Blog 48. On being charged $11,828 for the “experience” of applying for a loan.

Skymation Pty Ltd v ALS342 Pty Ltd& Anor [2021] VSC 386 (20 July 2021), Daly AsJ. concerns a caveat based on a term in a contract constituted by a letter of offer of a loan.  The loan never proceeded but to the surprise of the registered proprietor the caveator claimed certain preliminary expenses, a solicitor asserting “your client cannot decide not to lend the money then charge our client $11,828.00 for the experience”.  Reading this case stirred my memory of reading a Victorian decision about 15 years ago in which a financier was attempting to recover its “up front” funds for another abortive loan.  I remembered the name of counsel, David Robertson QC, and he said it was Gippsreal Ltd v Kurek Investments Pty Ltd [2006] VSC 115 at first instance and Gippsreal Ltd v Registrar of Titles (2007) 20 V.R. 157, [2007] VSCA 279 on appeal.  He said that the successful argument for the “borrower” in that case was that the contract contained so many possible let-outs for the financier that the consideration provided by it was illusory.

Skymation also concerns whether a nominee “lender becomes a party to the contract of loan.  By contrast Blogs 8 and 28 concern caveats lodged by a purchaser who had nominated a substitute purchaser.

The facts were –

  • The plaintiff (Skymation) was the registered proprietor of a property in Toorak.   Its director (Negri) had a long-running dispute with his son Richard about control of Skymation and beneficial ownership of the property.   Richard had been a director and secretary of Skymation, then resigned, then in 2019 clandestinely removed his parents and appointed himself director and secretary.   This was rectified but in the words of Daly AsJ he did not “resign”.  Richard also caveated over the property in February 2020, which caveat a judge on 15 September 2020 directed him to remove.
  • Negri enquired of a company (Assetline) about Skymation borrowing $400,000 secured by the property.  On 18 September 2020 he received a letter of offer from Assetline.  Later that day he executed and returned the Borrower Declaration included in the letter of offer with a non-refundable payment of $2,860.   The letter of offer was executed by directors of the first defendant (ALS342) and by Negri as the director of Skymation and as guarantor.
  • The letter of offer included:
    • “Assetline Investments Pty Ltd and/or its designated nominee (Assetline or Lender) are pleased to advise you that your application for finance has been approved on the terms detailed within this Offer Sheet and the attached Offer Terms.”;
    • Under the heading “Parties”: “Lender(s) Assetline Investments Pty Ltd and/or its designated nominee”;
    • Under the heading “Security”: “Other Security Such agreements, certificates and acknowledgements, securities and other documents as we or our solicitors may reasonably require”;
    • In the Offer Terms: “Any reference to “we”, “us” and “our” means the Lender”. The rest of the Offer Terms used the first person plural to describe the Lender;
    • That the Lender would instruct the solicitor to prepare and issue loan documents after the valuation and due diligence were completed;
    • That the Lender could withdraw from the proposed loan without liability;
    • Under cl. 25, that if Skymation withdrew from the proposed loan it was liable to pay what is referred to below as the ‘secured sum’, a charging clause attaching to this. The Lender was permitted to lodge a caveat to secure its interest as chargee over any real property owned by Skymation or Negri.
  • A director of ALS342 deposed that upon receipt of the executed letter of offer he instructed solicitors to prepare the loan and security documents.  On 25 September the solicitors provided a letter and these documents.  This letter described the lender as ALS342.
  • This letter also enclosed a “Checklist of required settlement documents” which included: a statutory declaration from Richard enclosing a certified copy of the executed company minutes of meeting resolving that he had resigned from Skymation and a resignation letter executed and dated by him.
  • On 30 September ALS342 lodged a caveat imposing an absolute prohibition on dealings and claiming an interest as chargee pursuant to an agreement dated 18 September 2020.
  • Negri could not obtain the resignation letter from Richard, no money was lent and the security documents were not executed.
  • In November ALS342’s solicitors wrote claiming $11,828.00 (‘secured sum’) comprising a legal fee, a 50% establishment fee and a costs of fund fee.  Skymation’s solicitors replied that:
    • ALS342 had not advised Skymation that documentation was required from Richard after completing its due diligence, and it should not have instructed preparation of loan documentation if unsatisfied with the due diligence;
    • Skymation had not withdrawn from the loan, rather ALS342 had decided not to provide it because of its insistence on documentation from Richard.  It could not do this and then “charge our client $11,828 for the experience”.

Skymation commenced this proceeding under the Transfer of Land Act s. 90(3) to remove the caveat.  ALS342’s director deposed that the proposed loan did not proceed because of the matters referred to in solicitors’ correspondence and because the security documents were unexecuted.  Negri deposed that Skymation desired to sell the property.  Skymation argued that it had no contract with a caveator and if there was a contract it did not owe the caveator anything.

ALS342 applied for leave to amend the caveat: to state the date of its interest as being 25 September 2020, and; if the court held that it had no rights, but Assetline did, to name Assetline as caveator.

Her Honour removed the caveat, holding –

  1. Where a contract permitted a party to nominate another party in substitution for the original contracting party, the substituted party did not acquire the rights and obligations of the original contracting party absent “compelling language” in the relevant agreement. Thus on the one hand in one previous case reference to “and/or nominee” in a contract of sale of shares was construed not to permit the substitution of another person as a purchaser, but on the other hand in another case a nomination clause in a contract of sale of land was construed as rendering the nominee as the purchaser, ie to effect a novation of the agreement, the vendor having known of the intended nominee before the contract was made.  [31]-[35]
  2. There was a prima facie case that the caveator was a party to the loan contract, by reason of the nomination clause in the letter of offer, and as such had assumed the rights and obligations of Assetline under the Offer Terms, because –
    • although the letter of offer referred to Assetline in the singular tense, there was a reference to Assetline’s “designated nominee” and repeated references to the lender’s obligations and rights using the first person plural;
    • of general commercial practice in the finance industry and the nature of the transaction;
    • of evidence that Skymation consented to this. [28], [43], [44]
  1. It was doubtful whether Skymation was indebted to ALS342 because –
    • the instructions to the solicitors to prepare the security documents may well have been premature because the checklist included documents which might ordinarily be required as part of a due diligence process (but, that said, cl. 14.1 of the Offer Terms may amount to Skymation’s agreement to immediately authorise ALS342 to instruct its solicitors to prepare the security documents before completion of due diligence);
    • it was at least arguable that ALS342 withdrew from the proposed loan. [28], [45]-[48]
  1. The balance of convenience favoured removal of the caveat.   In favour of the caveator was no sale being imminent and reduction in its ability to recover the alleged debt.  This was, however, outweighed by: Negri’s intention to sell; the impact of the caveat on prospective purchasers; the guarantor (ie Negri) being a man of substance; real doubt about the existence of the debt, and; because the charging clause permitted ALS342 to caveat over other property of Skymation or Negri. [28], [49]-[51].
  1. If it had been necessary to decide the matter leave would only have been granted to amend the caveat to substitute 25 September 2020 as the agreement date. [28], [52]

 

     Philip H. Barton

     Owen Dixon Chambers West

     Tuesday, September 28, 2021

Blog 45. Getting your priorities straight.

This Blog deals with two recent caveat cases also involving priorities between interests in land, one simple, one complex. 

In Capital One Securities Pty Ltd v Lesic & Anor [2020] VSC 781, Ginnane J, 13 November 2020, the facts were –

  • Vongsa and Suzana Soch were registered proprietors of a property subject to a first mortgage to a bank and a second mortgage to the plaintiff securing a claimed debt of about $149,000.
  • A mortgagee’s auction had occurred.  The sale was not yet completed.
  • On 27 March 2020 the first defendant lodged a caveat claiming an implied resulting or resulting trust.  On 29 October 2020 he obtained a County Court judgment for $349,163.62 against Vongsa Soch for default in making discovery and in not attending a mediation, including a declaration that he had an equitable interest in the property and was entitled to maintain a caveat over the title. 

The plaintiff applied under the Transfer of Land Act s. 90(3) to remove the caveat.  Its director deposed to loan advances and that it would suffer a shortfall at settlement of the sale.   Ginnane J. removed the caveat and ordered the first defendant to pay costs on a standard basis.  Although there was a prima facie case that the first defendant had an equitable interest in the land, the plaintiff’s interest as second mortgagee had priority and the balance of convenience favoured removal of the caveat because it was impeding settlement of the mortgagee’s sale.

Roberts Gray Pty Ltd v Brunner & Ors [2021] VSC 76, Daly AsJ, 9 March 2021.

The facts were –

  • The first defendant (Brunner) owned a disused mining site at Yandoit Creek Road Franklinford worth about $320,000 (‘the land’). 
  • In 2016 a company (‘Vesterdix’) entered a rental agreement with TL Rentals Pty Ltd (‘TL Rentals’).   Brunner guaranteed Vesterdix’s obligations and as security agreed to mortgage the land to TL Rentals.  On 30 March 2017 TL Rentals caveated over the land based on this mortgage.  Vesterdix subsequently defaulted and TL Rentals eventually claimed a debt of about $96,000. 
  • On 11 April 2017 the fourth defendant (‘PG Walton’) registered a mortgage over the land to secure a short term advance. 
  • On 23 June 2017 it was agreed between the third defendant (Kellam) and Brunne that Kellam lend Brunner $30,000 and Brunner charge any freehold land he owned in favour of Kellam (‘June 2017 agreement’).  A copy of this document was in evidence but there was no direct or documentary evidence of the actual advance of monies.
  • Kellam also alleged that in August 2017 he acquired the debt (then standing at $188,065.50) and first mortgage held by PG Walton and made a further advance to Brunner.  There was, however, no direct or documentary evidence of payment to PG Walton.   However, PG Walton’s solicitors subsequently sent to Kellam’s solicitors the certificate of title and a discharge of its mortgage.  Kellam did not lodge these documents for registration. 
  • On 26 September 2017 Brunner executed a mortgage in favour of Kellam (‘Kellam mortgage’) under which Brunner promised to pay the mortgagee on demand all moneys owing by the mortgagor to the mortgagee including the moneys under a loan agreement between the parties executed that day.  However, no loan agreement was in evidence other than the June 2017 agreement.   There was no direct evidence of the sums secured and conflicting evidence about the size of the mortgage debt. 
  • From 2016 to 2018 the plaintiff (Roberts Gray), whose principal was Roberts, acted for Brunner including in a Family Court proceeding fixed for trial on 6 July 2018.  Brunner was non-compliant with financial disclosure orders and had not put Roberts Gray in funds.    
  • On 11 May 2018 Brunner emailed a draft financial statement to Roberts, prepared with the assistance of an accountant (‘the accountant’), which included: under the heading ‘Other mortgage payments’ that Kellam was the lender, that the address of the property was Yandoit Creek Road Franklinford and that the average weekly amount was $360; under the heading ‘Other mortgages’ that Brunner was the borrower, that ‘your share’ was 100% and ‘amount of your share’ was $200,000 (without specifying any security property).  However, the section headed ‘Liabilities’ did not list Kellam as a creditor.
  • On 5 July 2018 Brunner executed a document charging in favour of Roberts Gray ‘all land owned by me … now or in future as security for the payment of all professional fees and disbursements now owing or at any time may be owing by me to Roberts Gray Pty Ltd for legal services provided to me’.  (Roberts Gray subsequently conceded that the charge was ineffective to the extent that it sought an equitable interest in properties not legally and beneficially owned by Brunner, ie any property other than the land).
  • The Family Court trial date of 6 July was vacated.  On 20 July Brunner’s financial statement, in substantially similar form to the draft, was filed.  The reference to the payment of $360 per week to Mr Kellam remained.  However, under the heading ‘other mortgages’, appeared: ‘Jon Brunner borrowed against Yandoit and 308/6 Victoria Street the sum of $600,000’.
  • The plaintiff ceased acting for Brunner, claimed a debt of about $85,000 with interest, and on 30 August 2018 caveated over the land claiming an interest as chargee pursuant to an agreement with Brunner, J. B. & F. Investments Pty Ltd, and Vesterdix.  Brunner was the sole director of both companies and deposed that there was no agreement between Roberts Gray and either company.
  • On 10 December 2018 the Kellam mortgage was lodged for registration.
  • Following notice of this lodgment Roberts Gray commenced a proceeding seeking relief, including: an order under s. 90(2) that the Registrar of Titles delay registering the Kellam mortgage; an order that it have leave to amend the grounds of claim in its caveat by deleting all parties to the agreement with Brunner except itself; a declaration that it held an equitable charge; and an order for sale of the land.
  • Registration of Kellam’s mortgage was ordered to be delayed, eventually until the trial and determination of the proceeding.    
  • On 20 February 2020 Brunner was declared bankrupt.
  • Roberts deposed or gave evidence:
    • that on 25 August 2017 the solicitors for the other party in the Family Court proceeding, Lander & Rogers, sent a copy of the June 2017 agreement to his firm;
    • that on 2 November 2017 Lander & Rogers wrote referring to the June 2017 agreement and to a loan from PG Walton to Vesterdix of $165,000 secured by a mortgage over the land and another property.
    • that on receipt of the draft financial statement on 11 May 2018 he knew of the $30,000 loan by Kellam to Brunner;
    • that when the charge was executed (on 5 July 2018) he believed that this loan had been paid off or (he also deposed) significantly reduced but had not contacted Kellam about this;
    • denying that before execution of the charge he was aware that Kellam had an interest in the land or that Brunner (who deposed to the contrary) had so instructed him, or that the Kellam mortgage existed, and stating that before taking the charge he did not do a title search or attempt to ascertain what interest if any PG Walton or TL Rentals had in the land;
    • denying that Brunner told him, immediately before filing the financial statement on 20 July, of the Kellam mortgage;
    • stating that on 20 July 2018 the accountant told him that the loan of $30,000 had been repaid and had not told him of a mortgage securing $250,000 plus interest.  He denied (contrary to evidence of the accountant) that the accountant had told him that the ‘private client mortgage’ over Yandoit secured $250,000 plus interest and denied that the accountant had met him before 20 July;
    • that he had never seen any document evidencing a loan by Kellam in any amount other than $30,000;
    • that he believed that the sworn financial statement “loaded up” the land to defeat the interests of the other party.
  • Brunner gave evidence that: Roberts did not ask him how much equity he had in the land; and he did not tell Roberts that he had no equity in the land, as there was no need because, having prepared Brunner’s financial statements, Roberts knew this.

Kellam submitted that he held two distinct security interests over the land: a subrogated right to the PG Walton mortgage; and an equitable interest by reason of his possession of the unregistered Kellam mortgage, the discharge of PG Walton mortgage and the certificate of title.  It was common ground that the interest in the land of TL Rentals had priority over any interest of Roberts Gray’s.  TL Rentals abided the outcome of the proceeding.

Daly AsJ held –

  1. On the balance of probabilities Kellam paid out the PG Walton mortgage.  While there was no evidence of the time and amount of funds transferred, the PG Walton loan was by inference discharged before October 2017, when the certificate of title and discharge of mortgage were delivered to Kellam’s solicitors.  The timing of the execution of the epitome of the Kellam mortgage was also consistent with this. [125]-[127]  
  2. Ordinarily, absent evidence that the epitome of mortgage was either a forgery or a sham, its very existence was compelling evidence of the evidence and validity of an equitable mortgage. [129], [133]
  3. The authorities were divided on whether a party claiming to be subrogated to the rights of a prior mortgagee was entitled to the benefit of the terms of the underlying loan contract.  The better view was that the subrogated party did not automatically acquire identical contractual rights to the original interest holder, such as, for example the interest rate payable by the mortgagor to the original lender. [123]
  4. Kellam had discharged the onus of establishing his entitlement to be subrogated to the rights of PG Walton under the PG Walton mortgage to the extent of the sum paid by him to it to discharge its loan to Brunner secured by the mortgage, plus interest. [83], [118], [131] 
  5. As Kellam was entitled to be subrogated to the rights of PG Walton under its mortgage, and this mortgage was registered, Kellam had priority over TL Rentals and Roberts Gray with respect to the amounts paid by him or on his behalf to PG Walton. [131]
  6. Any sums secured by the Kellam mortgage which were not referable to the PG Walton mortgage were thus secured only by an equitable mortgage, which ranked behind the interest of TL Rentals. [131]
  7. As to whether Kellam’s interest as the holder of an equitable mortgage should prevail over Roberts Gray’s later interest as chargee –

    (a)    Where merits were equal, the general principle applying to competing equi­table interests was that priority in time of creation gave the better equity. [118], [141], [160]

    (b)   Where merits were unequal and favoured the later interest, as for instance where the owner of the later interest was led by conduct of the owner of the earlier interest to acquire the later interest in the belief or on the supposition that the earlier interest did not then exist, the later interest would have priority.   It was always necessary to characterise the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct was such that in fairness and in justice the earlier interest should be postponed to the later. [141], [143], [144]

    (c)   The mere failure of the holder of a prior equitable interest in land to lodge a caveat did not in itself involve the loss of priority which the time of the creation would otherwise give. [144] (d)    A person taking an interest with actual, imputed, or constructive notice of an earlier interest took subject to that interest, unless the earlier interest holder had engaged in conduct to induce the belief in the later interest holder that the earlier interest no longer existed. [156], [157], [161]

    (d)     A person taking an interest with actual, imputed, or constructive notice of an earlier interest took subject to that interest, unless the earlier interest holder had engaged in conduct to induce the belief in the later interest holder that the earlier interest no longer existed. [156], [157], [161]

    (e)    The onus rested on the holder of a later interest to show that the earlier should be postponed. [84]

    (f)    The evidence was inconclusive on whether Roberts Gray had actual notice of the Kellam mortgage.  However, it would have been open to Roberts Gray (and prudent) to conduct a title search before taking the charge.  This was inexcusable in the context of a priority dispute.  Although a title search at the time the charge was taken would not have disclosed Kellam’s interest in the land the PG Walton mortgage and the TL Rentals caveat would have been revealed.  Upon such a discovery, Roberts Gray would have been in a position to make more fulsome inquiries of PG Walton and/or TL Rentals and Brunner.  Accordingly Roberts Gray had at least constructive notice of Kellam’s interest. [118], [162], [165], [167]-[169]

    (g)     However, even if this finding of constructive interest was incorrect, there was no basis for postponing Kellam’s equitable interest to Roberts Gray’s interest.  Kellam had not so conducted himself as to induce a party in the position of Roberts Gray into believing there was no prior interest holder.  The agreement by Brunner and Kellam to keep their arrangements private did not misrepresent the position to third parties. [118], [170], [171] 

  8. The application to amend the caveat by deleting J. B & F Investments Pty Ltd and Vesterdix would be granted because:

    (a)    it would not alter the estate or interest claimed in the caveat, but amend the grounds of the claim, with no prejudice to anyone; [178]

    (b)    Roberts Gray undoubtedly had an interest in the land as chargee.  The ques­tion of the validity of the charge has fallen away and the only dispute was over priority, which should be determined on the merits; [179]

    (c)    although less latitude was affordable to a caveat lodged by a solicitor, as op­posed to one prepared by a lay person, the prejudice to Roberts Gray of not being able to amend the caveat outweighed this consideration. [118], [180]

  9. Given that Kellam stood in the shoes of the holder of a registered mortgage, he had a prima facie entitlement to take possession of and sell the land, provided the requirements of s. 77 of the TLA had been fulfilled, and subject to his obligations to account to TL Rentals and Roberts Gray.  However, there was no evidence that the threshold requirements of s. 77 had been met, and given that the parties all agreed on sale, the court would appoint the trustee in bankruptcy to do this and account to the interest holders. [118], [183]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, 29 June 2021

29. A rare High Court foray into caveats – a claim for compensation under the equivalent of the TLA s. 118 – in what circumstances a trustee in bankruptcy has a caveatable interest – whether the interest claimed was correctly stated in the caveat – why maintenance of a caveat does not require an undertaking as to damages.

Boensch v Pascoe [2019] HCA 49 (13 December 2019) concerned the interaction between bankruptcy law and NSW caveats law, materially identical to Victorian law.  The following provisions of the Bankruptcy Act 1966 were relevant:

Upon a person becoming bankrupt, s 58(1) vests in the trustee in bankruptcy property then belonging to the bankrupt that is divisible among the bankrupt’s creditors together with any rights or powers in relation to that property that would have been exercisable by the person had the person not become a bankrupt.  Excluded by s. 116(2)(a) from the divisible property is property held in trust by the bankrupt for another person.  However where the person who becomes bankrupt is a trustee of property who has incurred liabilities in the performance of the trust, such entitlement as the person has in equity to be indemnified out of the property held on trust gives rise to an equitable interest in the property held on trust taking that property outside the exclusion in s 116(2)(a) (on the basis that the exclusion is limited to property held by the bankrupt solely in trust for another person).

Notwithstanding the foregoing, where the property held on trust by the bankrupt out of which the bankrupt had an entitlement in equity to be indemnified comprised legal title to land registered under the Real Property Act 1900 (NSW) (“the NSW Act”) (ie the equivalent of the Transfer of Land Act 1958), what was vested in the trustee in bankruptcy until the trustee could obtain legal title by registration was only the equitable estate (s. 58(2)).

The NSW Act provided:

any person who, “by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land” under the provisions of the Act “may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled” (s. 74F(1));

a caveat must be in the approved form and specify “the prescribed particulars of the legal or equitable estate or interest … to which the caveator claims to be entitled” (s. 74F(5));

failures strictly to comply with the formal requirements for caveats are to be disregarded by a court in determining the validity of a caveat (s. 74L);

upon application by the registered proprietor the Registrar-General was required to serve a notice on the caveator that it would lapse unless within 21 days from service the caveator obtained and lodged a Supreme Court order extending the caveat (s. 74J(1));

any person who is or claims to be entitled to an estate or interest in the land described in a caveat may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator (s. 74MA(1));

any person who, “without reasonable cause” lodges or after request refuses to withdraw a caveat is liable to pay compensation to any person who sustains pecuniary loss attributable to the lodging of the caveat, or the refusal or failure to withdraw it (s. 74P(1)).

The facts were –

  • Mr and Mrs Boensch were registered proprietors of a property.  He claimed that in 1999 they had reached a matrimonial property settlement under which she agreed for consideration to transfer her interest in the property to him.  He also claimed that in 1999 they had executed a Memorandum of Trust which included that she would cause her share of ownership to be transferred to him to hold the whole of land in trust, in substance for their children, and would arrange for a professionally drafted trust document.
  • In October 2003 he was served with a bankruptcy notice.
  • He claimed that in March 2004 they had executed a deed of trust confirming the settlement upon him as trustee in the 1999 Memorandum of Trust, constituting “the Boensch trust”and creating their children as First Group Beneficiaries.
  • On 23 August 2005 a sequestration order was made against him.  The trustee in bankruptcy was legally advised that there were strong prospects of defeating the trust claim.  Documents produced by the bankrupt did not lead the trustee to a contrary view.  On 25 August 2005 the trustee lodged a caveat claiming a “Legal Interest pursuant to the Bankruptcy Act 1966”.
  • Documents and evidence subsequently produced by the bankrupt were for a long time unconvincing.   However in December 2007 a court held that the Memorandum of Trust was not a sham and that it manifested a sufficient intention to constitute a trust.   Appeals failed.
  • The caveat lapsed on 15 September 2009.
  • The bankrupt took proceedings claiming compensation under s. 74P(1).  The primary judge concluded that, because the bankrupt had not proven that the trustee in bankruptcy lacked a caveatable interest it could not be said that the trustee had lodged or maintained the caveat without “reasonable cause”, but that even if the trustee had not had a caveatable interest he nevertheless had an honest belief based on reasonable grounds that he had a caveatable interest and thus reasonable cause to lodge and maintain the caveat within the meaning of s. 74P(1).
  • An appeal by the bankrupt failed but he obtained special leave to appeal to the High Court.  The appeal was unanimously dismissed.  There were two judgments: by Bell, Nettle, Gordon and Edelman JJ.; by Kiefel CJ, Gageler and Keane JJ.  Unless otherwise stated references below are to the judgment of the plurality.  The following propositions emerge from the judgments –
  1. Provided the bankrupt had a valid beneficial interest in the trust property, the trust property vested in the trustee in bankruptcy subject to the equities to which it was subject in the hands of the bankrupt.  For these purposes, a valid beneficial interest meant a vested or (subject to applicable laws as to remoteness of vesting) contingent right or power to obtain some personal benefit from the trust property. [15]
  2. Notwithstanding s. 58(1), a legal estate or interest in land subject to the Real Property Act could not pass to the bankrupt’s trustee in bankruptcy unless and until the trustee applied and subsequently became registered as proprietor of the land.  After this the trustee still held the estate or interest subject to the equities to which it was subject in the hands of the bankrupt. [94]
  3. The onus was on Mr Boensch to establish that he had lacked any valid beneficial interest in the property.  However, the evidence established that he had a beneficial interest in the property – to the extent of his right to retain the property as security for satisfaction of his right of indemnity as trustee of the Boensch trust.  By reason of that beneficial interest, an estate in the property vested forthwith in equity in the trustee in bankruptcy pursuant to s. 58 of the Bankruptcy Act 1966, subject to a subtrust on the terms of the Boensch Trust but permitting the trustee to exercise the right of indemnity.  On that basis, the trustee in bankruptcy was entitled to be registered as proprietor and that was a sufficient basis to sustain his caveat. [102], [116] (Similarly Kiefel CJ, Gageler and Keane JJ at [2]).
  4. There was a division of opinion on whether the interest claimed in the caveat, ie “Legal Interest pursuant to the Bankruptcy Act 1966”, was adequate.  On the one hand, expressing themselves very cautiously, the plurality stated that ([107]) “Generally speaking” it was to be doubted that this claimed interest was adequate to describe an equitable estate vested in a trustee in bankruptcy pursuant to s. 58(2) by reason of the bankrupt’s right of indemnity.  While noting that NSW statutory provisions did not require the caveat to specify whether the interest claimed was legal or equitable, their Honours gave reasons why this wording was inadequate, stating that ([107]) it “may be accepted that a court would not ordinarily make an order under s. 74K(2) of the NSW Act extending the operation of a caveat which employed that description”; and stating in a footnote that it was unnecessary to determine whether the court would have power to order amendment of the caveat in those circumstances referring to Percy & Michele Pty Ltd v Gangemi [2010] VSC 530 at [92]- [102] per Macaulay J.On the other hand Kiefel CJ, Gageler and Keane JJ held that the equitable estate vested in the bankrupt was adequately described in the caveat [11].
  5. The trustee in bankruptcy also had good reason to believe, as he did, that the Boensch Trust was not validly constituted.  However, the possibility that the trust might have been set aside under the Bankruptcy Act would not have been sufficient to sustain the caveat.  The interest asserted in the caveat must be in existence at the time of its lodgment.  The assertion by a caveator, who at the time of the lodgment did not have an estate or interest in the land, that he had commenced proceedings which may result in such an interest being vested in him did not suffice. [103] – [104]
  6. The test for liability under s. 74P(1) was established in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at which time the statutory words were “wrongfully without reasonable cause”.  This test was that the claimant for compensation must establish that the caveator had neither a caveatable interest nor an honest belief based on reasonable grounds that the caveator had a caveatable interest (and thus “without reasonable cause”), and that the caveator acted deliberately, knowing that he or she had no interest in the land (and thus “wrongfully”).  Notwithstanding the repeal of “wrongfully” this remained the correct test. [110], [111] (Similarly Kiefel CJ, Gageler and Keane JJ at [12]).
  7. The plurality noted that the Beca Developments test had been substantially followed by intermediate courts in other States including in Edmonds v Donovan [2005] VSCA 27;  (2005) 12 VR 513 at 548 per Phillips JA (Winneke P and Charles JA agreeing at 516 [2], [3]).  The High Court however left open whether, if that test is not satisfied, a person may still be liable under s. 74P(1) by reason of acting with an ulterior motive or where the only interest supporting a caveat is de minimis in terms of legal content or economic value. [114]
  8. Accordingly provided the caveat was lodged on the basis of an honest belief on reasonable grounds that the bankrupt had an extant beneficial interest in the property (including a beneficial interest by way of right of indemnity) the trustee in bankruptcy had reasonable cause to do so.  In fact there was a caveatable interest here.  Further the trustee honestly believed on reasonable grounds that the property vested in him either because the trust was void or because of the bankrupt’s right of indemnity [105], [108], [116] (Similarly Kiefel CJ, Gageler and Keane JJ at [12]).
  9. Even if, as the plurality had held, there was a mere technical deficiency in the statement of the interest claimed this did not of itself demonstrate the absence of a “reasonable cause” to lodge and not withdraw the caveat, at least where the caveat did not overstate the interest sought to be protected. [108]
  10. The plurality noted that, although a caveat was “a statutory injunction to keep the property in statu quo until [the caveator’s] title shall have been fully investigated”, unlike an application for interlocutory injunction it did have to be supported by an undertaking as to damages.  Their Honours justified this on the ground that the holder of an unregistered interest in land under the Torrens system is more vulnerable to inconsistent dealings. [113].

