Legal Services Commissioner v Souki  VCAT 663 (17 June 2022)
This case was a proceeding by the Legal Services Commissioner against a solicitor including for drafting baseless caveats. The solicitor pleaded guilty to a number of charges. The form of Senior Member E. Wentworth’s decision was first to set out the Findings, second the Orders, third the Senior Member’s Reasons (27 paragraphs), and finally, occupying most of the decision, an “Appendix: Relevant Extracts from the Parties’ Submissions”. The Appendix included agreed proposed penalties and the solicitor’s explanations. The Senior Member stated (paragraph 20) –
“The Commissioner’s submissions noted that the lodging of such [improper or baseless] caveats by legal practitioners is ‘endemic’. If that is so, it is a shameful matter for the legal profession.”
Last October I gave a paper on caveats at the Commercial Law Discussion Group Conference (being a Discussion Group of Victorian solicitors) and at least one experienced solicitor, without demur from the other solicitors present, disputed the word ‘endemic’, regarding it as unjustified.
The solicitor acted for three clients in a Supreme Court proceeding in which they were seeking to recover their investment in a gold bullion firm. The facts related to the caveat charge (including the solicitor’s explanations) were –
- The solicitor was a young practitioner who was in her early years of practice as a principal of her own law practice.
- Her clients requested her to caveat over a property owned by a defendant in the Supreme Court proceeding. They had no estate or interest in the property and were at most prospective judgment creditors.
- The solicitor informed her clients that caveating was not possible as they had no caveatable interest, the clients were reluctant to accept that advice, the solicitor sought advice from counsel in conference with the clients, and counsel also told the clients that they had no caveatable interest.
- The property was listed for sale and again the clients insisted on caveating. The solicitor had a number of discussions with the clients about the issue, reiterating that no caveatable interest existed.
- The clients then asked the solicitor to provide them with a pro forma caveat form. Accordingly on 24 May 2017 the solicitor provided them with caveat forms she had prepared which: claimed that the clients had an ‘interest as chargee’ based on an agreement with the registered proprietor of that date; sought an absolute prohibition on dealings with the property; and erroneously listed the address for notices under the caveat as the property itself not the address of the clients (this error was attributable to the LEAP system and occurred without the foreknowledge of the solicitor).
- The solicitor continued to reiterate to the clients that there was no basis for the caveats.
- In July 2017 the clients lodged the caveats.
The solicitor was charged with professional misconduct in that she prepared and facilitated the lodgment of erroneous and defective caveats in the knowledge that the caveators had no estate or interest in the property capable of supporting a caveat. She admitted that she facilitated this lodgment and that her conduct involved a substantial failure to reach or maintain a reasonable standard of competence and diligence which amounted to professional misconduct. (The solicitor’s explanation included that, although she acknowledged that the provision of the pro forma caveat form was improper, changes to the LEAP and caveat process now meant that a pro forma caveat form could no longer be provided to clients).
The parties agreed that a reprimand, and an order that the solicitor complete an additional three CPD units on substantive property law and ethics, was an appropriate remedy. The Tribunal imposed this penalty and also suspended the solicitor’s practising certificate for a month to be served concurrently with a suspension ordered in respect of another charge. The Tribunal stated () that this suspension was in the interests of general deterrence and to signal the seriousness of the conduct. It added () that if the matter had involved a more experienced practitioner or a higher degree of culpability, a more substantial interference with the right to practise would be have been warranted.
Owen Dixon Chambers West
Tuesday, March 28, 2023
187 Settlement Road v Kennards Storage Management  VSC 771, Gorton J., (14 December 2022)
Note: In this case Gorton J. dismissed a claim for compensation under s. 118 for alleged lodgment of a caveat “without reasonable cause”. His Honour conducted an intricate analysis of the law. In particular:
- His Honour pointed out that the commonly judicially approved test for “without reasonable cause”, ie whether the caveator did not have an honest belief based on reasonable grounds that it had a caveatable interest: sat comfortably with the text of s. 118 where there was some factual uncertainty but where the legal consequences were otherwise straightforward; but did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest. In the latter case it was preferable simply to ask: was the caveat lodged “without reasonable cause”?
- His Honour dealt with the situation whether, even if a caveat was lodged without reasonable cause, it was just to order compensation if there was no causal connection between the caveat and any loss, or if by the time the caveat became a source of loss there was a proper basis for its lodgment.
- His Honour also dealt with the consequences, for the purposes of s. 118, of the prohibition on any dealings with the property and the claim of a freehold estate.
- His Honour considered complex issues of contractual interpretation and in what circumstances a right of first refusal, ie a conditional right to purchase under the contract, gave rise to a caveatable interest.
The facts were –
The Transfer of Land Act s. 118 provided:
Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders.
KSM contended that because the “first and last right of refusal” granted by 187SR in the 2015 agreement was expressed to apply for 2 years after its end, it remained operative in 2020, because the 2015 agreement was only superseded by the 2019 agreement in December 2019, thereby giving it a caveatable interest.
His Honour accepted Kennard’s evidence that he believed that KSM had a right of first refusal and that it had not been complied with.
GDM paid to KSM, under sufferance, the performance incentive fee claimed by KSM. This did not account for rent payable by GDM to 187SR, but if this rent was to be taken into account in determining the EBITDA, then no performance incentive fee was payable. GDM sued KSM for return of the performance incentive fee. The proceedings were heard together.
Gorton J. dismissed the application under s. 118 and ordered the return of the performance incentive fee, holding –
- Smith was acting on behalf of both 187SR and GDM when he participated in the exchanges preceding the 2019 agreement. Conceptually, these communications, together with the signing of the 2019 agreement and the subsequent management of the Business by KSM, revealed that an agreement was reached that included Smith on behalf of 187SR agreeing that the 2015 agreement would be wholly discharged and replaced by the 2019 agreement. This conclusion was compelled by: the change in the entity that was to own the business; the communications preceding the 2019 agreement; the text of the 2019 agreement, in particular the expression that it “supersedes” the 2015 agreement and the backdating of the 2019 agreement to 1 September 2015 and expressing that it was to commence from that date. , , 
- Accordingly from the time of execution of the 2019 agreement the parties were discharged from all obligations under the 2015 agreement, including any obligations imposed on 187SR by the 2015 agreement expressed to survive its termination. -
- Accordingly, although as at December 2020 GDM was obliged to give KSM a “first and last right of refusal” if it wished to sell the business, 187SR was not so obliged as regards sale of the property, whereby KSM did not have a caveatable interest. , 
- The test whether the caveat was lodged “without reasonable cause” within the meaning of s. 118 was often re-expressed as whether the caveator did not have an honest belief, based on reasonable grounds, that it had a caveatable interest. The re-expressed test sat comfortably with the text of s. 118 where, although there was some factual uncertainty, the legal consequences were otherwise straightforward. However, it sat less comfortably where there was, as here, a complex legal dispute as to whether a first and last right of refusal, that the parties believed existed, was legally sufficient to give rise to a caveatable interest: it did not easily apply where a caveator had an honest belief as to a set of facts the legal consequences of which arguably did, but might not, give rise to a caveatable interest. If the caveator believed that he or she probably had a caveatable interest, but recognised that the position was uncertain, was that an honest belief in a caveatable interest? In these circumstances, it was preferable to return to the text of the statute: was the caveat lodged “without reasonable cause”? The fact that a caveat might be lodged with reasonable cause yet to protect an uncertain interest was apparent from previous authority. , , 
- Both parties believed that there was a contractual right of first refusal exercisable against 187SR, and through Smith 187SR incorrectly believed that it had complied with its obligations. , , -, 
- If, however, contrary to his Honour’s view but nonetheless believed to be so by the parties, 187SR had still contractually been bound to make KSM an offer of first refusal, this right would not per se give rise to an equitable interest because it did not, of itself, give the holder the right to call for a conveyance. No interest would arise if the owner was still absolutely free to sell or not. 
- However, if a right of first refusal was expressed in positive terms that applied when a contingency was satisfied, then equity would ordinarily intervene once the contingency was satisfied. 187SR’s argument that cl. 16 of the 2015 agreement did not impose a positive obligation on it, on the satisfaction of a contingency, to make an offer to KSM, but merely prevented it from selling to anyone else unless it first made an offer to KSM, had force but the position was not without difficulty. It was, at least, well arguable that if 187SR were to make an offer to sell the property, then it was positively obliged to make an offer on those terms also to KSM. It was at least arguable that by signing the 6 November 2020 offer and manifesting a clear intention to sell the property on those terms, or by signing the 23 December 2020 agreements, both in circumstances where 187SR had informed the third party that KSM had a right of first refusal, 187SR fell under an enforceable contractual obligation to make an offer in those terms to KSM. On balance, if the 2015 agreement had applied, a court probably would have ordered 187SR to offer to sell the properties to KSM on the terms contained in the 23 December 2020 intertwined agreements. However, the matter was not straightforward. , , , -
- For the reasons set out above, by the time the caveat was lodged, having regard to the complexity of the legal argument as to whether cl. 16 would give rise to a caveatable interest, his Honour was not satisfied that KSM lodged the caveat without reasonable cause. It had reasonable cause. , , 
- Not detracting from this conclusion was that the caveat precluded all dealings with the property and claimed a freehold interest. If KSM was entitled to lodge a caveat, it was entitled to lodge one that precluded any dealings. As to claiming a “freehold estate”, the right that KSM was asserting was the equitable right to obtain the freehold on a sale, and although perhaps it would have been more precise to claim a conditional right to purchase under the contract, this imprecision was insufficient to establish lack of reasonable cause. 
- Although it may be correct, as the caveat was lodged by KSM’s solicitors, to consider that KSM’s solicitors’ mind that was the mind of KSM for the purpose of determining reasonable grounds, even so, and even on the basis that the person preparing and lodging the document had legal training, the caveat was not lodged without reasonable cause. 
- Further, even if the interest asserted or wording used in the caveat rendered the caveat not lodged with reasonable cause, it would not be “just” to award 187SR any compensation unless it could be shown that this assertion or use caused any loss that would not have been caused anyway if the “right” interest were asserted or wording was used. This was not proved. , 
- The caveat was also not lodged prematurely. But in any event, by the time that the caveat interfered with 187SR’s intentions and, as 187SR alleged caused it loss, 187SR had signed the offers. In reality, it was probably the maintenance of a caveat at a time when someone tried to register an instrument that caused loss, rather than the “lodging” of the caveat. In any event, it would not be “just” for the purposes of s. 118 to order that a party pay compensation because a caveat was lodged prematurely if, by the time the caveat became a source of loss, there was a proper basis for its lodgement. , 
- Accordingly, 187SR’s claim for compensation under s. 118 failed. But, if this was incorrect, the process of determining compensation involved two steps: first to ascertain a date by which, but for the caveat, the sale of the business would have been completed; second to ascertain what loss KSM suffered, if any, by reason of the delay between that date and 19 February 2021 being the date of completion of the sale. If there had been no caveat settlement would have taken place by 22 January 2021 and the loss from delay would have been $274,658 being the increased amount that 187SR had to pay to its financier. -, , , 
- GDM was entitled to return of the “performance incentive fee” because it was not payable under the terms of the 2019 agreement. 
Philip H. Barton
Owen Dixon Chambers West
Wednesday, March 22, 2023
Ek v Red Eagle International Pty Ltd (atf Chunan Bai Hybrid Unit Trust)  VSCA 254, Niall and Kennedy JJA., (18 November 2022)
The facts were –
- The respondent (Red Eagle) was registered proprietor of three adjoining buildings at 7 – 13 Carrington Road, Box Hill (the Properties). Ms Cherry Pai was a director of Red Eagle. In 2021 and early 2022 she negotiated with the applicant (Jade) concerning their sale. Jade received a draft contract of sale and s. 32 Statement. She later paid $3,000 to Red Eagle.
- At a meeting between Cherry and Jade on 14 June 2022 a price of $12.15 m. was proposed and a ‘particulars of sale’ page was used to write down the discussion. Jade subsequently texted Cherry a photo of the completed particulars which included that price and a handwritten amendment by Jade of the address, from ‘7 – 13 Carrington Road Box Hill’ to ‘7 – 15 Carrington Road, Box Hill’ (the ‘first particulars’). However, Cherry subsequently explained that shop 15 was not on the title and so not for sale.
- On 9 July 2022 Jade and Cherry met at Jade’s dental clinic. Notwithstanding conflicting evidence of what occurred at this meeting it was undisputed that a revised ‘particulars of sale’ dated 9 July 2022 (the ‘9 July Particulars’) came into existence. This recorded the following, with two handwritten notes (denoted NB)–
Vendor: Red Eagle International Pty Ltd
Purchaser: Jade Ek & or Nominee
Street Address: 7 – 13 15 Carrington Road Box Hill 3128
Purchase price: $11,850,000.00
Deposit: $355,500.00 3 – 5% or ($592,500 @ 5%)
Balance: $11,494,500.00 (9 – 12 months)
N/B 3 – 5% Due 10/10/2022
N/B On Market Value 2 yrs after settlement if Property appreciate (Jade) will give 300k
The amounts recorded for price, deposit and the balance were in Jade’s handwriting over whiteout. Jade’s initials also appeared proximate to the entries of purchaser, street address, ‘3 – 5%’, and the notes. At its bottom Jade’s signature appeared next to the Chinese characters for ‘purchaser’ (next to a date of 9 July 2022) and Cherry’s signature appeared next to the Chinese characters for ‘vendor’.
- On 9 July Jade made a further payment of $12,500 to Cherry, and ultimately paid a total of $45,500 between June and 1 August (which she asserted was part payment of the deposit).
- On 24 July 2022 Red Eagle entered into a contract of sale of the Properties with a new purchaser, Jun Chen, with settlement on 24 October 2022. Cherry gave evidence that a 10% deposit was paid. That contract was not in evidence, nor did Jun Chen give evidence.
- On 2 August 2022 Jade caveated relying on an agreement with the registered proprietor dated 9 July 2022.
- In September the net deposit paid by Jun Chen was released to Red Eagle and it used $62,750 of it to pay consulting fees related to the sale to Jun Chen.
- Red Eagle applied to the County Court under the Transfer of Land Act s. 90(3) for removal of the caveat. Cherry deposed that: at the 9 July meeting she and her husband insisted on a price of $12.15 m.; ‘we signed’ at the bottom of the first particulars of sale next to the Chinese character meaning vendor (which showed her intention to sell at $12.15 m.) and Jade signed the bottom of the page next to the Chinese character for purchaser; Jade then took the signed document back to her office and amended it in handwriting including the price and the deposit, then initialled the changes, and added the handwritten notes; after this Jade presented the amended page to Cherry who refused the amendments.
- Jade deposed that while she was initially prepared to pay $12.15 m., this altered on realizing that Red Eagle could not sell 15 Carrington Road. She deposed that: on 9 July she met with Cherry and Cherry’s husband; Jade said to Cherry that she was initially prepared to offer $12.15 m. for “the Carrington Properties” but that after discussions with her son, who was investing with her, we would only pay $11.85 m.; Cherry asked if she would consider paying her $300,000 if the Carrington Properties increased in value of at least that amount, to which Jade agreed; Cherry wanted Jade to sign that day; she told Cherry they could meet again later to sign a clean copy as the copy Jade had contained her previous offer; Jade then remembered she had electronic access to the one page she had sent to Cherry previously by sms, and so they went to her office and arranged for her staff to print it out; Cherry whited out the details and asked Jade to complete the price and other details, which she did except for the Chinese writing appearing at the bottom, which was done by Cherry; she asked Cherry what that writing was and she said it was “buyer” and “seller”; Jade signed where the buyer appeared and wrote the date “9/7/2022”; Cherry signed where the seller appeared; Jade believed that they had reached a concluded agreement.
- Jade undertook to the court to pay 5% of $11.85 m. (in addition to amounts already paid).
- On 21 October a County Court judge ordered Jade to remove the caveat by 4 November. The judge reasoned inter alia: she reached her conclusion on a consideration of the particulars of sale, and so was not required to resolve disputed facts or matters of credit; the indicia of objective intention available from a consideration of the face of the particulars of sale did not support the argument that the parties intended the document to be a binding contract; these indicia included the absence of Cherry’s initials, including against changes to the price and deposit; at trial the caveator would have to establish that the amendments were agreed to by Red Eagle and in view of this lack of initialling Jade’s prima facie case in this regard was weak; the submission that it was left to the purchaser to decide whether to pay a deposit of 3%, 4%, 5% or something in between was not supported on the face of the document – there was nothing to indicate at whose election the amount of the deposit within that range can be decided – so the prima facie case on certainty in this regard was weak; as to the time for payment of the balance of price, a range was provided but without indication of who decided when; she rejected the contention that the terms were agreed but it was simply that the mechanism was not; it was objectively apparent from the existence of unresolved matters on the face of the document that the argument that the document was a final enforceable agreement was weak.
- Jade filed an application for leave to appeal. Her proposed grounds included first that the judge erred in finding that her prima facie case of an interest in land arising from an enforceable contract of sale was weak. The particulars of this ground included that the judge erred by considering that the strength of the prima facie case was diminished by: (a) the term specifying the deposit as 3–5% of the price; (b) the term fixing settlement as 9 – 12 months after entry into the contract; (e) the fact that handwritten notations on the agreement had only been initialled by the purchaser and not on behalf of the vendor.
- The Court of Appeal stayed the County Court order.
The Court of Appeal gave leave to appeal, allowed the appeal and dismissed the application under s. 90(3), holding –
- Because the court’s power under s. 90(3) was discretionary an applicant for leave to appeal against an exercise of that discretion must establish an error of the kind identified in House v The King (1936) 55 CLR 499. 
- The critical issue was whether the parties signed the 9 July Particulars (which include a revised price of $11.85 m.) or the (earlier) first particulars. This could only be resolved at trial. 
- The judge hearing the caveat removal application was not required to consider that a trial judge might consider the absence of Cherry’s initials in determining whether Cherry had really executed the 9 July Particulars. Not only was this not required, it was ordinarily inappropriate for a judge to enter into resolution of the underlying factual dispute on this sort of application, particularly where this turned on findings on credit of witnesses. Accordingly, the judge was not in a position to assess the key issue of whether the parties signed the 9 July Particulars or the first particulars. The judge had endeavoured to reach a finding about the strength of the key issue in the case and in so doing had considered the absence of Cherry’s initials without regard to the other evidence. -
- Even if the judge was in a position to assess the merits of the key issue, there could be no assessment on a prima facie basis, or otherwise, by only having regard to one isolated piece of evidence. The judge thereby erred in her treatment of the evidence that the 9 July Particulars had only been initialled by the purchaser. 
- The judge’s reasoning that the ranges for the deposit (3% – 5%) and settlement date (9 – 12 months) meant that the prima facie case on certainty was ‘weak’, because there were ‘unresolved matters’, was also flawed. A contract was only uncertain if the court could not put any definite meaning on it. The objection that one party was left to choose whether to perform a contract was distinguishable from the situation where the contract gave one party choice of or discretion in the manner of performance. The identification of the person given the choice to determine the figure within the range specified for the deposit or time of settlement was capable of resolution, consistent with the general approach of upholding contracts: there was authority, for example, that it is the promisor who usually had the right to elect which of the methods of performance to choose (although this may need modification as regards time for settlement, given this depended on mutual obligations). Issues of contractual construction of the 9 July Particulars were ultimately to be determined by the trial judge, but this said nothing about whether the 9 July Particulars gave rise to a binding contract in the first place. , , , 
- Each of the absence of Cherry’s initials and the specification of the deposit and time of settlement ranges played a significant, if not determinative, role in the judge’s assessment of the prima facie case. They also affected the judge’s assessment of the balance of convenience. Accordingly grounds 1(a), (b) and (e) were sustained. -
- Given the urgency of the case and the Court of Appeal having before it the evidence and submissions that were before the judge, it was appropriate for the Court to exercise afresh the discretion under s. 90(3). 
