Blog 102. A Federal Court case concerning a caveat, equitable priorities and much else besides.

Credit Suisse AG v Gu (No 3) [2026] FCA 439, Cheeseman J.

This is the first Blog covering a Federal Court case, gratefully brought to my attention by a follower of this Blog. I use the word “gratefully” advisedly – as I traversed its 476 paragraphs I did not always experience this feeling! I occasionally reflected that, having done sundry misdeeds and contemplating whether to stop entirely, Macbeth said –

“I am in blood Stepp’d in so far, that, should I wade no more, Returning were as tedious as go o’er.” (Act 3, Scene 4)

This case is a long priority contest between three parties covering multiple grounds with a minor caveat element. No Victorian cases are cited, but the principles enunciated apply equally in Victoria. This Blog has been very difficult to format within the limits of WordPress, particularly in the case of the subsections of s. 121 of the Bankruptcy Act, and my friend Frank, who is responsible for putting the Blog into cyberspace, says it has taken 5 years off his life.

The facts were –

In 2017 Mr Gu entered a contract to purchase a residential property in Sydney (the Property) for $10 m. with a $1 m. deposit.
In March 2017 Credit Suisse agreed to advance $6 m. to Gu for this purchase.
At that time Gu was a director of i-Prosperity Pty Ltd (IPPL). On 3 and 15 March and 13 April monies were transferred from IPPL’s accounts into Gu’s HSBC account (the First, Second and Third IPPL Sums). On 18 April $3.2 m. was paid from that account to a solicitor’s trust account. That day $500,000 was also transferred from IPPL into that trust account (the Fourth IPPL Sum). On 21 April trust monies in the sum of $3,654,987.14 were applied by those solicitors towards the purchase price and acquisition costs.
The sale settled. On or about 3 May 2017 Gu became registered proprietor of the Property subject to Credit Suisse’s mortgage. The mortgage provided that the mortgagee’s consent was required before any further interest in the property was granted (cl. 5.7(c)).
Subsequently, $280,000 of IPPL’s funds were paid to Credit Suisse as follows: $200,000 on 12 May 2017, $30,000 on 5 July 2019 and $50,000 on 22 January 2020 (the Fifth, Sixth and Seventh IPPL Sums). Credit Suisse treated those sums as credits to the current account associated with the mortgage facility, applying them to meet interest due.
In June 2019 a series of related agreements involving Gu and Great Lands Investment Pty Ltd (Great Lands) were made. One was a loan agreement dated 28 June by which it lent him $3 m. repayable after two months secured inter alia by an unregistered mortgage over the Property, as to which a caveat was lodged that day. The loan agreement provided for a lower interest rate of 2% per month in the ordinary course, but in cll. 5.4, 5.5 and 5.7(a)(ii) stipulated a higher interest rate of 4% per month upon default, with compounding and capitalisation in the default regime.
Within Great Lands Mingjie (Jason) Zhang had authority to act in relation to this loan including in relevant discussions with Gu. IPPL on behalf of Gu paid Jason Zhang $700,000 on 20 September 2019 and $500,000 on 6 February 2020 (the Jason Zhang payments).
On 10 March 2020 four persons (the Hu Parties) sued IPPL and another company seeking repayment of monies invested pursuant to a convertible debenture arrangement. The Hu Parties obtained a freezing order for $5,750,000 against the defendants.
On 15 April 2020 this proceeding was settled on terms including payment by the defendants of an agreed sum. Following non-payment the Hu Parties obtained judgment on 14 May 2020 for $5,761,972.60. (the First Judgment Debt).
The parties to this litigation then negotiated during which Gu proposed that i‑Prosperity Capital Management Pty Ltd (IPCM) grant security over its assets in the Hu Parties’ favour. Their solicitor responded by seeking particulars of those assets and their value. The Hu Parties generally interrogated the financial information provided by IPPL and Gu, including proposed security, and conducted a title search disclosing the registered mortgage and the Great Lands caveat.
A draft Deed of Guarantee and Indemnity (the Hu Deed) between the Hu Parties (described as the Beneficiaries), Gu and IPCM (described as the Guarantors) and IPPL was circulated. On 1 June Gu’s solicitor sought to delete cl. 7.2 of the draft while otherwise preserving the broader package of the proposed deal. The Hu Parties’ solicitor refused this deletion, but that solicitor’s contemporaneous communications revealed that the caveat’s purpose was to provide the most uninvasive form of security pending payment on 30 June 2020, when the caveat would be removed immediately.
On or about 2 June 2020 the Hu Deed was executed. It recited or provided –
- the Hu Parties’ concern that the First Judgment Debt would be unpaid and their desire to pursue further relief (Recital D);
- for a standstill agreement lasting until 30 June 2020 (Recital E);
- that Gu and IPCM guaranteed payment of the First Judgment Debt by 30 June, indemnified the Hu Parties against loss from non-payment, and undertook not to dissipate assets pending payment (cls. 1.1, 5, 8);
- Clause 7, headed “Security” provided:

“7.1 Security for Beneficiaries
The Beneficiaries agreeing to the Guarantee Proposal … is subject to and conditional upon I[P]CM entering into a general security deed under which I[P]CM agrees to grant a security interest in and over all of the I[P]CM’s … property to the Beneficiaries …

7.2 Caveat
Gu hereby grants to the Beneficiaries a caveatable interest in the [Property] … and consents to the Beneficiaries lodging and maintaining a caveat on the title to the Property until … the Judgement Debt has … been paid and discharged in full.

7.3 No security for the Guarantors
The Guarantors have not taken, and will not take, security from the Debtors for or in consideration of the Guarantors assuming their obligations …”

The Hu Parties agreed to forbear from enforcement of the First Judgment Debt, or commencing certain proceedings until after 30 June 2020.

On or about 3 June the Hu Parties caveated, consistently with cl. 7.2.
In mid 2020 IPPL went into liquidation.
The First Judgment Debt was not paid by 30 June 2020. The Hu Parties sued Gu and IPCM as guarantors and on 21 August 2020 obtained judgment against Gu for $5,929,897.86 (the Second Judgment Debt).
In early 2021 the Property was sold by receivers appointed by Credit Suisse. Over $5.5m remained after they and it were paid out (the Surplus Funds). This proceeding concerned entitlements to those funds.
On 10 August 2021 Gu became bankrupt.
On 17 January 2022 a Deed of Assignment and Sale was executed by which Gu’s trustee in bankruptcy assigned to the Hu Parties the trustee’s right to pursue claims under ss. 120 and 121 of the Bankruptcy Act against Great Lands and others.
On 28 January 2022, the Hu Parties’ solicitor gave notice of this assignment.

Section 121 of the Bankruptcy Act provided (omitting headings) –

“(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:“(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor’s bankruptcy if:

(a) the property would probably have become part of the transferor’s estate or would probably have been available to creditors if the property had not been transferred; and

(b) the transferor’s main purpose in making the transfer was:

(i) to prevent the transferred property from becoming divisible among the transferor’s creditors; or

(ii) to hinder or delay the process of making property available for division among the transferor’s creditors.

…

(2) The transferor’s main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.

…

(3) Subsection (2) does not limit the ways of establishing the transferor’s main purpose in making a transfer.

…

(4) Despite subsection (1), a transfer of property is not void against the trustee if:

(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and

(b) the transferee did not know, and could not reasonably have inferred, that the transferor’s main purpose in making the transfer was the purpose described in paragraph (1)(b); and

(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.

…

(4A) For the purposes of this section, a rebuttable presumption arises that the transferor was, or was about to become, insolvent at the time of the transfer if it is established that the transferor:

(a) had not, in respect of that time, kept such books, accounts and records as are usual and proper in relation to the business carried on by the transferor and as sufficiently disclose the transferor’s business transactions and financial position; or

(b) having kept such books, accounts and records, has not preserved them.

…

(5) The trustee must pay to the transferee an amount equal to the value of any consideration that the transferee gave for a transfer that is void against the trustee.

…

(8) This section does not affect the rights of a person who acquired property from the transferee in good faith and for at least the market value of the property.

…

(9) For the purposes of this section:

(a) transfer of property includes a payment of money; and

(b) a person who does something that results in another person becoming the owner of property that did not previously exist is taken to have transferred the property to the other person; and

Section 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy)) permitted the trustee in bankruptcy to assign a right to sue conferred by the Act and s. 100-5(4) provided that if such a right is assigned, a reference in this Act to the trustee in relation to the action was taken to be a reference to assignee.

Legal issues raised were –

Whether clause 7.2 of Hu Deed created an equitable charge and if so what amounts it secured.
Whether the Great Lands mortgage was void against Gu’s trustee in bankruptcy, and by assignment the Hu Parties, by reason of s. 121(1) of the Bankruptcy Act, including whether Great Lands established the good faith defence under s. 121(4).
The Great Lands mortgage being void against the Hu Parties, what consideration must be repaid to it by them under the Bankruptcy Act s. 121(5) and s. 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy))?
Whether the Higher Interest Rate clauses in the Great Lands loan were void and unenforceable as a penalty.
If the Great Lands mortgage had remained operative, would the Jason Zhang payments have reduced Gu’s debt to Great Lands under its loan?
If the Great Lands mortgage had remained operative, would it have covered costs?
Whether, on the assumption that Great Lands had a surviving secured claim under the its loan and mortgage, these should be denied enforcement by reason of People’s Republic of China (PRC) law.
The legal principles for determining questions related to movement of monies.
Was IPPL the beneficiary of a purchase monies resulting trust?
Was IPPL the beneficiary of a constructive trust based on Black v S. Freedman?
Was IPPL the beneficiary of a constructive trust arising from Gu’s breaches of fiduciary or directors’ duties?
Was IPPL subrogated to the rights formerly held by Credit Suisse by reason of the Fifth, Sixth and Seventh IPPL Sums?
Was IPPL subrogated to Great Lands’s position by the Jason Zhang payments?
Who between the Hu Parties and Great Lands had priority to the Surplus Funds?
Who between the Hu Parties and IPPL had priority to the Surplus Funds?
Who between IPPL and Great Lands had priority to the Surplus Funds?

Cheeseman J. held –

Whether clause 7.2 of Hu Deed created an equitable charge and if so what amounts it secured.

Whether cl. 7.2 of the Hu Deed created an equitable charge or other proprietary security interest, or merely the right to caveat, was a question of construction to be determined objectively by reference to its text, context and purpose, requiring a reading of the instrument as a whole. Relevant considerations included the presence or absence of the familiar language of charge or mortgage, the place of the clause within the instrument, the evident commercial purpose of the transaction, and whether the clause was directed only to the practical support of a caveat or to conferring a present security interest.
1. In favour of an equitable charge or other proprietary security interest was:
  1. the words of present grant in cl. 7.2;
  2. the heading “Security”;
  3. the linkage between the caveat and payment in full of the First Judgment Debt;
  4. the commercial purpose of the Deed as a forbearance and security arrangement. However, those considerations were not determinative: construing a commercial instrument did not require that every phrase be forced to perform independent proprietary work – the starting point remained the legal effect actually produced by the text read as a whole, not the avoidance of semantic redundancy. [58], [59]
2. In favour of a mere right to lodge and maintain a caveat was:

1. 1. Clause 7.2 did not employ the familiar language of charge or mortgage; nor expressly confer any right of realisation. In the setting of a solicitor-drafted commercial deed concerned at least partly with the provision of security, those omissions were significant and enhanced by the immediate adversarial setting of the Deed as a negotiated standstill. Clause 7.2 was capable of operating merely as employing a caveat as a practical restraint on dealings with the Property;
  2. The text and structure of cl. 7. Clause 7.1 expressly required IPCM to enter into a general security deed. By contrast, cl. 7.2 did not require Gu to grant security in those terms. Clause 7.3 reinforced that contrast in the way in which the subclauses of cl. 7 were framed;
  3. The commercial setting and course of negotiations. The Hu Parties were insisting on a package of protections rather than merely personal promises of payment. They were being asked to forbear until 30 June but continuing to seek information about the proposed security and unprepared simply to rely on Gu’s assurances of payment or of no undisclosed dealings. A caveat would impede dealings with the Property thereby reducing their informational disadvantage;
  4. The broader structure of the Deed. Read as a whole it was apt to establish a regime of guarantees, forbearance and preservation of assets pending payment. In that setting, cl. 7.2 was more naturally understood as part of that preservation regime rather than as conferring a proprietary security interest;
  5. The existence of the Credit Suisse mortgage and in particular the requirement in its cl. 5.7(c). [42], [60]-[72], [75]

In conclusion, the correct interpretation of cl. 7.2 was (b). [36], [38], [39], [74], [76], [470]

If, however, the Hu Deed did create an equitable charge, it would, on its proper construction, secure all amounts for which Gu became liable to the Hu Parties under it including the First Judgment Debt, interest and liabilities arising under the indemnity in cl. 5. Although the contractual liabilities under the Deed merged in the Second Judgment, such that the Hu Parties could not again sue on the underlying causes of action, the security was not lost by that merger while the judgment remained unsatisfied. The charge would continue to secure Gu’s liabilities as crystallised in the Second Judgment. [32], [81]-[87]

Whether the Great Lands mortgage was void against Gu’s trustee in bankruptcy, and by assignment the Hu Parties, by reason of s. 121(1) of the Bankruptcy Act, including whether Great Lands established the good faith defence under s. 121(4).

As to the challenge by the Hu Parties to the Great Lands mortgage based on s. 121(1) of the Bankruptcy Act:
1. For the purposes of s. 121, the grant of a mortgage or charge may constitute a transfer of property. The Hu Parties carried the onus of establishing that it was void under s. 121(1); [97], [98], [103]
2. The Hu Parties could not, by force that section alone, succeed to the position of a mortgagee or other proprietary claimant to the Surplus Funds. Rather, the statutory question was whether that mortgage was void against the trustee and, if so, whether the trustee’s statutory right to recover property or obtain restitution had been validly assigned to the Hu Parties and may now be enforced by them; [99]
3. The requisite purpose of the transferor may be established directly from the facts and circumstances of the transaction, or indirectly by operation of statutory presumptions; [104]
4. Establishment of insolvency, or impending insolvency, bore directly upon the purpose inquiry under s. 121(1); [105]
5. Great Lands having conceded that Gu was insolvent or about to become so when its mortgage was granted, the presumption in s. 121(2) applied and Gu’s main purpose in granting the mortgage was taken to be that described in s. 121(1)(b). The Great Lands mortgage was accordingly, subject to it establishing a good faith defence, void against the Hu Parties pursuant to s. 121(1); [107]-[108], [198], [471]

As to whether Great Lands established its good faith defence under s. 121(4) –
1. The transferee bore the onus of establishing each element in ss. 121(4)(a), (b) and (c); [109], [114]
2. The requirements in ss. 121(4)(b) and (c) were expressed in objective terms. The statutory question was not exhausted by the transferee’s assertion of its subjective belief. The inquiry was whether, on the facts known to the transferee at the time, the transferee proved that the relevant inference was not one that it could reasonably draw. This prevented the defence from succeeding by reason of the transferee’s wilful blindness, but it may be possible, in certain circumstances, for the defence to succeed even in the case of the transferee’s honest ineptitude; [119]
3. In applying ss 121(4)(b) and (c), the ordinary principles for drawing of inferences from proved facts applied. Where direct proof was unavailable, a reasonable and definite inference on the balance of probabilities may be drawn from proved facts, not being a matter of conjecture, guesswork or surmise. In the case of a corporate transferee, the inquiry proceeded by reference to the knowledge of the natural persons who had acted on its behalf in negotiating, arranging or implementing the transaction, applying ordinary principles of attribution; [120]-[121].
4. As to whether Great Lands as the transferee, had established the element of value for the purposes of s.121(4)(a) –
  1. The property transferred was the mortgage itself, ie, the proprietary interest granted over the Property to secure the $3 m. advanced not merely a chose in action to recover a fixed principal sum. It was a proprietary security interest securing a bundle of monetary rights defined by the Great Lands transaction documents, including contingent and accruing interest liabilities; [125]
  2. The term “consideration” imported its ordinary legal and commercial meaning; [129]
  3. Where, as here, the mortgage secured an expanded and potentially escalating set of liabilities, including interest liabilities, the market value of the proprietary interest transferred could not simply be equated with principal alone. It secured liabilities beyond the $3 m. advanced. The same conclusion followed from the Great Lands Loan. Great Lands had failed to discharge its onus under s. 121(4)(a). [133], [135], [136], [162]
5. Great Lands failed to discharge its onus under s. 121(4)(b). The proscribed purpose was reasonably inferable from facts known to it; [153], [156], [157], [162]
6. Great Lands failed to discharge its onus under s. 121(4)(c). Gu’s insolvency or impending insolvency was reasonably inferable at the time of the transfer. [158]-[161], [162].
7. The defence under s. 121(4) accordingly failed. [162], [198], [471]

The Great Lands mortgage being void against the Hu Parties, what consideration must be repaid to it by them under the Bankruptcy Act s. 121(5) and s. 100-5 of Schedule 2 to the Bankruptcy Act (Insolvency Practice Schedule (Bankruptcy))?

As to the consideration to be repaid to Great Lands under s. 121(5) and s. 100-5 of the Insolvency Practice Schedule:
1. Great Lands bore the onus of proving the value of the consideration to be refunded; [167]
2. The Jason Zhang payments were accepted and treated by those concerned as being on account of Gu’s indebtedness under the Great Lands loan, and not as partial redemptions of an investment by Zhang. There was a binding arrangement to this effect – any contemplated written instrument was no more than a fuller record of an arrangement already concluded and implemented (ie this was not in the “third class” described in Masters v Cameron). Accordingly they must be brought to account in determining the refund; [186], [187]
3. As to the content of that arrangement in allocating those loan repayments between principal and interest, Zhang and Gu were proceeding on the footing that the relevant interest provisions were those in the Great Lands loan, including the higher interest rate, whereby the payment of $700,000 would comprise $200,000 of interest and $500,000 of principal and the payment of $500,000 would comprise $450,000 of interest and $50,000 of principal. However (see below) the higher-rate default provisions were void as penalties, entailing adjustment of the parties’ agreed allocation. Thus the excess amounts would be brought to account instead as reductions of principal, and so the payment of $700,000 would reduce principal by $532,328.77 and the payment of $500,000 would reduce principal by $274,461.61; [188]-[192]
4. With this gross reduction of principal by $806,790.38 the amount to which Great Lands was entitled was $2,193,209.62 being the amount equal to the value of the consideration of $3,000,000 given by Great Lands for the transfer avoided, less $806,791 repaid. [193], [199], [471]
In giving effect to this statutory entitlement the relief to which Great Lands was entitled would be moulded to avoid double recovery and ensure that it did not both retain the benefit of those payments and obtain a refund of the same value. This remedial outcome followed from the absence of any surviving proprietary security interest held by either Great Lands or the Hu Parties in the Surplus Funds. [194]
The amount to which Great Lands was entitled under s. 121(5) did not include any interest possibly recoverable by Great Lands if it had enforced its personal rights under the loan, rather than receiving the statutory repayment under s. 121(5). Interest was not payable on the amount due under s. 121(5), nor under s. 51A of the Federal Court of Australia Act 1976 (Cth). [196]-[197], [199]

Whether the Higher Interest Rate clauses in the Great Lands loan were void and unenforceable as a penalty.

A provision requiring payment upon default was not penal merely because engaged by breach. The question was whether the stipulated consequence was out of all proportion to, or exorbitant or unconscionable having regard to, the legitimate interest which the provision was designed to protect. A clause increasing the rate of interest on default, or one providing for compound interest, was not necessarily penal. The inquiry was fact specific. [204]
The higher interest rate clauses were void and unenforceable as a penalty. The combined effect of the increase from 2% per month to 4% per month, plus compounding and capitalisation upon default, imposed a substantially more onerous liability than before default, and Great Lands did not establish a legitimate interest justifing it. The consequences were out of all proportion to, or exorbitant or unconscionable having regard to, Great Lands’ legitimate interest in repayment which the provisions were designed to protect. [205], [209]

If the Great Lands mortgage had remained operative, would the Jason Zhang payments have reduced Gu’s debt to Great Lands under its loan?

These payments were to be brought to account in reduction of Gu’s debt to Great Lands under its loan. [212]

If the Great Lands mortgage had remained operative, would it have covered costs?

Costs properly proved to be secured by the Great Lands mortgage would be recoverable. [213]

Whether, on the assumption that Great Lands had a surviving secured claim under its loan and mortgage, these should be denied enforcement by reason of People’s Republic of China (PRC) law.

The arrangements whereby Great Lands drew the funds lent to Gu did not involve the movement and use of RMB (the official currency of the PRC) funds in China in a manner engaging PRC foreign exchange controls and related provisions of PRC law: ie the proper characterization of the transaction did not involve the movement and use for the purpose of effecting what was, in substance, the provision of value to Gu in Australia outside the ordinary channels contemplated by such controls. The relevant documents recorded two distinct loan agreements, only one being the Great Lands loan. There was no applicable PRC civil law illegality, nor any basis in public policy or clean hands, for refusing enforcement of the Great Lands loan or mortgage. The transactions were also not tainted by PRC criminal law. [252], [253], [257], [260]-[262]

The legal principles to be applied in determining questions related to movement of monies.

The Court was required to determine questions related to the movement of monies. The following principles applied:
1. Factual issues were to be determined by reference to the whole of the evidence bearing upon the movement, application and character of the relevant monies, including the agreed facts, the contemporaneous banking records and solicitors’ trust account records, the witness evidence concerning those records, and the later accounting and ledger materials.
2. The inquiry was one of inference from the proved facts and the documentary record considered as a whole. Where direct proof was unavailable, factual findings were possible by inference from proved facts, including contemporaneous documents, but the inference must be a reasonable and definite inference on the balance of probabilities and not a matter of conjecture, guesswork or surmise; it was insufficient that the evidence permitted competing inferences of equal probability.
3. Primary recourse should ordinarily be had to any available contemporaneous documents, and findings should if possible be reasoned from contemporary materials, objectively established facts and the apparent logic of events rather than from demeanour alone.
4. To the extent that the competing characterisations include an allegation of misappropriation or other serious wrongdoing, the evidence must be scrutinised with appropriate care before such an inference was drawn, consistently with Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336, as reflected in s 140 of the Evidence Act 1995 (Cth). This approach did not alter the standard of proof, but directed a court not lightly to make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of serious wrongdoing.
5. Later bookkeeping descriptions and ledger labels were relevant, but not conclusive of the underlying legal character of a transaction; their weight depended upon their provenance, consistency and objective reliability.
6. In particular, to characterise a payment as a loan it was necessary to identify objective facts supporting the conclusion that the payment was made on terms for repayment. The essence of a loan was an advance of money coupled with an obligation of repayment. Neither a formal written loan agreement nor an agreement for interest were essential. But nor did the mere use of expressions such as “director loan”, without more, establish a concluded loan arrangement.
7. Where, as here, monies passed through an intermediate mixed account before transfer to the solicitors’ trust account, the tracing inquiry was to be undertaken by reference to orthodox equitable principle and not by treating later ledger classifications as dispositive. [275]-[278]

Was IPPL the beneficiary of a purchase monies resulting trust?

1. Funds sourced from IPPL were applied in the acquisition of the Property;
2. Those funds were not advanced to Gu under a concluded loan agreement;
3. The passage of funds through the Gu’s account did not alter their character as IPPL funds applied toward the acquisition. This conclusion accorded with orthodox tracing principles for trust money passing through a mixed account. If allocation of any deficiency within a mixed trust fund as between competing trust claimants was in question, there would be proportionate distribution rather than a first-in, first-out application of the rule in Clayton’s Case. [169], [176], [193].
4. Later accounting records and a ledger reclassification exercise did not reliably reflect the legal character of the underlying transactions at the time of payment.
5. Accordingly, with the qualification that $20,000 was withdrawn from Gu’s account after deposit of the First IPPL Sum and not applied toward the acquisition, the First to Third IPPL Sums formed part of the $3.2 m. transferred from Gu’s account to the solicitors’ trust account on 18 April 2017, and the Fourth IPPL Sum was also paid directly into that trust account that day. The total of IPPL Funds traced into the acquisition of the Property was $1,045,246.14. [337]-[341], [349]

1. Where property was acquired in the name of one person with money provided by another, equity may presume a resulting trust; rebuttable by evidence that the provider intended that the recipient take a beneficial interest, or that the money was provided on some different basis (eg gift or loan). The critical inquiry was the actual intention of the provider at the time of the purchase, objectively ascertained. The relevant evidence included the acts and declarations of the parties before or at the time of the purchase, or so immediately thereafter as to form part of the transaction, and the provider’s intention at the time may be proved by admissible evidence directed to that question.
2. The presumption was not displaced by material that was merely neutral, equivocal, or otherwise incapable of demonstrating an intention inconsistent with beneficial acquisition.
3. If the monies were provided on a footing inconsistent with beneficial acquisition, no resulting trust arose merely because they were later applied in the purchase.
4. Costs incidental to the acquisition may be treated as part of the relevant contribution.

[346]-[348], [352]-[354]

Subject to the deduction of $20,000, the First to Fourth IPPL Sums were contributions to the price in the requisite sense. There was insufficient evidence to displace any presumption of a trust. Accordingly Gu held the Property pursuant to a purchase money resulting trust for IPPL to the extent of $1,045,246.14 and any traceable accretions to that amount, reflected in the Surplus Funds. [349]-[351], [353], [354], [472]

Was IPPL the beneficiary of a constructive trust based on Black v S. Freedman?

A constructive trust based on Black v S. Freedman [1910] HCA 58; 12 CLR 105 arose where money had been stolen. It attached immediately to the money and adhered to it and its traceable product. The equitable obligations arose at the time of theft or, in the case of a volunteer recipient (regardless of notice), upon acquisition of knowledge. The trust was institutional rather than remedial. [272], [364]-[366]
The said funds of $1,045,246.14 were misappropriated by Gu from IPPL, not lent, given or having a consensual basis entitling him beneficially to retain or use them. Accordingly to this extent a constructive trust of the Black v S. Freedman kind existed. [368], [369], [372], [373], [374], [472]

Was IPPL the beneficiary of a constructive trust arising from Gu’s breaches of fiduciary or directors’ duties?

As a director of IPPL Gu owed fiduciary duties to it under ss. 180, 181 and 182 of the Corporations Act. However a mere breach of fiduciary or statutory duty did not establish that the impugned property or its traceable proceeds were held on constructive trust for the company. Such a breach may only give rise to a right in equity to impeach the transactions and obtain personal or ancillary equitable relief – a mere equity or other personal equitable claim, such as an account of profits or equitable compensation, not a proprietary interest.

[264], [271], [273], [274], [357], [380], [382]-[384]

If the facts found did not support a purchase money resulting trust or a Black v S. Freedman constructive trust, Gu’s breaches of fiduciary and statutory duty would not have given rise to an immediate institutional constructive trust. On that conditional footing, and treating the impugned payments as dealings effected by Gu acting within the scope of his authority to cause IPPL to make payments, albeit in breach of duty, those dealings were at most voidable, with IPPL having a mere equity to impeach the transactions or obtain other equitable relief. [386]

Was IPPL subrogated to the rights formerly held by Credit Suisse by reason of the Fifth, Sixth and Seventh IPPL Sums?

As to subrogation –
1. Subrogation was an equitable remedy by which a person who had discharged, in whole or in part, a secured debt owed by another may be treated in equity as standing in the position of the creditor, to the extent of discharge. In a general sense, it was the process by which one party was substituted for another so that the former may enforce the latter’s rights against a third party for that party’s own benefit. The remedy was not confined to a single fixed category but was fashioned by reference to the particular circumstances and the nature of the unconscionability arising from retention of the payment without recognition of the payer’s position; [388]
2. Where an existing security was discharged, the equitable foundation of subrogation was unconscionability not unjust enrichment. It was unconscionable for a mortgagor, or those claiming through the mortgagor, to treat the payment as simply discharging the encumbrance, rather than preserving the benefit of the security for the person whose funds discharged the debt. A presumption existed that a third party discharging a mortgage intended to keep it for its own benefit, rebuttable by objective circumstances that the payment was made on some other basis, including as an unsecured advance; [389]-[390], [401]
3. Subrogation may also be available if funds were applied under a defective transaction, or in circumstances defeating the position of the person whose money was used. Relief in these circumstances did not depend upon proof of payer subjectively intending to take an assignment of the security but upon whether, absent subrogation, it would be unconscionable for the defendant to deny the proprietary interest claimed; [391]
4. The subrogated party being treated in equity as standing in the position of the original secured creditor, the original charge was not necessarily assigned or kept alive for all purposes, but equity regulated the parties’ legal relations as if the benefit of the security had been preserved and assigned to the payer to the extent necessary to prevent unconscionability. Equity did not treat the subrogated party as having acquired a wholly new interest at the time of payment, but treated the existing security as continuing for such party’s benefit, so enjoying to the extent of discharge the benefit of the pre-existing security and its priority. [392]

The payments from its funds were applied in reduction of Gu’s indebtedness under the mortgage and it was presumed that IPPL intended to keep the Credit Suisse mortgage alive for its own benefit. The other parties failed to discharge the onus of rebutting that presumption by proving objective circumstances showing the payments were made on another basis, such as any arrangement obliging Gu to repay them as loans or unsecured advances. IPPL was in equity subrogated to the rights formerly held by Credit Suisse to the extent of $280,000 and so acquired an proprietary interest in the Surplus Funds. [401], [409], [410], ]420], [421], [422], [472]

Was IPPL subrogated to Great Lands’s position by the Jason Zhang payments?

Where the original secured creditor remained unpaid and continued to have use for the security, any entitlement of a third-party payer to stand in that creditor’s position could not operate in a presently enforceable way in competition with the creditor’s subsisting rights. This conclusion was reinforced here by the further finding that the Great Lands Mortgage was void against the trustee. In light of both this finding, and that the Jason Zhang payments were to be brought to account in reduction of Gu’s indebtedness to Great Lands, IPPL had no present entitlement to compete with Great Lands while Gu’s debt to Great Lands remained unpaid. Accordingly IPPL’s Great Lands subrogation claim only mattered if Great Lands’ own entitlement did not exhaust the Surplus Funds. Accordingly IPPL had not established any presently enforceable right of subrogation to the position formerly held by Great Lands under its mortgage. [424], [425], [428], [431], [473]

Who between the Hu Parties and Great Lands had priority to the Surplus Funds?

As to priority between equitable interests:

1. The earlier in time would usually prevail if the merits were equal;
2. Nonetheless the Court must search for the better equity, and the holder of the later equity bore the onus of showing some circumstance sufficient to displace the earlier equitable interest. What was required is not mere lateness or absence of notice, but some act, default or other circumstance of tangible and distinct significance affecting the justice of the competing claims, assessed in light of the whole of the conduct and surrounding circumstances. The entire conduct of each party with an equitable interest must be taken into account;
3. The position of the second equitable claimant was not preferred simply because that claimant took their securities without notice of the first encumbrance, or because of both that fact and that the second claimant acquired a later interest for value;
4. Mere failure by the holder of a prior equitable interest to caveat did not, without more, constitute postponing conduct. [91], [444]-[447], [462], [463]
As to priority between the Hu Parties and Great Lands to the Surplus Funds:

1. Neither held any secured proprietary interest therein and as unsecured creditors of Gu their entitlement of either to participate in the Surplus Funds was subject to the statutory order of payment in bankruptcy. [194]-[195]
2. But Great Lands’ entitlement to refund under s. 121(5) of $2,193,209.62 took priority over the claims of unsecured creditors including the Hu Parties. The purpose of the statutory scheme would be undermined if a party’s entitlement to recovery of consideration for a transfer voided under s. 121 could be eroded by rateable participation with unsecured creditors. This priority reflected how the statutory scheme had balanced competing policy imperatives: the cost of voiding transfers pursuant to s. 121(1) and thereby enlarging the pool of unsecured creditors against the transferor was offset by the transferee’s closely confined entitlement to recover lost consideration pursuant to s. 121(5) above and beyond the claims of unsecured creditors. [433], [434], [474]

Who between the Hu Parties and IPPL had priority to the Surplus Funds?

As to priority between IPPL’s interests and those of the Hu Parties:
1. Each of IPPL’s equitable interests arose, for priority purposes, when each came into existence, because each arose by operation of law upon the application of IPPL’s funds, independent of discretionary curial intervention. This was in the case of –
  1. the purchase money resulting trust, by 3 May 2017 at the latest;
  2. the Black v S. Freedman constructive trust, immediately upon the wrongful taking and misapplication of the funds;
  3. subrogation to Credit Suisse, when IPPL’s funds were applied to reduce the mortgage debt. [438], [439], [440], [441], [458]
2. IPPL did not represent to the Hu Parties either positively, or by omission in circumstances calling for disclosure or otherwise, that it had no beneficial interest in the Property. Mere non-disclosure of IPPL’s now-established proprietary claims did not constitute such a representation, still less one displacing its earlier equitable position. This was reinforced by the fact that the Hu Parties had entered the Hu Deed because they desired within a narrow period of forbearance to use the leverage available to obtain the best security and practical protection for satisfaction of the First Judgment Debt, not because of confidence in Gu or in the accuracy of what they had been told. And, even if it was reasonably foreseeable that a person in the Hu Parties’ position might rely on an assumption of the kind alleged, they did not in fact so rely. [452], [453], [454], [455], [460]
3. Also material was that the claim of the Hu Parties to postponement was on a different basis from that existing if they had succeeded in establishing an equitable charge or other security. They did not by force of s. 121 alone succeed to the position of a mortgagee or other proprietary claimant; rather, the statutory question was whether the Great Lands Mortgage was void against the trustee and its consequences. That difference told against any broad conclusion that IPPL should be postponed simply because the Hu Parties later obtained contractual protections and, as assignees, statutory rights arising from the trustee’s position. [456]
4. Accordingly interests of IPPL were not postponed to any interest claimed by the Hu Parties. [457], [460], [475]

Who between IPPL and Great Lands had priority to the Surplus Funds?

IPPL’s interests were not postponed to that (on the assumption that it retained a competing equitable interest) of Great Lands. IPPL did not by acquiescence or silence convey that it had no interest or assented to the creation or priority of the Great Lands Mortgage. The knowledge of Gu was not attributable to it. Its failure to caveat was not postponing conduct. [464]-[467]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, July 29, 2026

Blog 101. Application to amend caveat fails.

Gold Road No 9 v Karakulahian [2026] VSC 152, Barrett AsJ

The facts were –

The first defendant (Karakulahian) and his son (the Karakulahians) were the registered proprietors of land in Glen Iris (Property).
Mr Elliott was the director of the plaintiff (Gold Road). John Haddad was a friend of Karakulahian and of Elliott.
Karakulahian deposed that:
- in about mid-2022 he said to Haddad that Haddad could use the Property or its proceeds of sale to assist him (Haddad) in purchasing land in Tullamarine;
- after several weeks Haddad said that he had found a buyer of the Property, Elliott, and that Haddad and Elliott then negotiated its sale, without his involvement, he giving no instructions related to preparation of the contractual documents;
Elliott deposed that Haddad did need finance, that he had no involvement in arrangements between Haddad and Karakulahian, and that he said to Karakulahian that Gold Road would:
- purchase the Property by paying $500,000 to the Karakulahians and issue to Karakulahian certain units in a unit trust (the said units);
- on-sell the property; and
- then pay Karakulahian $500,000 if this was available after payment of: Gold Road’s liabilities to the first mortgagee and its liabilities in respect of the agreement with the vendors; normal costs of sale; and holding costs pending on-sale (‘the deductions’).

and that Karakulahian said that this arrangement was acceptable to him.

Gold Road tendered a document titled ‘Glen Iris Offer to Purchase and Profit Share’. The offered price was $1 m. with a first payment of $500,000 and a second payment of $500,000 ‘at settlement of the resale of the store to a third party’. The document provided:
- that that the ‘Developer’ would establish a unit trust in which it held a controlling class of unit, and with a separate class of unit for vendor equity and vendor profit share, and the trust deed would document the rights, obligations and priorities of each party;
- the vendor would contribute the balance of the second and final settlement payment as vendor equity;
- all rights related to payment of vendor’s equity or the vendor profit share would depend on the terms of the final class of units;
- the Developer would restructure and secure the debt at its sole and absolute unfettered discretion.

The Karakulahians signed this document.

On 20 December 2022 the contract of sale of the Property to Gold Road was executed. This inter alia recorded the price as $1 m. with a deposit of $10 and the balance payable at settlement with the handwritten note ‘refer to Special Condition 18’. This Special Condition in substance provided that at settlement the vendors (not just Karakulahian) would receive the said units and that $499,990 would be transferred to a bank account nominated by them.
Karakulahian deposed that:
- the Karakulahians signed the contract at the request of Haddad, who he trusted, without him reading it beforehand or receiving explanation of it, he thinking that the price was $1 m. and not being told about any additional special conditions; and ‘John explained this to me, and I took his word for it’;
- neither vendor received any money at settlement, but that he had been told by Haddad that $500,000 was paid directly to him by Elliott.
However, evidence was led showing that on 20 December Karakulahian directed solicitors at settlement to transfer the full amount to the Elias Haddad account, and that a solicitor told Karakulahian and Haddad that the settlement funds would be used for settlement of the Tullamarine land.
The sale to the plaintiff was completed on 4 January 2023. Karakulahian provided to Gold Road a ‘Certificate of Waiver of Independent Legal, Financial and Taxation Advice’, which he deposed not to recall signing.
Gold Road was registered as proprietor of the Property subject to a mortgage to another company. