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

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

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

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

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

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

This security interest is also an encumbrance.’

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

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

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

…’

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

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

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

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The plaintiff sought an order under s. 74MA of the Real Property Act 1900 (NSW) that the caveat be withdrawn.

Hmelnitsky J. declined to order that the caveat be withdrawn, holding –

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

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

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

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

Comment:

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

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

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

The facts were:

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

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

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

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

Merry Christmas

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 10, 2024

Blog 90. Caveat removed – no common intention constructive trust

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

The facts were –

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

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

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

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

[48]

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

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

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

Blog 89. Removal of caveat following mortgagee’s sale.

Archer Wealth v Casey [2024] VSC 300, Moore J.

The facts were as follows.

The second defendant (Kookee) was the registered proprietor of 100 acres in rural Victoria (the Property). Its sole director and shareholder was the fourth defendant Ms Lagoutatzis.
Following a formal letter of offer by the first plaintiff (Archer) to Kookee and Ms Lagoutatzis, signed on 10 August 2023, Archer on 16 August agreed to lend Kookee $4,325,000 secured by first mortgage over: the Property; two properties in Doncaster owned by Kookee (Victoria Street and Daphne Street); and a property in Warrandyte owned by Ms Lagoutatzis where she lived with her husband the first defendant (collectively ‘the security properties’). Clause 11.1(a)(i) of the Loan Deed required Kookee, within 30 days of the loan advance, to engage or procure a real estate agent acceptable to Archer, to list and market the security properties for sale. The mortgages also required the mortgagor to pay the land tax and municipal rates.
On 23 August Archer agreed to lend Kookee an additional $700,000 on the security of second mortgages over the security properties. The loans were advanced on 23 August, refinancing existing secured debts.
On 24 August Archer assigned part of its interest in the mortgages to the other plaintiffs.
Between 25 September and 10 November 2023: a Lender’s Demand by Archer alleged breach of cl. 11.1(a) of the Loan Deed and non-payment of land tax on the Doncaster properties, requiring rectification within seven days; Archer tried to obtain the cooperation of the tenant of Victoria Street to list it for sale; Archer took possession of Daphne St as mortgagee, it subsequently being sold for $1,057,000; a default notice under the Transfer of Land Act s. 76 was served in respect of the mortgages over the Property and the Doncaster properties, giving Kookee one month to remedy its breach of cl. 11.1(a) and to pay certain land tax and rates.
Following non repayment of the loans on the due date of 23 January 2024 the plaintiffs took possession of the Property, gave another s. 76 notice for over $4 m., obtained an independent valuation of market value at $800,000, and conducted a mortgagees’ sale for $850,000 plus GST due for settlement on 13 May. The parties were ready, willing and able to complete this sale.
On 18 April Ms Lagoutatzis sought an injunction restraining sale of the Property for under $1.4 m., resulting not in restraint but in an order that she be provided with a copy of the contract of sale, which was complied with.
On 15 May a caveat was lodged on behalf of Kookee claiming a freehold estate with an absolute prohibition on dealings based on ‘Registered proprietor(s) being entitled to possession of the certificate of title for the land and to prevent improper dealings’. Other caveats were lodged which counsel for the defendants acknowledged to be without foundation.

The plaintiffs commenced this proceeding ultimately seeking removal of all three caveats under the Transfer of Land Act s. 90(3). Ms Lagoutatzis’ deposed that: the Loan Deed was entered into so that Archer could provide the finance necessary to sell the four properties; despite cl. 11(a) of the Loan Deed the plan, of which she had told Archer’s director, had always been only to sell the three Melbourne properties and for her family to move to the Property where they would build a home to live in retirement – the director denied being told this; the couple had spent about $100,000 in preparation for building this dwelling.

A draft counterclaim was provided to the court which among other things pleaded that: Kookee had engaged an agent to list and market the Melbourne properties, which Archer approved, whereby Kookee did not engage another agent; it was exonerated as regards land tax and rates because of a particular representation by Archer; accordingly the Lender’s Demand was void, whereby Archer’s enforcement of the Doncaster mortgages exceeded its power as mortgagee and breached the Loan Deed; on substantially the same grounds as those relied on to invalidate the Lender’s Demand, Archer had no right to serve the November Default Notice, on the basis of which it sold the Property; Archer had engaged in conduct which unreasonably prevented Kookee from refinancing; Archer did not sell Daphne Street and the Property in good faith; the sale of the Property should be restrained and the contract of sale set aside.

Moore J. ordered that the caveats be removed, holding –

The improper dealings referred to in the caveat may be taken to be those articulated in the draft counterclaim. On the authority of Swanston Mortgage v Trepan Investments [1994] 1 VR 672 this did not give rise to an estate or interest in land and a mortgagor’s right to have an improper sale of mortgaged property set aside was a ‘mere equity’. Accordingly there was no caveatable interest. [42]-[45], [47]
The fact that the interest in land claimed in the Swanston Mortgage caveat was an equitable interest as mortgagor, whereas Kookee had asserted a ‘freehold estate’, was immaterial. [46]
The balance of convenience would also have favoured removal of the caveat because
Archer’s exercise of its rights as mortgagee did not infringe Kookee’s proprietary rights. This informed the general rule that the court would not restrain the exercise of a mortgagee’s power of sale unless the mortgage debt, if undisputed, be paid, or, if it was disputed the amount claimed by the mortgagee be paid into court. The defendants had not offered any payment. [48]-[50], [58]
However, being an application of the equitable maxim that ‘he who seeks equity should do equity’, this general rule was subject to exceptions. Depending on the facts and circumstances and overall justice of the case, payment into court may not be required if it was alleged that:
1. the mortgagee’s power of sale was not properly exercisable or was being exercised for an improper motive;
2. the mortgage was invalid, or had not been breached so as to engage the power of sale, or a notice required to engage that power was ineffective;
3. the mortgage or the power of sale was impugned pursuant to the Australian Consumer Law or the Australian Securities and Investments Act 2001 or equitable principle. [51]
On the basis of the allegations in the draft counterclaim, whatever might be the position of the other security properties, it appeared most unlikely that this sale enlivened any of these exceptions. Kookee had not complied with cl. 11.1(a)(i) of the Loan Deed (and the alleged representation in the draft counterclaim in relation to the engagement of a real estate agent was limited to the other security properties). Accordingly it had defaulted under the Loan Deed whereby the total amount owed by it was immediately due and payable. Further, any allegation that the ‘express purpose’ of the loans was for the couple to build a house on the Property for their retirement was fundamentally weak: whatever their subjective purpose, the plan deposed to by Ms Lagoutatzis was contradicted both by her also deposing that the Loan Deed was entered into to enable Archer to provide the finance necessary to sell all four properties and by the terms of the formal letter of loan offer. There was also no evidence that the Property was included in the Loan Deed by common mistake. [52]-[57]
Accordingly, Kookee was not relieved from the obligation to bring in an amount either sufficient to meet the mortgaged debt, or such other amount as may be appropriate – which was in this case an amount equal to the mortgagee’s maximum possible loss from the sale being lost, this not being the amount of the mortgage debt but the value of the security itself. [58]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 26, 2024

Blog 88. Two Costs Cases

The cases in this Blog are typical of two mundane situations, respectively concerning a dispute over costs after settlement of the main proceeding and a dispute about who should pay the costs where a caveat is withdrawn before a hearing of an application under the Transfer of Land Act s. 90(3).

Rigene Pty Ltd v Rugolo (Costs Ruling No 2) [2024] VSC 187, Gray J.

The facts were –

The first defendant caveated over a property of which the plaintiff was registered proprietor. The caveat was based on a loan agreement containing a charging clause, the debt being allegedly over $306,000. Desirous of selling the property the plaintiff applied for removal of the caveat under s. 90(3) of the Transfer of Land Act. The court made a consent order removing the caveat on condition that from the proceeds of sale the amount claimed by the caveator be paid into a separate interest-bearing account, to be retained pending resolution or determination of the dispute concerning the caveator’s entitlement to that amount. The parties could not agree on costs.
The plaintiff subsequently commenced an application that the caveator pay its costs on an indemnity basis. This was based on material to the effect that the plaintiff disputed the loan agreement and the caveat, and that the balance of convenience also clearly favoured its removal.
On 8 March 2024, the plaintiff made a Calderbank offer to compromise its costs application by the caveator agreeing to pay about 55% of the plaintiff’s actual costs. On 15 April the caveator’s submissions responding to the plaintiff’s costs application were served with a communication marked “without prejudice”. This stated that the caveator would be seeking costs of and relating to the costs hearing, possibly on an indemnity basis, unless the plaintiff agreed to the filing of consent orders that there be no order as to costs.
At the hearing of the plaintiff’s costs application on 17 April 2024 it submitted that the caveator had acted unreasonably in the lead up to the litigation, that the consent orders achieved its purpose in bringing the proceeding and represented a capitulation by the caveator, and that it would have clearly won if its application for removal of the caveat had been heard on the merits. The court rejected these arguments and dismissed the plaintiff’s costs application, with oral reasons.
After this oral ruling the caveator applied for indemnity costs of the plaintiff’s failed costs application, tendering the documents of 8 March and 15 April.

Gray J. ordered the plaintiff to pay the first defendant costs on a standard basis, holding:

The plaintiff’s offer was of little weight but at least showed that it was not implacably set on receiving all its costs. [12]
The caveator’s communication of 15 April was entitled to significant weight as, although its proposed response time was not very long, it reasonably promoted the overarching purpose stated in s. 7 of the Civil Procedure Act 2010 by offering an efficient conclusion to the proceeding, and the caveator had been vindicated by the court’s dismissal of the plaintiff’s costs application. [13]
However, the communication of 15 April was not a Calderbank offer because it was not expressly described as such, did not provide very long for consideration and response, and did not clearly put the plaintiff on notice that indemnity costs would be sought. [14]
The plaintiff would be ordered to pay the caveator’s costs, but only on a standard basis, because:
1. Costs ordinarily followed the event. In a proceeding with multiple issues and mixed success the court could order costs on an issues basis. But the plaintiff’s costs application was a discrete issue in the proceeding, in respect of which the judge was required to consider the separate exercise of his costs discretion under s. 24(1) of the Supreme Court Act 1986, notwithstanding that there would be no costs order of the proceeding more generally. The plaintiff’s failed costs application was a sufficiently distinct issue to attract the principle that costs ordinarily follow the event. [17]-[18]
2. Rule 63.20 of the Supreme Court (General Civil Procedure) Rules, provided that, unless the Court otherwise ordered, where no order was made as to the costs of an application, such costs were the parties’ costs in the proceeding. This outcome would be inappropriate because the plaintiff’s application postdated the consent disposition of the substantive relief sought and was itself directed to the allocation of costs. [20]-[21]
3. The argument that the plaintiff should not be ordered to pay costs because subsequent costs applications could deter future compromises (in that it would have been better for the plaintiff not to consent but simply to run its application) was unsound: in any event the prospect of deterrence was equally and possibly even greater from the plaintiff’s own costs application. Where parties submitted consent orders which did not deal with costs each side was at risk of a subsequent adverse costs order. [22]
4. An order for indemnity costs would be unjustified. Although the plaintiff’s costs application was somewhat speculative, it was neither clearly contrary to known authorities or foredoomed. There was no decided case exactly on point. The consent orders represented each party having a measure of success and were a compromise. They were not a ‘capitulation’, as for example where a caveator agreed to remove a caveat by consent unaccompanied by anything of advantage such as quarantine of the amount sought by the caveator. It was also not premature to determine this application before resolution of the proposed litigation over the monetary entitlement. [24], [27]-[29], [32], [33], [36]

[23]

In Willandra 74 Pty Ltd v AKG Willandra Pty Ltd [2024] VSC 398, Cosgrave J. ordered the plaintiff to pay the defendants’ costs on a standard basis. Briefly:

The first plaintiff had four directors and was the registered proprietor of a property. Each director was also the director of a separate company, which four companies were the shareholders in the plaintiff and each the trustee of a separate trust.
The plaintiffs developed the property. The first plaintiff partitioned the property with the shareholders receiving equal lots (the allocated lots). The remaining lots were retained to repay debt and to distribute any net proceeds equally to the shareholders.
The shareholders agreed to contribute equally to the first plaintiff’s expenses of the project. In 2022 the first defendant ceased doing so, requiring the other shareholders to meet the shortfall.
In November 2022 the first defendant caveated over all the lots. In December the first plaintiff and the trustees of the three trusts not associated with the first defendant issued a proceeding seeking the removal of the caveat.
On 12 December 2022 the parties settled that proceeding. The settlement deed included conditions in effect that:
- the first defendant would withdraw the caveat in respect of each remaining lot, at settlement of the relevant sale agreement, on the basis that the net sale proceeds were applied in reduction of the debt which the first plaintiff owed for the development;
- the net proceeds of sale (after the debt had been paid) would be distributed equally between the four trusts;
- if the caveat was not withdrawn in accordance with the deed of settlement the plaintiffs could reinstate the proceeding to obtain judgment by consent.
Pursuant to the deed of settlement the proceeding was dismissed with no order as to costs.
Various events then occurred in performance of the settlement agreement. By July 2023 only one lot was unsold. Correspondence between solicitors then occurred including the caveator’s solicitors stating that the caveat over that lot would not be removed until the day of settlement of any sale of that lot and subject to other conditions about the calculation and disposition of any surplus funds.
On 21 August 2023 the first plaintiff entered a contract to sell that lot with settlement scheduled for 16 October. In subsequent correspondence the caveator’s solicitors proposed that the parties agree on any adjustments or reimbursements between them before settlement of this sale, but that absent agreement it would still withdraw the caveat to permit settlement provided the proceeds were held in a trust account upon an undertaking that they not be released pending agreement or court order. Correspondence between solicitors continued, revealing disagreement about the details of the distribution.
On 10 October the plaintiffs commenced this proceeding seeking removal of the caveat and an order approving distribution of the sale proceeds in a particular order. In the email serving the court documents the plaintiffs’ solicitor proposed that to avoid the hearing (before 16 October) the caveator remove the caveat immediately with the sale proceeds being held in trust pending an agreement between the parties or court order.
Later that day the plaintiffs’ solicitor advised the defendants’ solicitor that the hearing was listed for 2.15 pm on 16 October.
On the afternoon of 13 October the defendants’ solicitor advised that the first defendant “remains committed to removing the caveat prior to settlement of Lot 44 on the basis that the settlement proceeds remain in TickBox’s trust account on an undertaking by TickBox not to release the funds pending agreement or Court order”, and requested an urgent response. On the same day a long affidavit by the caveator was filed.
The caveat was withdrawn to allow for settlement and the net proceeds were held in trust.
Cosgrave J. held that the proceeding was unnecessary. Under the settlement agreement the caveator had impliedly agreed to withdraw any caveat preventing sale and in subsequent correspondence its solicitors had stated that it would withdraw the caveat at settlement provided the conditions in the deed of settlement were met. The caveator’s solicitors had also said that even if adjustments or reimbursements had not been agreed it would still withdraw the caveat to permit settlement provided the sale proceeds were held in trust as stated above. This had occurred.

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 19, 2024

Blog 87. Solicitor disciplined for lodging caveats in fencing dispute.

Victorian Legal Services Commissioner v Fong [2024] VCAT 103; [2024] VCAT 469, Senior Member E. Wentworth

In this matter Senior Member Wentworth explores the meaning of the following words or concepts, and their relevance in disciplinary proceedings: “unsatisfactory professional conduct”, “professional misconduct”, “substantial”, “gross negligence (occasionally coupled with incompetence)”, “deliberate (or wilful) or reckless conduct”, and “a state of mind allegation” . The Senior Member also analyses and comments on the drafting of Applications to the Tribunal by the Commissioner.

The facts were –

The respondent was a solicitor whose client was in dispute with his neighbours about the location of a fence. His client wanted the fence rebuilt in the belief that it was partly not on the boundary line but encroached onto his land. The neighbours maintained that it was on the boundary line.
In 2016 the solicitor lodged a caveat on behalf of his client over the neighbours’ title on the ground of “adverse possession by exclusive occupation”. The neighbours’ lawyer wrote expressing surprise that the caveator was claiming adverse possession given that the respondent’s client was claiming that the writer’s clients had encroached onto his land. The letter asserted that there was no caveatable interest. Subsequently, on the application of the neighbours the Registrar of Titles issued a lapsing notice under s. 89A of the Transfer of Land Act. No notice was given to the Registrar that a proceeding to substantiate the claim of the caveator was on foot (there being no such proceeding) and accordingly the caveat lapsed under s. 89A(5). After this lapse the neighbours’ lawyer sent a more detailed letter stating that the existing fence had been in place for more than 15 years and if (which was denied) it was on the incorrect line the neighbours would have a claim in adverse possession.
On 1 September 2017 the solicitor lodged another caveat on behalf of his client over the neighbours’ title on the ground of “registered proprietor(s) being entitled to possession of the certificate of title for the land and to prevent improper dealings”. This caveat was withdrawn on 3 November 2017.
In 2019 the solicitor lodged another caveat on the same ground as in 2017. The s. 89A process then occurred with the same outcome as in 2016.

The Legal Profession Uniform Law (Victoria) provided –

“296 Unsatisfactory professional conduct

For the purposes of this Law, unsatisfactory professional conduct includes conduct of a lawyer occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer.

Section 297 provided that for the purposes of this Law professional misconduct included “unsatisfactory professional conduct of a lawyer, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence”.

After the third caveat the neighbours’ lawyer made a complaint to the Victorian Legal Services Commissioner. The Commissioner carried out an investigation in the course of which it was not put to the solicitor that his conduct was wilful or reckless. And neither this allegation nor that of gross negligence was referred to in the “Murray” letter sent by the Commissioner before this proceeding.

The Commissioner laid three charges against the solicitor alleging that he engaged in professional misconduct under s. 297(1)(a). The Commissioner did not bring a “rolled up” charge in the alternative,eg a charge in the alternative to charges 1, 2 and 3 alleging professional misconduct by reason of repeated lodging of caveats without a proper basis, and did not plead professional misconduct on the ground that the solicitor’s conduct represented a “consistent” failure to meet the required standard under s 297(1)(a). Rather, each charge was limited to the conduct in lodging a single caveat and its particulars did not refer to factual allegations in respect of the previous caveat(s). In the charges the Commissioner alleged that in lodging the first caveat the solicitor had acted in “reckless disregard of known facts or law” and that in lodging the later caveats he had acted in “wilful [ie knowing there was no proper basis for the caveat, deliberately] or reckless disregard of known facts or law”. However, the Application was amended to delete the words “reckless” and “wilful”. As Amended each charge was –

“Professional misconduct within the meaning of s 297(1)(a) of the Uniform Law, in that the Respondent caused the [first, second or third] caveat to be lodged, and maintained, over the [neighbours’] land without a proper basis, without regard to known facts and law, which involved a substantial failure to reach or maintain a reasonable standard of competence and diligence”.

The format of the Commissioner’s pleadings was a series of numbered paragraphs setting out factual allegations in a narrative form, followed by the formal charges, which under the heading “Particulars” then referred back to paragraph numbers in the preceding narrative.

At a directions hearing counsel for the Commissioner stated that the charges did not allege any state of mind, whatever state of mind previously alleged having been removed. The Tribunal Member replied: “Yes, but it’s not reckless and it’s not wilful?”. Counsel replied: “Exactly right … it is in the nature of gross incompetence or gross negligence”.

Although the Commissioner had not pleaded gross negligence, the Commissioner’s written submissions stated that the amendments to the charges made it clear that the Commissioner did not allege that the solicitor wilfully or recklessly lodged and maintained the caveats, but rather that he acted with gross negligence and incompetence. The Commissioner did not allege that the solicitor knew that the caveats lacked any basis.

At the hearing the Tribunal raised, in light of there being no allegation that the solicitor acted wilfully or recklessly, what “without regard to known facts or law” meant and known by whom? Counsel stated that: the Commissioner made no “state of mind” allegation, had withdrawn the allegation of wilful or reckless conduct, and instead alleged that the solicitor acted with “gross negligence and incompetence”, warranting a finding of professional misconduct under s 297(1)(a): ie unsatisfactory professional conduct of a lawyer, where the conduct involves a substantial failure to reach or maintain a reasonable standard of competence and diligence (omitting “or consistent” where appearing before the word “failure”). As to “known facts or law” counsel also stated that the facts referred to were those known by the solicitor and that it was not alleged that the solicitor knew the law and disregarded it.

Counsel for the Commissioner also argued that the Tribunal should make adverse inferences about the solicitor’s purpose in lodging the caveats.

In Victorian Legal Services Commissioner v Fong [2024] VCAT 103 the Tribunal found as to each charge that the solicitor engaged in unsatisfactory professional conduct, holding –

The solicitor’s client had no caveatable interest but had a right to claim under the Fences Act 1968. [10]-[11], [113], [139], [168]
To find professional misconduct under s. 297(1)(a) the Tribunal must be comfortably satisfied, under the principles enunciated in Briginshaw v Briginshaw (1938) 60 CLR 336, that the solicitor’s conduct involved a substantial failure to reach and maintain a reasonable standard of competence and diligence. [45]
The Tribunal discussed the meaning of “substantial”. [46]-[47]
Gross negligence could found statutory professional misconduct as it raised unfitness to practise law. [49]
While deliberate or reckless conduct was not a necessary ingredient of professional misconduct it was often a component of the conduct found to meet the statutory definition. [51]
Something beyond a minor or moderate departure from the standard was required to meet the definition of professional misconduct. Accordingly, this usually required something above a single instance of mistaken understanding. Otherwise every instance of incompetence or lack of diligence would be professional misconduct. [52]
Because each charge was limited to the conduct in lodging a single caveat it was not open to the Tribunal to consider whether the solicitor’s negligent conduct in lodging three caveats might constitute professional misconduct. [55]
It was also not open to the Tribunal to take into account the solicitor’s repetition of the same error (lodging a caveat without a proper basis) in deciding whether his conduct in relation to the later caveats constituted professional misconduct. But in assessing the solicitor’s conduct in lodging the later caveats the Tribunal could take into account the information and arguments provided by the neighbours’ lawyers after the first caveat was lodged. [56]
Notwithstanding counsel’s statement that the Commissioner made no “state of mind allegation” and had abandoned the allegation of recklessness, counsel’s other statement that the facts referred to were those known to the solicitor appeared to be a “state of mind allegation” and close to that abandoned allegation. [65]
As counsel for the Commissioner had stated that it was not alleged that the solicitor knew the law and disregarded it, that allegation should have been removed from the charges. [65]
Contrary to the Commissioner’s written submissions, the amendments to the charges did not make it clear that the Commissioner did not allege that the solicitor wilfully or recklessly lodged and maintained the caveats, but rather that he acted with gross negligence and incompetence. The pleadings, including the factual allegations relied on as particulars (and the “Murray letter”), made no such allegation. They ought to have been included if a finding of gross negligence was to be sought or made, for fairness reasons. While the phrase “gross negligence” did not have a settled meaning in the common law, it was a known concept and, depending on how it was is defined or used, could be more than a pejorative or a label to criticise the degree of negligence. It could found misconduct at common law. It was not interchangeable with “a substantial failure to reach the required standard”. It was not an allegation that should be made for the first time in submissions. [50], [66], [67], [69], [70], [71], [72]
This did not, however, prevent a finding that the negligence or incompetence in this case met the requirements of s. 297(1)(a) as pleaded. But the negligence in this case did not meet those requirements and was not, in any event, conduct warranting the label “gross negligence and incompetence” or amounting to that species of negligence. [50], [72], [73]
For reasons of procedural fairness it was not open to the Tribunal to draw adverse inferences about the solicitor’s purpose in lodging the caveats. These did not appear in the Amended Application as conclusions to be drawn from specified facts, and to draw them would also have been contrary to the assurance that the Commissioner made no allegations about the solicitor’s state of mind. [75]
The importance of clear and properly particularised charges in professional disciplinary cases, and the impermissibility of the Tribunal going beyond (or being asked to go beyond) the allegations made, were well-established. As a matter of procedural fairness, a practitioner should not be left in any doubt as to the extent of the allegations against them. [76]-[77]
As to the way disciplinary Applications were pleaded at VCAT –
1. the problem of a lack of clarity in the precise nature of the allegations and the facts relied on, could be compounded when, as in this case, the charges and the particulars relied were not set out sequentially in the Application, namely each charge followed by the factual allegations forming the particulars to that charge; [79]
2. The format of pleadings commonly used by the Commissioner in Applications was to first set out all the allegedly relevant facts in a series of numbered paragraphs (including background, facts, references to annexed documents, and facts about the course of the investigation) followed by the charges, under each of which was a heading “Particulars”, under which was a list of paragraph numbers from the preceding narrative, rather than setting out the facts themselves under the charges. That format meant that the reader was required to keep reverting to the narrative to identify the facts relied on as particulars for each charge. Depending on the number of charges and the length of the narrative, this may not be a straightforward task; [80]-[82]
3. Where (as was not the case here) a selection of paragraph numbers across the narrative was listed, it was necessary to “piece together” the facts referred to. This: was unnecessarily time-consuming and inefficient; could create unnecessary lack of clarity, and; could obscure an overlap in charges, or that the particulars did not include a fact required to prove a charge, or that a submission went beyond the factual allegations. [83]-[85]
As to the phrase used in each of the charges “without regard to known facts and law”, despite the abandonment of any allegation that the conduct was wilful or reckless: this was unclear and close to the abandoned allegation of recklessness, and; the paragraphs referred to as particulars, when read, set out a series of facts but did not spell out what were the facts and law it was alleged the solicitor did not have regard to, or make it clear (if that was the allegation) that he knew both the facts and the law and acted regardless. [86]-[87]
The solicitor acted negligently in lodging and maintaining the first caveat, but he did not act knowing it did not have a proper basis or recklessly. [114], 115], [119], [120]
While “mere” negligence may or may not attract disciplinary findings, such findings were warranted on Charge 1 as the solicitor’s negligence had resulted in him lodging a caveat without a proper basis and then maintaining it (until it lapsed) despite the letter from the neighbours’ solicitor. [123]-[126]
Lodging the first caveat was at the lower end of unsatisfactory professional conduct. Although the solicitor should not have maintained the caveat it did not remain on the title beyond the lapsing notice period. There was, at least, no proceeding commenced in support of an unmeritorious caveat, nor did the solicitor know that the client had no caveatable interest, nor falsely tell the Titles Office that proceedings were on foot, nor repeatedly refuse to withdraw the caveat despite requests, nor lodge the caveat in support of a personal claim as opposed to protecting the interest of a client. But, in support of this being unsatisfactory professional conduct, this conduct was more serious than the case of a solicitor not calling for a document that the solicitor understood existed but which in fact did not exist whereby a caveat lacked a proper basis, and the respondent had used a ground unavailable in law to his client. [19]-[20], [121], [123], [127]-[131], [133]
In lodging and maintaining the second caveat the solicitor acted negligently and his conduct amounted to unsatisfactory professional conduct. His conduct attained the higher end of unsatisfactory professional conduct because he lodged this caveat without prior advice yet with notice of the arguments raised by the neighbours’ lawyer. However, the caveat did not attract a direct judicial warning and it was withdrawn two months after lodgment without a lapsing notice. [19]-[20], [139], [146], [151], [154], [156]
In lodging and maintaining the third caveat the solicitor acted negligently and his conduct amounted to unsatisfactory professional conduct. His conduct attained the higher end of unsatisfactory professional conduct because he lodged this caveat without prior advice yet with notice of the arguments raised by the neighbours’ lawyer. However, the caveat did not attract a direct judicial warning, and although it lapsed after the lapsing notice it was relatively short-lived, and the solicitor he did not maintain in this proceeding that the caveat had a proper basis [19]-[20], [164], [168], [172]

In Victorian Legal Services Commissioner v Fong [2024] VCAT 469 the Tribunal reprimanded the solicitor, fined him $3,000, and ordered that he pay the Commissioner’s costs of $5,000.

