently another property owned by the second plaintiff was linked to this
mortgage.    

In April 2018 the defendants caveated on the grounds of “part-performed oral agreement with the registered proprietors”, the estate or interest claimed being “interest as charge”. 

The plaintiffs applied to remove the caveat.   Counsel for the plaintiffs was prepared to assume for the purposes of argument on this application that the loan agreement was genuine.  He also argued that the caveat was defective: in its reference to oral agreement; because it was over the whole property; and when the charge was allegedly created the plaintiffs did not have legal estate in the land.

His Honour held –

1.      The existence of the loan agreement sufficed to establish a serious question to be tried.  Assuming the authenticity of the agreement, the first plaintiff intended to grant the defendants a charge over the property as security for a loan already advanced.  The fact that the first plaintiff possessed no proprietary rights as at the date of the agreement was not fatal as the parties understood that the charge related to future property which at the time of enforcement could be identified.  Questions of a carve out of the second plaintiff’s interest and whether the caveat ought be struck down as defective or amended to reflect the assertedly misleading ‘oral agreement’ grounds of claim were unsuitable for determination in an interlocutory proceeding. [13]

2.      Where a caveator establishes a serious question to be tried, the balance of convenience tilts in favour of that caveator. [14]

3.      However notwithstanding the substantial debt intended by the first plaintiff to be secured over the property the balance of convenience favoured the registered proprietors because of delay in lodging the caveat until after the contract of sale and the fact that the registered mortgage rendered the caveat worthless.  To allow the caveat to remain in place would frustrate the sale without benefit to the caveator. [14]-[15]

Comment: The statement by his Honour that the balance of convenience tilted in favour of the caveator was supported by him with citation of interstate authority.  This is more commonly expressed in Victoria in other authority cited by his Honour, namely that the caveator must establish that the balance of convenience favours maintenance of the caveat until trial and the stronger the case is in the evaluation of the serious question issue, the more readily the balance of convenience might be satisfied.  

 

 

Caveats lodged over NSW land based on Muschinski v Dodds constructive trust – Under Real Property Act 1900 (NSW) s. 74K(2) caveat not to be extended unless caveator’s claim has or may have substance – claim without substance

D’Agostino v Zandata Pty Ltd and Ors [2018] VSC 115 (15 March 2018) McMillan J. 

This case is novel for a Victorian court, being an application of NSW law, but the caveat would equally have been removed under Victorian law.

A man died survived by various family members including his de facto partner and the plaintiff who was her son.  The deceased was a director of and held controlling interests in the three defendant companies.  The plaintiff lodged caveats with the NSW Registrar-General over land owned by the companies, claiming an interest in each under a constructive trust.  The Registrar-General served lapsing notices requiring the caveator to apply for order extending the caveats.  He applied to the NSW Supreme Court for an order under s. 74K(2) of the Real Property Act 1900 (NSW) which provided that the court may, if satisfied that the caveator’s claim has or may have substance, extend the caveat.  The proceeding was cross-vested to Victoria. 

 The caveator alleged that over a period of 38 years he acted to his detriment in reliance on the encouragement of the deceased by contributing to the acquisition, maintenance and/or improvement of the properties, and this encouraged an expectation that he and his mother would eventually own those properties. 

 McMillan J held –

1.     The application was to be determined in accordance with the law of New South Wales.  An application for the extension of the operation of a caveat was treated as analogous to an application for injunctive relief. Her Honour cited conventional authorities. [20], [22]  

2.   A constructive trust claim may form the basis for a caveatable interest in real property.  The plaintiff relied on a trust of the type enunciated by the High Court in Muschinski v Dodds.  There was however no sufficient prima facie case giving rise to a serious question to be tried that there was a constructive trust here.  There was substance in the defendants’ submission that even at their highest the promises were not to the effect stated nor did the plaintiff rely on them as alleged.  Further, the properties were owned by the companies and there was not allegation that the deceased made any representation as an officer or representative of the companies. [26], [27], [36]-[39]  

3.      The balance of convenience was also against extension of the caveats.  There was no immediate risk of dissipation of the land.  The injury caused to the plaintiff by non-extension did not outweigh the injury the defendants would suffer through extension. [48] 

4.      The lower risk of injustice was for the operation of the caveats not to be extended. [49]

 

 

 

 

Caveat lodged to protect priority of equitable mortgage but badly expressed – Caveat not amended but interlocutory injunction granted to protect priority

TL Rentals Pty Ltd v Youth on Call Pty Ltd and Ors [2018] VSC 105 (8 March 2018) Derham AsJ.

This interesting case demonstrates that a badly drawn caveat can be rescued
– not under the TLA caveat provisions but by an interlocutory injunction.
The case is also a good discussion of general caveat principles and priorities
between equitable interests

Katherine and Damian Shannon were the joint proprietors in equal shares of land mortgaged to a bank.

