Category: Balance of Convenience – general

Blog 59. Mother and Son.

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

These cases concern the same piece of land.  The first case deals with the uncommon points of an application under the Transfer of Land Act s. 90(3) being brought by Summons in an existing proceeding, rather than by Originating Motion and Summons, and with abuse of process.  The second case is more routine, there being a dubious caveatable interest but the balance of convenience favouring removal of the caveat, nonetheless raising two interesting points not explicitly touched on by Gorton J.  First, the solicitors lodging the caveat could not decline to accept service: Transfer of Land Act ss. 89(4) and 113(3) (Blog 49).  Second, in weighing the balance of convenience his Honour could have considered whether, as there was also a purchaser, the caveator was able to give the undertaking as to damages (Blog 56).

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

The facts were –

  • The plaintiff was the mother of the defendant.
  • In August 2018 the son purchased a property for $650,000 after obtaining a bank loan secured by a mortgage guaranteed by his mother. Work started to construct townhouses on the property.
  • Loan repayments fell into default, the bank took steps to enforce the mortgage, and with its agreement the son in November 2021 entered into a contract for sale for $865,000, with a 10% deposit that was paid, with settlement due on 21 January 2022.
  • On 17 January 2022 the mother lodged a caveat. The son applied for its removal under s. 90(3) of the Transfer of Land Act.  The mother produced a 2018 declaration of trust to the court which she alleged, and he denied, was signed by him.
  • On 17 February after an opposed hearing a judge ordered removal of the caveat.
  • On 21 February the mother commenced a proceeding seeking, inter alia, a declaration that the proceeds of the sale were held on trust for her and equitable compensation.  She made an interlocutory application to restrain the distribution of the proceeds of sale.  The selling agent deposed that the value of the property was $850,000 – $900,000 and that the sale was for market value.   The mother produced a valuation that the underlying unencumbered value of the property was $760,000 but that it was worth $1 m. with the planning permit and settlement of sale of three dwellings before the end of 2022.   She also produced an affidavit in which the deponent swore that he would lend money to her and otherwise assist her completing the development, and lend money to her ‘to repay any outstanding home loans’.
  • The hearing of the interlocutory application on 25 February (the caveat not yet being removed) expanded from one seeking restraint of distribution of the proceeds of sale to one seeking restraint of the sale until trial. The judge however only ordered that the net proceeds of sale to be held in the son’s solicitor’s trust account until trial or further order.
  • On 27 February the mother lodged another caveat asserting the same interest as the previous one. The son made a further application under s. 90(3), by Summons in the proceeding commenced by his mother.

The mother among other things: stated that the property was hers and that she intended to appeal against the decision of 17 February; relied on material which had been before the court on 25 February; and referred to her recent proposal to the bank to repay the arrears, finish the development, and sell the property, not yet eliciting the bank’s substantive response.

Gorton J. held –

  1. Although an application under s. 90(3) was normally made by Originating Motion and Summons it could be made by Summons in an existing proceeding. The filing of the Summons amounted to the bringing of ‘proceedings in a court against the caveator for the removal of the caveat’ as those words in s. 90(3) were to be understood.  This outcome was supported by s. 8(1) of the Civil Procedure Act 2010.  It was significant that the Summons was brought in a proceeding between the two relevant parties relating to their rights. [5]
  2. A second interlocutory application for the same relief was an abuse of process if it would be unjustifiably oppressive to the other party, or would bring the administration of justice into disrepute. Ordinarily, an abuse of process was associated with commencement of a proceeding or application, rather than its defence.  However although an application under s. 90(3) was not commenced by the caveator, the caveator was treated as if the caveator were the moving party seeking an interlocutory injunction.  Accordingly, in substance, it was the caveator who was potentially abusing the process of the court by supporting a second caveat identical to a removed caveat.  The maintenance of this caveat was an abuse of process. [13]-[15]

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

Another caveat was lodged on 13 April 2022, ie nine days after the previous decision, by the first defendant Madappilly claiming a freehold estate based on an agreement with the son dated 5 August 2020.  Further –

  • On lodgment of the caveat Madappilly’s solicitors wrote to the son’s solicitors stating their instructions that the son was attempting to sell the property in breach of the Constructive Trust Agreement and Construction Contract both dated 5 August 2020, under which agreements approximately $300,000 was owed to Madappilly.
  • They provided copies of these documents. The ‘Construction Contract’ was undated and purportedly signed on 5 August 2020.  It was a contract between the son, one of two other alleged joint venturers (see further below), and a company associated with Madappilly, in which the son and one of the other parties declared that they intended to enter a contract to build townhouses on the property and appointed the company as building supervisor.  It provided that the company would be paid a deposit of $300,000 upon execution of the agreement, and that it could charge for services at an hourly rate left blank.  It then stated that the son and the joint venturer would ‘permit’ the company ‘to have equitable and beneficial interest in the land, pending making the deposit of $300,000’ and would when requested transfer the land “to [the company] to [the company’s] interest”.
  • In the ‘Constructive Trust Agreement’, dated and purportedly signed on 5 August 2020, the son declared that he intended to enter into a contract to purchase the property and that he confirmed that he held Madappilly’s interest in the property and/or benefits accrued or to accrue in respect of that interest upon trust for Madappilly absolutely subject to the terms and conditions set out in this deed. Madappilly’s interest was defined to mean ‘full interest in the… Property as tenants-in-common’.
  • The son’s solicitors stated that he denied having signed these documents and that ‘[t]he builder who actually was doing the construction on the property is not aware of your client’.
  • The son sought an order under the s. 90(3) for removal of the caveat. Madappilly’s solicitors advised that they were not instructed to accept service and did not hold instructions to continue to act.
  • Madappilly, who described himself as building supervisor, deposed that –
    • In around mid-2019 he entered into an oral joint venture agreement with the son and two others; and the son undertook and represented to them that the son would pay the mortgage and other outgoings, would provide $150,000 towards the completion of the joint-venture, and that when the development was completed it would be sold;
    • In reliance on those promises, he and the other two people jointly invested ‘around $500,000’ in the joint-venture in work and materials, and implicitly that the four persons were to share the net profits of sale.
  • The son identified the builder he had dealt with, deposed that he did not know who Madappilly was, and denied entering any joint venture agreement.
  • Madappilly produced to the court a valuation that the property was in its current state worth approximately $1 m. and that if $209,500 was spent completing the project the property could be sold for $1.635 m.
  • The net sale proceeds were under $140,000.