- For the reasons given in holding number 5 Red Eagle’s submissions concerning failure to agree on the deposit and settlement date were unmeritorious. Also unmeritorious was its submission that there was a failure to agree on the mechanism for determining market value to ascertain whether the additional $300,000 was payable. Courts were routinely called upon to determine the market value of properties and would readily supply machinery when parties failed to state the basis for determining value. -
- As to any argument about reliance on material which post-dated the contract, post-contractual conduct could in limited circumstances be admissible on whether the parties intended a contract to be binding. There was conflicting material which could only be tested at trial. 
- In summation, the 9 July Particulars raised a serious question to be tried of whether Jade had the interest claimed. 
- The balance of convenience favoured maintenance of the caveat having regard to: evidence that available properties of this nature in this location were very rare; evidence of Jade’s business needs; an assessment of the interests of the other purchaser; the vendor dissipating part of the released deposit to third parties (to which Jade’s undertaking as to damages was relevant); Jade’s undertaking to pay an amount equal to 5% of $11.85 m. and to prosecute a proceeding for specific performance. , , , 
- Accordingly, although the matter was finely balanced, the lower risk of injustice was to maintain the caveat. 
Philip H. Barton
Owen Dixon Chambers West
Tuesday, March 14, 2023
Iceland Properties Pty Ltd v Palta & Anor  VSC 734, McDonald J. (28 November 2022).
The facts were –
- The plaintiff (Iceland) was registered proprietor of a property. Its sole director was Mr Gill. The first defendant (Palta) alleged that on 2 July 2018 he entered a loan agreement with Iceland and Gill, clause 8 of which gave him a charge and the right to caveat. He relied on a particular document with a signature page, which he produced, being a photocopy (the copy) of the alleged original (the original) which he did not produce.
- In 2019 Palta caveated on the basis of that alleged charge.
- In 2020 Palta commenced County Court proceedings to enforce this agreement. However, from October 2020 Gill alleged that he had not signed this document and that it was forged. He pleaded that it appeared that his signature had been taken from another document and superimposed. Palta’s solicitors responded that this plea was denied and scandalous.
- In 2022 Iceland applied under the Transfer of Land Act s. 90(3) for removal of the caveat.
- Palta deposed that on or about 27 or 28 July 2018 he and Gill had signed the original in the presence of a Mr Handa in the Epping Plaza Shopping Centre carpark, and that Gill had retained it and a few days later given him (Palta) a photocopy, which he exhibited to his affidavit. He further deposed concerning the background of this alleged signing.
- Handa, whose signature appeared three times as a witness on the copy, deposed: to this meeting at the Epping Plaza carpark; how he came to be there; that Palta asked him to witness the signing of some documents; to events at the time of signing; that he watched Gill and Palta sign a document the front page of which said “loan agreement”, and that he then signed the signing page as a witness three times. He deposed that the front page and the signing pages on the copy exhibited to his affidavit was the same as in the document he witnessed.
- On the second day the matter was before the court, 18 November 2022, McDonald J. raised with counsel for Palta that it appeared that the two signatures of Gill on the copy were identical, whereas, in contrast, there were slight differences in the signature of Handa, and that the identical signatures of Gill, allegedly made in a carpark, and the manner of their presentation, constituted prima facie evidence of forgery.
- The proceeding was adjourned to 25 November. In the interim an expert report was filed on behalf of Iceland concluding that Gill’s signature from a lease was placed onto the copy (twice) through a cut and paste manipulation, and so it was extremely likely that no original existed.
- At the adjourned hearing counsel for Palta conceded that, based on the expert’s report, Gill’s signature on the copy was forged. However, he submitted that Palta had still discharged the onus of establishing a probability, on the evidence before the Court, of being found at trial to have an interest in the property pursuant to the 2 July 2018 loan agreement. He submitted that the copy was a copy of an original which was in fact signed by Gill. He submitted that on the evidence currently before the Court, there was a probability that at trial Palta would establish that: (1) Gill signed the original in the presence of Palta and Handa at Epping Plaza in late July 2018; (2) he took the original away; (3) he then photoshopped his own signature over his genuine signature, so as to afford grounds for subsequently contending that the agreement was unenforceable; (4) in or around mid-August 2018 he provided the copy to Palta.
Gill acknowledged that before July 2018 Palta had advanced funds to Iceland or him on particular terms. In August 2022, Iceland, Gill and others entered into a deed of settlement of litigation requiring Gill to pay $6.5 m. by 1 December 2022. He had paid a 10% deposit and contended that the caveat was impeding his ability to raise finance to pay the balance.
McDonald J. ordered removal of the caveat with indemnity costs, holding –
- There was not a probability that at trial Palta would establish that he had an interest as a chargee of the property. The matters raised by his counsel were a very tenuous basis for the asserted caveatable interest and any probability was insufficient to justify the practical effect of the caveat on the ability of Iceland to deal with its property. -
- If it had been necessary to consider it, the balance of convenience would also have favoured removal of the caveat, particularly relevant being that a prima facie case, if any, was weak and that the caveat was a significant impediment to Gill obtaining finance. The lower risk of injustice was to order removal of the caveat, notwithstanding that it was common ground that Palta had advanced funds to Gill, the circumstances of the present case being quite unusual. There was accordingly very significant risk of injustice if the caveat remained. -
- The caveator would be ordered to pay indemnity costs. On the first two court days the caveator had resisted the removal of the caveat on the basis of an agreement which he now conceded was forged, having notice of this contention for over two years without taking steps to establish the authenticity of the agreement, then accepting that the agreement was forged but nonetheless asserting on a very tenuous basis that Gill was the perpetrator. It should have been readily apparent to the caveator before the first day of hearing that the agreement on which he relied was forged. -
Philip H. Barton
Owen Dixon Chambers West
Tuesday, March 7, 2023
In the Matter of Ausun Property CBD Pty Ltd (In Liquidation)  VSC 541, Riordan J., (24 May 2022); Rowell v Torbeckin Pty Ltd & Anor  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)  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 –
- 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. -, 
- The inclusion of clauses 15.4 – 15.8 in the contracts was insufficient to give notice of any otherwise unknown breach of duty. -, 
- 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. -
- The balance of convenience was against maintenance of the caveat. 
- The orders sought by Li Zeng and the unitholders would not be made. -
In Rowell v Torbeckin Pty Ltd & Anor  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
Dolan v Dolan & Anor  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 –
- 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. , 
- 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. , , 
- 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. -
- There would be an order for amendment of the caveat to assert Christine’s claim to a 93% interest in the property. 
Philip H. Barton
Owen Dixon Chambers West
Tuesday, February 21, 2023
A. P. Welco Holdings Pty Ltd & Anor v Canterbury Hills Pty Ltd & Anor  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 –
- 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. , , , , , 
- 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. , , , 
- The deeming provisions of the Duties Act 2000 did not give rise to an equitable interest. -.