The chronology was –

12 October 2016  Plaintiff (TL) leases equipment to first defendant whose obligations are guaranteed by Katherine.  Guarantee provides that she mortgaged her interest in the land and would on request execute a registerable mortgage. 

12 December 2017 Lessee in default.  TL serves notices on it and Katherine seeking payment. 

21 December 2017 TL lodges caveat claiming a “freehold estate” pursuant to an agreement with the “registered proprietor(s)” dated 12 October 2016.

7 January 2018   Permanent Custodians Limited (PCL) enters loan agreement with the Shannons. 

22 January 2018  Relying on an old title search predating the caveat, PCL advances the funds due by paying out the existing mortgage with the balance to the Shannons.  Mortgage lodged for registration. 

23 January 2018  Pursuant to the Transfer of Land Act (TLA) s. 90(1) Registrar gives notice to TL of lodgment of an inconsistent dealing and that its caveat would expire in 30 days.

20 February 2018 TL commences proceeding claiming a declaration that it had an equitable mortgage or charge over Katherine’s interest in the land securing payment of the sum owed. 

21 February 2018 TL applies the court pursuant to TLA s. 90(2) for an injunction directing the Registrar to maintain the caveat until registration of a mortgage in favour of the plaintiff or further order.

22 February 2018 Interim court order directing the Registrar to delay registration of any dealing.  TL foreshadows application to amend caveat to limit it to a claim for an equitable mortgage over Katherine’s interest in the land.  

2 March 2018      Hearing.  TL abandons argument for amendment and maintenance of caveat but seeks amendment of summons to claim an interlocutory injunction to protect the priority of its mortgage against defeat by registration of PCL’s mortgage.

The TLA s. 90(2) in substance provided, a notice under s. 90(1) having been given, that if within a particular period the caveator appeared before a court, the court may direct the Registrar to delay registering any dealing with the land or make such other order as was just.  Section 90(3) provided that any person adversely affected by a caveat may bring proceedings for the removal of the caveat and the court may make such order as it thought fit.

Derham AsJ  held –

1.     An application under s. 90(3) was in the nature of a summary procedure and analogous to the determination of an interlocutory injunction.  The caveator had the burden of establishing a serious question to be tried that it had the estate or interest in land as claimed and that the balance of convenience favoured maintenance of the caveat until trial.  In an application under s. 90(2) the same burden rested on the caveator. [29]-[30]

2.     The interest or estate claimed in a caveat could probably be amended but only in special or exceptional circumstances, as it effectively substituted a different caveatable interest.  In this case it would have been substitution of a claim to a freehold estate in respect of the registered interests of both proprietors with a claim to an interest under an equitable mortgage granted by one proprietor. Although TL’s mortgage was not in registerable form it was entitled to an unregistered (equitable) proprietary interest over Katherine’s share of the land that was capable of supporting a caveat.  Whilst remaining unregistered it was an agreement to mortgage.  [9]-[10], [20], [31]

3.     TL was granted leave to amend its summons to claim an interlocutory injunction.  The caveat procedure was essentially a statutory injunction granted upon consideration of the same factors applied when granting interlocutory injunctions in equity. [34]-[36] 

4.     PCL was entitled by subrogation to the rights of the mortgagee (NAB) whose mortgage it had paid out.  This gave PCL priority over TL for this part of its loan.  Otherwise approximately $130,000 was secured by TL’s equitable mortgage and $271,000 by PCL’s equitable mortgage. The interest first in time would prevail but that may change where the prior equitable interest holder had so acted that it would be unconscionable if its interest were to prevail. However, mere failure by the prior holder to caveat was insufficient to postpone that interest, even where the subsequent interest has been acquired bona fide and for value without notice and on faith of the title.  The latter interest holder must show a change of position and prove detriment as a necessary element of any claim for postponement. [21]-[22], [44]

5.     It was not unconscionable for TL’s equitable mortgage to be afforded its usual priority.  PCL should have conducted title searches later than six weeks before advance of funds.  Further, having regard to evidence that the market value  of the property sufficed to cover all monies secured against it, PCL had not proved detriment if postponed. [23]-[25]

6.     There was accordingly at least a prima facie case that TL’s mortgage had priority.  Whether this prima facie priority would justify the restraint sought depended on: (a) the practical consequences likely to flow from the interlocutory order sought; (b) whether if the injunction was not granted the plaintiff would be likely to suffer injury for which damages would not be an adequate remedy; (c) whether the balance of convenience favoured the granting of an injunction, as to which the strength of the case on serious question to be tried was relevant; (d) whether other discretionary considerations militate against the grant of the injunction.  TL met these tests.  The grant of an injunction until trial carried the lower risk of injustice if it should turn out to have been wrong. [26], [33], [37]-[38], [46]-[48]

7.     Due to doubt whether TL could satisfy the undertaking as to damages required for an interlocutory injunction, it would be made a condition of the grant of the injunction that the ultimate holding company or another company in the same group join in giving the usual undertaking as to damages. [53]-[54]