Gorton J. held –

  1. The interest asserted by the caveator in his affidavit sat uneasily with any interest based on the agreements purportedly signed on 5 August 2020. The arrangements contained in the Construction Contract were entirely inconsistent with the affidavit evidence and at best gave a caveatable interest to the company not Madappilly.  The Constructive Trust Agreement was unusually worded, and read strictly did not give Madappilly an equitable interest but confirmed that the son held Madappilly’s interest on trust for Madappilly.  It was difficult to reconcile the two documents.  Madappilly could not explain caveating asserting an interest based on an agreement reached on 5 August 2020 but now relying on an oral joint venture arrangement entered into the previous year.  Turning to Madappilly’s evidence: he did not identify to what extent he contributed to the ‘around $500,000’, and so, even if his evidence was accepted did not establish the extent of his beneficial interest; and he produced no documents supporting provision of work and materials.  Because of the inconsistency between what had been advanced by his solicitors and what was now advanced in court there was   reason to doubt his version of events. [8]-[10], [15]-[17]
  2. The court inferred that Madappilly either through his previous solicitors or now advanced arrangements known by him to be incorrect. However, in light of the affidavit material filed there was an issue to be tried that Madappilly had an equitable interest in the property, albeit one difficult to establish. [5], [17]
  3. The balance of convenience favoured removal of the caveat ([25]) –
    1. The alleged sum required to complete the project was said to be pursuant to the unproduced Building Contract and was unclear whether inclusive of landscaping expenses. [18]
    2. It the contract of sale was completed the son could discharge the mortgage and stop interest running. [18], [24]
    3. The contract of sale was on its face unimpeachable (note that his Honour states that the contract price was $850,000, but this seems to be a slip). [19]
    4. The property was not the residence of either party and if the caveat was removed and the sale completed Madappilly would retain a cause of action against the son for damages. [20]
    5. There was no evidence that the purchaser was other than bona fide for value without notice of the caveator’s alleged interest, the contract of sale being apparently specifically enforceable giving the purchaser an equitable interest and giving a claim for damages against the son if the sale did not proceed. Madappilly had not offered to indemnify the purchaser or the son against any liability in damages if the caveat remained.  In one sense, the same issues arose as in a priority dispute between Madappilly and the purchaser, it being relevant that Madappilly had not caveated until after the contract of sale. [19], [22], [23]
    6. There was no evidence that Madappilly or the other alleged joint venturers had the means to complete the development. [21]

       Philip H. Barton

       Owen Dixon Chambers West

       Friday, October 13, 2022

 

Blog 52. Court of Appeal upholds registered proprietor’s appeal on balance of convenience ground.

Lee v Yap [2021] VSCA 297 (3 November 2021), Court of Appeal (Kyrou, McLeish and Walker JJA) is interesting because it deals with the scope of balance of convenience considerations.  In particular the court clarified that the two-stage test (ie interest in land and balance of convenience) only informed how the court should exercise its discretion under the Transfer of Land Act s. 90(3) and did not subsume or restrict the power conferred by s. 90(3).

Before proceeding to the case, however, I welcome my first international follower Dr Jan Halberda of the Jagiellonian University, Krakow, Poland, founded in 1364. I met Jan at a Conference  in 2016. I have sent him excerpts of the Transfer of Land Act with an explanation of the caveat procedure. I am reminded that Oliver Cromwell described English Law as a “tortuous ungodly jungle” and trust that Jan will  not find that an apt description of this area of law.

This case is difficult to understand without listing the parties in connected proceedings –

This appeal –

Applicant                              Ms Lee (registered proprietor).

Respondents                         Eng Hock Yap, Sau Lin Kam, Eng Hing Yap (caveators),

     Registrar of Titles.

The substantive proceeding (issued 2017) –

Plaintiffs                               Eng Hock Yap, Sau Lin Kam and Chin Huat Yap,

   (Adam Yap was formerly the second plaintiff).

Defendants                          Ms Lee, Yap Brothers Holdings Pty Ltd, Eng Seng (Vincent) Yap, Eng Hing Yap.

2019 application in the substantive proceeding for appointment of receiver –

Applicants                               Eng Hock Yap and Adam Yap

Respondents                          As in substantive proceeding.

The facts were –

  • The applicant (Ms Lee) was a director of Yap Brothers Holdings Pty Ltd (the ‘trustee’).  In 2005 the trustee transferred a property in Glen Iris to her for no consideration.   This property was subject to a mortgage and to caveats lodged by the above caveators.
  • In the substantive proceeding it was alleged that this transfer was in breach of trust and held by Ms Lee on a resulting trust for the contributors of funds to the trustee, ie for the plaintiffs.  They also claimed that this transfer, after the loss of the trust deed had been discovered by Ms Lee in 1998, occurred in breach of her duties to the trust.
  • In 2019 an application was made in the substantive proceeding for appointment of a receiver to the trust to secure the trust property.  On this application Ms Lee deposed that the trust assets included cash, shares, and properties in Carlton and Balwyn.   The trustee’s directors also offered undertakings as to the assets of the trust.   The defendants also filed proposed orders including a proposed undertaking not to deal with the Balwyn and Carlton properties and the shares, and an undertaking (the Proposed Undertaking) by Ms Lee not to sell or otherwise deal with the Glen Iris property, pending resolution of the substantive proceeding.
  • At the receivership hearing, counsel for the applicants only sought that “the title deeds” (ie the duplicate certificates of title) of the Carlton and Balwyn properties be taken into control to prevent their use by way of mortgage deposit (ie, although the court does not say it, to prevent creation of an equitable mortgage).  (Because the Glen Iris property was subject to a mortgage and its “title deeds” were not in the defendants’ possession).  The application was abandoned on the defendants’ undertaking to lodge with the Prothonotary the title deeds to the Carlton and Balwyn properties and Ms Lee’s counsel giving an acknowledgement concerning trust distributions.  The undertakings included in the defendants’ proposed orders were not sought, the Proposed Undertaking having been rejected.
  • Later in 2019 the Court declared in the substantive proceeding that the trust had failed for uncertainty and the trustee held all its assets on resulting trust for those who had contributed property to the trustee at any time.
  • In April 2021 Ms Lee entered into a contract to sell the Glen Iris property with settlement due in June. This required removal of the caveats.  Correspondence between solicitors ensued, the upshot of which was that the caveators did not object to a sale for proper market value with the only outstanding issues being where the net proceeds of sale were to be held and what deductions were to be made before this pay in, in particular were agent’s fees and commission to be deducted?  (The agent was the third defendant in the substantive proceeding).
  • Following the breakdown of discussions Ms Lee sought removal of the caveats pursuant to the Transfer of Land Act s. 90(3). She offered an undertaking to the court at first instance and to the Court of Appeal to pay the net proceeds of sale, after discharge of the mortgage and usual sale expenses, into a solicitor’s trust account or into court.
  • At the hearing before McDonald J. it was was common ground that the caveators had an arguable case of a caveatable interest. However, before considering the balance of convenience, the judge observed that: the reason why there was no undertaking at the receivership hearing to lodge the Glen Iris title deeds was because the bank had them; the Proposed Undertaking was designed to address the applicants’ concern that there was a risk that the trust property would not be preserved; and it had not been suggested at the receivership hearing that there was any risk of Ms Lee selling the property.  His Honour also observed that her subsequent conduct in entering a contract of sale was therefore inconsistent with the basis upon which the application for the appointment of a receiver had not been pressed.
  • Counsel for Ms Lee submitted that a significant balance of convenience consideration was her preparedness to pay the net proceeds of sale into court. The judge stated that viewed in isolation this submission had force but that it was necessary to include in the assessment her conduct in entering into a contract of sale in light of the resolution of the receivership application.  He observed that it was extremely unlikely that the applicants would have abandoned the receivership application if there was any prospect of Ms Lee being free to sell the Glen Iris property.
    His Honour stated that the “gravamen” of the resolution of the receivership application was that the three properties would not be dealt with until the determination of the substantive proceeding (the “gravamen finding”).  Accordingly his Honour stated that the balance of convenience strongly favoured the maintenance of the status quo.
  • As to a submission that it was relevant that Ms Lee would suffer financial prejudice if the sale did not proceed the judge stated in substance that any adverse financial consequences were of her own making.
  • Ms Lee sought leave to appeal.

The Court of Appeal granted an application for an extension of time to appeal, granted leave to appeal and allowed the appeal, holding –

  1. The court reiterated caveat removal principles in standard terms (see eg Blog 1). [78]-[80]
  2. Because the court’s power under s. 90(3) was discretionary an applicant for leave to appeal against an exercise of that discretion must establish error of the kind identified in House v The King (1936) 55 CLR 499. [78]
  3. In dealing with the Proposed Undertaking the judge was aware that it was never given but that it was relevant to understanding how the receivership application came to be resolved. It was not legally irrelevant to the caveat removal application.  The judge had not treated it as decisive, rather the judge treated as significant the manner in which the receivership application had been resolved. [83]-[84]
  4. The proposition that the judge erred in giving substantial weight to a factor which did not on proper analysis bear upon the balance of convenience, namely the Proposed Undertaking, was erroneous. This argument proceeded on a mistaken understanding of what matters a court could permissibly consider when dealing with an application under s. 90(3).  Although the courts had adopted the two stage test (ie that the caveator must estate a serious question to be tried of an interest in the land and that the balance of convenience favoured maintenance of the caveat) s. 90(3) was drafted broadly and enjoined the court to make such orders as it thought fit.  The two-stage test could only inform the court in considering whether to exercise the discretion conferred on it in any particular case and, if it chose to do so, what form that exercise should take.  This test did not subsume or restrict the power conferred by the statute.  What a court may consider as going to the balance of convenience was unconfined.  Thus, in assessing the balance of convenience it was open to the judge to have regard to the manner in which the receivership application was resolved and the assumptions that underpinned that resolution. [85]-[86]
  5. The gravamen finding, which was based in part on the Proposed Undertaking, was erroneous. On its face that finding could potentially be understood as either a finding: that the parties had agreed to resolve the receivership application on the basis that the Glen Iris property would not be dealt with, or; (a somewhat strained reading of the finding) that Ms Lee’s conduct of the receivership application had induced the applicants to believe that the Glen Iris property would not be dealt with, based on which they agreed not to pursue their application.   Neither finding was open on the evidence.  There was no evidence suggesting an agreement of that kind and the rejection by the receivership applicants of the Proposed Undertaking suggested to the contrary.  The receivership hearing was conducted in a way suggesting that the concern was not with the Glen Iris property, but with the Carlton and Balwyn properties.  The gravamen finding treated Ms Lee as being constrained in the manner she would have been constrained had she given the Proposed Undertaking. [91]-[99]
  6. The gravamen finding plainly played a significant if not determinative role, infecting the judge’s assessment of the balance of convenience. [6(c)], [99]
  7. As to the judge’s reliance on the proposition that Ms Lee was the author of the circumstances she faced, a statement of that kind could be made in any case where the registered owner entered a contract of sale before removal of a caveat, and it was not a significant factor. It could also be said that the receivership applicants were authors of their circumstances because they had rejected the Proposed Undertaking. [100]
  8. As the Court of Appeal had before it the submissions and evidence that were before McDonald J, and as the matter was urgent, it was appropriate for it to make the orders that his Honour ought to have made, ie exercise afresh the s. 90(3) discretion, and not remit the matter. Ms Lee would plainly suffer immediate financial prejudice if the caveats were not removed and there was no real evidence that the caveators would suffer prejudice if the caveats were removed.  The balance of convenience favoured the removal of the caveats provided appropriate steps were taken to preserve the proceeds of sale.  The undertaking proferred by Ms Lee’s counsel sufficed. [104]-[109]

 

 

Philip H. Barton

  Owen Dixon Chambers West

  Thursday, February 17, 2022

Blog 47.  No contract of sale – No caveatable interest

In Hazelwood v Mercurio & Ors [2021] VSC 362 (22 June 2021) Daly AsJ –

  • primarily deals with an agent lacking authority to conclude a binding contract on behalf of a vendor (similar to the lack of authority of a solicitor: Leahy v Javni [2020] VSC 680 at [122]);
  • notes that, if a document existed whereby the vendor expressly authorised the agent to execute the contract on her behalf, it would be a breach of the Civil Procedure Act not to disclose it;
  • distinguishes English authority on whether an exchange of emails can comply with the Statute of Frauds;
  • held that if the caveators had established a binding contract the balance of convenience would have favoured them;
  • stayed the removal of caveat for 7 days to enable the caveators to apply for an injunction restraining completion of a further sale based on an alleged estoppel.

The facts were –

  • The plaintiff vendor gave an Exclusive Sale Authority to an agent (whose employee was Campbell) to market an apartment and two separately titled car parking spaces in the Melbourne CBD.  The Authority provided that the agent would advertise, market and sell the property and that “sold” meant (in normal circumstances) “the result of obtaining a binding offer”.  Clause 13 also authorised the agent to –
    • instruct a legal practitioner or conveyancer to prepare a section 32 statement, contract of sale, agree the content of either document and advise and agree on other amendments or additions to either document;
    • fill-up a standard form contract or contract to record the sale as permitted by statute;
    • negotiate and, with the vendor’s approval, agree and record, or have the legal practitioner or conveyancer record, the final terms of, and obtain signatures to, the contract;
    • attend to contract exchange; receive the price and certain advice or notices; and make public certain information.
  • The caveators deposed that on about 11 February they made an unconditional offer to purchase the apartment and one car space for $750,000, with settlement within seven days. Campbell deposed that caveators imposed a very short deadline on the offer and that he conveyed it to the vendor.
  • The caveators deposed that on 16 February Campbell said that he had found a purchaser for the other space and that the vendor had accepted their offer.  Campbell disputed this, deposing that although he could not remember his exact words he had no intention of conveying that a sale had been completed until signing of a written agreement. 
  • The vendor deposed that Campbell told her that he had located a potential purchaser of the apartment and one car space and another purchaser of the second space, and that she instructed him to amend the documents accordingly.    
  • On 18 February Campbell emailed the caveators: stating that if they could “confirm the below points for me” he would start the paperwork.  The points were: whether they had a conveyancer; their full names and address; price $750,000 with a 10% deposit; as to time for settlement; solicitors’ details.  The email concluded: “New paperwork is getting drawn up at our end so nothing for you to do at this stage”.
  • The caveators provided full names, address, lawyer’s details, and stated that settlement would be on 12 March.  
  • On 24 February Campbell emailed an unsigned section 32 statement and contract.  His email stated that he had just received these documents and not yet reviewed them “so let me know any questions you have and I’ll work through them”.   The unsigned contract named the vendor, referred to the apartment and to particulars of title of one space, but omitted purchasers’ names, price and settlement date.  When a caveator queried this Campbell replied that he had “just hit send as soon as I received and so you could have your people quickly review it before signing”.
  • On being informed by Campbell that someone else had purchased the apartment and both spaces the defendants on 2 March caveated on the grounds of a “part performed oral agreement” with the plaintiff.   On 4 March this contract was executed.  The vendor issued a notice under s. 89A of the Transfer of Land Act (TLA), leading to the caveators issuing a Proceeding with a Statement of Claim.  The vendor issued this proceeding under s. 90(3).  Campbell deposed that on average more than ten apartments in the building would be marketed and sold in any year.

The Victorian Statute of Frauds provision, contained in the Instruments Act s. 126, provides that –

“An action must not be brought to charge a person … upon a contract for the sale … of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is 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”.

In their Statement of Claim the caveators alleged, in the alternative to breach of contract, that the vendor represented that she would sell the apartment to them, such that she was estopped from resiling from that representation. 