- Even if the plaintiffs had established a prima facie case the balance of convenience was against them. 
- 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. 
Philip H. Barton
Owen Dixon Chambers West
Thursday, February 16, 2023
This Blog covers three recent cases of interaction between caveats and securities taken over land. In Launch Concept Developers Pty Ltd v Di Mauro & Ors the registered proprietor failed to have caveats based on charges temporarily removed so that it could refinance. In Hooper v Parwan Investments Pty Ltd (recs apptd) caveats based respectively on a contract of sale and a charge were removed to permit sale by receivers appointed by a mortgagee bank. In BD78 Pty Ltd & Anor v FGK3GEN Pty Ltd & Anor a caveat based on an equitable mortgage was removed to permit the registered proprietors to refinance by paying out a registered mortgage, on condition that the debt secured by the equitable mortgage was repaid and an amount calculated for interest was paid into court or into trust to be released by agreement or court order.
In Launch Concept Developers Pty Ltd v Di Mauro & Ors  VSC 512, Moore J., (1 September 2022):
- The plaintiff was registered proprietor of properties at Portland and Elsternwick.
- The Portland property was subject to a registered first mortgage to a third party securing a debt of approximately $434,000.
- The first and second defendants had lent money to the plaintiff secured by mortgages over the Elsternwick property and, ranking after the registered first mortgage, charges over the Portland property. The Elsternwick mortgage was in default.
- Caveats had been lodged over the Portland property based on these charges.
- The principal of the first defendant’s loan was $390,000, the sum outstanding was approximately $550,000, and interest was running at 23% per annum. The principal of the second defendant’s loan was $55,000, the sum outstanding was approximately $90,000, and interest was running at 36% per annum.
- The estimated value of the Elsternwick property was only $600,000 and accordingly these debts exceeded the value of that property.
- The plaintiff desired to refinance by discharging the Portland mortgage (which was in default) in favour of a new registered mortgage securing a loan of $520,000 but incurring less interest than under the current mortgage.
- The plaintiff sought orders under the Transfer of Land Act s. 90(3) for removal of the Portland caveats to permit this new mortgage but with the caveators being permitted to re-caveat thereafter.
- At the hearing the parties led differing evidence of the value of the Portland property. However, it was agreed that: on the plaintiff’s valuation plus estimate of building costs, taking into account both the Elsternwick and Portland properties, there would be total equity remaining of about $230,000; on the defendants’ valuation the remaining equity would be approximately $100,000.
- Moore J. dismissed the application. The caveators indisputably had a caveatable interest and the balance of convenience was in their favour. The proposed new mortgage would secure about $85,000 more than the existing mortgage and the caveators would suffer practical detriment from losing priority in this amount. Even assuming that the remaining equity in both properties would be about $230,000, this was marginal given the plaintiff’s apparently parlous financial circumstances, there being no evidence of likely improvement.
Hooper v Parwan Investments Pty Ltd (recs apptd)  VSC 285, Matthews AsJ (2 June 2022).
The facts were –
- In 2015 the first defendant (Parwan) entered a contract to purchase a residential property (the Property) with funds obtained from a bank pursuant to a loan agreement with a facility amount of $850,000. On 16 December 2015 it became registered proprietor of the Property subject to a registered mortgage securing the loan.
- On 21 October 2016 Parwan and the plaintiff (Hooper) entered into a contract of sale of part of the land (Purchased Area) for $900,001, with settlement on 21 March 2018 unless the Purchased Area was a lot on an unregistered plan, in which case settlement was due on the later of 21 March 2018 or 14 days after notice of registration of the plan. Special Condition 7.1 of the contract made settlement conditional on Parwan subdividing the Property within 18 months from the day of sale and required that it use its best endeavours to achieve this.
- The contract of sale also provided that it was subject to a lease between Parwan and Hooper. That day Parwan agreed to lease the Purchased Area to Hooper for 24 months and thereafter, unless terminated in accordance with the Residential Tenancies Act, to continue as a periodic tenancy, and that each party must comply with that Act.
- In 2017 Hooper caveated over the Property claiming an interest as purchaser under the contract of sale.
- In 2018 Parwan executed a deed of charge in favour of Hooper creating an equitable charge over the Property securing payment of $350,000, said to reflect the value of Hooper’s improvements to the Property. In 2018 Hooper caveated over the Property claiming an interest as chargee based on this document.
- On Parwan falling into default of mortgage repayments the bank in 2020 appointed receivers of the Property. Thereafter Parwan acted through the Receivers. In 2021 the Receivers applied to the Registrar of Titles under the Transfer of Land Act s. 89A for a lapsing notice to remove the caveats.
- On 7 July 2021 Parwan gave Hooper a notice to vacate the Property pursuant to s. 91ZZB of the Residential Tenancies Act, stating the reasons as the receivership and the intent to offer the Property for sale with vacant possession immediately after the termination date specified in the notice. Hooper did not vacate.
- Subdivision had not occurred. The bank and Receivers did not consent to sale of the Purchased Area to Hooper. As at 3 December 2021 the mortgage debt was over $1.1m.
- Hooper commenced a proceeding seeking specific performance of the contract of sale and certain declarations. Parwan filed a Defence and Counterclaim. Parwan also issued a Summons applying for summary judgment under the Civil Procedure Act ss. 61, 62 and 63 on certain aspects of its pleading, which effectively mirrored the relief sought by Hooper, a declaration concerning the lease, and alternative relief in the form of removal of the caveats.
Matthews AsJ made orders including for removal of the caveats –
- Although the appointment of the Receivers extended only to the Property and was not in respect of the whole company, they had standing to counterclaim and press the Application contained in the Summons in the name of the registered proprietor Parwan. Both the mortgage and s. 420 of the Corporations Act gave the Receivers broad powers. -
- Although the contract of sale was binding Hooper’s claim for specific performance turned on whether the Property could be subdivided and on whether the sale could be settled given the bank’s attitude and in particular whether it would discharge its mortgage. The weight of evidence was that because the Receivers and the bank did not consent to the sale Parwan was unwilling to, and could not effect, subdivision or transfer whereby it refused to perform its contractual obligations. In such circumstances the remedy of specific performance would probably require supervision by the court, which was usually a reason not to grant specific performance. Further even if Parwan took steps towards subdivision, its achievement was outside its control. A further barrier to specific performance was that Parwan could not deliver clear title to Hooper by redeeming the mortgage, which had priority over Hooper’s interest as purchaser and the mortgage debt now exceeded the purchase price. When the foregoing barriers, particularly impossibility of settlement because the mortgage would not be discharged, were combined there was no real prospect of specific performance. -
- There was a prima facie case of the interest claimed in the purchase caveat. On the balance of convenience –
- neutral factors were: (a) that, although the bank desired sale, no contract of sale to a third party yet existed; (b) Hooper’s claim that he remained in possession of the Purchased Area, which in light of the evidence was questionable; (c) possible VCAT enforcement proceedings by the local municipality, on which there was a paucity of evidence; (d) Parwan’s offer to pay the net proceeds of sale into court or a trust account pending determination of Hooper’s claims.
- Hooper’s proposed undertaking to pay the difference between the price for the Purchased Area and the mortgage debt did not affect the balance of convenience because it was ambiguous and failed to articulate relevant factors including Hooper’s capacity to pay.
- the balance of convenience favoured removal of the caveat because of strong evidence of fundamental barriers to specific performance (and so any remedy for breach of contract would be for damages in lieu of specific performance). -, -
- Although there was a prima facie case of the interest claimed in the charge caveat Hooper would retain the protection of the charge even without the caveat, there being no evidence that it could not be satisfied out of net proceeds remaining after payment under the bank’s mortgage. Accordingly, the balance of convenience overwhelmingly favoured removal of this caveat on condition that the net proceeds of sale were paid into court or a trust account. -
- Parwan was entitled to summary judgment on its application for a declaration that the Lease Agreement had been validly determined. 
BD78 Pty Ltd & Anor v FGK3GEN Pty Ltd & Anor  VSC 361, Ginnane J (23 June 2022)
The facts were –
- In August 2020 the plaintiffs agreed to sell land to the first defendant for $12.7m. The contract had not yet been settled.
- The plaintiffs also borrowed $6.9m. from third parties and in September 2020 a mortgage securing that loan was registered.
- On 5 October 2020 the plaintiffs and the first defendant entered a loan agreement under which the first defendant lent $1.9m. to the plaintiffs secured by an instrument of mortgage over the land which was only to be registered if there was an Event of Default (cl. 8.2(b)). The agreement:
- permitted the lender to caveat over the land to record its equitable interest as mortgagee (cl 8.2(a));
- defined “Repayment Date” as the earlier of settlement of the contract and termination of the contract for any reason other than breach of it by the lender;
- because the land was on an unregistered plan of subdivision, in substance made settlement due 14 days after notice to the purchaser of its registration. If the plan was not registered by 31 August 2022 either party could end it before registration with refund of the deposit (Special Condition 14);
- made interest payable on the Repayment Date unless the Loan and all other “Secured Money” was repaid on that date (cl. 3). The agreement defined “Interest Rate” and “Default Interest Rate”.
- defined certain matters as an “Event of Default” and in cl. 10.1 stated “Effect of Event of Default”.
- On 11 March 2022 the first defendant caveated over the land claiming an interest as mortgagee and stating the prohibition as “unless I/we consent in writing”.
- The plaintiffs were in default under the registered mortgage and in May 2022 the mortgagee foreshadowed issue of a Callup Notice unless a definite payment date was stated.
- On 17 June the first defendant served a Notice of Default alleging two Events of Default under the loan agreement, the first being a change of effective control of the borrower. The notice demanded repayment of $1.9m. with interest on that amount and on the “Secured Money” pursuant to cl 10(1) of the loan agreement.
- The plaintiffs desired to refinance the first mortgage loan on 24 June and to repay the first defendant in return for withdrawal of its caveat. The plaintiffs applied under the Transfer of Land Act s. 90(3) for removal of the caveat, which they contended was preventing this refinancing. The hearing commenced on 20 June.
Ginnane J held –
- As the first defendant’s mortgage was at least an equitable mortgage it had a caveatable interest. , , 
- An Event of Default, to at least a degree sufficient for this application, had been established namely a change of control in the shareholding of the borrowers. , , 
- The question of whether the plaintiffs could repay the loan amount of $1.9m. before the ‘Repayment Date’ had been overtaken by the service of the Notice of Default. Clause 3 made no provision for early repayment, even following a Notice of Default, and it was arguable that it had to be read with cl. 10 which mandated interest at the ordinary rate when early repayment occurred. It was reasonably arguable that the plaintiffs were obliged to pay interest on $1.9m. but only at the ordinary rate of 5%. , , , 
- The first mortgagees had foreshadowed possible enforcement of their rights, which may prejudice both the plaintiffs and first defendant. Further, if the Notice of Default and demand for repayment had not been served, a Repayment Date only two months away (on 31 August 2022) may have been reached based on non-registration of the plan of subdivision, in which case the contract could have been terminated with no interest payable. The caveat would accordingly be removed on condition that the plaintiffs repaid $1.9m. and paid interest at 5% ($169,758.56) into court (thereby giving the first defendant some security for additional claims for payment) to be released by agreement or court order. As such security existed no undertaking as to damages by the plaintiffs was necessary. , , 
- Because the caveat was removed by court order the first defendant could not, by reason of the Transfer of Land Act s. 91(4), lodge another caveat in respect of its same interest under the loan agreement, but could have done so if the existing caveat had been withdrawn. 
Philip H. Barton
Owen Dixon Chambers West
Tuesday, November 22, 2022
Reindel & Ors v Confreight Pty Ltd & Ors (No 2)  VSC 442, Daly AsJ (8 August 2022).
This case arises from the same development as that the subject of Blog 61. It concerns imposition of caveats based on Barnes v Addy claims, no caveatable interest being found to exist. In the 1874 English case of Barnes v Addy (1874) LR 9 Ch. App. 244 at 251 – 252 Lord Selborne LC stated –
“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if … But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers … unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees”.
Subsequent cases have worked out the scope of these principles, known as the “first and second limbs of Barnes v Addy”, ie knowing receipt of trust property or dishonest assistance in a breach of trust (being an accessorial liability).
The facts were –
- In around 2015 Messrs Reindel, Murone and Monson decided to carry out a multi – unit residential development in Windsor. A company (WDC) was incorporated to perform the development. It was trustee of a unit trust in which Confreight Pty Ltd (Confreight) and Supply Chain Logistics (SCL) controlled respectively by Murone and Monson together held 35%, and an entity associated with Reindel held 65%, of the units. In 2020 the development was completed and WDC was wound up with negligible return to Confreight and SCL.
- Five residential units in the development valued at approximately $2 m. in total had been transferred by WDC, one to Reindel and four to a company controlled by him (Blizzard Winds). On 3 February 2021 the liquidator wrote to the unit holders in the trust seeking information including on this transfer. On 15 February 2021 the liquidator made his statutory report including stating that there were claims totalling over $2 m. by unsecured creditors.
- In the first half of 2021 Confreight and SCL caveated over the five Windsor units and over a Toorak property of which Reindel’s wife Ms Runhardt had been registered proprietor since 2015. Relevantly the interest in land claimed was as beneficiary of an “implied, resulting or constructive trust”.
