Author: Philip Barton

Blog 81. Security documents inadequate to create caveatable interest.

Rainford & Ors v SA & RT Tesoriero Pty Ltd [2023] VSC 617, Waller J.

This case is a reminder of the importance of exact drafting of security documents. The facts were –

  • The plaintiffs (Philip, Christopher and Pylades Pty Ltd (Pylades)) were registered proprietors of a property (the Property) as tenants in common. Pylades was the trustee of a family trust. Pylades and another company related to the plaintiffs (Drofniar) owned the shares in a third company (Workspace).
  • By a Deed of Secured Loan (DSA) dated 1 February 2023 the defendant loaned $2.86 m. to Workspace due for repayment on 30 May 2023. Workspace was required to provide security over its land, which it did. Further, cl. 9.3 of the DSA provided that Philip, Pylades and Drofniar (not Christopher) were obliged to “execute deeds of guarantee and indemnity in such form as the Lender may require”.
  • Also on 1 February 2023, Philip (on his own behalf and as director of Workspace) and Christopher (as director of Pylades and Drofniar) executed a General Security Agreement (GSA) and a Guarantee and Indemnity (Guarantee) in favour of the defendant. Although Christopher added his name and signature to each of the DSA, GSA and Guarantee he was not stated to be a party in his own right in any of them.
  • Clause 2.1 of the GSA provided –

“Each of the Grantors as beneficial owners charge in favour of the Secured Party, and grants a Security Interest to the Secured Party by way of charge over, the whole of their Collateral and the Proceeds.”

In the GSA “Collateral” was defined to include all real property of the Grantor and “Security Interest” in relation to any Collateral other than personal property was defined to mean:

“… any mortgage, charge, … which is or has the effect of a security for the payment of a debt or other obligation or the compliance with any other obligation, …”.

  • Clause 5.4 of the Guarantee provided –
    “Upon request in writing by the Lender, the Guarantor shall:

    1. grant to the Lender a legal mortgage of any property … now or hereafter held by that person containing a covenant:
      1. That Philip … Rainford and Pylades … and Drofniar … shall duly pay all monies now or hereafter due and payable to the Lender by them, the Borrower or by any other person named in the Deed or Collateral Document as a Guarantor.
    2. Where property that the Lender requests be given a [sic] security by the Guarantor is held jointly by the Guarantor and another person (not a party to this Guarantee), the Guarantor shall: … “
      1. take such steps … to effect the registration of a legal mortgage over such jointly held land; or
      2. in the case of a corporation, as beneficial owner charge in favour of the Lender … any property … with the payment of indebtedness pursuant to this Deed …”

The Guarantee defined “Securities” to include a ‘General Security Interest’ over all property granted by Philip, Christopher and Pylades as trustee for the family trust.

  • In March 2023, Pylades and Drofniar sold their shares in Workspace to another company. The sale required the consent of the defendant and the defendant thus required execution of a Deed of Variation to the DSA. The Deed of Variation included as parties Workspace, Philip, Christopher (stated to be a party in his own right and described as one of the “Initial Guarantors”), Pylades, Drofniar and other legal and natural persons as “Additional Guarantors”.
  • On 4 August 2023 the plaintiffs entered a contract of sale of the Property due for completion on 20 October.  The purchaser paid the deposit.
  • Workspace failed to repay the loan and on 21 September 2023, the defendant’s solicitors emailed the plaintiffs’ former solicitor stating:

“Pursuant to clause 5.4 of the deed of guarantee and indemnity legal mortgages of over [sic] real property in the name or names of the guarantors jointly and severally. [sic]
Caveats will be placed on title of all land.

Please provide us with title particulars of all land that the guarantors are the registered proprietors of so that mortgage documents can be prepared.”

No title particulars were supplied.

  • Also on 21 September, the defendant caveated over the Property claiming an interest as mortgagee on the grounds of a mortgage with the registered proprietors dated 2 February 2023. The plaintiffs applied under s. 90(3) of the Transfer of Land Act to remove the caveat. On the balance of convenience issue the plaintiffs led evidence that the caveat would prevent settlement of the sale with consequential detriment. The plaintiffs also submitted that the defendant had security and potential security over other properties.

Waller J. ordered removal of the caveat, holding –

  1. Clause 2.1 of the GSA created a charge, not a mortgage, by ‘each of the Grantors’ including by Philip and Pylades but not by Christopher. (It was unnecessary to determine whether the reference to Pylades in the various documents was to it in its own right or as trustee of the family trust (and so binding the trust property)). [32]-[34]
  2. Clause 5.4 of the Guarantee did not purport to grant the defendant any interest at the time it was entered into. Rather, it gave the defendant the right to request a Guarantor to grant it “a legal mortgage of any property … now or hereafter held by that person” containing the covenant set out in cl. 5.4(a)(i). If a provision such as cl. 5.4 conferred an immediate right of recourse to the property it would amount to an equitable charge or mortgage, but it would not so amount if it was contingent upon further acts of the parties, such as requiring the lender to make a written request for provision of such a security. Clause 5.4 was of this latter character. This contingency had not been satisfied: the email of 21 September 2023 asked only for title details. [36]-[38]
  3. Further, a caveat could only in form be commensurate to the interest it was designed to protect. This caveat was not so commensurate because Christopher was not a named party to the Guarantee and so the caveat wrongly purported to rely on a “Mortgage” with “The Registered Proprietor(s)”. This caveat was accordingly not limited in its operation to the interest that could be said to have arisen between the relevant parties. [39]-[41]
  4. Although the Deed of Variation named Christopher as a Guarantor and Obligor, and defined “Securities” to include a “General Security Interest” over all property granted by Philip, Christopher and Pylades as trustee, it did not itself create a mortgage over the Property, let alone a mortgage of the kind referred to in the caveat. [42]
  5. Thus the defendant had not established a prima facie case of having an interest in the Property. The balance of convenience would also not have favoured the maintenance of the caveat. [43], [55]

Philip H. Barton

          Owen Dixon Chambers West

Tuesday, April 23, 2024

Blog 80. Caveat over retirement village community centre upheld.

El-Shahawy v Owners Corporation 1 Plan No. PS606836R [2023] VSC 597, Daly AsJ.

This is the first case covered by the Blog concerning a retirement village.  The owners corporation was held to have a caveatable interest based on proprietary estoppel in the community centre which had remained vested in the developer.  This case also confirms that an undertaking as to damages is not usually required by a caveator resisting removal under the Transfer of Land Act s. 90(3).  The facts were –

  • A developer obtained a planning permit to subdivide land and to construct 60 units on individual lots, a community centre with outdoor recreation facilities, and carparking, for the purposes of establishing an Over 55 Residential Community.  The permit was extended to permit completion of works by July 2025.
  • Subdivision occurred and 42 units were completed and sold to incoming residents who became registered proprietors of individual lots. The marketing material used by the developer included: “Community Centre owned and controlled by Residents”.
  • A master plan for a staged subdivision was registered. The developer added to the common property at each stage of the subdivision until stage 13.
  • The community centre, completed in 2016, was managed by the first defendant which also managed the common property.
  • In 2020, while still the registered proprietor of four unsold “super lots” and the lot improved by the community centre (together “the land”), the developer went into liquidation. The liquidators were subsequently appointed as receivers of the land.
  • On 8 November 2021, the solicitors for the liquidators wrote to the former solicitors for the owners corporation stating inter alia that: the liquidators were negotiating with a prospective purchaser who, the writer understood, intended to complete the development; such completion and the transfer of the community centre to the owners corporation was initially designed to be completed by way of registration of a plan of subdivision, but, as the subdivision permit had lapsed, such transfer was impossible without new permits; it was anticipated that any subsequent plans and permits obtained by that purchaser would include the likely outcome of the community centre lot vesting in the owners corporation by registration of a plan of subdivision.
  • On 15 February 2022, the liquidators entered into a contract to sell the land to the first plaintiff which nominated the second plaintiff as purchaser. The section 32 statement stated:

“The community centre is deemed to be an Owners Corporation asset and no determinations have been received (to 31-10-2021).  Legal action is still an option to pusue [sic] ownership change if this assest [sic] is not transferred to common property upon any future settlement of [the subject lot].”

  • Between the date of execution of the contract and 10 March 2022: the manager of the owners corporation told the first plaintiff that the residents considered that they had paid for the community centre as part of their purchase and believed that it should be transferred to common property; at a meeting between the first plaintiff and a group of residents, including committee members of the owners corporation, the first plaintiff said that the second plaintiff would lease the community centre to the owners corporation on particular terms, and he was subsequently told that on a show of hands a majority of those present favoured accepting his proposal; the first plaintiff’s solicitors wrote to the manager stating inter alia that the first plaintiff intended to nominate a corporate entity to take a transfer which would lease the community centre to the owners corporation; there was no reply to the letter and the first plaintiff paid the deposit; on 10 March 2022 the members of the owners corporation voted to reject the first plaintiff’s offer.
  • On 27 July 2022, shortly before settlement of the contract of sale, the owners corporation caveated over the community centre lot prohibiting all dealings and claiming a ‘freehold estate’ on the grounds of an ‘implied, resulting or constructive trust’.
  • The first plaintiff and the liquidators entered into a supplementary deed providing for the transfer of the super lots to the second plaintiff, leaving the developer as registered proprietor of the subject lot.
  • In September 2022 the owners corporation issued a Supreme Court proceeding seeking leave to commence a proceeding against the developer. In October 2022 a VCAT application was issued seeking an order under s. 169J of the Owners Corporation Act 2006 to give the chairperson of the owners corporation committee retrospective leave to commence the Supreme Court leave application on behalf of the owners corporation.  Both applications for leave remained undetermined.  The affidavits filed in both leave applications included a draft Statement of Claim pleading that –
    • between August 2006 and November 2021 the developer represented to the owners corporation and residents that it would construct a community centre on the community centre lot for the benefit of residents and transfer the title of this lot to the owners corporation;
    • the developer constructed the community centre in 2016;
    • the owners corporation and the residents reasonably believed and/or expected that the owners corporation would acquire the fee simple title to this lot, and the developer knew and/or intended that this belief exist and that the owners corporation and the residents would act in reliance upon it;
    • from 8 October 2009, the owners corporation and the residents reasonably acted to their detriment, being the amount paid by purchasers for their lots and the payment by the owners corporation of all the community centre’s costs and expenses, and changed their position in reliance upon the representations and such expectation and belief;
    • if this lot was not transferred to the owners corporation it would thereby suffer loss, the value of residents’ lots would diminish, non transfer would accordingly be unconscionable, and an order for transfer was accordingly sought.
  • The first plaintiff applied under s. 90(3) of the Transfer of Land Act to remove the caveat.
  • The first plaintiff deposed inter alia: to the anticipated cost of completion of works required by the planning permit to the community centre lot; that the owners corporation neither had funds for this nor intended to levy them; that the building works proposed would increase the value of existing lots; that the only relevant representation he knew of when he signed the contract was that contained in the section 32 statement and that before then he had no means of knowledge of the residents’ claims; if the development was not completed in accordance with the planning permit he may not receive occupancy or subdivision permits.
  • The material relied on by the defendant was in substance supportive of the allegations in the draft Statement of Claim. It included: that when the community centre was completed the developer could not “sign it over” because it was mortgaged to a bank but that nonetheless the developer gave the residents exclusive control over it; the owners corporation had for the last six years spent a considerable sum on the community centre in the expectation of obtaining title.