Daly AsJ held –

  1. Accepting, for present purposes at least, that –
    • to comply with s. 126 a contract of sale need not be contained in a single, self-contained document; [33]
    • a sender of an email, by identifying themselves as the sender, can be considered to have “signed” the email; [33]
    • section 126 should be construed as to accommodate “accepted contemporary business practices”; [34]

nonetheless, the vendor had not signed anything.  The only signatory was Campbell, who was authorised to market the apartment but not to enter a contract on behalf of the vendor.  In the Authority there was a material difference between the definition of “sell” and the phrase “endeavour to sell”.  More importantly, cl. 13 did not authorise the agent to sign any contract on behalf of the vendor, but contemplated personal execution by the vendor and purchaser. [35]-[39]

  1. What was stated in the foregoing holding was based on the non-existence of a document in which the vendor not only confirmed her acceptance of the caveators’ offer but also expressly authorised the agent to execute the contract on her behalf. If such a document existed, it should have been disclosed by the vendor in accordance with s. 26 of the Civil Procedure Act headed “Overarching obligation to disclose existence of documents”. [46]
  2. The English decision in Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltdas to whether an exchange of emails between parties to a negotiation can constitute an agreement in writing for the purpose of the Statute of Frauds, was distinguishable.  There was a material difference between English and Victorian legislation. [40]-[44]
  3. If it had been necessary to consider the balance of convenience, this would have favoured the caveators because:
    • notwithstanding Campbell’s evidence that the sale of properties equivalent to the apartment was not rare, this apartment was particularly suitable to the caveators’ needs;
    • while the vendor not unreasonably considered that, absent an executed contract, she was free to deal with the apartment, and was now exposed to claims by the new purchaser, she entered this contract knowing that the caveators asserted that they had a contract with her and so she assumed the risk of this being established. [47]
  1. The caveators had not argued that their estoppel claim created an immediate equitable interest supporting a caveat. However this estoppel claim might found injunctive relief.  Accordingly the order for removal of the caveat would be stayed for 7 days to enable the caveators to apply for an injunction as they may be advised. [24], [48] – [50]

Philip H. Barton

Owen Dixon Chambers West

Friday, September 17, 2021

36. Arguable case of constructive trust but caveat removed on balance of convenience due to conflict with pre-existing orders of Family Court – Undertaking as to damages should have been offered – Harvey v Emery & Ors [2020] VSC 153 (2 April 2020), John Dixon J.

 

Comment.  This case is a good example of an arguable, but not strongly so, interest in the land being trumped by the balance of convenience – John Dixon J. engages in a careful balancing exercise against the background of existing Family Court orders.  Several further general principles emerge –

1.     Non-parties to a marriage claiming an interest in land the subject of Family Court proceedings should expeditiously intervene in those proceedings.

2.    An undertaking as to damages is not commonly required as the price of maintenance of a caveat.  Boensch v Pascoe [2019] HCA 49 at [113] (Blog 29) explains how caveats differ from interlocutory injunctions in this respect.  However, John Dixon J. states an exception, being that such an undertaking is invariably required when a caveat was not removed in circumstances where third party rights would be detrimentally affected. 

3.   The case illustrates that a registered proprietor taking the s. 89A procedure can subsequently take the s. 90(3) procedure.

In Harvey v Emery & Ors [2020] VSC 153 the facts were – 

•  The plaintiff was married to Daniel Emery who was the son of the defendants. In about early 2018 the plaintiff and Daniel entered a contract to acquire a property as their family home for $950,000. They agreed that it would be acquired solely in her name to protect it from his creditors. The price comprised: her contribution of $200,000; an advance by the defendants to her of $200,000; the balance by bank finance secured by first mortgage. The plaintiff became sole registered proprietor.

•  As noted by the judge, it could only be determined at a subsequent trial whether this advance (and any subsequent claimed expenditure) by the defendants was: a loan, and whether to the plaintiff or Daniel or both, and for what purpose, or; an equity contribution in the context of a broader joint enterprise to which the defendants were parties, with the ultimate purpose of providing accommodation to the plaintiff, Daniel, their children and the defendants.  Related to this, were the defendants either chargees or beneficiaries of a resulting or constructive trust?

•  After settlement of the sale the plaintiff briefly resided at the property, vacating due to conflict in the relationship with Daniel that led to its breakdown.  Daniel remained in possession of the property for a period before being placed in custody for undisclosed reasons.

•  In proceedings between the plaintiff and Daniel the Family Court made consent orders in March 2019 including to the effect that – 

•  the plaintiff would transfer the title to the property to him on him refinancing the bank loan to discharge her mortgage and release her from the debt obligation, and on payment by him of $200,000 into her solicitors’ trust account;  

•  if Daniel was unable to refinance the property was to be sold with net proceeds broadly being disbursed in varying proportions between the plaintiff and Daniel after payment of costs and discharge of the mortgage;

•  The parties held their respective interests in the property on trust, with Daniel having the sole right of occupancy and sole liability for mortgage payments and outgoings.  

•  Daniel was unable to refinance and so could not comply with this order, leading to further Family Court orders in October 2019 including – 

•  that plaintiff recover possession of the property to effect its sale, in accordance with the March orders, and Daniel was restrained from caveating or from encumbering the land;  

•  directions for the conduct of the sale and for the distribution of the proceeds. The direction in respect of the priority of distribution of the proceeds was in substance: (a) – (d) payment of the costs and expenses of sale and for discharge of the mortgage; (e) payment to the plaintiff in reduction of the amounts due to her pursuant to the March orders with interest; (f) payment of any remainder to Daniel in reduction of the amounts due to him pursuant to the March orders; a further order relating to the balance owing in respect of a truck and other minor orders.   

•  The defendants were not party to the Family Court proceedings and did not seek to intervene. The settlement of the Family Court proceedings assumed that the whole of the beneficial interest in the property was matrimonial property.

•  In November 2019 the defendants caveated claiming a freehold estate absolutely prohibiting all dealings on the grounds of an implied, resulting or constructive trust.

•  The plaintiff applied under s. 89A of the Transfer of Land Act for removal of the caveat.  In response the defendants commenced a Supreme Court proceeding against her seeking a declaration that the property was held on trust for them as to an amount equivalent both to the above advance of $200,000 and to $120,000 expended on renovations (“the trust proceeding”).

The plaintiff applied pursuant to s. 90(3) to remove the caveat.  Daniel was not a party to either proceeding although he appeared to be a necessary party to the trust proceeding.  He apparently expressed a strong interest in retaining ownership of the property.  The defendants alleged that after the plaintiff had vacated the property, but with her acquiescence, they invested labour and expended approximately $120,000 in renovations and improvements and to enhance its value, in furtherance of a joint endeavour to acquire and improve an extended family home.  The plaintiff disputed this.

John Dixon J. held –

1.   If the allegations in the trust proceeding were proved, the defendants’ beneficial interest ought to have been excluded from the matrimonial property available for division in the settlement reached between the plaintiff and Daniel. [15]

2.  If the defendants’ contentions were correct, they had been adversely affected by the Family Court’s orders. They could enliven the Family Court proceedings, either by applying to intervene and seek a rehearing or by appeal. There was potential for conflict between the resolution of the trust proceeding and the execution of the orders of the Family Court. There were compelling reasons to cross-vest the trust proceeding to the Family Court to be dealt with in conjunction with a reopening of the property settlement orders. This application under s. 90(3) was not the appropriate forum for determination of issues between the parties. [25]-[27]

3.  The defendants had demonstrated some probability that they may be found to have an equitable right or interest in the land as asserted in the caveat, ie a freehold estate in the land based on a joint endeavour giving rise to a constructive trust. And if the renovation expenditure was added the defendants’ percentage claim to the beneficial interest would correspondingly increase. However, although there was a serious question for trial of such a constructive trust the claim did not appear to be strong. It was more probable that the defendants would establish an equitable lien or charge limited to the initial $200,000 advanced, this not being the interest claimed in the caveat. [4], [13], [28], [31], [32], [43], [45]

4.  A relationship existed between the strength of the case establishing a serious question to be tried and the extent to which the caveator must establish that the balance of convenience favoured maintenance of the caveat. Because the constructive trust claim was not strong the balance of convenience obligation fell more heavily on the caveators. There were significant negative practical consequences for the plaintiff if the caveat was maintained, being –

(a) Frustration of the sale ordered by the Family Court, in circumstances where none of the material facts affecting that order were, or since had been, placed before that court at the material time;

(b) The plaintiff would breach the contract of sale, affecting the purchaser’s rights in a manner with adverse consequences for the plaintiff, which could culminate in her reopening the Family Court proceedings to adjust the value of the pool of matrimonial assets underlying their resolution;

(c) Other than belatedly, the defendants had not offered any undertaking as to damages, notwithstanding that this undertaking was invariably required when a caveat was not removed in circumstances where third party rights would be detrimentally affected. Having regard to the belatedness of the offer it was not deserving of weight in the absence of evidence of its worth;

    There was insufficient evidence that the plaintiff had sold at an undervalue, and if the property market was falling the sale should proceed. [5], [33], [39], [45]-[52]

5.  The course that carried the lower risk of injustice, if it should turn out that his Honour was wrong, was to order that the caveat be removed on the following conditions –

a) amendment of the trust proceeding and it being transferred to the Family Court;

(b) relief of the plaintiff of the obligation to comply forthwith with the orders of the Family Court, and in lieu order that the proceeds of sale be distributed in accordance with paragraphs 7(a) – 7(f) of the order of October 2019 and that the balance remaining be deposited into an interest bearing account and not be disbursed save by further order of the Family Court. [53]-[59]

 Philip H. Barton

Owen Dixon Chambers West

19 May 2020

 

35. Costs – Judge busts caveator poker player – Colakoglu v Ozcelik [2020] VSC 139 (25 March 2020), John Dixon J; Diep v Tran & Ors (Costs) 2020 VSC 171 (9 April 2020), John Dixon J; Wegner & Anor v Mayberry [2020] VSC 239 (1 May 2020), Kennedy J.

Comment.   Colakoglu is a mundane caveat removal case in which a caveator, who removed the caveat after service of a s. 90(3) application, was ordered to pay costs on a standard basis – it was unclear whether there had been reasonable cause to lodge the caveat but clear that, in negotiations immediately before its withdrawal, he maintained it inappropriately as a bargaining chip to extract funds to cover his costs.  Diep and Wegner are the latest manifestations of the practice of judges visiting hopeless caveats with indemnity costs.  The caveator in Diep did not help his case by stating that he would not remove the caveat until there was “an offer on the table” and that he “plays poker and was happy to spend a couple of hundred thousand dollars to make a point”.   From the time of the decision of Dodds–Streeton J. in Goldstraw v Goldstraw [2002] VSC 491 at [42] judges have repeated that caveats are not to be used as “bargaining chips”, which the caveator in Diep literally did.  From the blogger’s dim recollection, in vernacular terms the caveator “went bust”, and indeed Google confirms that to “bust” a player in poker (as John Dixon J. did) means you are relieving them of all their chips.

In Colakoglu v Ozcelik [2020] VSC 139 the facts were –

  • The plaintiff and first defendant were married, had purchased a unit then placed in the plaintiff’s name but to which the first defendant claimed he had contributed giving rise to a trust, and proceedings were on foot between them in the Federal Circuit Court in which the beneficial interest of the parties could be adjusted under the Family Law Act.
  • The plaintiff listed the property for sale with the first defendant’s consent, his solicitors advising that he had foregone his interest in the property and had no interest in the proceeds of sale.
  • A contract of sale was accordingly entered into with settlement scheduled for 19 March.  However, on 3 March, notwithstanding their earlier advice, the first defendant’s solicitors lodged a caveat claiming a resulting and/or constructive trust.
  • The plaintiff sought consent to withdrawal of the caveat, on the basis that the sale proceeds would be held by her solicitors in a solicitor’s controlled money account for the benefit of both parties pending resolution of the family law issues.  Before the time for settlement of the contract arrived the parties were not in dispute that the contract ought to settle with the balance of proceeds of sale being paid into trust.
  • However, the first defendant did not remove the caveat, delaying settlement.  But after the plaintiff commenced a proceeding under the TLA s. 90(3) the first defendant withdrew the caveat and the contract settled

John Dixon J. ordered that the costs of the application be paid by the first defendant on a standard basis, dismissed an application for costs against his solicitors, and referred an application for compensation under s. 118 for case management.  His Honour held –

  1. As to whether there was a serious question to be tried, as the unit was to be converted into a fund to be held in trust pending resolution of the family law dispute, the beneficial interest of either party was unaffected, and accordingly whether the first defendant disclaimed any interest in a trust as the plaintiff submitted, or whether he ever had such interest as the first defendant now contended, was a matter for trial. [7]
  2. The balance of convenience favoured removal of the caveat. [16]
  3. The evidence on whether the first defendant had reasonable cause to lodge the caveat was unclear, because he did not engage with the plaintiff’s allegation that he disclaimed any interest in the unit when consenting to its sale.  However, in the negotiations immediately before the withdrawal the caveat continued to be maintained inappropriately as a bargaining chip to extract funds to cover his costs. [13], [22]

In Diep v Tran & Ors (Costs) [2020] VSC 171 –

  • The first defendant lodged a caveat asserting a caveatable interest on the basis of an agreement dated 1 May 2019.   He ignored requests for a copy of this agreement: it was never sighted.
  • The plaintiff’s solicitors requested withdrawal of the caveat, being met with the response that it would not be removed until there was “an offer on the table” and that he “plays poker and was happy to spend a couple of hundred thousand dollars to make a point”.
  • The plaintiff’s solicitors suggested that the caveat be withdrawn, the settlement proceed and the net proceeds of the sale be placed in a trust account pending resolution of the dispute.  The caveator responded in substance: “you said you were going to make an offer, there’s no offer of money.  Why would I remove my caveat if you are not going to give me money?”
  • After caveat removal proceedings were issued the caveat was withdrawn.

His Honour ordered that the caveator pay indemnity costs because: he provided no justification for the interest claimed by his caveat; before issuing the proceeding the plaintiff’s solicitor made a reasonable proposal for retention of the net proceeds of sale; the caveat was used as a bargaining chip to extract a monetary offer – a serious misuse of statutory provisions for an improper or ulterior purpose.

In Wegner & Anor v Mayberry [2020] VSC 239 –

  • The first defendant lodged a caveat on the ground of an implied, resulting or constructive trust over land of which the first plaintiff, his former wife, was a registered proprietor as tenant in common with the second plaintiff.  The purchase of the land had been funded by bank finance secured by mortgage.
  • In April 2019 this caveat was removed by court order with indemnity costs.
  • In July 2019 the first defendant became bankrupt.
  • In January 2020 the first defendant lodged a second caveat on the same ground as the first.   On being requested to remove it he refused until the plaintiffs refinanced and released him from his obligations as a co-borrower.  He was given notice that unless the caveat was withdrawn indemnity costs would be sought.
  • In February 2020 the plaintiffs entered a contract to sell the land for a price below the mortgage debt, the solicitors for the first defendant’s trustee in bankruptcy consented to the sale, and caveat removal proceedings were commenced.

Kennedy J ordered removal of the caveat because the caveator had not established any arguable right or interest in the land (and any interest would now be vested in his trustee in bankruptcy) and the balance of convenience favoured removal: the caveat would adversely affect the sale; it was in everyone’s interests that the mortgage debt be reduced; there was evidence that market may be falling; and the trustee in bankruptcy had consented to the sale.

Indemnity costs were awarded because the caveat had been lodged for a collateral purpose and in disregard of known facts.

Philip H. Barton

Owen Dixon Chambers West

12 May 2020

 

32. Where B wrongfully acquires monies from A, which B passes on to a third party, who uses such monies to purchase land of which it becomes registered proprietor – Or where B fraudulently transfers land owned by A to a third party who becomes registered proprietor – Caveat by A upheld if there is a constructive trust in A’s favour, but not if there is a mere equity to set aside the transfer – Contrast between AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd and Super Jacobs & Anor v Esera Faalogo & Ors.

In AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2019] VSC 688 (15 October 2019) Ginnane J. the facts were –

  • Esposito Holdings Pty Ltd (Esposito Holdings) agreed to sell and the first defendant (UDP) agreed to purchase the issued shares in a company. An arbitration occurred related to disputes arising under that agreement.  The arbitral award stated that Esposito Holdings had engaged in misleading and deceptive conduct contrary to s. 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth) and director Mr Antonio Esposito was involved in the contravention within the meaning of s. 2(1) and for the purposes of s. 236 of Schedule 2.  The award also declared that on and from 31 January 2014 Esposito Holdings held the purchase price on constructive trust for UDP which had suffered loss of $54,144,847.
  • The plaintiff (AE Brighton) purchased and became registered proprietor of four properties.
  • There was prima facie evidence that, when Mr Esposito was also sole shareholder and director of AE Brighton, part of the purchase price received from UDP under the share sale agreement was paid by Esposito Holdings, possibly through another company controlled by Mr Esposito, to AE Brighton to purchase the properties, possibly in the case of one purchase through repayment of an earlier loan used for that purchase.
  • In 2018 the Supreme Court gave UDP leave to enforce the award and ordered that the award was given effect as a judgment of the Court.
  • UDP caveated over the properties on the grounds of an implied, resulting or constructive trust.
  • Subsequently AE Brighton entered a contract to sell two of the properties.

Ginnane J dismissed an application by AE Brighton for the caveats to be removed, but required the caveator to commence proceedings promptly to support its claim, on the following grounds –

  1. Where a trustee wrongfully used trust money to provide part of the cost of acquiring an asset, the beneficiary was entitled at his option either to claim a proportionate share of the asset or to enforce a lien upon it to secure his personal claim against the trustee for the amount of the misapplied money. It was irrelevant whether the trustee mixed the trust money with his own in a single fund before using it to acquire the asset, or made separate payments (whether simultaneously or sequentially) out of the differently owned funds to acquire a single asset.  This principle was not reliant on proof of fraud, merely on breach of trust. [32]-[33]
  2. Based on this principle there was a prima facie case that the caveator had an estate or interest in the properties as a beneficiary under a constructive trust. This arose from money (ie the purchase money under the share sale agreement) obtained by Esposito Holdings as a result of misleading or deceptive conduct, from which the caveator suffered loss, held on trust by Esposito Holdings for the caveator, being paid in breach of trust by Esposito Holdings to AE Brighton which used it to purchase the properties.  While the evidence in the arbitration did not bind AE Brighton, because it was not a party to the arbitration, it was relevant in determining this prima facie case. [28], [36], [37], [38], [40], [41]
  3. AE Brighton had more than a mere equity, which was not an equitable estate and so not caveatable. [30]-[31]
  4. Although the court took into account that AE Brighton had entered into two contracts of sale, the caveats predated the contracts and AE Brighton had made no submission about how, taking into account the interests of the mortgagees and other caveators, the caveator’s security interest in the properties could be protected if the caveats were removed. Accordingly the balance of convenience favoured maintenance of the caveats on terms requiring the caveator to commence its proposed proceeding promptly. [42]-[43]

An application for leave to appeal against this decision has been lodged, the respondent’s application for security for costs being dismissed: AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 43.

In Super Jacobs & Anor v Esera Faalogo & Ors [2019] VSC 778 (3 December 2019) Daly AsJ the facts were –

  • The defendants were registered proprietors of a residential property. They were migrants, of limited means, not highly educated or familiar with legal or financial matters.  In 2016 they gave a general power of attorney to a mortgage broker who they believed was arranging finance for them to be secured against their property.
  • In 2017 the mortgage broker, the defendants’ claimed fraudulently, used the power to execute a contract of sale of the land to the plaintiffs who became registered proprietors in June 2018. The sale was not by auction or private treaty or advertised and had other unusual features.
  • The defendants received no funds from sale, subsequently discovered this transfer, and later in 2018 caveated on the ground of: “Registered proprietor(s) being entitled to possession of the certificate of title for the land and to prevent improper dealings”. This was one of the grounds of claim in the drop-down menu in the Registrar of Titles’ electronic lodgment service.
  • The plaintiffs applied for removal of the caveat and for an order for possession.

Daly AsJ removed the caveat, holding –

  1. Even if (which they denied) the plaintiffs obtained the property by fraud or improper dealing the caveators’ claim to have the transfer set aside on the grounds of a fraud by, or which could be sheeted home to, the registered proprietors was not an interest or estate in land. They did not hold an equitable interest in the property until the claim was made good in a court.  Until then their equitable right to assail the transfer for fraud was a ‘mere equity’, being a personal right of action.  On the same principle, if a mortgagee sold land in breach of its duties to the mortgagor the mortgagor had only an equity to set aside the pending transfer of land and could not caveat. [18]-[20], [28]-[32]
  2. Accepting for present purposes that the mortgage broker owed the defendants a fiduciary duty, and that as such, if (as they denied) the plaintiffs were knowingly concerned in the broker’s breach of trust, or were a knowing recipient of trust property (being the land), then the plaintiffs may be liable to the defendants pursuant to the principles in Barnes v Addy (1874) LR 9 Ch. App. 244 with the remedy of a remedial constructive trust. However, this did not convert the defendants’ potential claim into an equitable interest as opposed to a personal claim against the plaintiffs.  This was to be contrasted with an equitable interest arising from proprietary estoppel or a common intention constructive trust: in such a case the equitable interest arose from when the promise was relied upon or the common intention was given effect. [34]-[36]
  3. It was accordingly unnecessary to consider whether the caveat ought to be removed because the grounds of claim did not refer to an interest in land known to the law, or whether the caveat should be amended. [37]
  4. If the defendants had had an interest in the land the balance of convenience would have been in their favour. [17]

Comment.  Both cases considered the decision of the Full Court in Swanston Mortgage Pty Ltd v Trepan Investments Pty Ltd [1994] 1 VR 672 that where, under the Torrens system, a mortgagee sells in breach of its duties to the mortgagor, the mortgagor has an equity to set aside the pending transfer of land, but until the equity is made good by bringing a successful claim the mortgagor has no equitable interest in the land and therefore no right to caveat.  The first case distinguished it.  The second applied it.

The principle that the interest claimed in the caveat must be in existence at the time of its lodgment – it was not enough that the caveator had commenced proceedings which may result in such an interest being vested in him or her – was also asserted in Boensch v Pascoe [2019] HCA 49 which was the subject of Blog 29.

Philip H. Barton

Owen Dixon Chambers West

20 April 2020

 

31 Caveat by bankrupt on ground of “estoppel” removed.

In Official Trustee in Bankruptcy v Shaw & Anor [2019] VSC 681 (14 October 2019) John Dixon J.

The facts were –

·      In 2014 a sequestration order was made against the first defendant who was the sole registered proprietor of a residential unit and an associated car parking space.  In July 2019 the Official Trustee entered into a contract to sell the property with settlement due on 4 October 2019.  In August the bankrupt ceased to be registered proprietor of the land.  In September the Federal Court dismissed an application by the bankrupt for interlocutory injunctive relief directed at the Official Trustee’s decision to sell.

·       On 3 October 2019 the bankrupt lodged caveats over each property on the ground of “estoppel”. 

John Dixon J. ordered removal of the caveats on the following grounds –

1.   There was no serious question to be tried or prima facie case that principles of estoppel could give the bankrupt a claim to an interest in the land enforceable against the Official Trustee because –

(a)   under s. 58(1) of the Bankruptcy Act (Cth) all of his right, title and interest in the land vested in the Official Trustee whether as his property when he became bankrupt or as after-acquired property;

(b)  it was inconceivable that circumstances that would give rise to his estoppel extended before the time the bankrupt ceased to be the registered proprietor, because it was nonsensical to suggest that the registered proprietor had a claim against himself for an estate or interest in land pursuant to an estoppel;

(c)   the caveat was lodged for the improper purpose of preventing sale while he appealed the Federal Court decision.   The only proper purpose of a caveat was to prevent dealings with that property because of a claimed interest in it.

[44]-[48], [53], [55]

2.     The balance of convenience was against the caveator because –

(a)  it was frustrating the settlement of the contract, affecting the interests of a third party purchaser adversely, and if, as would be the consequence of significant delay, the sale was terminated there would be the prospect of prejudice to the caveator’s creditors;

(b)   he could not proffer an undertaking as to damages;

(c)   he had not explained why the caveat had been lodged so close to settlement.  He could still in the context of further Federal Court proceedings seek relief affecting the future conduct of the Official Trustee in relation to the proceeds of sale.

[55]-[58]

Philip H. Barton
Owen Dixon Chambers West
14 April 2020

 

22. Caveats based on trusts alleged to arise in the domestic context – Muschinski v Dodds trust? Sale of land subject to caveat with requirement of retention of net proceeds to meet caveator’s future claim – Requirement in case of conflict of testimony that caveat be removed unless caveator commenced proceeding to establish interest – Power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on trusts – Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest though court order under that Act could have that effect – Comparison of procedures under TLA s. 90(3) and s. 89A – Indemnity costs against client and reserved against solicitor who lodged caveat.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

 

Karan is a case of a son with a caveatable interest in his parents’ property based on a Muschinski v Dodds constructive trust.

McRae is a dispute between real or alleged domestic partners concerning two properties, involving a Muschinski v Dodds constructive trust, with analysis by Derham AsJ of: (1) the balance of convenience where despite a caveatable interest it is necessary that a property be sold, and; in the case of a property not being sold, the law that, where a caveator has established a prima facie case but there is a conflict of testimony, the caveat would not be removed outright but may be ordered to be removed unless within a certain time a proceeding is issued to establish the caveator’s title.

Hermiz is a groundless claim for a Muschinski v Dodds constructive trust by the mother of a registered proprietor’s child, which also: ventilated why the TLA s. 90(3) procedure should be taken rather than that under s. 89A, and; attracted an order for indemnity costs against the caveator and reserved the caveating solicitor’s liability also to pay them.  This case reiterates that the power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on the principles of constructive trusts; and that the Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

The facts were –

  • Mrs Karan was the registered proprietor of a residential property. Her son Theo was registered proprietor of a neighbouring property where his parents and then his mother lived for many years.
  • She died, as administrator of her estate her other son Frank desired to sell the property, but Theo had caveated claiming an equitable estate in fee simple on the ground of an implied or constructive trust.
  • Frank applied under the Transfer of Land Act (TLA) s. 90(3) to remove the caveat. Theo was agreeable provided part of the sale proceeds was held in trust pending determination of his claim.
  • Theo alleged in substance:
    • residence in the property since 1988;
    • that Frank had used both properties to raise funds for business ventures on the basis of being responsible for the mortgage repayments which he subsequently ceased making leaving Theo to make some repayments;
    • payment of rates and outgoings including insurance;
    • expenditure on repairs, renovations and extensions;
    • in summary, total contributions of over $200,000.

Daly AsJ:

  1. Referred to a “Baumgartner constructive trust” (based on the High Court case of Baumgartner v Baumgartner (1987) 164 CLR 137, also known as a Muschinski v Dodds constructive trust, based on the High Court case of that name: (1984) 160 CLR 583)). The elements of this trust are that a constructive trust for the holding of a beneficial interest in land in particular shares may arise regardless of agreement or intention where:

(a)   A relationship or joint endeavour has broken down without any blame attributable to any party to it;

(b)   There has been a financial contribution by one or both parties to the relationship or to the joint endeavour;

(c)   In these circumstances, and in all the circumstances, it would be unconscionable for one party to the relationship or joint endeavour to retain a benefit greater than that party’s contribution. [7]

  1. Held that Theo had established a serious question to be tried that such a trust existed from before 2012, on the basis of arguments that:

(a)   he and their parents were involved in a joint endeavour whereby he made contributions to the property, which enabled him and his family to live rent free at the property, and enabled his parents to live rent free at his property;

(b)   they all pooled their resources to facilitate the joint endeavour;

(c)   the joint endeavour ended without blame upon the death of the parents; and

(d)   it would be unconscionable for the estate to retain the benefit of his contributions. [8], [14], [16]

  1. Ordered removal of the caveat on condition that all or part of the net sale proceeds be retained to meet any claim by Theo, who was also required to commence a proceeding to pursue his claim within a specified time. [3(k)], [18]-[20]

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

The chronology was –

  • The plaintiff (Zachary) was the registered proprietor of a property at Albion acquired in 2004 and of a property at Lara acquired in 2013, each encumbered by the same mortgage.
  • In January 2019 the defendant (Rachel) caveated over each piece of land claiming an interest in the land “as chargee” under an implied, resulting or constructive trust.
  • In March 2019 Zachary entered into a contract to sell the Albion property to be settled in May 2019.
  • He applied for removal of the caveats under the TLA s. 90(3).
  • He alleged that:
    • in 2012 she gave birth to their twins, but he had never lived with her as a couple in a de facto relationship and there was no agreement between them sufficient to give rise to a constructive trust;
    • until recently the children lived with her during the week and with him every weekend;
    • in January 2019 she had attempted to kill him leading to an intervention order.
  • Rachel alleged that:
    • they had resided in a ‘full emotional and sexual’ committed de facto relationship between 2002 and 2019 and were publicly known as such;
    • they pooled their income for joint expenses;
    • the properties were acquired during the course of the relationship;
    • she made financial contributions to their purchase and development;
    • Zachary always ‘indicated’ to her that she had an interest in both properties and was entitled to a half share of them;
    • his evidence as to residence with the children was incorrect and that she had not assaulted him.

