Category: Caveator required to commence proceeding where conflicting testimony

Blog 74. Leave to appeal against Blog 65 refused

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

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

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

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

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

Ierodiaconou AsJ dismissed the application, holding –

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

The Court of Appeal refused leave to appeal, holding –

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

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 25, 2023

 

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]