Philip H. Barton

Owen Dixon Chambers West

Wednesday, November 13, 2024

Blog 86. Where a director’s spouse has given a charge, is lodgment of a caveat by the chargee prohibited during a company administration?

Langdon v Tradelink Pty Ltd [2024] VSC 113, Gray J.

The facts were –

The plaintiff was married to Shane Langdon. Langdon Building Pty Ltd was incorporated in 2005. He became its sole director in 2007. It was a home builder.
In 2012 the third defendant (now known as Tradelink) agreed with the company to supply building materials on terms of credit by Tradelink as ‘Supplier’ to the company as ‘Customer’. The application for a credit account and agreement included a ‘Guarantee and Indemnity and Charge’ (Guarantee) signed by the plaintiff. This included her agreement: ‘To pay the Supplier … all monies which are now or may … be owing or remain unpaid by the Customer to the Supplier …’; that she as guarantor ‘To better secure the payment of all monies which the Guarantor may become liable to pay to the Supplier hereunder … charges all of its interest in real property both present and future … with the amount of the Guarantor’s indebtedness to the Supplier’; that she appointed the Supplier as her attorney in substance so that it could caveat over her real property – this clause also provided that ‘Each Guarantor undertakes to not … take any steps to remove any such caveat’.
In January 2024 voluntary administrators were appointed to the company. Next day Tradelink lodged a caveat over a property of which the plaintiff was sole registered proprietor based on its interest as chargee.
On 4 March 2024 the company’s creditors resolved to accept a deed of company arrangement (DOCA) proposed by Shane. The DOCA proposal included an initial and deferred cash contribution. A formal DOCA was not yet executed.
The plaintiff applied under the Transfer of Land Act s. 90(3) for removal of the caveat. She deposed that it was adversely impacting her ability to access a bank line of credit, secured by a mortgage, needed for funds required for the DOCA proposal.

Section 440J of the Corporations Act 2001 (Cth) provided –

‘440J Administration not to trigger liability of director or relative under guarantee of company’s liability

(1) During the administration of a company:
- (a) a guarantee of the liability of the company cannot be enforced as against
  - (i) a director of the company who is a natural person; or
  - (ii) a spouse … of such director; and
- (b) without limiting paragraph (a), a proceeding in relation to such a guarantee cannot be begun against such a director …;

except with the leave of the Court …’

Gray J dismissed the application, holding –

A caveat lodged under the Transfer of Land Act s. 89 was a statutory injunction, in the sense of preventing registration of new dealings with the title on the Register pending an application under s. 90 or administrative action under s 89A. [41]
In determining whether lodgment of a caveat was prohibited by s. 440J(1)(a) the principles of statutory interpretation were to be applied. These included: the statutory interpretation process must begin and end with the text used; where the words of a provision were clear, unambiguous, and could be intelligibly applied to the subject matter, the provision must be given its ordinary and grammatical meaning; the text must be interpreted in its context, and context should be considered at first instance, rather than at a later stage when ambiguity might arise; the context included the purpose Parliament intended to achieve, as discerned from the legislation itself, and relevant extrinsic material; the legislative context included the statute as a whole, with an assumption that Parliament intended interrelated provisions to operate coherently, giving effect to ‘harmonious goals’. [25]
By reason of s. 13 of the Acts Interpretation Act 1901 (Cth) section headings were part of the Act. [27]
The principal purpose of s. 440J was to remove any inhibition on directors commencing a voluntary administration. [35]-[36]
Lodgment or extension of a caveat relating to a charge or guarantee did not amount to enforcement, but to prioritisation, of security interests. The policy underlying s. 440J did not include that a secured creditor could not maintain this priority, even if that were thought necessary or desirable to facilitate a deed of company arrangement. [39]
There was at least a prima facie case that the caveator had an interest in the property as chargee. Accordingly lodgment of the caveat was permissible from the time the agreement and charge first applied to the property, well before any suggestion of the Guarantee being enforced. The subsequent commencement of company administration could not alter the fundamental character of the caveat’s lodgment as a step in protecting the chargee’s security interest from a loss of priority but not a step in enforcement of the Guarantee. Accordingly the lodgment of the caveat did not breach s. 440J(1). [20], [42]-[45]
This case was distinguishable from Waco Kwikform Ltd v Jabbour [2010] NSWSC 1379, being an application under s. 74K of the Real Property Act 1900 (NSW), in response to a lapsing notice, to extend the operation of a caveat lodged before the commencement of a company administration, which decided that s. 440J(1)(a) did not prohibit that application but that it was prohibited by s. 440J(1)(b) so as to require the grant of retrospective leave for extension. [30]-[34]
The balance of convenience favoured maintenance of the caveat. On the one hand, it was unclear whether the bank would not consent to, or allow the funds needed for, the DOCA. On the other hand the caveator had established a real risk of prejudice if its caveat was removed, in that it appeared likely that equity in the property may be diminished and there was a real risk that priority might be lost. The mere fact that removal of the caveat might help bring the DOCA proposal closer to operation did not outweigh this entitlement to priority. Further, because the DOCA was subject to other conditions precedent there was force in the caveator’s submission that the court could not be satisfied that even if the caveat was removed the DOCA would necessarily proceed – it weighed heavily against the plaintiff that if the caveat was removed the caveator could lose its priority yet the DOCA still not proceed. [49]-[53]

Philip H. Barton

Owen Dixon Chambers West

Friday, November 8, 2024

Blog 85. The Giurina litigation.

The cases in this Blog partially concern caveats and illustrate a persistent use of the legal system leading to loss of a property. They are in chronological order: Giurina v Greater Geelong City Council & Anor [2023] VSCA 148; Giurina v Greater Geelong City Council & Anor [2023] VSCA 299; Giurina v Registrar of Titles [2023] VSC 784; Giurina v Sheriff (Vic) [2024] VSCA 112. (There are many earlier Giurina cases but this Blog commences with the Court of Appeal caveat case). The caveat points arising in these cases are:

Giurina v Greater Geelong City Council & Anor [2023] VSCA 148 – unlike the Transfer of Land Act s. 89A(1), which enables “any person interested in the land” to apply to the Registrar of Titles for service of a notice, an applicant for relief under s. 90(3) is not require to have an interest in the land.

Giurina v Greater Geelong City Council & Anor [2023] VSCA 299 – confirming the statement of law in the previous Court of Appeal case and also rejecting the proposition that where there is a warrant of seizure and sale (while saying nothing about the standing of the Sheriff to apply to remove a caveat from the title of a property subject to the warrant) only the Sheriff had standing to apply to remove the caveats by virtue of the warrants.

Giurina v Registrar of Titles [2023] VSC 784 – a proposed caveat by an executor, in his personal capacity, claiming that he held the land on trust for himself is untenable.

Giurina v Sheriff (Vic) [2024] VSCA 112 – where a court has made an order requiring leave for lodging further caveats, the court has a broad general discretion, to be exercised by reference to whatever considerations are relevant in the particular case, in determining whether to grant leave.

By way of background –

Carolina Nacinovich died in 2002. At the time of her death she was the registered proprietor of a property in Geelong West. She was still so registered.
Ermanno Giurina obtained probate of the will of the deceased. By operation of s. 13 of the Administration and Probate Act the property vested in Giurina as executor at that time. The deceased bequeathed the property to him ‘for his own use and benefit absolutely’. Clause 5 of the will provided:

I give devise and bequeath the rest of my estate to my trustee upon trust to sell call in and convert into money … and after the payment of my just debts funeral and testamentary expenses and death estate and succession duties State Federal or otherwise to hold the residue upon trust for the following in equal shares …

and thereafter were named two other people.

In October 2003 Giurina made a handwritten note which he signed twice (once as executor and once as beneficiary), reading –

‘Note 11-10-2003

I assent as Executor to dispose of property at Geelong West … to myself as beneficiary as per [3] of Will of C. Nacinovich — no liabilities that I am aware of – no power of sale anyway — dispose of specific devise of Property only — chase up other matters re funds — Ermanno Giurina — Executor.

