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. 

 

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.  

12. RECENT SUPREME COURT CASES DEC 2017 – FEB 2018 (6 of 6)

Costs

Toh & Anor v Wu & Anor [2018] VSC 36 (12 February 2018) Daly AsJ.

The chronology was –

 

2017                            First defendant commences family law proceeding in Federal Magistrates Court

against her husband.  The plaintiffs in the subsequently issued Supreme

Court proceeding are her in-laws and are registered proprietors of a

property.  Application (not yet determined) to join plaintiffs as parties

to the family law proceeding and to restrain sale of property or have proceeds

of sale retained in trust pending determination of

proceeding.

28 November 2017   Caveat lodged by first defendant over the property, grounds of claim being “court order under the Family Law Act 1975”.

15 January 2018       Plaintiffs notify intention to issue and issue s. 90(3) application. 

16 January 2018       Service of application and material in support.

18 January 2018       Hearing at which caveat ordered to be removed.  Order that net proceeds of sale be held in trust.  Costs reserved.

29 January 2018        Settlement of sale of property due.

Daly AsJ ordered that each party should bear their own costs of the s. 90(3) application.  Her Honour reasoned –

  1. In removing the caveat the court had not considered whether there was a serious question to be tried.  Although the interest claimed in the caveat was not prima facie a recognized proprietary interest the underlying documents tolerably revealed claims pursuant to a resulting or constructive trust, and the suddenness of the application severely compromised the caveator’s ability to respond.  However, the balance of convenience overwhelmingly favoured removal because of settlement and finance difficulties.  The removal was also influenced by the fact that, having regard to the existing Federal Magistrates’ Court proceedings, it was in the parties’ interests for property interests to be determined in one proceeding, not fragmented across jurisdictions.
  2. Special circumstances warranted the plaintiffs not receiving their costs, namely their failure to warn the caveator of the intended application.  While it would often be unnecessary or impractical to warn of an application, the application here was made some 7 weeks after lodgement of the caveat and only 7 business days before settlement of the sale was due.  The caveator was ambushed.
  3. The caveator’s alleged impecuniosity was irrelevant to the costs decision.

8. RECENT SUPREME COURT CASES DEC 2017 – FEB 2018 (2 of 6)

A caveat removed on the balance of convenience to permit refinancing.

Six Bruce Pty Ltd v Milatos and Ors [2017] VSC 784, 19 December 2017, Keogh J. 

The chronology was –

19 February 2016      Plaintiff becomes registered proprietor of a property using funds secured by registered first mortgage. It subsequently defaults under the mortgage.

20 May 2016              VCAT orders that a permit issue allowing construction of a four-storey apartment building on the property.

5 February 2017        Plaintiff contracts to sell the entire property to first defendant.  Deposit paid.   

20 March 2017          Purchaser nominates substitute purchaser.

3 July 2017                 Settlement date extended to 4 August 2017 on the basis that purchaser pay an additional deposit which it (not the nominee) does.   

31 July 2017               Purchaser learns of undisclosed drainage easement

affecting the property.

8 August 2017            Vendor serves rescission notice based on non-payment of balance of price.

14 August 2017          Purchaser services rescission notice based on alleged

non-disclosure of the easement in the vendor’s statement.  Vendor retains

deposit.

September 2017        Vendor enters joint venture agreement to develop the property. 

3 October 2017         Purchaser caveats on ground of lien to secure repayment of money paid under the contract.  Caveat does not name the nominee substitute purchaser.  Two registered mortgages and two previous caveats exist.  There is a subsequent caveat.

10 October 2017        Purchaser sues for return of deposit or declaration re caveat.

12 October 2017        Mortgagee sues vendor for repayment under mortgage. 

20 November 2017    Vendor receives refinance offer from other lenders.

27 November 2017    Vendor files Defence to purchaser’s proceeding substantially disputing the claim. 

The vendor commenced a proceeding under s. 90(3) to remove the purchaser’s caveat to permit refinance.  

Keogh J removed the caveat subject to conditions.  His Honour held –  

1.      There was a prima facie case that the caveator had the interest claimed.  The prospects of the vendor being excused under the Sale of Land Act s. 32K(4) for breach of the law in the section 32 statement were entirely uncertain.

2.      The caveat was not required to name the nominee. The effect of the nomination clause was to empower the purchaser to require the vendor to complete the contract by transfer of the property to the name of the nominee.  After nomination the nominee did not acquire rights as purchaser.

3.      However the balance of convenience favoured removal of the caveat because: most of the deposit had been released, presumably by agreement; the trial of the purchaser’s proceeding was distant; without the refinancing a mortgagee’s sale was likely; the vendor undertook not to deal with the property pending determination of the purchaser’s proceeding; the vendor agreed to charge the property to secure the amount of any judgment thus then enabling a further caveat; accordingly the purchaser’s position would probably be improved by the refinancing.