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

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

The chronology was –

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

Kennedy J ordered removal of the caveat, holding –

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

 

Comment:

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

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

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

 

15. Caveat removed because nothing remaining after discharge of prior registered mortgage

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

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

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

mortgage.

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

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

His Honour held –

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

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

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

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

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

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

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

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

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

 McMillan J held –

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

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

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

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

 

 

5. Caveatable Interests

  • Charges giving rise to caveatable interests.

  • The indirect ability of the Court of Appeal to remove a caveat.

  • A competition between cash in a solicitor’s bank account and a caveat supporting a charge for potentially a greater amount.

Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSC 335 (16 June 2017) Sifris J.

Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSCA 345 (17 November 2017) Tate and McLeish JJA.

The plaintiff/appellant (“Sim”) provided services under a consultancy and management agreement for a proposed development on land of which the defendant/respondent (“Greenvale”) was registered proprietor.  Greenvale notified Sim of its intention to terminate the agreement at a specified date.  Sim caveated to secure moneys allegedly owed under the agreement and sued to recover $380,280 and for other relief.  Greenvale counterclaimed and commenced a separate proceeding under the TLA s. 90(3) seeking removal of the caveat.

Sifris J held Sim to be entitled to payment of $152,600.03 and Greenvale to be entitled to some payment on the counterclaim.  His Honour dismissed the caveat proceeding on the ground of a clause providing that on termination of the agreement before completion of the project Greenvale gave Sim “the right to register a charge over the property … and any other property owned by [Greenvale] and such charge is to be applied to the payment in full of any money owed to [Sim Development]”.  Sifris J held that the contractual right to register a charge, in the event of termination, supported the existence of a caveatable interest; and while the clause did not specifically adopt the language of lodging a caveat, its reference to the concept of registration, and lack of sufficient indication to the contrary, supported the conclusion that it gave rise to a caveatable interest.

Sim applied for leave to appeal, seeking orders in substance as sought at first instance. Greenvale did not seek leave to appeal against the caveat proceeding order.  However, desiring to be rid of the caveat, it made an interlocutory application in the application by Sim for leave to appeal, seeking an order directing Sim to withdraw its caveat on Greenvale paying $152,600.03 into an interest-bearing account of Greenvale’s solicitors and undertaking not to sell the land pending determination of the application for leave to appeal and any appeal.

Tate and McLeish JJA held:

  1. The application by Greenvale was competent, being permitted by s. 10(3) of the Supreme Court Act 1986.
  2. Sim would not be ordered to withdraw its caveat, because:
  • the caveat was supported by its right under the agreement to a charge over the land. The withdrawal of the caveat would in effect remove the protection of the security interest the parties provided for in the agreement;
  • if Sim succeeded in any appeal Greenvale may be ordered to pay $380,280. In those circumstances, the amount offered, $152,600.03, would be inadequate and Sim would have lost the protection of the caveat supporting its entitlement to monies owed.  This could render any appeal effectively nugatory;
  • Greenvale had not adequately specified how the caveat would impede the development’s progress. Accordingly, applying a test of balance of convenience, Sim had discharged its onus of establishing that the prejudice that would flow to it from an order directing it to withdraw the caveat outweighed any demonstrable prejudice to Greenvale.

Commentary: A novel case of a creative attempt to get rid of a caveat pending an appeal.  As to caveats supporting charges see also: Evans v Advertising Department Pty Ltd [2009] VSC 587; West Coast Developments Pty Ltd v Lehmann [2013] VSC 617, also [2014] VSC 293.

2. When does a caveat lapse and can the effect of lapse be avoided?

Tawafi v Weil [2017] VSC 643 (21 August 2017) Digby J.

Section 90(1)(e) of the Transfer of Land Act 1958 provides that, subject to certain exceptions, a caveat lapses as to land affected by a transfer upon the expiration of thirty days after notice by the Registrar that a transfer has been lodged for registration.  If within this period the caveator appears before a court and gives an undertaking or security the court may direct the Registrar to delay registration for a further period, or may make such other order as is just (s. 90(2)).  If the Registrar is of opinion that the doing of any act is necessary or desirable, then, if the act is not done within such time as the Registrar allows, the Registrar may refuse to proceed with any registration (s. 105(a)).

The timeline was –

11 April 2017         Plaintiff enters contract to purchase certain land. 

30 May                  Defendant caveats on the grounds of “part performed oral agreement” et cetera with the registered proprietor. 

26 June                  Settlement of the purchase without the caveat being removed. 

28 June (about)   Lodgment of the instrument of transfer (Transfer) for registration. 

29 June                 Registrar notifies caveator that pursuant to s. 90(1) the caveat would lapse on 31 July unless the caveator obtained an order pursuant to s. 90(2).  No order was obtained. 

2 August               Caveator commences a proceeding against registered proprietor inter alia claiming declarations of a proprietary interest in the land and for other relief in substance supporting the existence of the caveat and preventing registration of the Transfer.  An

agreement with the registered proprietor proprietor in early 2016 is alleged whereby the caveator agreed to lend $86,000 on security of this land, followed by that loan.  The second defendant was the conveyancer acting for both sides and the third defendant was the purchaser.  

3 August               The Registrar accordingly issues a Notice of Action prohibiting registration of further dealings until withdrawal of that notice or further order. 

16 August             Purchaser files Originating Motion seeking order for registration and Summons for dismissal of the caveator’s proceeding. 

Digby J ordered the Registrar to register the Transfer and remove the Notice of Action.  His Honour reasoned –

  1. The counting of days under s. 90(1) commenced from 30 June, being the day after the notice, thirty days elapsed on Sunday 30 July, and so the expiry date was 31 July. Accordingly the caveator was out of time.  It was irrelevant that s. 105(1) might have achieved a similar result in suspending the progress of registration. [24]-[25]
  2. The judicial approach to caveat removal applications was analogous to that in applications for injunction, ie the burden of proving the caveatable proprietary interest and maintaining the caveat was upon the caveator who must also establish on the balance of convenience that the caveat should be maintained until the trial of the contested proprietary interest. However, because the caveat had lapsed this case was not the usual caveat removal contest. [17]-[19]
  3. In any event the caveator had not raised a sufficient prima facie case of or arguable triable issue concerning the asserted proprietary interest. Further, the balance of convenience heavily favoured the purchaser because: the asserted triable issue was palpably weak; and the purchaser would be prejudiced by deferral of registration, particularly having entered a building contract to improve the property which could not be financed until the financier could register a mortgage. [28], [35]-[38]
  4. Indemnity costs were awarded against the caveator, particularly because of her very weak case, the purchaser having previously asked the caveator in writing to identify an arguable caveatable interest, without proper response, and given appropriate warning to the caveator. [43] – [59]