I accept assent — agree as beneficiary to pay for outgoings, costs, etc myself privately for Property — not claim anything against Nacinovich Estate — Ermanno Giurina

Beneficiary’

In 2019 Greater Geelong City Council made an emergency order under s. 102 of the Building Act 1993 concerning the house on the property. Giurina, as executor, engaged in unsuccessful litigation against the Council concerning the order, resulting in orders for costs being made against him in his executorial capacity.
In March 2022, at the request of the Council, warrants of seizure and sale were issued against the property. The warrants inter alia authorised execution to be levied by the Sheriff for the purpose of satisfying the costs orders. In his capacity as executor Giurina unsuccessfully sought to set aside the warrants.
In July 2022 Giurina lodged a caveat, naming himself as caveator. The estate or interest claimed was ‘freehold estate’, the grounds of claim were ‘estoppel’ and the prohibition was listed as ‘absolutely’.
In August 2022 Giurina lodged a second caveat, naming himself as caveator. The estate or interest claimed was ‘freehold estate’, the prohibition was listed as ‘absolutely’, and the grounds of claim were stated as: “Beneficiary/ies under the will of … [Nacinovich] … where probate has been granted and all debts in the estate have been paid”.
The Council applied under the Transfer of Land Act s. 90(3) for removal of the caveats. Section s. 90(3) materially provided that “any person who was adversely affected” by a caveat could bring proceedings for its removal. Giurina argued that the Council did not have standing to make the application because, as a mere unsecured judgment creditor, it did not have an interest in the land. Matthews AsJ rejected this argument and on 9 March 2023 directed the removal of the caveats and restrained Giurina from lodging any further caveat without leave ([2023] VSC 59). Matthews AsJ also refused an application to stay these orders.
On 31 March 2023 Giurina filed an application for leave to appeal to the Court of Appeal on the single proposed ground of appeal that Matthews AsJ erred in law in concluding that the Council had standing to bring the caveat removal application pursuant to s. 90(3).
On 14 April 2023, Giurina applied to the Court of Appeal to stay the orders of Matthews AsJ. In Giurina v Greater Geelong City Council & Another [2023] VSCA 148 Osborn and Kaye JJA refused to grant the stay sought on the ground that the proposed ground of appeal was not reasonably arguable, noting that, unlike the administrative procedure in s. 89A(1) which enabled “any person interested in the land” to apply to the Registrar of Titles for service of a notice requiring the caveator in substance to give notice of proceedings to substantiate the caveator’s claim, an applicant for relief under s. 90(3) was not require to have an interest in the land ([15(b)]). The construction of s. 90(3) contended for by the applicant would result in an absurd outcome, namely that a judgment creditor could never obtain a removal of caveat under s. 90(3) in aid of the sale of real property pursuant to a warrant of seizure and sale ([15(e)]).

On 17 August 2023, Giurina filed an application in the Court of Appeal to amend his proposed grounds of appeal. By that application, he sought to add the following proposed grounds of appeal:

1. Her Honour erred at law and on the evidence before her by concluding that [Mr Giurina] did not have a prima facie case [in relation] to the interest claimed in the first caveat and even if she was wrong about that the prima facie case was very weak and consequently the balance of convenience favoured [the Council].
2. Her Honour erred at law and on the evidence before her by concluding that [Mr Giurina] did not have a prima facie case [in relation] to the interest claimed in the second caveat and even if she was wrong about that the prima facie case was very weak and consequently, the balance of convenience favoured [the Council].
3. Her Honour erred at law in concluding that both caveats should be removed instead of maintaining them until the trial where any dispute of the factual issues or the claims which the caveats seek to protect can be determined.

In Giurina v Greater Geelong City Council & Anor [2023] VSCA 299 Beach and McLeish JJA heard the applications for leave to amend the grounds of appeal and for leave to appeal and (if leave was granted) the appeal. Their Honours refused leave to amend the grounds and refused leave to appeal, holding –

For the reasons given in Giurina v Greater Geelong City Council & Another [2023] VSCA 148, which their Honours adopted as their own, proposed ground 1 was not reasonably arguable. Their Honours further rejected the new submission that (while saying nothing about the standing of the Sheriff to apply to remove a caveat from the title of a property subject to a warrant of seizure and sale) only the Sheriff had standing to apply to remove the caveats by virtue of the warrants. [24]-[25]
Proposed ground 2 was based on an alleged representation Giurina made to himself in 2003 and his conduct following the death of Ms Nacinovich, whereby he alleged that the property belonged to him personally by reason of a proprietary estoppel. It was totally devoid of merit. The balance of convenience was also against maintenance of the first caveat. [37], [38], [57]
Proposed ground 3 was without merit. Although the bequest to Giurina was a specific bequest of the property to him for his use and benefit absolutely, the use of the word ‘absolutely’ did not mean that the property vested in him at the time of death of the deceased. Giurina had not made out a prima facie case that the property was no longer an asset in the estate. [47]-[49], [57]
Proposed ground 4 was without merit. Giurina had taken no steps to commence the proceeding or articulate a claim for the trial he sought. If, as alleged owner of the property, he applied in his personal capacity to have the warrants set aside, it would be difficult to see how that could not be an abuse of process of the kind referred to in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. [51], [55], [57]
Another reason for refusing leave to amend was because Giurina had stated that the reason for the application for leave to amend was because, after a previous hearing, it had become obvious to him that ‘to have any chance of succeeding’, he ‘had to add additional grounds’. [58]

Giurina v Registrar of Titles [2023] VSC 784, Barrett AsJ. This was an application by Giurina for leave to lodge a caveat over the property (Matthews AsJ having restrained lodgment of further caveats without leave). Giurina argued that –

he (as executor) was trustee for himself (as beneficiary) pursuant to a constructive, resulting or implied trust arising as a result of his personal expenditure (as opposed to his expenditure as trustee) in relation to the property. He had deposed that since 11 October 2003, he believed that he had not performed any executorial acts and he had since been, personally and not on behalf of the estate, making payments for the property’s outgoings in his capacity as a specific beneficiary. These outgoings covered: rates, valuation and charges; insurance; gardening; fencing; and maintenance. The total was approximately $120,000 excluding maintenance.
the property was given to him absolutely by the terms of the will and was unavailable to satisfy any debts arising out of his administration of the estate.
as executor he had on 11 October 2003 assented to the transfer of the property to himself, and so the estate had been fully administered.

Barrett AsJ refused the application, holding –

It was a fundamental principle of common law and equity that a person who held the entire legal and beneficial interest in a property cannot hold the property on trust for themselves. If one person had both the legal estate and the entire beneficial interest in the land he held an entire and unqualified legal interest and not two separate interests, one legal and the other equitable. If that person first held the legal estate upon trust for some other person and thereafter that other person transferred to the first person the entire equitable interest, then again the first person did not hold two separate interests but a single entire interest – he was the absolute owner of an estate in fee simple in the land. The equitable interest merged into the legal estate to comprise a single absolute interest in the land. However, although the trustee could not be the sole beneficiary, the trustee could be one of the beneficiaries. [23]-[24]
Further, it was impossible for a constructive trust to be imposed to avoid any unconscientious or unconscionable conduct between Giurina and himself. [25]
The argument that Giurina assented (pursuant to s. 41(1) of the Administration and Probate Act) to the transfer to himself of the beneficial interest in the property was also invalid: the only interest in real property that may be conveyed by assent was the interest held by the testator. The process of assent did not enable a personal representative to separate the legal estate and equitable interest in real property. [27]
It was accordingly not arguable that Giurina had the caveatable interest asserted. [28]
Further, Giurina was personally liable for debts incurred by himself as executor. Although he had a right to an indemnity out of the assets of the estate, an executor’s liability was not necessarily limited to the assets of the estate, eg the indemnity did not extend to costs of actions improperly commenced or defended. Accordingly, his submissions as to the different capacities in which he held the property were both of limited weight and irrelevant to the question of leave. [32]-[33]
Finally, even if the question of the availability of the property to satisfy costs orders was relevant to the question of leave it was not open to the court to upset the orders of Matthews AsJ that the Property was affected by the costs orders and the warrant. [34]

Giurina v Sheriff (Vic) [2024] VSCA 112 (Walker and Orr JJA). This was the hearing of two applications. In the first application the respondent was the Sheriff. In the second application the respondent was the Registrar of Titles. The first application arose from an application by Giurina for an interlocutory injunction to prevent the Sheriff’s sale. The second application arose from an application by Giurina for leave to lodge two caveats on the property. The applications were heard at first instance in the Practice Court on 23 February 2024. On 26 February, the day before the sale was due to occur, Forbes J. refused each application on a number of grounds. Her Honour held that the test for granting leave an application for leave to lodge a caveat was like an application to remove a caveat under s. 90(3), and accordingly the test in relation to the caveatable interest was analogous to the interlocutory injunction test. Her Honour further noted: there was no evidence of a declaration of trust by Giurina in favour of himself – this argument appeared to stem only from the words of the will, which empowered Giurina to act as trustee as well as executor, but which did not, of itself, create a trust relationship in respect of any particular property of the estate; even if a trust in favour of oneself could be made there was not a serious question to be tried that the applicant had a caveatable interest. Giurina sought leave to appeal from her Honour’s decision. In the caveat proceeding he also sought an extension of time in which to file his notice of application for leave to appeal.