The Subdivision Act provided –

An owners corporation could “purchase or otherwise obtain land” if its members so unanimously resolved (s. 32(b));

Under s. 32D VCAT could grant a wide range of applications relating to plans of subdivision on the application of a member of or an owners corporation including for orders under: s. 32D(1)(a) requiring or authorising the owners corporation to do any of the things set out in s. 32; s. 32D(1)(b) consenting on behalf of a member of an owners corporation to the doing by the owners corporation of any of the things set out in s. 32.  Section 34D(3) provided that VCAT must not make an order on an application under subsection (1)(b) “unless satisfied that –

(c) the member has … refused consent to the proposed action and— (i) the member owns … more than half of the total lot entitlement; and (ii) all other members of the owners corporation consent to the proposed action; and (iii) the purpose for which the action is to be taken is likely to bring economic or social benefits to the subdivision as a whole greater than any economic or social disadvantages to the member or the group of members who did not consent to the action.”

Section 37 provided –

“37(1) A staged subdivision is a scheme for the subdivision of land in stages.

(2) If a planning scheme or permit authorises a staged subdivision, that staged subdivision may be done— … (b) by using the procedure set out in subsections (3) to (10).

(3) If a planning scheme or permit authorises a staged subdivision and the procedure in this section is used— (a) a master plan must be … lodged for registration …; and … (c) a plan for the second or a subsequent stage may …(i) create additional lots …; (ii) in relation to the land in that stage, create … common property …;

(5) A plan for a second or a subsequent stage may be submitted for certification and lodged for registration … and, if an owners corporation is created on the master plan or a plan for an earlier stage, the unanimous resolution of the owners corporation is not required for any change made to that plan by a plan for a subsequent stage.”

 

Daly AsJ. dismissed the application, holding –

  1. As to the contention that without the consent of the second plaintiff the owners corporation could not rely upon s. 34D of the Subdivision Act to authorise it to pursue the leave application –
    1. it was at least arguable that VCAT’s powers under ss. 34D(1)(a) and (b) were alternative and cumulative, such that the power under s. 34D(1)(a) was not subject to the limitations contained in s. 34D(3); [63]
    2. in any event it was not apparent, having regard to s. 32D(3)(c)(iii), that any application by the owners corporation under s. 34D(1)(b) was bound to fail (whereby VCAT would not authorise the owners corporation suing to compel the developer to vest the community centre lot in the owners corporation). [64]-[65]

Accordingly the court was not confident that there were insuperable obstacles to the owners corporation making good or even bringing its claim for a proprietary interest in the community centre lot, because of failure to comply with s. 32(b) or to obtain an order under s. 34D. [56(a)], [58], [62]

  1. Further, by reason of the Subdivision Act s. 37(5), any additional common property, conferred on the owners corporation by any plan registered upon the completion of a stage of subdivision after the registration of the plan creating the owners corporation, could be accepted without the unanimous resolution of the owners corporation.  However, it was possible that a proceeding to compel a developer to register a plan to give effect to a master plan (designating the community centre lot as common property) fell within s. 32(b) as an action to “otherwise obtain land” and so required a unanimous resolution.  But absent previous judicial authority, it was unnecessary for the court to reach a concluded view upon this and so to conclude that the relevant provisions of the Subdivision Act were an impassable barrier to the owners corporation’s claim. [68]-[69]
  2. Although the draft Statement of Claim was problematical in focusing on representations to and detriment suffered by residents who were neither named as plaintiffs in that document nor caveators, it was unnecessary for the court to determine whether the owners corporation would probably succeed on such claims as articulated. There was evidence of negotiations between the developer and the owners corporation in late 2016 showing that it was the developer’s intention to transfer the community centre lot to the owners corporation and of it in reliance assuming the costs of running the centre. [55], [70]-[71]
  3. Whether any claim by the owners corporation for an interest in the property would be defeated by delay or acquiescence, or whether any equitable interest held by it would by its inaction be postponed to that of the plaintiffs’ as purchasers, was quintessentially for trial. Any delay may be attributable to the assurances of the developer and liquidators, and the show of hands at the residents’ meeting could not reasonably be relied upon as amounting to acquiescence. [73]-[75]
  4. Accordingly the caveator had established a prima facie case of an equitable interest in the community centre lot on the basis of a proprietary estoppel. [55], [76]
  5. The balance of convenience overwhelmingly favoured maintenance of the caveat primarily because, notwithstanding doubt about whether the owners corporation could undertake the works required by the planning permit, removal of the caveat would render its claim futile. [77]
  6. Maintenance of the caveat would not be subject to any conditions. There was no requirement or even a usual practice for an undertaking as to damages to be given. [44], [78]

 

Philip H. Barton

          Owen Dixon Chambers West

Tuesday, April 16, 2024

Blog 79 Caveator who adopted conflicting positions left unsatisfied.

Colony Constructions Pty Ltd v Zain Homes Pty Ltd & Ors [2023] VSC 529, Ginnane J.

This short case is an illustration of the importance, when faced with a serious breach of contract by the other party, of either accepting the breach and thereby terminating the contract or declining to accept the breach and asserting your intention to go on with the contract.  Confusion between these options possibly contributed to this caveator claiming the wrong interest and grounds.  The first defendant was a purchaser under a contract which did not settle on the due date, following which the vendor served a 14 day Notice of Default and Rescission and the third defendant (invalidly because it was the nominee transferee) served a 14 day Default Notice based on alleged deterioration to the premises and an inadequate planning permit.  Following expiry of both Notices the first defendant: wrote stating that the alleged breach had not been rectified and that the contract was at an end; and caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust.  On the plaintiff vendor applying under the Transfer of Land Act s. 90(3) to remove the caveat the purchaser adopted conflicting positions: its director deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”; its counsel submitted that its conduct demonstrated that it wished to settle the contract; and in written submissions the purchaser relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962.  Ginnane J. held it arguable that the vendor had breached the contract, raising an arguable issue of whether it had the right to serve its Notice, but as the caveat had not claimed an interest as a purchaser the caveator only arguably had asserted an equitable lien for the return of the deposit.  Accordingly, appropriate relief was removal of the caveat with the deposit to be held in the vendor’s solicitor’s trust account.   His Honour stated –

“I have noted and considered the emphatic submissions of the defendant’s counsel that if the caveat is removed it will lose its right to settle the property, a right which may be later established.  However, … I can only consider the claims described in the caveat and they do not rely on the contract of sale …”

The facts were –

  • On 18 February 2022 the plaintiff entered a contract to sell a property to the first defendant for $727,270, with a deposit of $77,000 which was paid, due for settlement on 18 February 2023. The conditions included that: the “contract is subject to the vendor providing the purchaser endorsed plans and permits” (Special Condition 6); the vendor must deliver the property to the purchaser at settlement in the same condition as it was in on the day of sale, except for fair wear and tear (General Condition 24.2).
  • The first defendant nominated the third defendant as transferee.
  • A planning permit was issued allowing partial demolition of a building and erection of six units.
  • The contract did not settle on the due date. On 20 February 2023 the vendor served a 14 day Notice of Default and Rescission describing the default as “failure to settle per the terms of the contract”.   On the same day the nominee served a Default Notice describing the default as “non-compliance of general condition 24.2 & special condition regarding endorsed planning permit” and stating that the purchaser intended to exercise its rights unless within 14 days the default was remedied and legal costs were paid.
  • On 9 March the first defendant by its lawyers emailed the plaintiff’s conveyancer stating that the alleged breach had not been rectified and that the contract was at an end.  It also caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust.
  • The plaintiff resold the property and applied under the Transfer of Land Act s. 90(3) to remove the caveat. The first defendant’s director deposed to damage to the property alleged to have occurred after the date of the contract.  The first defendant submitted that the plans provided did not contain a valid planning permit as stipulated in Special Condition 6 so as to enable performance of the building works.
  • The plaintiff argued that the first defendant had adopted conflicting positions concerning whether the contract was still on foot. The first defendant submitted that its conduct demonstrated that it wished to settle the contract, but its director also deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”.  In written submissions the first defendant also relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962.

Ginnane J. ordered removal of the caveat on condition that the deposit was held in the vendor’s solicitor’s trust account until final determination of the proceeding or further order and on condition that the purchaser counterclaimed to substantiate its claim to the deposit –

  1. The third defendant’s Notice was invalid because it was a nominee who could not exercise rights under the contract. [7]
  2. The first defendant’s contentions that the plaintiff had breached the contract in failing to provide a valid planning permit and because of damage to the property raised an arguable issue as to whether the plaintiff had the right to serve its Notice. [8]
  3. Although the caveat had not claimed an interest as a purchaser (the claim of an implied, resulting or constructive trust did not claim an estate or interest arising under the contract) the caveator had established a serious question to be tried of an interest in the land in the form of an equitable lien for the return of the deposit – the caveat asserted such an interest when it referred to the first defendant’s interest as a chargee. [10]-[11]
  4. The first defendant’s arguable interest in the $77,000 deposit could be protected by a removal of the caveat on condition as stated above. The balance of convenience favoured that course.  This removal would deprive the first defendant of its right (which may later be established) to settle the contract but the caveat had not relied on the contract. [12]-[13]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 19, 2023

Blog 78 Mortgage and caveat securing solicitor’s fees survive.

Dixon (as trustee of the bankrupt estate of Toufic Sassine) v Lennon & Anor [2023] VSC 426, Barrett AsJ.