- In July 2021 Reindel and associated parties commenced a proceeding under the Transfer of Land Act s. 90(3) to remove the caveats. The caveators opposed this and, if their opposition failed, applied to restrain the registered proprietors from dealing with the land pending the determination of their proceeding referred to below.
- In August 2021 Confreight and SCL commenced a proceeding (the investors’ proceeding) alleging inter alia that: Reindel had caused WDC to transfer much cash and the Windsor units to himself and his associated entities for little or no consideration; by reason of his alleged breaches of fiduciary duty and of trust they were inter alia entitled to orders that property of the unit trust be transferred to WDC (in its capacity as trustee), and/or equitable compensation for the value of property transferred from WDC in breach of trust or for less than market value, and certain other relief.
- The defendants to the investors’ proceeding in substance denied the allegations against them, alleging that transfers were in reduction of debts duly owing.
- The plaintiffs in the investors’ proceeding also alleged that Reindel had used WDC’s funds for mortgage payments on and renovations to the Toorak property. Reindel admitted these payments into his and Runhardt’s joint account, and that payments were applied to paying the mortgage, but denied misappropriation. The plaintiffs also alleged that Runhardt participated in Reindel’s breach of fiduciary duty and breach of trust by receiving trust property with knowledge of his breaches. Runhardt basically denied all allegations concerning her.
- On 14 September 2021 WDC’s liquidator applied to intervene in the caveat proceeding, supported by an affidavit exhibiting his letter of 3 February and his report. He subsequently did not pursue this application.
- The caveat and injunction proceedings were heard in October 2021 with judgment reserved. Although no orders were made in the caveat or the investors’ proceeding that the evidence in one proceeding would stand as evidence in the other Daly AsJ would (footnote ) if necessary have ordered this now as for then (traditionally “nunc pro tunc”). Her Honour stated () that the findings and issues raised by the liquidator’s report and letter and WDC’s accounting records were a generally reliable guide to the affairs of WDC and the unit trust, although it was unnecessary for present purposes to determine whether the concerns raised therein had been established. Her Honour noted () that the liquidator’s affidavit, his letter, his report and the accounting records revealed evidence of the transfers of Windsor units being for no consideration or at an undervalue, although it was premature to conclusively determine whether in breach of trust or otherwise invalid (also ).
- In January 2022 the liquidator sought, inter alia, court approval to enter an agreement to assign certain unspecified causes of action to a Mr Baker – it was unclear but her Honour inferred that there was a substantial overlap between these causes of action and those in the investors’ proceeding (). The liquidator also applied to be appointed as a receiver of the unit trust, deposing that he believed that this was necessitated by cl. 12.5 of the trust deed which provided that on its liquidation WDC ceased to be trustee of the trust.
- Clause 37 of the trust deed provided:
“the rights of the trustee to indemnity for losses … and to recoupment for expenditure incurred shall … be limited to the monies and property comprising the Trust Fund … but this clause shall not be construed as in any way limiting the liability of any trustee (or of any director of a company which is a trustee hereof) to the unit holders for any breach of trust involving the dishonesty or wilful act or omission of that trustee or director.”
Daly AsJ removed the caveats but granted an interlocutory injunction restraining Reindel and Blizzard Winds from dealing with their residential units –
- The possibility of the caveators having a prima facie case of an interest in the land was undermined if they lacked standing to bring their claims in the investors’ proceeding, or this was in doubt. Generally the proper party to bring a claim to recover trust property was the trustee but this was subject to “special circumstances”, eg collusion between the third party wrongdoer and the trustee, insolvency of the trustee, or where the trustee was unwilling or unable to take action to recover trust property. There were real doubts whether the caveators had standing to, in effect, recover WDC’s property. Alternatively, any claim for damages and/or equitable compensation would have to be calculated by reference to their shares in the unit trust. -, , 
- Confreight and SCL could also in their capacity as shareholders of WDC apply under s. 237 of the Corporations Act 2001 (Cth) to bring a derivative action to bring the claims in the investors’ proceeding on behalf of WDC. This application had not been made, although they had made an informal application for leave to continue the investors’ proceeding standing in the shoes of WDC in its capacity as trustee. 
- On the issue of standing, the position was somewhat fluid and far from clear cut. There was some doubt whether on its liquidation WDC remained as trustee of the unit trust or whether the liquidator was ready, willing, and able to pursue any claim by WDC against third parties for the benefit of the beneficiaries (and creditors) of the trust, but it appeared that liquidator had not reached a final position. Clause 37 of the trust deed preserved the beneficiaries’ entitlement to pursue claims against the trustee and the directors, at least on their own behalf. And although the plaintiffs arguably needed curial leave to proceed with their claims in the investors’ proceeding to recover trust property, it was in the context of the current case neither necessary nor appropriate to determine the possible fate of this application for leave. It was accordingly difficult for present purposes finally to resolve the question of standing and this undermined the caveats, given that the entitlement to lodge a caveat must exist at the time of lodgement. , , , , 
- The caveators must demonstrate a prima facie case, ie a probability of being found to have the asserted legal or equitable rights or interest in the land. The ‘prima facie case’ test was preferable to the ‘serious question to be tried’ test of such rights or interest. -
- The caveats over the Toorak property were unsustainable. Runhardt was alleged at most to have accessorial liability for Reindel’s (and WDC’s) alleged breach of trust. In Barnes v Addy cases a constructive trust was only imposed over the property concerned on a curial determination to this effect. Until then there was no proprietary interest, even where it was claimed that trust property could be “traced” to a particular (other) property. Further, any “notice” Runhardt had of Reindel’s alleged breach of trust postdated her becoming registered proprietor of the Toorak property. -, [91(c)], 
- Even if breach of trust or of fiduciary duty was established against Reindel or WDC, the liability of Blizzard Winds was (notwithstanding that Reindel was its sole director) only accessorial. Further, even if the transfers to Blizzard Winds were arguably tainted by fraud which could be sheeted home to it so it lost the protection of indefeasibility of title, and a court ultimately determined to impose a constructive trust over the units, the entitlement of a former registered proprietor to set aside a transfer for fraud was an in personam claim giving rise to a mere equity, not an equitable and so caveatable interest. Accordingly the caveats over its property would also be removed. -, , , , 
- The claim concerning the transfer to Reindel was also only an in personam claim incapable of supporting a caveat. , [91(a)], , , 
- However, Reindel and Blizzard Winds would be restrained from dealing with the units transferred to them. Runhardt would not be restrained from dealing with the Toorak property. -, , , 
Philip H. Barton
Owen Dixon Chambers West
Monday, November 7, 2022
Reindel & Ors v Confreight Pty Ltd & Ors (No 1)  VSC 163, Daly AsJ (4 April 2022).