Derham AsJ held:

  1. The estate or interest claimed as chargee was likely to be the result of a legal error. [3]
  2. If Rachel’s testimony was accepted there was a sensible basis for, and a sufficient probability of, finding that there was a Muschinski v Dodds constructive trust over both properties to the extent of her having an equitable estate in fee simple as a co-tenant with Zachary. This basis was: her direct contributions to the acquisition of the Albion property; her contributions to the maintenance and mortgage payments of both properties. [17]-[19]
  3. Accordingly, while it was neither necessary or appropriate to determine disputed questions of fact, Rachel had a sufficient likelihood of success justifying the practical effect of maintaining the caveat over the Albion property or of requiring deployment of most of the net sale proceeds in reducing the mortgage. [13], [20]
  4. The interaction between the strength of the caveator’s case and the balance of convenience was such that the lowest risk of injustice, whatever the outcome of the disputes, lay in removal of the caveat at settlement on the proviso that the net proceeds of the sale were (after payment of certain credit card debts – see below) applied to reduce the mortgage (Zachary also undertaking not to withdraw loan monies under the mortgage). This outcome preserved most of the benefit of Rachel’s caveatable interest.  To withhold this protection would do her irreparable harm if she succeeded in establishing her claimed interests, while to grant it would not greatly injure Zachary if her claims failed. [4], [21], [22], [24]
  5. However, certain of Zachary’s credit card debts were first to be paid out of the sale proceeds because most were incurred during the relationship alleged by Rachel and some had been incurred in completing the Lara property and so would ultimately benefit Rachel if her constructive trust claim succeeded. [4], [23]
  6. As regards the Lara property, it was clearly established law that where a caveator established a prima facie case but there was a conflict of testimony the court would not order outright removal of the caveat but may order removal unless steps were taken to establish the caveator’s title within a certain time. Accordingly the caveat would be ordered to be removed unless the caveator commenced proceedings to establish her title within a month. [5], [25], [26]
  7. Having regard to offers made by each side before the hearing, which were each to some extent appropriate, the defendant was ordered to pay the plaintiff’s costs fixed at $1,400, being disbursements incurred in issuing the originating process and paying the search fees incurred in putting forward exhibits to his affidavit in support. [27]

 

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

The chronology was –

  • In 1998 the plaintiff (Hermiz) and the first defendant (Yousif) were sexually intimate leading to the birth of a child.  They ceased their relationship at about this time and Hermiz had never met the child.
  • Hermiz paid child support.  Yousif never provided him with any financial support.
  • Hermiz married his wife Dina in 2004.  In 2010 they purchased a residential property, became registered proprietors and subsequently cohabited there.
  • Yousif made no contribution to the property, or to any other asset owned by Hermiz, he made no promise about the property or declaration of trust or like arrangement concerning it, and no court order related to it.
  • In December 2018 Hermiz and Dina entered into a contract to sell the land with settlement due in February 2019.
  • In January 2019 Yousif lodged a caveat claiming an interest in the land pursuant to a court order under the Family Law Act.  There was no order giving such an interest.  The caveat was voluntarily removed.
  • On 1 February 2019 Yousif via a firm of solicitors lodged the caveat the subject of this proceeding claiming a freehold estate on the basis of an implied, resulting or constructive trust.  Hermiz’s solicitors wrote to Yousif’s solicitors expounding the absence of basis for the caveat and forshadowing an application for damages and indemnity costs.
  • Hermiz and Dina could not complete the sale, but gave the purchaser possession under a licence and also remained liable to keep up mortgage repayments.
  • Hermiz applied under the TLA s. 90(3) to remove the caveat.
  • Two days before the Supreme Court hearing Yousif filed an application in the Federal Circuit Court for a property order, in particular for an order that the net proceeds of sale of this property be held in trust pending final orders, supported by an affidavit including allegations referred to in 1 below.

Derham AsJ held:

  1. Yousif had not discharged the burden of establishing a serious question to be tried (in the sense of a prima facie case) of the interest in land claimed in the caveat.  There was insufficient evidence of a Muschinski v Dodds constructive trust: her allegation of cooking, cleaning and supporting Hermiz financially whilst he studied for his Australian medical qualification more than a decade before purchase of the land did not reveal that it is or would be unconscionable for him to deny her an interest in the land. [32]-[37], [40], [41]
  2. On the dissolution of marriage or the breakdown of a de facto or domestic relationship, the scope of the Federal Circuit Court’s power to alter property interests was determined by legislation, in this case the Family Law Act s. 90SM, rather than by the principles of constructive trusts.  The Family Law Act did not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect. [38], [39]
  3. The balance of convenience was also against Yousif. [42]
  4. Hermiz was justified in applying under the TLA s. 90(3) as opposed to using the administrative procedure in s. 89A. The very reason for the summary procedure under s. 90(3) was to enable an application that avoided the delay involved under s. 89A. [44], [45]
  5. Indemnity costs would be awarded against Yousif because: the nominated basis of resulting, implied or constructive trust for lodging the caveat was without merit, and; she was using the caveat process as a bargaining chip. [52], [53]
  6. Leave would be reserved to Hermiz to claim costs against the solicitors who lodged the caveat. [54]

19. Foreign money invested in property – whether trust created or mere loan – caveat removed but sale monies paid into trust.

Oz Envision Development Pty Ltd & Anor v Yuan (11 October 2018) [2018] VSC 607 McDonald J.   

The facts were –

  • In or about 2012 the defendant transferred$5.01 m. to enable the first plaintiff to acquire two properties. 
  • One property was subdivided into three units. 
  • In 2016 a deed of arrangement was entered into between the first plaintiff and the defendant whereby funds from the sale of this land were to be paid to the second plaintiff to enable it to undertake property development.
  • Contracts of sale of the three units for a total of $2,665,000 were entered into. 
  • The defendant caveated over both properties claiming that the advance of monies gave rise to a caveatable interest pursuant to an implied or resulting trust.

The plaintiffs alleged that the funds were merely a loan and so gave rise to no caveatable interest. 

The defendant, who was a Chinese National, deposed that:

  • the purpose of the payment was to invest $5 m. in Australia, this being required for the purpose of seeking  Australian residency;
  • the director of the first plaintiff was so appointed because he held the required residency status for directorship of a company in Australia which the defendant did not;
  • there was no discussion as to a loan including as to interest and that his intention was “that the money I paid to the First Plaintiff meant that the properties purchased by the First Plaintiff were my properties”. 

McDonald J held –

  1. There was a serious question to be tried that a caveatable interest existed based on a resulting trust.  There was no written loan agreement or evidence of a verbal loan agreement, and this absence was consistent with the terms of the deed.  Financial evidence of a loan, produced by the plaintiffs, in particular unaudited balance sheets of some weight, was nonetheless inconclusive. [8], [10]-[11], [13], [17]
  2. However, the balance of convenience favoured removal of the caveats because they were having a significant adverse effect upon the first plaintiff’s business, were preventing completion of the contracts, and were affecting the rights of the innocent purchasers. [17]-[19]
  3. Nonetheless, the proceeds of sale would not be distributed in accordance with the deed but would be paid into trust or an interest bearing account (in the solicitors’ names) pending trial.  The argument that this was contrary to the implementation of the deed was overcome by the first defendant’s allegations that he, being illiterate in English, had been induced to execute the deed by fraudulent misrepresentation by the director of the first plaintiff about its terms. [20]-[21], [23], [25]

Comment:

  1. From a non-legal aspect this case is a manifestation of the common phenomenon of foreign money being advanced to buy Australian property on terms not clearly documented.
  2. His Honour did not spell out the law of resulting trusts, but where property is put into the name of a non-contributor, or one of a number of contributors,to the purchase price, it is generally presumed to be held by the registered proprietor on trust for the contributors in proportion to their contributions, eg:Piroshenko v Grojsman [2010] VSC 240 (in which the claim failed on the facts).
  3. However, money lent for the purpose of being applied towards the purchase price of land does not, on being so applied, entitle the lender to an estate or interest in the land, unless the parties intended that the lender should have security for the loan: Simons v David Benge Motors Pty Ltd [1974] VR 585. 

 

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].