The Court of Appeal refused leave to appeal in the injunction proceeding and refused the application for an extension of time in the caveat proceeding, holding –

The underlying basis for Giurina’s claims — that the estate has been fully administered, at least in relation to the property — was without merit. In particular: the estate was the legal owner of the property, the property having vested in Giurina as executor upon the grant of probate but formal transfer of the registered title to the property to him not having occurred; the estate could not be regarded as having been fully administered until its assets had been distributed in accordance with the will; this was also why Giurina’s contention that he was a trustee of the property, holding it on trust for himself as beneficiary, lacked any prospect of success. [49], [50], [52], [84]
The balance of convenience also weighed against the grant of an interlocutory injunction. [66]
In determining whether to grant leave to lodge a further caveat the court had a broad general discretion to be exercised by reference to whatever considerations were relevant in the particular case. In exercising that discretion it was permissible to adopt the approach taken by Forbes J., namely to assess whether the applicant for leave could demonstrate an arguable caveatable interest which, on the balance of convenience, should remain pending trial. Even if the court was to conclude that Forbes J. made a specific error in the course of her reasoning it would make the same order, because the basis for Giurina’s asserted interest that he sought to protect by the caveats was the interest he invalidly claimed had resulted from the alleged completion of the administration of the estate. [83], [84], [86], [93], [94]
Accordingly it would be futile to extend the time for filing of the notice of application for leave to appeal in the caveat proceeding. [96]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, October 29, 2024

Blog 84. A freehold estate?

The Victorian government publication “Guide to grounds of claim for caveats” lists “Freehold Estate” in certain circumstances under “Estate or interest claimed”. In Alliance Developments Pty Ltd v Arbab & Anor [2019] VSC 832 (Blog 34) Garde J. stated at footnote [15] –

“At common law, there are three kinds of freehold estates – a fee simple, a fee tail and a life estate. The most common freehold estate encountered in Victoria is the fee simple estate.” Because it has been impossible to create a fee tail in Victoria for a long time (see Property Law Act 1958 Part VI) the field is reduced to fee simple and life estate. In Marchmont v Keeshan [2023] VCC 2138 Judge Marks considered: caveats claiming a freehold estate; issue estoppel, Anshun estoppel or abuse of process arising from a previous caveat removal proceeding; and whether a stay should be granted pending an appeal from orders removing caveats, in the course of which her Honour considered the nature of a caveat.

The facts were –

In March 2017 the plaintiffs lent the defendant $50,000 pursuant to a written agreement. On about 20 September 2017 the plaintiffs and the defendant entered a second agreement relating to the original $50,000 loan and to a further loan of $185,000. Clause 8.1(b) of the Second Agreement in substance provided that if there was a default by the Borrower the Lender (i) ‘may call on the Borrower to provide a mortgage over real property determined by the Lender on such terms and conditions as are determined by the Lender, at any time prior to the Repayment Date’ and (ii) ‘At any time prior to the Repayment Date the Lender may, pursuant to this clause, lodge a caveat over any such real property it may determine as appropriate to provide security pursuant to sub-clause (a) hereof.
The defendant repaid part of the debt, the extent of repayment being disputed.
On 6 July 2020, the plaintiffs lodged caveats over properties owned by the defendant stating the ‘Estate or interest claimed’ as ‘Freehold Estate’ and the ‘Grounds of claim’ as ‘Agreement with [the Registered Proprietor(s)] dated 20/09/17’.
February 2023 the defendant, in the context of seeking a particular refinancing facility, applied to the Supreme Court to remove the caveats, resulting in a consent order dismissing the proceeding with no order as to costs. Under “Other Matters” McDonald J. noted –

“The parties have agreed to resolve the matter with the First and Second Defendant consenting to a registration of first ranking mortgages over the properties the subject of the proceeding. The First and Second defendants undertake to provide all relevant consents in writing for the registration of first ranking mortgages in relation to the facility referred to at paragraph 17 of the affidavit of Clinton Keeshan …”.

That refinancing did not proceed and the defendant now applied to the County Court under the Transfer of Land Act s. 90(3) for removal of the caveats.

Judge Marks removed the caveats, holding –

The reference to ‘sub-clause (a)’ at the end of sub-clause (b)(ii) was to be construed as a reference to sub-clause (b)(i). [27]
There was no serious question to be tried that the plaintiffs had the estate or interest claimed, because –
1. Each caveat “overclaimed”, in that cl. 8.1 gave no sort of freehold estate interest but at most a charge or something akin to a chargeable interest. This case was distinguishable from 187 Settlement Road v Kennards Storage Management [2022] VSC 771 (Blog 69) where a ‘freehold estate’ was claimed in circumstances involving a right which might later turn into holding the freehold estate, in that that caveator had a conditional right to purchase that land. The highest interest ever available to the plaintiffs under cl. 8.1(b) was the right to call on the defendant to provide a mortgage. [21], [24], [25], [28], [31]
2. Clause 8.1(b) did not entitle the plaintiffs to restrain any dealing with the freehold estate. An unregistered charge, unregistered mortgage, or even a registered mortgage, did not prevent the registered proprietor of the land from granting further charges or mortgages. The principal vice in a caveat which overclaimed in the manner of these caveats was that they could achieve that unjustified effect. This was a key reason underpinning the requirement for a caveator to establish a serious question to be tried of the estate or interest claimed and not some other interest. This case was analogous to those in which a creditor claimed ‘an estate in fee simple’. [29], [30]
Further, on the proper construction of the second agreement, a ‘call’ under cl. 8.1(b)(i) was likely necessary before a caveatable interest arose (and there had not been one). [35]
The balance of convenience also favoured removal of the caveats over some of the properties, because, having regard to amount arguably secured, the plaintiffs would have been protected by maintaining caveats on the other properties. There was no identifiable prejudice to the caveators from this removal, but the registered proprietor needed to avoid the consequences of the first mortgage being in default. [36], [37], [39]
None of the doctrines of issue estoppel, Anshun estoppel or abuse of process, founded on the existence of the Supreme Court order, barred this application. In particular –
1. although an issue estoppel could arise where a final order was made, including by consent, the estoppel could only exist in respect of matters necessarily resolved by the earlier order and where the decision was ‘final and conclusive on the merits’. Nothing as to the validity of the caveats was necessarily resolved as a step in reaching the ‘determination’ made in the Supreme Court order; [49]-[51]
2. An Anshun estoppel precluded the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable for the claim not to have been made or the issue not to have been raised in that proceeding. There was no hearing on the merits in the Supreme Court: it was not arguable that it was unreasonable for claims or arguments as to the validity of the caveats (and the overclaim) to have been made in circumstances where the first proceeding was settled at an early stage without any submissions being made. [52]-[53]
3. An abuse of process existed where in an earlier proceeding a claim was made or an issue raised and determined, or where it ought reasonably to have been so made or raised for determination. It was not the case that arguments about the validity of the caveats ought reasonably have been made in the Supreme Court proceeding in circumstances where it was settled at an early stage without submissions being made. The circumstances underlying this application and the earlier one were different – the consent orders in the Supreme Court proceeding were tied to a particular refinancing facility being sought. [55]-[56]
An application for a stay to allow time to appeal was refused. The consequence of the orders removing the caveats did not have the effect of extinguishing whatever security the plaintiffs were entitled to over the land. A caveat did no more than provide notice of an asserted security interest. It did not create, nor did its removal extinguish, rights over the land. The only effects of removing the caveats would be: to enable the defendant to refinance, involving discharge of old and registration of new mortgages; (at worst for the plaintiffs) if the properties were ultimately sold, potentially prejudice the priority of their asserted equitable rights as chargee against (hypothetical) equitable claimants to the proceeds of sale. There was no risk of the defendant dissipating the properties. [63], [65]
Section 91(4) of the Transfer of Land Act, which provides that a “caveat that has lapsed or been removed by an order of a court shall not be renewed by or on behalf of the same person in respect of the same interest” did not prevent lodgement of a fresh caveat where a caveat was removed for claiming the wrong interest (as had occurred here). [65]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 23, 2024

Blog 83. Does a beneficiary under a Unit Trust have a caveatable interest?

LPY Investments Pty Ltd v JY Property Pty Ltd & Anor [2024] VSC 94; LPY Investments Pty Ltd v JY Property Pty Ltd & Anor (No 2) [2024] VSC 112, Cosgrave J.

In an article in the LIJ in July 2008 I concluded that the answer to the above question was that it depended on the terms of the trust deed. This case confirms this conclusion and, moreover, that it is unlikely that a trust deed will be drawn so as to confer a caveatable interest. In this case Cosgrave J. also grapples with the authority to be accorded to Costa & Duppe Properties Pty Ltd v Duppe [1986] VR 90 (“Duppe”), in which Brooking J. declined to remove caveats lodged by unit holders in a Unit Trust. As my older readers will recall two acknowledged powerhouses of legal knowledge and rigorous analysis in the Victorian Supreme Court in the 1980s and 1990s were (among many strong intellects) Brooking J. and Ormiston J. Accordingly their Judgments tend to stand untouched, and indeed a leading barrister said to me at the time, I think in relation to Duppe, that he was glad that he had gone out to lunch and so avoided getting a brief to advise on whether to appeal against Brooking J’s decision. In the current case Cosgrave J. distinguished Duppe and Schmidt v 28 Myola Street [2006] VSC 343, (2006) 14 VR 447 (“Schmidt”) which concerned a similar trust deed.

In LPY Investments Pty Ltd v JY Property Pty Ltd & Anor (No 2) [2024] VSC 112 his Honour dismissed an application by the caveator for indemnity costs, ordering that the caveator pay standard costs.

The facts were –

The plaintiff (LPYI) was the trustee of a unit trust (“the Hybrid Trust”). As trustee it was the registered proprietor of various properties, some on the market for sale. It was in dispute whether the units in the trust were held solely by the director of LPYI or whether they were held by companies including the first defendant.
The trust deed defined:
- “Capital” as “the Trust Fund …” but excluding any undistributed Income.
- “Hybrid Unit Trust” as “a unit trust in which, subject to the rights entitlements and restrictions attaching to a class of Unit and the provisions of this Deed, the Trustee has discretion as to any payment of Income or Capital between Unitholders (as to all or one or more exclusive of the other or others) having an entitlement to share in the Income but in the absence of the Trustee having exercised such a discretion then in proportion to the number of Units which carry such a right and entitlement which each Unitholder holds”.
- “Income” as “the income of the Trust Fund … including profits and gains of a capital nature …”.
- “Property” as “real personal movable or immovable property of any description and wherever …”;
- “Trust Fund” as “the amounts paid by the Unitholders to the Trustee for the issue of Units, or property transferred to the Trustee by Unitholders for which Units have been issued or are to be issued, together with all the accumulations of Income being accretions to the Trust Fund and the investments and property from time to time representing the said money investments property accumulations and accretions”.
- “Unitholders” as “the holders of Units from time to time until the Vesting Day … “.
- “Vesting Day” as “the last day of the Perpetuity Period.” (cl. 1)
The trust provided:

“2.1 the Trustee will, …, stand possessed of the Trust Fund and of the Income upon the trusts and with the powers and subject to the provisions expressed in this Deed;
2.2 the Trust Fund and the Income shall be held in trust for the Unitholders …; and
2.3 the Trustee shall have power … to issue additional Units and redeem Units.:

…

9.1 The Trustee shall in each Accounting Period determine the Income of the Trust Fund after allowing for all expenses including losses of a capital nature.

9.2 The Trustee shall, on … the determination of the Income, determine to:

(a) pay apply or set aside the whole or any part of the Income for all or one or more exclusive of the others or other of the Unitholders … in such proportions and in such manner as the Trustee, in the Trustee’s absolute discretion and without being bound to assign any reason, shall think fit or accumulate the same or any part of it;

(b) in the absence of the Trustee making a discretionary determination as set out immediately above, or in the event that the Trustee fails to make any form of determination, then pay apply or set aside the whole or any part of the Income for all of the Unitholders … and pay apply or set aside to those Unitholders in proportion to the number of Units which carry such a right and entitlement which each Unitholder holds;

(d) accumulate all or part of it

PROVIDED THAT:

(e) if the Trustee shall not by the last date of the Accounting Period have paid or set aside the Income then the Trustee shall hold the amount of Income not so paid or set aside as an accumulation from that Accounting Period which the Trustee may pay or set aside in future Accounting Periods for the benefit of Unitholders at such time whose Units carry the right and entitlement to share in the Income [but a resolution by the Trustee, within six (6) months following the last day of an Accounting Period to Unitholders holding Units during the previous Accounting Period shall not, of itself, be invalid]

10.1 As of the Vesting Day the Trust Fund and the Trust shall vest absolutely. The Trustee … shall pay and assign the whole of the Trust Fund to the Unitholders whose Units carry the right and entitlement to share in the Trust Fund upon its termination.

10.2 The distribution of the Trust Fund upon its termination shall be determined in proportion to the number of Unit which each Unitholder holds … “.

The trust conferred upon the trustee a wide range of powers and discretions of management of the trust and investment (cl. 11) and provided that, subject to any express provision to the contrary, every such discretion was absolute and uncontrolled and every power was exercisable at the trustee’s absolute discretion (cl. 12.7).
The first defendant caveated over the properties. On 12 December 2023, in answer to a request for a statement of grounds from the plaintiff’s solicitors, the solicitors for the caveator inter alia alleged the existence of a trust and stated that it would remove a particular caveat to permit settlement of a sale if the entire net proceeds were paid to the Macquarie Bank to reduce the plaintiff’s indebtedness to the bank. On 14 December the plaintiff’s solicitors replied inter alia in substance that the bank would receive at least 90% of the net proceeds of sales. Later that day the caveator’s solicitors responded in substance repeating their previous requirement or that the full net proceeds be paid into court. It appeared that the director of the caveator had given the bank a guarantee and indemnity related to advances by the bank to the plaintiff. After further correspondence that caveat was withdrawn but this was followed by a dispute about a caveat over another property the sale of which was due for settlement.
The registered proprietor applied under the Transfer of Land Act s. 90(3) for removal of that caveat.

In his Judgment Cosgrave J. dealt at length with Schmidt whose trust deed included:

“6 … the Original Unit Holders and Trustee hereby agree … that the Trustee shall stand possessed of the Trust Fund and of income of that fund … for the benefit of the general beneficiaries and of the Unit Holders in proportion to the number of units respectively held by them of each class of unit and the respective rights of each class of unit. The Trustee acknowledges that subject to the discretionary entitlements of the general beneficiaries the Unit Holders are and shall be beneficially entitled to all assets of whatever nature of the Trust Fund in accordance with the respective rights of each class of unit in proportion to the number of units respectively held by them of each unit.

7(a) The beneficial interest in the assets of the Trust Fund … shall be vested in the Unit Holders for the time being.

…

8 Each unit shall entitle the registered holder thereof together with the registered holders of all other Units to the beneficial interest in the Trust Fund as an entirety but subject thereto shall not entitle a Unit Holder to any particular security or investment comprised in the Trust Fund or any part thereof and no Unit Holder nor any combination of Unit Holders shall be entitled to the transfer of any assets or property comprised in the Trust Fund and save as hereinafter provided, no Unit Holder shall be entitled to interfere with or question the exercise or non-exercise by the Trustee of any discretion in relation to the Trustee’s ownership of such assets or property or in relation to the conduct of any business carried on by the Trustee or otherwise.”

Cosgrave J. ordered removal of the caveat, holding –

Absent an applicable statutory definition, terms like “unit trust” and “discretionary trust” had no constant, fixed or normative meaning. It was necessary to construe the trust deed to determine what rights and entitlements it granted. [35]
The term “discretionary trust” described certain features of some express trusts. A discretionary trust differed from a fixed trust because the entitlement of the beneficiaries to the income or the corpus or both was not immediately ascertainable. The trust was purely discretionary, and so non-exhaustive, if the income and capital could be withheld altogether. In contrast, in an exhaustive discretionary trust the discretion related only to the time or methods of paying the beneficiaries, eg where the deed required the trustee to distribute all income at specified intervals. [35]
If the trust deed granted the trustee a discretion to apply the whole or part of a fund for a person, that person could not demand the fund from the trustee. But if the trustee had no discretion about the amount to be applied to the person, but only its method of application, that person could demand the whole entitlement from the trustee. [36]
If a trustee had no duty to distribute any particular, or indeed any, amount to an individual beneficiary, the beneficiary’s rights were limited to requiring the trustee to consider whether to make a distribution and properly to administer the trust properly. But the beneficiary could not compel the trustee to act in any particular way, and had no more than an expectancy because the trustee alone could determine whether, and if so in what way and to what extent, the beneficiary would benefit. [37]
Clause 2.2 gave no interest in the assets comprising the trust fund. [45]
Because the trustee had a broad discretion about whether to pay, apply or accumulate the fund’s income, no unitholder had a guaranteed entitlement to income and only had an entitlement to a proportionate share of the trust fund upon the termination of the trust. Schmidt and Duppe were distinguishable. The trust deed in this case did not have terms equivalent to cls. 7(a) and 8 in Schmidt (cl. 7(a) and the first section of cl. 8 in Schmidt being in substance the same as two clauses in Duppe). Nor did it have any term like the latter part of cl. 6 in Schmidt. The deed in this case did not provide that: unitholders were beneficially entitled to all assets of the trust fund in proportion to their unit holding; the beneficial interest in the assets as existing from time to time was vested in the unitholders from time to time; each unit holder together with all the other unitholders was entitled to the beneficial interest in the trust fund as an entirety, but no unitholder was entitled to any particular security or investment. [46], [49], [50]
The assumption that, wherever the legal estate in land was vested in a trustee, there must be some other person entitled in equity for an estate of freehold in possession was incorrect: the trustee could be entitled to the entire estate in possession. Further, absent express terms about the repository of the beneficial interest in the trust assets, it could be difficult to identify and quantify those assets at any given point. The trustee’s right of reimbursement or exoneration took precedence over the rights of beneficiaries, and because the extent of the indemnity fluctuated over time the precise identification of the substance and value of the trust fund also fluctuated, the beneficiary’s entitlement being limited to the available assets after all relevant liabilities had been discharged or provided for. [51], [52], [54]
The caveators did not have a sufficient interest in the properties to support a caveat, having regard to: the construction of the trust deed in determining the nature of a unitholder’s interest; the limited interest of a unitholder in the trust assets; the breadth of the trustee’s discretionary powers over Income (as defined); the inability of a unitholder to compel the trustee to act in any particular manner regarding income generated by the trust; there being no term in the deed to the effect that the beneficial interest in the trust assets shall be vested in the unitholders or to the effect that each unit entitled its holder, together with the other unit holders, to the beneficial interest in the trust fund as an entirety but no unit holder had any entitlement to any particular security or investment or any part thereof. [60], [61], [68]
Even if the caveator had had a caveatable interest the caveat would as a matter of discretion have been removed on the balance of convenience. First, because the trustee had very broad powers of investment and management and the caveat would likely interfere with the trustee’s powers of sale particularly because it required an absolute prohibition on dealings with the properties. Second, because it seemed from the solicitors’ correspondence that the director of the caveator was concerned to reduce his potential liability to the bank by forcing the plaintiff to pay the bank the whole of net proceeds of sale, thereby raising the possibility that the caveat had been lodged for a collateral purpose. [62]-[67], [69]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, July 24, 2024