This is the first case covered by this Blog involving a solicitor’s costs agreement.  The agreement was held non-binding for breach of the Legal Profession Uniform Law (Vic) but nonetheless a charge and all monies mortgage in respect of the solicitor’s costs were valid, a term in the deed of charge permitting the solicitor to lodge a caveat.   The facts were as follows –

  • The first defendant (Lennon) was the principal and registered proprietor of Lennon Lawyers being a registered firm pursuant to the Business Names Registration Act 2011(Cth).
  • Toufic Sassine (Sassine) and Andrew Sassine (the Sassines) were registered as tenants in common in equal shares of certain land (the Land) encumbered by a registered mortgage to a bank.
  • On or around 20 November 2020 (as deposed by Lennon on 22 November 2022) the firm was retained to act for the Sassine family and their related corporate entities and a Disclosure Statement and Costs Agreement (costs agreement) bearing the date of 20 November 2020 was provided to the Sassines. Lennon exhibited to his affidavit a copy of the costs agreement which identified the law practice as Lennon Lawyers, stated that the clients were Sassine and Angela Sassine, and stated that the matter was “(SUP) Our Ref: 20/0723” with no description of the legal services to be provided.  The document provided that “it may be accepted by writing to us indicating your acceptance, by returning a signed copy of this document as provided in the Acknowledgement at the end of this document or by continuing to give us instructions in this matter”.
  • Lennon also deposed that to secure payment for legal services for the Sassine family it authorised Sassine and Andrew Sassine to execute a deed of charge in favour of the firm over their interest in the Land, and that a deed of charge and mortgage were executed accordingly.
  • On 20 November 2020 a deed of charge (the charge) was executed between Lennon Lawyers and the Sassines. It inter alia:
    • recited that the firm had provided and would provide professional services (the Services) to the Sassine family and their corporate entities;
    • provided that the firm had provided and would provide the Services up to the value of $100,000 (cl. 1);
    • provided that the Sassines hereby charged as security for the Services all their interest in the Land, agreed to execute a mortgage, and agreed that the firm “shall register a caveat over the said property to better secure the Services in accordance with this Deed” (cl. 2).
  • On 24 November 2020 Lennon caveated claiming an interest as chargee on the grounds of an agreement with the registered proprietor(s) dated 20 November 2020.
  • On 30 November 2020 a mortgage was executed over the Land by the Sassines as mortgagors and Lennon as mortgagee. This inter alia provided –
    • the mortgagor mortgaged the land to the mortgagee “as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage”;
    • under the heading “Terms and Conditions of this Mortgage” were the words “Document Reference AA3553” being an incorporation by reference of Memorandum of Common Provisions AA3553 whose provisions included:
      1. “Secured Money” was defined to include: (a) the Advance; (d) all amounts that are or may become owing to the Mortgagee under any agreement between the Mortgagor and the Mortgagee now or in the future (cl. 11.1);
      2. The Mortgagor promised to pay all the Secured Money to the Mortgagee (cl. 1.2(a));
      3. The Mortgagor was entitled to a discharge when all the Secured Money was paid and the Mortgagee was reasonably satisfied that it would not have to repay anything and that the Mortgagee did not have any contingent liability (cl. 2.6(b));
      4. the Mortgagor must pay the Mortgagee the Secured Money in accordance with this mortgage (cl. 5.2(a)).
  • On 24 February 2021 a sequestration order was made against the estate of Sassine and the plaintiff was appointed as the trustee of his bankrupt estate.
  • On 1 March 2021 Lennon registered the mortgage.
  • On a number of occasions from February to December 2021 the plaintiff attempted, invoking ss. 77A, 90 and 91 of the Bankruptcy Act, to obtain extensive information and documents from Lennon about his asserted security interest and the affairs of the bankrupt. Lennon did not respond to the plaintiff for many months and when he did, on 18 June, the response was less than complete, being provision of the charge, mortgage and mortgage form lodged with PEXA on 24 February 2021.  He did not provide any details of any fee agreement, work, invoices, payments, mortgage balance, valuation, or related documents.  Pursuant to s. 77C of the Bankruptcy Act the Australian Financial Security Authority sought similar information to that sought by the plaintiff, with no response.
  • In June 2022 the plaintiff commenced this proceeding seeking a declaration that the mortgage was invalid and for orders removing it and the caveat from the certificate of title of the Land.
  • Lennon swore an affidavit on 22 November 2022 to which (as an exhibit) he produced the costs agreement for the first time. The final paragraph of the affidavit read –

    “At the date of swearing this affidavit, LL is owed substantial fees for the provision of legal services which I believe to be in the order of at least $40,000.  The costs include the costs necessary to defend this proceeding.  The legal work necessitated by the difficulties the Sassine family have encountered are ongoing.”

Barrett AsJ. dismissed the proceeding, holding –

  1. The charge was “an agreement” as described in the caveat, notwithstanding that it recited that Lennon Lawyers not Lennon had provided and would provide services, as Lennon was the legal entity carrying on business under that business name. The use of the business name in the charge did not render it incapable of supporting the caveat. [37], [45]
  2. The costs agreement was not binding because –
      1. Although its provision for acceptance was consistent with cl. 180(3) of the Legal Profession Uniform Law (Vic) (LPUL) there was no evidence that the clients had accepted the offer, whether by signing and returning the document or by continuing to give instructions. The final paragraph of Lennon’s affidavit was insufficient: its first sentence did not state who owed the fees or pursuant to what agreement, if any; its last sentence did not identify whether Lennon had been retained to perform any work and if so, what or pursuant to what, if any, retainer. [49]-[51]
      2. The fact that Lennon did not produce a signed copy of the costs agreement, or written instructions or file notes of such instructions constituting acceptance of it, supported the inference that he did not have them. [55]
      3. Clause 174(3) of the LPUL required the solicitor to take all reasonable steps to satisfy himself that the client had understood and consented to the proposed course of action for the conduct of the matter and the proposed costs. There was no evidence of this. [52]-[53]

Accordingly, Lennon had not discharged the onus of establishing that the costs agreement was entered into or that legal services were provided pursuant to it. [55]

  1. As to documents requested in a notice under s 77A of the Bankruptcy Act sent on 20 April 2021, Lennon neither produced them nor stated whether had had them, permitting the inference that he did not have them and consequently that neither the charge or mortgage secured any monetary amount owing. [55]
  2. However, the charge supported a caveatable interest notwithstanding the lack of a binding costs agreement.  More particularly –
    1. The charge did not purport to secure the provision of any costs that may be identified by, or referable to, any particular costs agreement alone, but rather, secured the costs of such legal services as may be provided to the extended Sassine family and related entities. A charge could validly, before any particular retainer, not secure an extant monetary liability but be a security available to be employed between the parties in accordance with their agreement. [37], [56], [57]
    2. The term in the charge permitting Lennon Lawyers to lodge a caveat supported the caveat. Unless there was evidence of an intention to the contrary, the grant (by a borrower to its creditors) of an authority to lodge a caveat implied the grant of an estate or interest in the land affected by the caveat sufficient to resist its removal. [57]
    3. The recovery of legal fees did not depend upon the existence of a valid and enforceable fee agreement: an agreement not satisfying the LPUL may be void (cl. 178(1)(a)) but the client may still have to pay costs once assessed or the subject of a determination of a costs dispute by the designated local regulatory authority (cl. 178(1)(b)). [58]

    [59]

  1. It was not a requirement of validity of a charge or other security that it secure a sum certain liability, eg an “all moneys” mortgage (such as the mortgage here) could secure potential legal fees up to a particular sum. It was accordingly permissible for the charge to stipulate that the firm would provide the Services up to the value of $100,000. [16], [37], [61]
  2. There was accordingly at least some probability that the caveator would be found to have the equitable rights or interest in the land asserted in the caveat sufficient to justify the practical effect of the caveat on the ability of the plaintiff to deal with it. [63]
  3. The balance of convenience favoured maintenance of the caveat. The prejudice occasioned to the caveator by removal outweighed the prejudice to the plaintiff by maintenance of the caveat because removal would occasion: the loss of the security for payment of fees incurred in accordance with the terms of the charge; the mortgage (for reasons stated below) prevented the plaintiff dealing with the title anyway; and the plaintiff could still seek partition of the co-ownership or redemption of the mortgage. [64], [65]
  4. The mortgage was expressed as security “for the debt or liability described in the terms and conditions set out or referred to in this mortgage”, and, although no debt or liability was specified in the mortgage document itself, the terms in the Memorandum of Common Provisions including particularly cl 11.1 rendered this an “all moneys” mortgage.  “All monies” clauses were to be construed in light of the language used and having regard to the context of the mortgage and its commercial purpose.  There was no reason to read this clause down to exclude any future liability resulting from any of the Sassine family or related entities engaging Lennon to provide legal services as described in the charge. [38], [68] – [70], [72]
  5. When all amounts owing under the mortgage had been paid the mortgagor was entitled to redemption, if necessary by compelling the mortgagee to provide a discharge of the mortgage. Where a mortgagor became bankrupt, the trustee had rights under s. 136 of the Bankruptcy Act to redeem. [74], [76]
  6. Proceedings between tenants in common of mortgaged property could not affect the mortgagee’s interest in the entirety, and so, if a co-tenant mortgagor obtained partition, the mortgage would affect each severed portion, and a co-tenant, or the trustee in bankruptcy of a co-tenant, wishing to redeem a mortgage must redeem it entirely. Given Lennon’s failure to provide information the plaintiff understandably had not offered to redeem, but this was not a basis for declaring the mortgage invalid or to discharge it on the application of the trustee in bankruptcy of only one tenant in common. [76], [77]

Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, November 28, 2023

Blog 77. No prima facie case of a contract of sale.

Ritz Bitz Pty Ltd & Anor v Cumming & Ors [2023] VSC 418, M. Osborne J.

This is the longest Blog because of the complexity of the facts and the desire of the registered proprietors to amend their Defence substantially.  This case largely concerns whether there was a prima facie case that a contract of sale existed.  An interesting twist is how his Honour dealt with misdescription in the caveat of the claimed interest in land.   Undisputed evidence was given that this was due to the PEXA options.  M. Osborne J. stated that this misdescription “would be put to one side” and did not consider possible amendment of the caveat, but noted that the caveator could have sought an interlocutory injunction which in practical terms would have secured the same outcome (but nonetheless the case remained one of caveat removal).  This appeared in turn to lead to some greater consideration than usual in a caveat case of the necessity and value of the undertaking as to damages offered.