This case is interesting for several reasons. First, Daly AsJ discusses the subtle difference between the competing tests of ‘prima facie case’ or ‘serious question to be tried’ for a caveator to hold a sufficient interest in land in proceedings under the Transfer of Land Act s. 90(3). Her Honour comes down on the side of the former. (However it is difficult to think of any case in which a court held that a caveator satisfied one and not the other test). Second, her Honour conducts a long survey of the authorities on creation of equitable charges. Third, her Honour summarises principles of contractual interpretation. The facts were –
- A company developed land including for 69 residential units. Reindel and a company of which he was director (Blizzard Winds) were the registered proprietors of one and four units respectively. Another company (ABPC) was controlled by Baker.
- Reindel and Baker had a long, complicated and contentious financial association culminating in a written agreement alleged by Baker and denied by Reindel to have been made between ABPC and Reindel on 11 September 2020 (2020 facility agreement). Although Reindel’s electronic signature appeared on this document he denied signing it, alleging that Baker had affixed it without his authority. The agreement recited that the Lender (ABPC) had agreed to provide the Borrower (Reindel) with a “secured term loan facility” of $498,956. It defined: “Finance Document” as “this agreement, the Security Document and any other document designated as such by the Lender and the Borrower”; “Security” as “any mortgage, charge (whether fixed or floating, legal or equitable) … or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect”; and “Security Document” as ”the right to take an assignment or a legal charge in the agreed form, executed or to be executed by the Borrower or by (sic)”. It included –
“8.1 The Borrower confirms the Security outlined in schedule A (or once entered into, will create): (a) valid, legally binding and enforceable Security for the obligations expressed to be secured by it; and (b) subject to registration, perfected Security over the assets expressed to be subject to security in it.
8.2 The security will be held by the appointed representative in favour of the Lender, until the loan has been repaid in full
8.3 It is agreed the Lender has the priority and ranking expressed to be created in the Security Document and ranking ahead of all (if any) Security and rights of third parties except those preferred by law”
Schedule A provided under the heading “Security”:
“The apartments listed below are registered in the name of the Borrower and/or Blizzard Winds Pty Ltd … It is therefore agreed that in the event of default, the Lender can immediately register a secured charge against each or any of the following apartments. To the maximum value of the capitalized loan amount plus accrued interest Lot 203, 204, and 205 James Street Windsor 3181 Lot 502 and G12 White Stret (sic) Windsor 3181”
- Baker alleged that Reindel owed $563,966.77 under this agreement. A proceeding was on foot in which each claimed that the other person, or a company controlled by the other person, owed the claimant money. Reindel admitted receiving $498,956 from ABPC, but said that this was in reduction of a previous debt owed by Baker.
- ABPC had not registered any charge. It caveated over the above five units as chargee under the 2020 facility agreement. Reindel applied under the Transfer of Land Act s. 90(3) to remove those caveats.
Daly AsJ upheld the caveat over Reindel’s unit and removed the caveats over those of Blizzard Winds –
- The caveator must demonstrate a prima facie case, ie a probability of being found to have the asserted legal or equitable rights or interest in the land. There must be a sufficient likelihood of success to justify the maintenance of the caveat and the preservation of the status quo pending trial. The ‘prima facie case’ test was preferable to the ‘serious question to be tried’ test. The difference between the tests was one of degree, yet material, recognising the potentially adverse consequences to a registered proprietor of constraint from dealing with the property in circumstances where a caveator was generally not required to provide an undertaking for damages. -
- The question whether Reindel signed or authorised the signing of the agreement and the characterisation of the payments to him were matters for trial. , 
- The 2020 facility agreement was to be construed: with reference to what a reasonable business person with knowledge of the context and purpose of the transaction would have understood those terms to mean (Reindel and Baker were experienced businessmen); and avoiding commercial absurdity and commercial inconvenience as far as the language of the agreement allowed. Further, a court would endeavour to enforce rather than destroy a bargain, unless the agreement’s terms were so vague and confusing as to render ascertainment of the parties’ common intention impossible. -
- Courts would, consistent with the principles governing the construction of commercial contracts, adopt a liberal approach to the construction of instruments such as the 2020 facility agreement, and would generally strive to give effect to a clause purporting to confer a security interest in property, even if ambiguously or inelegantly expressed. 
- The 2020 facility agreement evidenced a common intention by Reindel and ABPC that any sums advanced pursuant to it were secured on the units referred to in Schedule A upon default by Reindel, and that upon default ABPC would be entitled to register a “charge” over the units. There was at least a prima facie case of an immediate intention to create an equitable charge because –
- The reference in the recitals to the provision of a “secured term loan facility” evidenced the purpose of the transaction and guided its construction.
- “Security” was defined expansively and consistently with what someone engaged in property development would understand a security to be.
- The definition of “Security Document” referred to an instrument to give effect to the agreement between the parties, rather than of itself creating a proprietary interest.
- Although the language of cl. 8.1 was clumsy, there was a prima facie case that, when read with Schedule A, the parties intended the “Security” referred to in Schedule A to be the borrower’s then unencumbered interest in the units enumerated in Schedule A. The reference to a “secured charge” being registrable upon default was merely a machinery provision in aid of enforcement in the event of default, and not an agreement to provide future security requiring further consideration.
- The creation of any charge over the units was not dependent on execution of a further document capable of registration. Because Part IV of the Transfer of Land Act only provided for registration of a charge securing payment of an annuity nothing further (notwithstanding what the agreement appeared to contemplate) could be done to register the charge.
- The entitlement to an equitable charge arose on default, not at the time of entry into the agreement. The relevant clause was “apt to create an equitable charge”.
- The units were sufficiently identified without reference to particulars of title.
- The definitions of “Security Document” and “Finance Document” did not detract from the conclusion that the agreement conferred an immediate equitable interest in the units on ABPC, because: the definition of “Security Document” was incomplete and unintelligible in attempting to equate a document with a proprietary interest; the term “Security Document” was not referred to in Schedule A; while the term “Security Document” was referred to in cl. 8.3, that clause was not concerned with the existence or creation of ABPC’s security interest but with its priority; and the term “Finance Document” was not referred to in cl. 8.1 or Schedule A, but only in other not presently relevant clauses. -, , , -
- Accordingly the caveator had a caveatable interest in Reindel’s unit. However, notwithstanding that Blizzard Winds’ units were enumerated in Schedule A, even if Reindel entered the agreement he did not do so on behalf of Blizzard Winds. Accordingly the caveator had no caveatable interest in its units. , , , 
- The balance of convenience favoured maintenance of the caveat over Reindel’s unit. On the one hand there was evidence of an executed agreement and of funds advanced without repayment, a counterclaim advancing ABPC’s claims was well underway, and the caveat assisted ABPC in giving notice of its claim to other claimants. On the other hand there was no evidence that Reindel needed to sell or encumber his unit. 
Philip H. Barton
Owen Dixon Chambers West
Friday, October 28, 2022