Blog 82. Two short cases.

The cases in this Blog do not each merit a separate Blog. They are –

Downey as Trustee of the Bankrupt Estate of Robert Henry Bourne v Doyle [2023] VSC 664, Irving AsJ. This case concerned an application under s. 90(3) by a trustee in bankruptcy to remove caveats lodged by a person, herself subsequently bankrupt, claiming that the bankrupt registered proprietor had held the land on trust for her (to hold as trustee for her children). The trustee in bankruptcy succeeded against the bankrupt caveator.

Casey v Giderson (Costs Ruling) [2023] VSC 472, Gray J. Gray J. ordered that the administrator of the estate of a caveator, who had failed to commence proceedings within the time stipulated in a notice under s. 89A, but who nonetheless obtained an interim injunction ordering the Registrar to delay registration of any dealing with the property, to pay the costs of the registered proprietors. His Honour confirmed that neither a caveat nor the time stipulated in the notice could be extended.

Downey as Trustee of the Bankrupt Estate of Robert Henry Bourne v Doyle. The facts were –

On 16 October 2007 the defendant, who was the registered proprietor of land (the Land), transferred it to Robert Bourne who became its registered proprietor.
It appeared that between 16 October 2007 and 10 July 2014 the defendant occupied the Land under an informal licence granted by Bourne. On 7 March 2014 she caveated over it claiming that the “registered proprietor holds his interest as trustee for the Caveator pursuant to a constructive trust and/or a declaration of trust from the registered proprietor made on 16 October 2007”.
On 10 July 2014 a sequestration order was made over Bourne’s bankrupt estate The plaintiff was appointed his trustee. The plaintiff neither extended the informal licence granted by Bourne nor granted a new licence. In response to a request by the plaintiff for details of her claims she stated that Bourne held the Land and another piece of land on trust for her and her children, but did not respond to the plaintiff’s subsequent request for documents supporting this.
In 2016 a sequestration order was made over the defendant’s bankrupt estate and the Official Trustee in Bankruptcy was appointed as her trustee.
On 28 March 2023 the plaintiff, through his solicitor, wrote to the defendant terminating any informal licence held by her over the Land.
On 3 May 2023 the plaintiff became the registered proprietor of the Land and was informed that the Official Trustee agreed to permit the defendant’s caveat to lapse.
The plaintiff issued a proceeding for recovery of possession and under s. 90(3) of the Transfer of Land Act (TLA) for removal of the caveat. The defendant claimed or deposed inter alia that: in 2006 she purchased the Land on trust for her children; in 2007 she purchased another property but agreed with Bourne that he would act as bare trustee for both properties and would after approximately two years reconvey the Land to her as co-trustee for her children; Bourne paid no consideration for the transfer to him; she never transferred her children’s beneficial interest in the Land to Bourne; although she had no personal interest in the Land the caveat had to be lodged in her name personally (rather than in her name as trustee for her children); she never entered into an informal licence agreement with Bourne; following a 12 month residential tenancy agreement with Bourne in 2007 she in 2012 entered into a further tenancy agreement which had automatic rolling 5 year extensions for an unlimited period; there were “hundreds of pages of evidence, including in VCAT proceedings, whereby Bourne confirmed he was not the beneficial owner of the Properties.”; she was not a tenant and had not paid rent to the plaintiff (this was disputed).

Irving AsJ. refused the application for possession but granted the application for removal of the caveat, holding –

Section 116(2)(a) of the Bankruptcy Act 1966 (Cth) rendered property held by a bankrupt in trust for another person not divisible among the creditors of the bankrupt. It did not preclude the vesting of the land in the trustee in bankruptcy. [55]
The Land was vested in the plaintiff trustee in bankruptcy notwithstanding that it had not been disclosed in the bankrupt’s statement of affairs. As registered proprietor the plaintiff by virtue of the TLA s. 42 had an indefeasible title giving sufficient standing to apply for removal of the caveat. [59], [60]
To the extent the first defendant had any interest in the Land as trustee, that interest had vested in her trustee in bankruptcy notwithstanding her non-filing of a statement of affairs and her stated intention to seek the annulment of her bankruptcy. [61]
The plaintiff accordingly had no prima facie case of the interest claimed in the caveat. [62]

Casey v Giderson (Costs Ruling).

The facts were as follows –

The first and second defendants (the Gidersons) were registered proprietors of a property. On 25 September 2017 James Casey caveated over it claiming an interest as chargee on the grounds of an agreement dated 29 August 2017 with the registered proprietors.
In 2022 Casey died in the USA.
On 29 May 2023 there was communication between lawyers for the plaintiff (who subsequently obtained letters of administration of Casey’s estate) and the Gidersons the gist of which was: the Gidersons’ solicitor demanded withdrawal of the caveat on the ground that their signatures on the alleged loan agreement were forged by their son; the plaintiff’s lawyer requested documentary proof, eliciting copies of the Gidersons’ driver’s licences and passports, which it was said disclosed signatures different to those on the alleged loan agreement; the plaintiff’s lawyer requested evidence of the alleged forgery and an explanation of what action the Gidersons were taking about it, eliciting the response that their son had admitted forging their signatures and that they did not intend to take action against him.
On about 31 May the deceased estate received a notice under the Transfer of Land Act (TLA) s. 89A that the caveat would lapse on the ‘first moment of 6 July 2023’ unless before that date the s. 89A application was abandoned or the Registrar received notice that proceedings to substantiate the claim of the caveator were on foot.
On 1 June the Giddersons’ solicitors confirmed to the plaintiff’s lawyers that the s. 89A application had been lodged.
On 30 June the Giddersons’ solicitors confirmed that the s. 89A application would not be abandoned.
Also on 30 June Gray J. granted letters of administration ad litemof the estate to the plaintiff enabling the plaintiff to apply on behalf of the estate for relief pursuant to s. 90(2) of the TLA. This grant was inutile because s. 90 was irrelevant. On 4 July the plaintiff sought and obtained an amendment to the letters of administration including enabling the plaintiff to apply for an injunction.
On 5 July the plaintiff commenced this proceeding seeking an injunction directed to the Registrar of Titles to delay registering any dealing with the property and seeking an order extending the caveat. On that day the court declined to make any order purporting to extend the caveat on the basis that it had no such power but granted an interim injunction ordering the Registrar to delay registration of any dealing with the property until the earlier of further order or the expiry of 28 days from the date of the order.
Both parties sought costs. The defendants obtained costs of the proceeding commenced on 5 July. An application that the defendants (not parties to that proceeding) should pay costs of the application for letters of administration was rejected. The judge noted ([25]) that from 1 June 2023 there was clearly a controversy between the parties that could only be resolved by the plaintiff commencing a proceeding enforcing the alleged loan agreement (and another agreement). It fell to the plaintiff to seek to avoid the statutory outcome of the caveat lapsing by meeting the requirements of s 89A(3)(b) — that is, by commencing the proceeding and not pinning their hopes on the Gidersons abandoning their s. 89A application ([26], [33], [62]). The court could not extend the caveat ([40], [58]) nor purportedly suspend the operation of s. 89A ([53]). The plaintiff’s decision to delay commencing a proceeding to establish the estate’s interest in the property until the end of the hearing on 5 July 2023 was therefore not reasonable and compounded previous delay ([53]). The court had granted the interim injunction as an indulgence to a plaintiff whose actions were the main cause of making it necessary ([54], [57]).

Philip H. Barton

Owen Dixon Chambers West

Wednesday, June 12, 2024

Author: Philip Barton

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Blog 82. Two short cases.

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