The facts were as follows –

  • The defendants Daniel and Amanda Cumming (the couple) were registered proprietors of a property in Footscray improved by a former dance hall (the Property), at which as at mid 2015 his mother lived.
  • Daniel’s brother John was the second plaintiff and controlled the first plaintiff (Ritz Bitz).
  • In about 2015 the brothers discussed possible subdivision of the Property and the sale of part of it to John.  John alleged that an oral contract was made at this time to sell to him that part of the Property “later known as lot 1” (Lot 1) on a particular plan of subdivision (the 2015 contract).
  • In August 2015 John purchased a property in Braybrook, where their mother then lived, registered in the names of siblings of the brothers.
  • In early 2016 (John subsequently deposed) it was agreed, at Daniel’s request, to change the proposed two lot subdivision to a three lot subdivision, with John bearing one third and the couple bearing two thirds of the costs (the one third/two thirds agreement).
  • On about 22 August 2016 a plan for a three lot subdivision was lodged with the local Council. On 23 August 2016 it advised that it would approve the plan of subdivision, subject to compliance with requirements principally concerning fire safety including provision of a fire safety report.
  • In 2017 John proffered a standard form of contract for the sale of Lot 1, which the couple refused to sign.
  • In 2019 John obtained a fire safety report. By this time the Property was largely vacant and dilapidated.
  • In 2020 the Braybrook property was sold.  The proceeds of sale were paid to the plaintiffs.
  • In April 2022 John caveated over the Property claiming an implied, resulting or constructive trust. In September the Council issued a building order for minor work requiring compliance that month.  On 10 December Daniel and Amanda entered a contract of sale of the Property to a third party, Nikolce Talevski, under which the deposit was paid, due for settlement in February 2023.  Settlement had not occurred.
  • In December 2022 the plaintiffs commenced a proceeding against the couple and, because of other transactions not presently material, a company controlled by Daniel. The pleadings were a Statement of Claim and Defence which the defendants subsequently sought leave to amend.  The relevant pleadings were broadly:
    • The Statement of Claim paragraph 52 pleaded that in about July 2015 the couple agreed to sell to John part of the Property later known as lot 1 a particular plan of subdivision for $2 m. “on vendors terms”. The agreement was particularised as oral and implied, insofar as oral being contained in discussions between the John, the couple, and their mother at the Croatian Club in Footscray.  The Defence admitted this allegation but leave was sought to amend the Defence to deny this allegation and also plead: (a) that although John had at about that time offered to purchase lot 1 on a proposed plan of subdivision for $2 m. the offer was on terms including that: (i) he would arrange and pay for lodgment of the plan of subdivision (the “condition precedent”); (ii) he would pay a deposit of $800,000 to the couple to enable them to purchase a property at which their mother could live; (iii) the balance of the price would be paid within 12 months of entry into a contract; (b) the condition precedent was never fulfilled because the plan of subdivision was rejected by the Council for want of a fire safety plan; (c) non-compliance with s. 126 of the Instruments Act.
    • Paragraph 53 of the Statement of Claim alleged that on or about 22 August 2016 the Council advised the couple that the plan of subdivision had been lodged and that lot numbers had been allocated. However, paragraph 55 pleaded that on 23 August 2016 the Council advised that subject to its requirements (principally directed at fire safety) it would “give agreement for the plan of subdivision to be lodged”.  The Defence admitted these paragraphs but in paragraph 55 went on to plead “that upon the issue of the [requisite fire report] to John in 2019 he decided not to proceed with the purchase”.    The Defence also pleaded that the subdivision was not approved “by council as per the council’s requirement for the fire safety report to be provided”.
    • The Statement of Claim paragraph 56 pleaded that the terms of the contract included that: (a) the price for Lot 1 would be $2 m.; (b) the deposit was $800,000, to be paid in kind “by John providing a property for his mother to live in (she then residing at the … Property)”; (c) the balance of the price was to be paid on terms, with John developing a backpackers hostel at Lot 1 and to pay $1.2 m. 12 months after its establishment; and (d) that John would be responsible for obtaining planning permits and procuring registration of the plan of subdivision.
    • The Defence admitted the allegations in paragraphs 56(a), (b) and (d). It did not admit the allegations in paragraph 56(c) and added that it was a term that the balance of price was payable within 12 months, subject to approval of the plan of subdivision, and there was no agreement concerning a backpackers hostel.  Leave was sought to amend the Defence to: plead that no contract was ever formed and replace the admission of paragraph 56(a) with a denial, adding that John agreed to pay a deposit of $800,000 in cash to the couple so that the couple could purchase a property in which their mother could reside.
    • The Statement of Claim paragraph 57 pleaded that the alleged vendors represented and warranted that “part of the purchase price being $800,000 should be paid in kind by John purchasing a property for John and Daniel’s mother such that she would have a place to live” and that in reliance upon the representations, John acquired the Braybrook property for his mother. Paragraph 58 of the Defence pleaded that John had purchased the Braybrook property for $665,000, being less than the agreed deposit of $800,000, and had subsequently used it as security for Ritz Bitz to purchase a hotel.  It was sought to amend the Defence to add (paragraph 58(a)) that the $800,000 was to be paid in cash to the couple, and that John had since sold the Braybrook property and applied the proceeds to his own use.
    • The Statement of Claim paragraph 60 pleaded that in 2017 John proffered a draft contract of sale to Daniel and Amanda to give effect to the 2015 contract. The Defence pleaded that they did not sign it because it “was completely different to the original offer”.
    • The Statement of Claim paragraph 62 pleaded that the couple had breached the contract because they had “failed to convey [lot 1] to John upon payment of $1.2 million”.
    • Specific performance was sought of the 2015 contract requiring the plan of subdivision to be registered (and for the couple to do all that was necessary to register the plan) and for Lot 1 to be transferred to John upon his payment of $1.2 m. to the couple.
    • The Statement of Claim did not advert to any agreement to share the costs of a contemplated two lot subdivision equally, or of any agreement to split the costs of a contemplated three lot subdivision, but his Honour noted that the most logical reading of the pleading was that John was to bear the costs.
  • In June 2023 the Council served an emergency order on the couple requiring vacation of the building and performance of demolition works by 21 June. Daniel subsequently deposed that the couple lacked the resources to undertake these works.
  • The defendants applied under the Transfer of Land Act s. 90(3) for removal of the caveat and for leave to amend their Defence and Counterclaim.
  • John argued that his interest did not arise under an implied, resulting or constructive trust but was that of a purchaser under the 2015 contract. His solicitor deposed that those words were used in the caveat because when it was lodged John could not recall (and thereby nominate) the exact date in July 2015 of the contract, which inability meant that the only PEXA option for the grounds of claim was that nominated.  This evidence was not challenged.
  • John deposed –
    • to a conversation with his mother before and to similar effect as that at the Croatian Club referred to in the Statement of Claim in which he offered $2 m. to her for the front half of the Property (the Property being, according to John, in fact his mother’s property, notwithstanding that it was registered in the names of the couple), that he agreed to pay $800,000 immediately to her which she could use to acquire a property to live in, and that he would then pay her the balance of $1.2 million once the property was operating as a backpackers hostel;
    • that “as part of the relief [to be obtained in the proceeding he] will also need to pay over the ‘deposit’ from the sale of the Braybrook Property”;
    • to an agreement to change the proposed two lot subdivision to a three lot subdivision, on the basis of the one third/ two thirds arrangement;
    • that he believed that the value of Lot 1 was significantly above $2 m.
  • John exhibited to certain emails to his affidavit.
  • Daniel exhibited to his affidavit a copy of the written contract provided by John, which was largely inconsistent with the alleged 2015 contract. Although John deposed that the contract provided by him in 2017 was not inconsistent with the alleged 2015 contract he did not depose that the document exhibited by Daniel was not the contract provided.  However John’s counsel stated from the Bar table that his instructions were that the document exhibited by Daniel was not the contract provided in 2017, and that John no longer had a copy of it.
  • Daniel and Amanda tendered a fire engineering report dated 5 March 2019.
  • The plaintiffs offered an undertaking as to damages.

M. Osborne J. ordered removal of the caveat, holding –

  1. The misdescription in the caveat of the grounds of claim would be put to one side because the true alleged interest had been asserted in a solicitor’s letter and, even if the court had not had power (which it did have) to amend the caveat, the caveator could have sought an interlocutory injunction to restrain settlement of the third party sale which in practical terms would have secured the same outcome. [34]-[35]
  2. Although completion of the alleged 2015 contract was conditional on registration of the plan of subdivision, and thus on consent of a third party, a court would, in appropriate circumstances, make orders in the nature of specific performance compelling the vendor to do what was necessary to obtain approval for the subdivision and, if approval was granted, to settle the contract. This interest was sufficient to support a caveat. [36]-[38]
  3. There was not a prima facie case that a contract existed, because even allowing for the admissions in the Defence, the contract as alleged was attended with difficulty, as follows –
    1. The Statement of Claim lacked precision, in particular:
      1. the allegation that the subject matter of sale was land later known as a particular lot number on a plan of subdivision could not accurately reflect the particularized July 2015 discussions, because this plan was not yet prepared; [43]
      2. notwithstanding consensus in the pleadings that the plan was uncertified because Council’s fire safety requirements remained unaddressed, the Statement of Claim did not directly engage with the fact that settlement was impossible pending certification and subsequent registration of the plan, nor with what was necessary to procure certification or with who was responsible for securing certification and registration; [44]-[45]
      3. the reference in paragraph 52 to “vendors terms”, unidentified and unclear, seemed to suggest settlement at an undefined point not linked to registration of the plan; [46]
      4. the allegation in paragraph 62 that the alleged vendors had breached the contract by failing to convey Lot 1 to John upon payment of $1.2 m.: did not reflect that the obligation to convey was dependent on registration, did not plead tender of this sum, and did not clarify how reference to this sum was reconciled with the sale on the ‘vendors terms’, whatever they might be; [46]
      5. The pleas concerning the deposit and its payment were unclear; [47]
      6. The relevance of the allegations in paragraph 57 were unclear: they appeared to set the scene for pleas of estoppel or part performance without following through; [48]
      7. A fair, but not the only, reading of the Statement of Claim was that the deposit of $800,000 was to be paid in kind. However, the question of who was to own the Braybrook property was left unsaid, much less how the purchase of a property otherwise than for the couple could amount to part performance of an obligation to pay them $2 m. for Lot 1; [49]
      8. The relevance of the provision of the later written contract to the claim for specific performance was unclear, and that document contained myriad inconsistencies with the alleged 2015 contract. [50], [53]
    2. John’s evidence of a conversation with their mother in which he offered her $2 m. for the front half of the Property was inconsistent with his pleading that $1.2 m. was be paid to the couple. [57]
    3. In broad terms, the emails exhibited by John supported an interpretation of the 2015 contract as containing a term that payment the deposit of $800,000 was to be effected in some way by the purchase of a property for their mother. [58]
    4. Notwithstanding the purchase of the Braybrook property for their mother and its registration in the names of the brothers’ siblings the plaintiffs received the proceeds of sale. Although the Statement of Claim sought an order in effect requiring the transfer of Lot 1 to John upon his payment to the couple, he had deposed that “‘as part of the relief, [he] will also need to pay over the ‘deposit’” from this sale, thus implicitly recognising that the couple were entitled to the $2 m., which was not the same as part of the $2 m., namely the $800,000 ‘deposit’, being paid to their mother to buy the Braybrook property and was inconsistent with the plaintiffs’ ultimate receipt of the proceeds of sale.  On the case that John now sought to advance, the couple, not John (or his mother’s estate), were entitled to the $800,000. [59]
    5. It was undisputed that responsibility for obtaining registration of the plan of subdivision, fell on John not, as was usual, on the vendors. And, although John deposed to an agreement to change the proposed two lot to a three lot subdivision, he had not pleaded this agreement nor one to share the costs equally on the basis of a contemplated two lot subdivision. [60]
    6. In summary, even if the court was to assess the question of a prima facie case by reference to the alleged admissions in the Defence, there were significant impediments to the establishment of a legally binding contract in the form of the alleged oral 2015 contract. In particular:
      1. The alleged 2015 contract failed sufficiently, arguably at all, to take account of the sale being conditional because dependent upon certification and registration and was entirely unclear on the date of payment of the price or whether this payment was conditional. [62]
      2. The only form of written contract in evidence was quite inconsistent with the alleged 2015 contract, or with the parties becoming legally bound before its execution, and as John had not deposed that the document in evidence was not the document proffered no weight could be attributed to his instructions conveyed from the Bar table to the contrary. [63]
      3. As to the deposit, the Statement of Claim was most unclear. It was ambiguous as to whether John would pay $800,000 to the vendors (suggested by the pleading and the relief which John now accepted he would be entitled to at final hearing) or whether (as pleaded in paragraph 57(c)) it be paid in kind by John purchasing a property for their mother (and so suggestive of the $800,000 being paid in effect to their mother) which was consistent with the version in John’s affidavit.  Whatever the true interpretation, it was difficult to see how John could have paid the $800,000 deposit, whether to his mother, or to the couple by being used to buy a house for their mother  (which presumably meant that the couple did not have to do so), but still somehow received the proceeds of sale of the Braybrook Property. [64]

      [42], [61], [65]

  1. The question of the prima facie case was not confined to whether there was a binding sale agreement for Lot 1 but extended to whether specific performance would be granted for the sale of a lot in a plan of subdivision which remained unregistered some 8 years after the date of the alleged contract. As to this:
    1. Contracts for the sale of lots in unregistered plans of subdivision were amenable to orders for specific performance because of the normal implied term requiring the vendor to do everything reasonably necessary to procure registration. However, here John bore the burden of obtaining registration. [67]
    2. Even if the court was to accept for the purposes of this Application that (although unpleaded) the contract had been varied to change the proposed two lot to a three lot subdivision with the one third/two thirds arrangement, there was uncertainty about the costs, nature and extent of the required tasks. The report tendered was long and required performance of a range of measures to attain certification of the plan of subdivision.  And it appeared in 2023 that further works would be required.  In sum, the works required were complex, unidentified, and at some indeterminate and potentially large cost, to be met on John’s case as to one third by him and two thirds by the couple. [68], [70], [71]
    3. Accordingly, a series of further orders for their performance and payment would be required antecedent to any order for specific performance. Although a court would supervise a contract the performance of which required costs to be met in agreed proportions, in this case the costs related to, at least in part, performance of building works of uncertain scope. A building agreement was one requiring continual supervision in respect of which a court was reluctant to grant orders for specific performance.  If specific performance were granted the court would  likely have to supervise potentially significant building works not yet identified or delineated by the alleged 2015 contract. [72], [73], [78]
    4. John had also failed to establish a prima facie case that he was ready, willing and able to perform the obligations imposed on him by the alleged 2015 contract. Even assuming in his favour that his non-payment of a deposit in the traditional sense was not itself a disentitling breach of contract, he had led insufficient evidence of ability to meet future necessary payments. [74]-[78]

    [66]

  1. In conclusion John has not established a prima facie case at a sufficient level of certainty to justify the maintenance of the caveat. [78]
  2. The balance of convenience also favoured removal of the caveat. Ordinarily, because contracts for the sale of land were the subject for orders for specific performance, land being of a unique character such that damages were not an adequate remedy, the balance of convenience favoured a caveator with a prima facie case and priority over any relevantly competing interest.  However here the balance of convenience was against John because:
    1. Of his Honour’s concerns about the adequacy of the undertaking as to damages offered by Ritz Bitz and John – the insufficiency of an undertaking as to damages being a powerful discretionary factor against the grant of an interlocutory injunction – there being a very real possibility that the couple would suffer significant losses by reason of their inability to settle the third party contract; [82]-[84]
    2. If the caveat remained in place the Property would likely deteriorate or the couple would have to finance rectification works in order to deal with the building order and the emergency order or face prosecution; [88]
    3. Talevski’s interests would be effected; [89]
    4. Notwithstanding John’s emotional connection with the Property he had not pursued his claim with alacrity and if his assessment that Lot 1 was worth substantially more than $2 m. this would sound in damages. [90]

    [80], [91]

    Philip H. Barton

              Owen Dixon Chambers West

            Tuesday, December 5, 2023

Blog 76. A collection of claims, none amounting to a caveatable interest.

SJM v PMD & Anor [2023] VSC 349, Daly AsJ.

This case concerns a persistent user of the court system with sundry claims, none caveatable.  Interestingly Daly AsJ essays a definition of what is an estate or interest in land (this being the basis of a caveatable interest under the Transfer of Land Act s. 89).  Lawyers find it easier to say whether, in the particular circumstances of a case, an interest in land exists, than to define one.  Relying on Victorian authority her Honour stated –

“An estate or interest in land required to support a caveat must be an interest in respect of which equity would give specific relief against the land itself, either by way of requiring the provision of a registrable instrument or in some other way, for example, ordering a sale to enable a charge to be satisfied out of the proceeds.”

This is a comprehensive definition though not complete, because, for example it does not cover the interest of an adverse possessor, held caveatable in Nicholas Olandezos v Bhatha & Ors [2017] VSC 234 at [35], [37], nor rights of a legal not equitable nature.  In that case Derham AsJ stated at [18] –

“First, the Caveators must establish that there is a prima facie case – there is a probability on the evidence before the Court that the Caveators will be found to have the asserted legal or equitable rights or interest in the disputed land by adverse possession.”

Any general statement of what is an estate or interest in land also depends on context.  So in Stow v Mineral Holdings (Australia) Pty Ltd (1979) 180 CLR 295, which concerned the requirement that permitted objectors to the grant of a mining licence claim an estate or interest in land, Aickin J. stated at [21] –

“In my opinion the ordinary meaning of the compound expression “estate or interest in land” is an estate or interest of a proprietary nature in the land.  This would include legal and equitable estates and interests, e.g., a freehold or a leasehold estate, or incorporeal interests such as easements, profits a prendre, all such interests being held by persons in their individual capacity.  It does not embrace interests in which the person concerned has no greater claim than any other member of the public.”

  The facts were as follows –

  • The plaintiff and the first defendant (defendant) were in a de facto relationship for about a decade until 2010.  In 2003 the plaintiff purchased a property at Hoddles Creek of which she was sole registered proprietor and where they cohabited until she moved interstate in 2010, returning, she alleged, in 2012 to retake exclusive possession.  In 2012 the defendant caveated claiming an implied, resulting or constructive trust, the grounds of the claim being an alleged constructive trust.
  • On 15 August 2012 the Federal Magistrates’ Court made final consent orders in a proceeding commenced by the defendant including providing three alternatives for disposal of the property.  The first alternative (in paragraph 2 of the orders) was that the defendant pay the plaintiff $110,000 by 15 November 2012 in exchange for a transfer of her interest in the land with him discharging the mortgage and performing certain other obligations.  Failing this alternative being taken, the second alternative gave her an election to retain the property and to pay him $50,000 in exchange for withdrawal of the caveat.  Failing both the foregoing alternatives the property was to be sold and proceeds distributed in a particular manner.  Other orders included (in paragraph 5.2) that the parties would hold their respective interests in the land on trust pursuant to these orders.  The orders concluded that pursuant to s. 81 of the Family Law Act the parties intended them to, as far as practicable, finally determine their financial relationship and avoid further proceedings.
  • Due, the defendant alleged, to the plaintiff’s non-co-operation with his pursuit of the first alternative, he filed an application returnable on 31 October 2012 to enforce the final orders (the enforcement application) chiefly to require the plaintiff to give effect to the first alternative.  The case was not reached, but on that day the plaintiff’s solicitor deposed to holding the required completed Transfer document and that his client was ready, willing and able to settle the sale in accordance with the first alternative on 15 November.
  • Although the orders of 15 August required payment by 15 November the parties agreed to extend the time for settlement to 11.30am on 16 November.  The enforcement application was relisted at 10am on 16 November and stood down pending settlement of the transfer.  However, the transaction did not settle at 11.30am due to a discrepancy between the Transfer and a mortgage, the defendant’s lender Westpac requiring the parties to execute a new Transfer to conform with the terms upon which it had agreed to advance finance.  The defendant and his solicitors then took steps to remedy this and planned to be able to settle at 3:30pm.  However, at about 1.40pm the plaintiff elected to take the second alternative.  When the hearing resumed at around 2.30pm counsel for the defendant sought orders compelling the parties to attend settlement at 3:30pm.  The Federal Magistrate dismissed both this application and the enforcement application on the basis that both parties had complied with their obligations but the bank had prevented settlement, and that to order the parties to attend settlement at 3.30pm would conflict with the orders of 15 August.
  • In December 2012 and February 2014 the defendant refused the plaintiff’s tender of $50,000.
  • In January 2014 an application for leave to appeal against the dismissal of the enforcement application was itself dismissed but the judge commented in substance that instead of appealing the defendant should have commenced proceedings under s. 90SN(1)(c) of the Family Law Act which provided that if, on application by a person affected by an order in property settlement proceedings, the court was satisfied that a person had defaulted in carrying out an obligation imposed by the order and it was just and equitable, the court had a discretion to vary or set aside the order and if appropriate substitute another order.  An application to the High Court for special leave to appeal against the judge’s decision failed.
  • In February 2014 the defendant filed a contravention application in the Federal Circuit Court directed at the plaintiff and her solicitors.  This was dismissed in September 2014, and an application to the Family Court for leave to appeal against this dismissal was itself dismissed except as to a question of possession of chattels which was remitted to the Federal Circuit Court, and an application to the High Court for special leave to appeal against the Family Court decision was itself dismissed.  On the remitted question the defendant failed as did an appeal against this dismissal.
  • The plaintiff applied for removal of the caveat under the Transfer of Land Act s. 90(3), for an injunction restraining the defendant from further caveating, and for compensation under s. 118.  The defendant argued that he had an equitable interest in the land by reason of being the beneficiary of a trust created by the final orders dated 15 August 2012 and having the potential to bring an application to have the orders dismissing the enforcement application and/or the contravention application varied or set aside for fraud.  He also contended that failure of the transaction to settle at 11.30am on 16 November 2012 was not attributable to the action of his bank but to the plaintiff’s actions.

Daly AsJ ordered removal of the caveat on condition that on any sale or refinancing $50,000 be set aside to meet the defendant’s entitlements under the final orders, holding –

  1. An estate or interest in land required to support a caveat must be an interest in respect of which equity would give specific relief against the land itself, either by way of requiring the provision of a registrable instrument or in some other way, for example, ordering a sale to enable a charge to be satisfied out of the proceeds. [67]
  2. The allegation that there was fraud arising from the solicitor for the plaintiff’s affidavit sworn on 31 October 2012, or by counsel’s statements during the hearing on 16 November, was untenable. However, any claim to set aside an order for fraud, which in the case of the orders in the enforcement and contravention applications was accordingly very weak (the strength of the caveator’s claim being relevant to whether the caveat should be maintained), was a mere equity, not a proprietary interest, and so did not found a caveatable interest. [72]-[74], [86]-[90]
  3. Section 91(1) of the Evidence Act 2008 provided that evidence of a decision, or a finding of fact in another proceeding was inadmissible to prove the existence of a fact that was in issue in that proceeding. However, it was doubtful that s. 91(1) excluded evidence contained in reasons for judgment of admissions or concessions made by a party in the course of the other proceeding. The defendant had made such admissions or concessions to the effect that the plaintiff’s bank could discharge its mortgage by the scheduled date.  And the defendant or his counsel had in previous proceedings repeatedly acknowledged that the defendant’s bank was responsible for the failure to settle on 16 November 2012. [82]-[84]
  4. Any claim under the Family Law Act s. 90SN(1) was a statutory claim incapable of giving rise to an equitable interest. [90]
  5. The interpretation of the final orders and of the plaintiff’s entitlement to elect to take the second alternative had been litigated extensively. The defendant was estopped from further litigating either his entitlements under the final orders or the validity of this election.  Even if the question of the alleged fraud had not yet been expressly raised in previous court proceedings, then they should have been so raised having regard to the principles of Port of Melbourne Authority v Anshun (1981) 147 CLR 589.  It was unreasonable for the defendant not to have raised allegations of fraud in the actual enforcement and contravention applications. [90], [93]
  6. The court had considered whether the defendant had any caveatable interest, not just that claimed in the caveat (a claim to the constructive trust having been subsumed in the final orders). And, although in the final orders of 15 August 2012 paragraph 2 gave the defendant an equitable interest in the property akin to that of a purchaser (which alternative had not however been taken) and paragraph 5.2 created a trust, that trust did not survive one of the alternatives in the orders being taken. [71], [94]-[96], [99]
  7. The balance of convenience overwhelmingly favoured removal of the caveat because of the plaintiff’s financial circumstances. [100]
  8. Given the history of litigation and circumstances of the case the defendant was restrained from lodging any further caveats over the land. [103]

Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, August 30, 2023

Blog 75. Masters v Cameron

Stathopoulos v Cremin & Anor [2023] VSC 238, Barrett AsJ. 

Unlike most previous Blogs this Blog does not concern an Application under the Transfer of Land Act (TLA) s. 90(3) but rather concerns a proceeding commenced following a notice by the Registrar of Titles under s. 89A(1), the plaintiff having caveated over the first defendant’s land claiming an equitable interest as purchaser under a contract of sale.  The registered proprietor applied for summary dismissal of the proceeding with consequential removal of the caveats.

Barrett AsJ considers at length principles of contractual interpretation, the law on the Instruments Act s. 126, and in particular the law where parties reach agreement on terms of a contractual nature but also agree that the matter of their negotiation shall be dealt with by a formal contract.  The foundational law is contained in the High Court judgment in Masters v Cameron (1954) 91 CLR 353 at 360 – 362 as follows –

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three cases.  It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect.  Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document.  Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.

In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution.  …

Cases of the third class are fundamentally different. They are cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own: … The parties may have so provided either because they have dealt only with major matters and contemplate that others will or may be regulated by provisions to be introduced into the formal document, … or simply because they wish to reserve to themselves a right to withdraw at any time until the formal document is signed. …

The question depends upon the intention disclosed by the language the parties have employed, and no special form of words is essential to be used in order that there shall be no contract binding upon the parties before the execution of their agreement in its ultimate shape: … Nor is any formula, such as “subject to contract”, so intractable as always and necessarily to produce that result: … But the natural sense of such words was shown by the language of Lord Westbury when he said … “if to a proposal or offer an assent be given subject to a provision as to a contract, then the stipulation as to the contract is a term of the assent, and there is no agreement independent of that stipulation”. …

This being the natural meaning of “subject to contract”, “subject to the preparation of a formal contract”, and expressions of similar import, it has been recognized throughout the cases on the topic that such words prima facie create an overriding condition, so that what has been agreed upon must be regarded as the intended basis for a future contract and not as constituting a contract.”

There is arguably a fourth category, being a variation upon the first category, ie a class of case in which the parties are content to be bound immediately and exclusively by the agreed terms whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms.

The facts were –

  • The first defendant (the vendor) was registered proprietor of Lots 1 and 2, 343 McGlone Road, Drouin.  On 3 September 2018 she and the plaintiff (Stathopoulos) entered into a contract of sale of, according to the document, Lot 2 but Stathopoulos pleaded it was of Lot 1 (the First Contract).  $5,000 was paid under this contract, which however did not proceed.
  • Stathopoulos deposed that between 30 March and 9 April 2020 he dealt with a Mr Shnall, who, in the week beginning on 30 March telephoned him saying that he was an estate agent calling on behalf of the vendor and in this conversation Stathopoulos offered $8m. for both lots.  (The vendor did not allege that Schnall was not acting for her, but deposed that on 9 April she received an offer in draft under cover of a letter from Schnall stating that his company was instructed to present this offer on behalf of a significant investor etc, without naming that investor).  Stathopoulos deposed that on 7 April Schnall told him that the vendor had rejected this offer to which he orally responded with four alternate offers.
  • Stathopoulos alleged: that later on 7 April Schnall emailed that these offers had been presented to the vendor, and Schnall sought four separate letters of offer in the terms set out in Schnall’s email, saying that, if these letters were provided by midday the next day, he would have the offer that the vendor selected signed off on the following Monday.  Schnall concluded “[l]ook forward to executing this deal for you George next week”.
  • Four letters of offer in the terms set out in Schnall’s email were emailed by Stathopoulos.  Offer 3 was in substance: the property to be purchased was 343 McGlone Road including the 1 acre lot improved by the vendor’s house; the price was $9m. payable as to $1.8m. on execution and the balance on 1 September 2021; it included a condition requiring the purchaser to pay $10,000 to cover the costs of contract preparation, refundable if the vendor did not execute the contract of sale and non-refundable if the purchaser did not execute it.
  • On 9 April Stathopoulos advised Schnall that his details were as on the First Contract, ie “George Stathopoulos and or nominee”.  Stathopoulos alleged that later that day Shnall contacted him, saying that he was with the vendor at her house, and that she accepted offer 3 for both Lots 1 and 2 and Schnall said:

“he would draw it up and get [the first defendant] to sign it, and that he would then meet me to get me to sign it.  He also told me that [the first defendant] wanted $20,000.00 for the contract preparation costs, which I communicated that I agreed to, to Mr Schnall, while he was in [the first defendant’s] presence.  In response to this, he then informed me that [the first defendant] said ‘Congratulations!”

  • On 9 and 10 April 2020 the parties respectively signed a short document headed ‘Offer to Purchase – Key Terms and Conditions’, which Stathopoulos alleged was the “Second Contract”.  Its substantive terms included: the “Properties” were both Lots; the price was $9m. payable as to $1.8m. “on the execution of the Contract of Sale” and the balance on 1 September 2021; “Contract  This offer is subject to the purchaser and vendor executing a legally enforceable Contract of Sale”; “Exclusivity  The vendor confirms that they will immediately upon acceptance of this offer cease any other negotiations and will not start any new negotiations in respect of the property [whilst] contract negotiations with the Purchaser are underway”; “Contract Preparation Payment” being in substance as in Offer 3 with the amount increased to $20,000; a term imposing confidentiality on the vendor.  The vendor signed this document under the words, headed “Acknowledgment by the Vendor”, “I, the undersigned, agree to the above-mentioned purchase details, key terms and conditions”.
  • Stathopoulos deposed that between 12 and 29 June 2020 the vendor congratulated him on completing the deal, enjoyed discussing his development plans, stated that she was particularly happy that the Precinct Structure Plan allowed for a school to be part of the development, and on 23 June said that she would tell her solicitor Mr Bridge to “hurry up” with the contracts and send them to him.
  • On 24 June the vendor emailed Stathopoulos that she had forgot to mention that she wanted the contract to include terms permitting her to continue living in the house for a year after settlement rent free and requiring him to pay rates until settlement.  Stathopoulos deposed that later that day he told Bridge that he agreed to these requests and that the vendor wanted Bridge to “hurry up” with issuing the contracts (Bridge replying that he knew what she wanted), and that in answer to Bridge’s question he confirmed that his details were the same as in the First Contract.
  • On 30 June 2020 the vendor’s solicitors emailed Stathopoulos stating –

“The Vendor Statement and Contract of Sale are ready to be finalised.
In order to proceed, can you please provide me with your full name and/or entity purchasing the property and your lawyer details.”

Stathopoulos replied “I am waiting on a GST ruling from the ATO”.

  • In April 2021 a dispute erupted between Stathopoulos and the vendor’s solicitors as to whether any contract existed.  Stathopoulos had not by this time paid the $20,000 for preparation of the contract.
  • In May 2021 the vendor entered a contract to sell Lot 2 to another purchaser due for settlement in May 2023.  In March 2022 Stathopoulos caveated over the land described in the Second Contract claiming an equitable estate in the land as purchaser.  The vendor applied under s. 89A(1) for removal of the caveats and in due course Stathopoulos gave notice to the Registrar of commencing this proceeding for specific performance of the alleged Second Contract.  The vendor counterclaimed seeking removal of the caveats.  She also issued a Summons seeking summary dismissal of the proceeding.

Barrett AsJ dismissed the application for summary dismissal, holding –

  1. There was a real question to be tried whether the Second Contract was a binding agreement, and the plaintiff had a real not merely fanciful prospect of success. While there was force in the argument that the facts fell within the third category of Masters v Cameron  it was open to the plaintiff to argue that the words “subject to contract” were not decisive and that circumstances both before and after the alleged contract supported its existence.  Consideration of those matters would probably involve consideration of the parties’ relationship through negotiations and at least one signed contract and of discussions post-dating the alleged Second Contract.  Further what occurred in the lead up to the signing of the Second Contract, including the dealings of the parties with Schnall, was somewhat obscure and could be relevant to questions of agency and attribution of knowledge.  Finally, immediately before Schnall took the four offers to the vendor he stated that he looked forward “executing this deal for you … next week” and shortly after this the vendor signed a document in which she agreed “to the abovementioned purchase details, key terms and conditions”.   The terms of the alleged Second Contract headed “Exclusivity” and “Contract Preparation Payment” did not detract from the conclusion that there was a real question to be tried whether the Second Contract was a binding agreement. [37], [50], [51]
  2. Section 126 of the Instruments Act required that the agreement on which the action was brought, or a memorandum or note of the agreement, was in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note. The vendor carried the onus of establishing non-compliance with s. 126.  If Schnall was acting as her agent then it was arguable that, on 9 April 2020, she by her agent received the four offers under cover of an email that specifically identified the plaintiff as the purchaser.  There were significant questions whether the Second Contract contained a sufficient description of the purchaser, either directly by reason of Stathopoulos’ signature, or by the description as purchaser, or having regard to extrinsic evidence that accompanied the four offers, or other evidence.  On this the plaintiff had a real as opposed to fanciful prospect of success and that there was a real question to be tried. [54], [59], [65]
  3. As the question involved an interest in land the balance of convenience favoured the status quo. [52]
  4. Accordingly the caveats would remain. [67]

Barrett AsJ set out at length the law related to: contractual construction including the admissibility of post-contractual conduct ([35], [45]); the Masters v Cameron categories ([36]); and the Instruments Act s. 126 ([55], [58], [60]-[63]).

Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, August 8, 2023

 

Blog 74. Leave to appeal against Blog 65 refused

Dolan v Dolan [2023] VSCA 136, Court of Appeal.

In this case the Court of Appeal refused leave to appeal from the decision of Ierodiaconou AsJ ([2022] VSC 543) the subject of Blog 65.   The Court of Appeal decision is particularly helpful because the court summarises a number of basic caveat litigation points arising under the TLA s. 90(3), namely:

  1. An application under s. 90(3) is interlocutory in nature, requiring application of the two-stage test of serious question to be tried and balance of convenience, not ordinarily requiring final determination of disputed factual issues or claims, and not giving rise to an issue estoppel or res judicata (although an application under s. 90(3) may amount to an abuse of process).
  2. Where an arguable case is established the caveator is generally required to commence a proceeding with a Writ and pleadings.
  3. As to admissibility of evidence.
  4. That an order removing a caveat to permit sale, with part of the sale proceeds being held on trust pending final determination of the dispute, may be appropriate where the caveator was not in possession or where the claimed interest conferred no possessory right, but may be inappropriate where the claimed interest, of which there was a serious question to be tried, conferred possessory rights or represented the whole or a substantial proportion of the beneficial proprietary interest.

It is helpful first to set out the original decision, commencing with the facts particularly relevant to the appeal –

  • In about 1998 the first defendant (Christine) and other persons purchased land at Lorne (the parent title) for $105,000 with Christine being registered as to a half interest.   They agreed to subdivide it into two blocks, with her taking one.  She deposed that she contributed $52,500 towards the purchase.  The plaintiff (Shannan), who was Christine’s daughter, deposed that she (Shannan) contributed $20,000 towards the purchase.
  • Due to her age and income Christine could not obtain a loan to fund construction of a house.   However, a Bendigo Bank employee advised that if she transferred her interest in the parent title to Shannan an acceptable loan could be secured in Shannan’s name.  Christine deposed that Shannan accepted her proposal to make this transfer so that Shannan could obtain a loan on Christine’s behalf, but that both before and after subdivision she (Christine) would continue as beneficial owner, and that Shannan also accepted other proposed terms relating to the transfer.  Shannan denied accepting this proposal.
  • In 2001 Christine transferred her moiety in the parent title to Shannan, the consideration stated in the Transfer being as “An Agreement to Transfer”.   Following subdivision, one block (the property) was transferred to Shannan, the consideration in that Transfer being stated as “In pursuance of an Agreement between the Transferors for partition of the said land …”, and Shannan in 2003 became registered proprietor of this block.  The bank established a loan account in Shannan’s name with an overdraft limit of $140,000 secured by a mortgage.
  • Christine deposed that the costs for acquisition of the parent title and construction and fit‑out of the house were funded primarily from her personal resources and from the loan account, Shannan only contributing about 7% of overall build costs.   Christine also deposed to making mortgage repayments and that she paid all outgoings including council rates, home insurance, and for maintenance and improvement.  Shannan deposed that the overall build costs were largely drawn down from the loan account, that from 2004 to 2006 she made loan payments, and that Christine did not use her personal resources to fund overall build costs.
  • Upon completion of the house in 2003/2004 Christine, Shannan, and another family member took up residence.  Shannan left in 2006.  In 2021 Christine caveated on the ground of ‘implied, resulting or constructive trust’.  Shannan applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

Ierodiaconou AsJ dismissed the application, holding –

  1. There was a serious question to be tried that Christine was the beneficiary of a common intention constructive trust (she alleged as to 93% of the equitable title). This was supported by: her deposing to the required common intention or agreement; reference to an agreement in the Transfer (her Honour appears to state in the Transfer to Shannan of the subdivided block, but quaere this is a slip for the Transfer to Shannan from Christine); and Christine’s contribution to loan repayments.  Moreover, it appeared to be common ground that Christine contributed most of the purchase price of the parent title and that for many years she made payments into the mortgage loan account and resided on the property.
  2. There was a serious question to be tried that Christine was the beneficiary of a resulting trust (she alleged as to 65% of the equitable title) arising from her contributions to the purchase price of the parent title and to construction and fit-out.
  3. The balance of convenience favoured maintenance of the caveat because of: Christine’s long residence; her age being elderly; evidence of her investing her life savings into the property; the fact that Shannan proposed to sell the property with vacant possession with only $20,000 from the net proceeds being distributed to Christine pending resolution of the dispute; Christine’s claim of a substantial interest in the property; and Christine’s inability to buy another property or rent one in Lorne.  Any hardship for Shannan could be met by Christine’s undertaking to maintain mortgage and property expense payments, which would maintain the status quo of many years, and Christine being required within 7 days to commence a proceeding to establish her interest in the property.

The Court of Appeal refused leave to appeal, holding –

  1. The decision at first instance was discretionary and to impugn it the applicant must establish an error of a kind explained in House v The King (1936) 55 CLR 499. [83]
  2. The proposed ground of appeal that the Associate Judge had conducted a “trial” of the Originating Motion (without the applicant being aware of it) and had not just heard the Summons, whereby the final orders created an issue estoppel or res judicata that Christine had a caveatable interest, was misguided and a distraction. The true issue was that the nature of the order made, ie to refuse to order removal of the caveat, reflected in the conclusion in the order dismissing the summons, was interlocutory in nature, in the sense that it did not finally determine any rights in the property.  It was interlocutory because the relief sought was under the Transfer of Land Act s. 90(3) requiring the caveator to establish a serious question to be tried of an estate or interest in the land and that the balance of convenience favoured the maintenance of the caveat until trial.   An application for removal of a caveat did not ordinarily present an occasion for the final determination of disputed factual issues or claims.  Not only was it usual for an application under s. 90(3) to be by Summons or Originating Motion, and for it to be determined by the two-stage test, but where an arguable case was established the caveator was generally required to commence a proceeding to have the claim to an interest in the land determined in a properly constituted suit with a Writ and pleadings.  An Originating Motion was ill-suited to such a dispute and there may be no utility in keeping it on foot. [47]-[55]
  3. The Associate Judge had applied these principles. She had not determined whether the applicant had any equitable interest in the property, but done no more than dismiss the Summons.  No issue estoppel or res judicata [56], [57], [60], [61]
  4. However, in the absence of a relevant change in circumstances, an application to remove the caveat may be an abuse of process. [62]
  5. The submission that the Associate Judge was not entitled to rely on matters stated in a draft Statement of Claim exhibited to and repeated in a paragraph of an affidavit, and in particular the pleading of an agreement between Christine and Shannan, was rejected. The fact that a paragraph in an affidavit was in the same form as a pleading was inconsequential.  Admissibility of the paragraph was determined by reference to the Evidence Act 2008.  Although the form of the paragraph was open to the criticism that it was conclusionary it was admissible because the evidence was relevant and on its face came from the deponent’s personal knowledge.  The evidence was capable of reasonably bearing upon whether there was a triable issue of an agreement or understanding reflecting a common intention as to the beneficial ownership of the property.  The other evidence of an agreement included the change in title, the payment by Christine of part of the purchase price of the parent title and construction costs, and the fact that she continued to occupy the property without paying rent.  In any event, counsel had conceded before the Associate Judge that he was ‘not going to argue that there isn’t a prima facie case here in relation to the caveat’. [65], [71]-[75]
  6. The proposed ground of appeal that the Associate Justice should have determined that at best Christine was entitled to a lesser equitable remedy, ie an order requiring Shannan to hold some of the sale proceeds on trust pending final determination of the dispute, was not established. The Associate Justice was correct in concluding that Christine had raised a serious question to be tried that she held a beneficial interest in the property.  As to the balance of convenience, the caveat itself did not confer any rights on Christine to occupy the property for the purpose of the caveat nor (although likely to affect the ability to sell and price) prevent sale. [42], [84]-[89]
  7. In considering whether the balance of convenience favoured the retention of the caveat, it was necessary to consider the nature of the claimed interest and what the caveat was designed to protect. In cases where the caveator was not in possession or where the claimed interest conferred no possessory right, the claimed proprietary interest may be adequately protected by removing the caveat, allowing the property to be sold and, by orders or undertakings, for the proceeds or part of them to be secured until the respective interests in the property can be determined.  Conversely, where the claimed interest conferred possessory rights or represents the whole or a substantial proportion of the beneficial proprietary interest, it may be appropriate to maintain the caveat and so not alter the registered title pending trial.   In this context two points required examination –
    1. Did the interest claimed by Christine give her a possessory right to the property? On her primary case, she claimed to own 93% of the beneficial interest based on a common intention constructive trust. She had also been in possession since the construction of the house.  In those circumstances it was arguable that the equitable interest would follow the legal interest and give her a right to possession. Alternatively, establishment of her right to equitable relief may arguably also found an order restraining Shannan from evicting her.
    2. In her draft pleading and in her submissions at first instance Christine accepted that the property should be sold but only after determination of the respective equitable interests. Shannan’s submission that, in circumstances where both parties sought sale and distribution of proceeds, it was (necessarily) wrong for the caveat to remain was invalid.  It was open to the Associate Judge to conclude that the caveat should not be removed before the determination of equitable interests because the practical effect this would be a sale and transfer of title with the real risk of an order for possession against Christine.  Christine’s ability to secure alternative accommodation was heavily dependent on her knowing the extent of, and being able to realise, any interest she may have in the property, accordingly the status quo plainly favoured retention of the caveat.  And if Christine was successful on her primary claim and Shannan has no more than a 7% beneficial interest Shannan’s interest may possibly be satisfied without sale.  [90]-[93], [96]-[99]
  2. The Associate Judge was alive to possible prejudice to Shannan from maintenance of the caveat including exposure to mortgage repayments. She correctly decided that the undertakings proffered by Christine to pay certain amounts were adequate to meet any prejudice.  An application to lead fresh evidence to the effect that the mortgage had been in arrears was refused. [100], [102], [103]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 25, 2023

 

Blog 73. Appeal against Blog 63 allowed.

Hooper v Parwan Investments Pty Ltd & Anor (recs apptd) [2023] VSC 227, Forbes J.

This case was an appeal from the decision of Matthews AsJ ([2022] VSC 285) noted in Blog 63.  Before considering Forbes J.’s decision it is helpful to repeat the gist of the original decision commencing with the facts relevant to the appeal –

  • In 2015 Parwan Investments (Parwan) entered a contract to purchase a residential property (the Property) with funds obtained from a bank pursuant to a loan agreement with a facility amount of $850,000. On 16 December 2015 it became registered proprietor of the Property subject to a registered mortgage securing the loan.
  • On 21 October 2016 Parwan and the plaintiff (Hooper) entered into a contract of sale of part of the land (Purchased Area) for $900,001, with settlement due on 21 March 2018 unless the Purchased Area was a lot on an unregistered plan, in which case settlement was due on the later of 21 March 2018 or 14 days after notice of registration of the plan. Special Condition 7.1 of the contract made settlement conditional on Parwan subdividing the Property within 18 months from the day of sale and required that it use its best endeavours to achieve this.
  • The contract of sale also provided that it was subject to a lease between Parwan and Hooper. That day Parwan agreed to lease the Purchased Area to Hooper for 24 months and thereafter, unless terminated in accordance with the Residential Tenancies Act, to continue as a periodic tenancy.
  • In 2017 Hooper caveated over the Property claiming an interest as purchaser under the contract of sale.
  • In 2018 Parwan executed a deed of charge in favour of Hooper creating an equitable charge over the Property securing payment of $350,000, said to reflect the value of Hooper’s improvements to the Property. In 2018 Hooper caveated over the Property claiming an interest as chargee based on this document.
  • On Parwan falling into default of mortgage repayments the bank in 2020 appointed receivers of the Property. Thereafter Parwan acted through the Receivers.  In 2021 the Receivers applied to the Registrar of Titles under the Transfer of Land Act s. 89A for a lapsing notice to remove the caveats.
  • Subdivision had not occurred. The bank and Receivers did not consent to sale of the Purchased Area to Hooper.  As at 3 December 2021 the mortgage debt was over $1.1m.
  • Hooper commenced a proceeding seeking specific performance of the contract of sale and certain declarations. Parwan filed a Defence and Counterclaim.  Parwan also issued a Summons applying for summary judgment under the Civil Procedure Act ss. 61, 62 and 63 on certain aspects of its pleading, which effectively mirrored the relief sought by Hooper, seeking a declaration concerning the lease, and alternative relief in the form of removal of the caveats.

Relevantly Matthews AsJ held –

  1. The Receivers had standing to counterclaim and press the Application contained in the Summons in the name of the registered proprietor Parwan.
  2. Although the contract of sale was binding Hooper’s claim for specific performance turned on whether the Property could be subdivided and on whether the sale could be settled given the bank’s attitude and in particular whether it would discharge its mortgage.
  3. As to whether the Property could be subdivided the weight of evidence was that because the Receivers and the bank did not consent to the sale Parwan was unwilling to, and could not effect, subdivision or transfer whereby it refused to perform its contractual obligations. In such circumstances the remedy of specific performance would probably require supervision by the court, which was usually a reason not to grant specific performance.  Further even if Parwan took steps towards subdivision, its achievement was outside its control.
  4. As to the bank’s attitude, Parwan could not deliver clear title to Hooper by redeeming the mortgage, which had priority over Hooper’s interest as purchaser and the mortgage debt now exceeded the purchase price.
  5. When the foregoing barriers, particularly impossibility of settlement because the mortgage would not be discharged, were combined there was no real prospect of Hooper obtaining specific performance.
  6. There was a prima facie case of the interest claimed in the purchase caveat. On the balance of convenience –
    1. neutral factors were: (a) that, although the bank desired sale, no contract of sale to a third party yet existed; (b) Hooper’s claim that he remained in possession of the Purchased Area, which in light of the evidence was questionable; (c) possible VCAT enforcement proceedings by the local municipality, on which there was a paucity of evidence; (d) Parwan’s offer to pay the net proceeds of sale into court or a trust account pending determination of Hooper’s claims.
    2. Hooper’s proposed undertaking to pay the difference between the price for the Purchased Area and the mortgage debt did not affect the balance of convenience because it was ambiguous and failed to articulate relevant factors including Hooper’s capacity to pay.
    3. However, the balance of convenience favoured removal of the caveat because of strong evidence of fundamental barriers to specific performance (and so any remedy for breach of contract would be for damages in lieu of specific performance).
  1. Although there was a prima facie case of the interest claimed in the charge caveat Hooper would retain the protection of the charge even without the caveat, there being no evidence that it could not be satisfied out of net proceeds remaining after payment under the bank’s mortgage. Accordingly, the balance of convenience overwhelmingly favoured removal of this caveat on condition that the net proceeds of sale were paid into court or a trust account.

On appeal Forbes J. held –

  1. As the appeal was from a discretionary judgment the principles of House v The King (1936) 55 CLR 499 applied. [62]
  2. The grant of summary judgment was attended by error in the finding that relief in the nature of specific performance had no real prospect of success. In particular –
    1. As to whether the Property could be subdivided, the contractual requirement to subdivide to create the Purchased Area did not, as a matter of principle, render specific performance unavailable and was as a matter of fact contested. It was for Parwan to show that the Melton Planning Scheme did not permit such subdivision and it had not led evidence (only assertion) on this.  The evidence rose no higher than that it had taken no step to subdivide and was refusing to do so (submitting it would be futile because of the bank’s intention to withhold consent), demonstrating only a breach of contract.  Although Parwan’s unwillingness to commence these steps was a significant barrier to settlement this was irrelevant to whether subdivision could occur – Parwan could not rely on its own non-performance as a barrier to specific performance.  Caution in concluding that subdivision could not occur was dictated by both the factual contest on this question and the discretionary nature of the relief sought, especially given the absence of evidence before the court.
    2. The proposition that Hooper lacked a real prospect of obtaining specific performance because of the bank’s refusal to consent to the sale unless its mortgage was discharged, because the sale proceeds of the Purchased Area would be insufficient for discharge, was based on the false premise that these proceeds were the only means of discharge. However, the mortgage was secured by the whole of the Property. [82]-[84], [87]-[95]
  1. The orders removing both caveats under s. 90(3) of the Transfer of Land Act were not rendered erroneous by the fact that the Summons did not seek this relief. The manner in which the hearing was conducted made it clear that these orders were sought to enable Parwan to sell the Property.  The absence of an originating procedure specifying relief pursuant to s. 90(3) was explicable by Hooper’s proceeding seeking declaratory relief, the effect of which would be to maintain the caveats. [98], [99]
  2. The only issue for Matthews AsJ to consider was where the balance of convenience lay in maintaining or removing the caveats. The factor most influencing her Honour, and indeed the only factor weighing against removal, was her conclusion that the contract was not specifically performable, notwithstanding that the validity of the contract of sale was to be determined at trial. [97], [100]

Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, June 21, 2023

Blog 72. Caveat lapses under Section 89A(5) but caveator obtains injunction

Luna v V & A Luna Pty Ltd & Anor [2023] VSC 126 (22 March 2023), Derham AsJ.

This case is interesting for disparate reasons.  First it affirms that the time for a caveator to give notice under the Transfer of Land Act s. 89A(3)(b) to the Registrar of Titles that proceedings had commenced is strict.  Secondly it shows that the erstwhile caveator may still be able to obtain an injunction having similar effect to the caveat (albeit at the price of an undertaking as to damages).  Thirdly, evidence of the agreement or understanding underlying an alleged constructive trust being weak, his Honour reflected –

“At present, the agreement or understanding, or even assumption, upon which Pasquale provided this assistance is not fully spelled out in his evidence.  But I remind myself after long experience of Australians of Italian origin, that a patriarchal feature of their family arrangements often results in the father, and perhaps the mother as well, holding the family’s wealth either personally or through companies and trusts, with the intention of sharing that wealth either equally or according to the deserts of the members of the family who have contributed to it.”

The Transfer of Land Act s. 89A provides –

(1) … where a recording of a caveat … has been made … any person interested in the land affected thereby … may make application … to the Registrar for the service of a notice pursuant to subsection (3).
…
(3) Upon receiving any such application … the Registrar shall give notice to the caveator that the caveat will lapse … on a day specified in the notice unless in the meantime either—

…
(b) notice in writing is given to the Registrar that proceedings in a court or VCAT to substantiate the claim of the caveator in relation to the land and the estate or interest therein in respect of which the application is made are on foot.

…
(5) Upon the specified day, unless—

…
(b) notice in writing has been given to the Registrar that proceedings as aforesaid are on foot—

the caveat shall lapse …

The facts were –

  • The first defendant (the company) was the registered proprietor of a 20 acre farm at Wollert.  In 2018 the plaintiff (Pasquale) caveated claiming a freehold estate in it based on an implied, resulting or constructive trust.
  • On about 12 December 2022 Pasquale received a notice under s. 89A(3) dated 8 December stating that the caveat would lapse on the first moment of 17 January 2023 unless before that date he gave notice satisfying the requirements of s. 89A(3).
  • The solicitor for Pasquale deposed that on 16 January she telephoned the Land Registry Services – Secure Electronic Registries Victoria (SERV) and was informed by Tiffany in the specialist registration team that, notwithstanding the clear terms of the notice, the final day to respond to it was 17 January.
  • On 17 January (after the first moment) the solicitor filed a generally indorsed Writ and the notice under s. 89A(3)(b) was given.  The basis of the claim as indorsed (observed by his Honour to “have only a slight conformity with the facts as later revealed”) was largely related to an alleged partnership between Pasquale and his late parents Arturo and Vincenza.  Pasquale’s brother, the second defendant (Antonio), was sued as executor of their estate.
  • On 18 January the solicitor was informed by an employee of SERV that the caveat had lapsed.
  • On 23 January 2023, Pasquale issued a Summons.  The Summons sought, first, a declaration that the notice under s. 89A(3)(b) filed on behalf of Pasquale was valid and substantiated his interest in the land and so remained in force, alternatively that 50% of the net proceeds of any sale be held for his benefit pending the determination of the proceeding.
  • On 24 January a judge granted an interlocutory injunction in substance enjoining the defendants from dealing with the land pending final hearing and made further directions.   After the hearing the solicitor for the defendants informed the plaintiff’s solicitors and the court by email that the land had been sold pursuant to a contract of sale some time ago, but that completion of the sale was 24 months hence.
  • Shortly before the hearing on 17 March (see below) the plaintiff’s solicitors learnt of transactions which they alleged were in breach of the injunction, in particular a mortgage and issue of a new electronic title with different title particulars.  The plaintiff filed a Summons seeking that the defendants be dealt with for contempt of the January Order.
  • At that hearing before Derham AsJ on 17 March counsel informed his Honour that the land had been sold by a contract dated December 2022 for about $15 m.  This apparently required a mortgage to be lodged with a countervailing Bank Guarantee to secure the sale.
  • Pasquale deposed in substance that:
    • he worked with his parents from the time of a partnership in a delicatessen in 1969 to build their wealth for the benefit of the whole family. His contributions over the years enabled his parents to acquire properties that ultimately fed the purchase price of the land.  In 1989 he arranged for a family trust to be established with the company as trustee, being a discretionary trust of which the primary beneficiaries were Arturo and Vincenza.  Thus, his efforts and work over a lengthy period contributed indirectly to the purchase price of the land in 1989 and those contributions were made either (not fully spelled out) with the agreement, or on the understanding, that he would share equally with the other members of the immediate family in the wealth accumulated.
    • he contributed directly both his labour and money in establishing a house on the land, and maintaining it, on the assumption that he would retain an equal share in the ultimate wealth created through his and his family’s efforts.
  • Antonio filed an affidavit substantially disputing Pasquale’s affidavit.  This included that Pasquale had been made bankrupt (in fact in 2003) and discharged in 2006.

Counsel for Pasquale submitted inter alia that: it was reasonable for Pasquale’s solicitors to rely upon the representations of Tiffany in lodging the material required by s. 89A(3) on 17 January 2023; the Registrar should be estopped from lapsing the caveat; the court had an inherent jurisdiction to make orders ‘voiding the lapsing of the caveat’.

Derham AsJ in substance continued the injunction (while altering its wording), holding –

  1. The caveat lapsed at the commencement of 17 January 2023 by reason of the operation of s. 89A(3) and (5). The court had no power to reverse this. [15], [49], [55], [56]
  2. The evidence in support of the plaintiff being the beneficiary of a constructive trust of the land was, at present, rather frail and somewhat sketchy: the prima facie case was not strong. It sufficed, however, that the plaintiff show a sufficient likelihood of success that in the circumstances justified the practical effect of the injunction on the defendants.  His Honour doubted as a matter of principle the defendants’ argument that the plaintiff could not take an interest pursuant to a constructive trust where he was also a beneficiary of the family trust: if it was unconscionable in the circumstances for the trustee of the family trust to deny that he had a proprietary interest in the land, why would his being a beneficiary of that trust, particularly one with no vested interest in its assets, be a barrier?   This argument required further elucidation. [26], [75], [77]
  3. With respect to the plaintiff’s bankruptcy and the possibility that his interest in the land had vested in his trustee in bankruptcy, it would be in the parties’ power to inform the trustee and give him an opportunity of being joined as a party. It was not, in his Honour’s preliminary view, satisfactory for the defendants to use this vesting as a defence without joining the trustee as a party. [76]
  4. On the balance of convenience, in the current circumstances where the plaintiff’s proof of his rights was not strong, an interlocutory injunction may be granted because to withhold it would do him irreparable harm while (the contract of sale having a 24 month settlement date) to grant it would not greatly injure the defendants. Maintenance of the status quo would not harm the defendants but to deny the injunction could injure the plaintiff by denying him protection against dissipation of the value of the land. [78]
  5. The further continuation of the interlocutory injunction would be subject to the plaintiff complying with the requirement to file further evidence in support of his claim. [79]

Philip H. Barton
Owen Dixon Chambers West
Thursday, April 20, 2023