Comment: The equivalent Victorian provision to s. 74P(1) is the TLA s. 118 which provides –

“Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders”.

Accordingly the two provisions are materially the same and the High Court’s decision applies in Victoria.  The test in Victoria has however been the same as in NSW, or virtually so, as illustrated in Blogs 9 and 24.

The case is also instructive on –

  1. whether the interest claimed in the caveat was correct.  The comment in paragraph 4 above that the NSW statutory provisions did not require the caveat to specify whether the interest claimed was legal or equitable applies equally in Victoria – the TLA s. 89 simply requires that caveator be a person “claiming any estate or interest in land”;
  2. the interest claimed in the caveat must be in existence at the time of its lodgment – it is not enough that the caveator has commenced proceedings which may result in such an interest being vested in him – paragraph 5 above;
  3. why an undertaking as to damages is not normally required – paragraph 10 above.

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

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

This interesting case demonstrates that a badly drawn caveat can be rescued

– not under the TLA caveat provisions but by an interlocutory injunction.

The case is also a good discussion of general caveat principles and priorities

between equitable interests

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

The chronology was –

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

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

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

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

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

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

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

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

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

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

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

Derham AsJ  held –

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

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

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

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

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

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

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

3. Principles applicable to application to remove caveat under s. 90(3) of TLA

  • Absolute prohibition

  • Circumstances in which entitlement to payment for work on land caveatable

  • Injunction against future caveat

  • Amendment of caveat

  • Costs

  • Interest claimed being “implied, resulting or constructive trust”

  • Commentary

Yamine v Mazloum [2017] VSC 601 (3 October 2017) John Dixon J.

The timeline was –

Undated                         Plaintiff registered proprietor asks caveator to assist him to prepare property for sale.  Caveator subsequently alleges that in substance: the plaintiff asked him to work to finish his house and prepare it for auction; the caveator replied that a tremendous amount of work was involved which he could not even put a figure on, asked how he would be paid, and said that he would not help unless assured he could be paid; the plaintiff replied that he would be paid for his work from the proceeds of sale. 

March – 23 June 2017  Caveator moves into the property and allegedly fixes it for sale. 

8 July                               Property sold, settlement date 6 September, rescission notice served in September. 

26 July                             Caveat lodged, grounds of claim “implied, resulting or constructive trust”, estate or

interest claimed is a “freehold estate”, all dealings prohibited.

18 September                Following provision of information by caveator’s solicitors and inconclusive negotiations plaintiff foreshadows application to remove caveat, caveator offers withdrawal in return for $45,000 to be held in caveator’s solicitor’s trust account pending resolution of the dispute.

The plaintiff applied for removal of the caveat under the Transfer of Land Act 1958 s. 90(3). John Dixon J ordered removal of the caveat with costs. His Honour reasoned –

1. His Honour first recited certain standard principles, namely –

(1) The power under s. 90(3) was discretionary.

(2) Section 90(3) was in the nature of a summary procedure and analogous to the determination of interlocutory injunctions.

(3) The caveator bore the onus of establishing a serious question to be tried that the caveator had the estate or interest claimed. The caveator must show at least some probability on the evidence of being found to have the equitable rights or interest asserted in the caveat.

(4) The caveator must further establish that the balance of convenience favoured maintenance of the caveat until trial.

(5) As to the balance of convenience generally the court should take the course appearing to carry the lower risk of injustice if the court should turn out to have been wrong in the sense of declining to order summary removal where the caveator fails to establish its right at trial or in failing to order summary removal where the registered proprietor succeeds at trial.

(6) The stronger the case that there was a serious question to be tried, the more readily the balance of convenience might be satisfied. It was sufficient that the caveator showed a sufficient likelihood of success that in the circumstances justified the practical effect of the caveat on the registered proprietor’s ability to exercise normal proprietary rights. [15]

2. His Honour also noted authority for the proposition that “a caveat may only be lodged in a form commensurate to the interest it is designed to protect”. [16]

3. The argument that the caveator’s entitlement to be paid for his work on a quantum meruit was enforceable in equity by a constructive trust was invalid. The plaintiff did not accept any intention to charge or secure the land with the obligation to repay the cost of the work or to create any beneficial interest in it. The concept of salvage, deriving from Re Universal Distributing Co Ltd (1933) 48 CLR 171 at 174 – 5 per Dixon J, was inapplicable: the current case concerned property rights, not rights in insolvency and the property was preexisting and not converted into a fund for the benefit of claimants. There was only an oral agreement for services on a quantum meruit. [19], [24], [26] – [32]

4. If the caveator now evinced an intention to lodge a further caveat claiming an interest as chargee, an injunction would likely lie. [33]

5. No application to amend the caveat was made, and the discretion to amend would not have been exercised because:

(1) The application would have been to amend the interest claimed ie to chargee or equitable lienee, an amendment of interest claimed “not usually be[ing] permitted”, not merely to amend the grounds of claim or scope of protection. [35]

(2) The circumstances the grounds or interest claimed were erroneously stated was were relevant: the caveat was lodged not by an unrepresented person but by a solicitor certifying that he had taken reasonable steps to verify the identity of the caveator and had retained the evidence supporting the claim. [36]

(3) The court should not encourage the belief that caveats could be imprecisely formulated and then fixed up later: a caveat was in effect an interlocutory injunction by administrative act with possible serious consequences. Wrongly formulated caveats should not easily be tolerated. Caveats should not be used as bargaining chips. [37]-[38]

(4) The court should have regard to all of the considerations that arise on applying for removal of the caveat in the terms of the amendment sought. If this caveat was amended the caveatable interest claimed would still lack merit because even if the caveator’s version of the oral agreement was proved it would not create a charge or an equitable lien. [39] – [40]

6. His Honour not merely awarded costs but also reserved liberty to the plaintiff to make any application pursuant to r 63.23 as it may be advised against the first defendant’s solicitors. [44]

7. His Honour noted in passing that use of the phrase “implied, resulting or constructive trust”, which identified three different forms of trust, was “usually evidence of a degree of loose thinking”. [20]

Commentary –

1. His Honour deals with the principles applicable to s. 90(3) and amendment of caveats at length and touches on other interesting points now expanded on.

2. The stress on a caveat not imposing an absolute prohibition if inappropriate is expanded on in Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172 to be the subject of a future Blog.

3. Other cases related to whether works on land will create a caveatable interest are –

• Walter v Registrar of Titles [2003] VSCA 122 at [18] – mere work and labour done not caveatable;

• Depas Pty Ltd v Dimitriou [2006] VSC 281 – a builder was found to have at most a contractual right to, and perhaps even an equitable interest in, half a joint venture’s net profit, but not a half interest in the land;

• An equitable lien will give rise to a proprietary and so caveatable interest, a foundational statement on equitable liens being that of Deane J in Hewett v Court (1983) 149 CLR 639 at 668. Caveat cases where no lien was established are: Western Pacific Developments Pty Ltd (in liq) v Murray [2000] VSC 436 and HG & R Nominees Pty Ltd v Caulson Pty Ltd [2000] VSC 126;

• In Popescu v A & B Castle Pty Ltd [2016] VSC 175 Ginnane J held that the only Romalpa clause conferring an equitable interest in land was one entitling the holder to enter upon the land to sever and remove the fixtures, and accordingly removed a caveat based on a clause simply providing that all materials used in a contract remained the supplier’s property until paid in full.

4. As to injunctions against future caveats, or the similar order that the Registrar not register any caveat without its leave or further order see also Westpac Banking Corporation v Chilver [2008] VSC 587, Lettieri v Gajic [2008] VSC 378, Marchesi v Vasiliou [2009] VSC 213; Wells v Rouse & Ors [2015] VSC 533.

  1. 5. The reservation of liberty to apply for costs against the solicitors ties in with an increasing judicial tendency to so order, eg Gatto Corporate Solutions Pty Ltd v Mountney [2016] VSC 752.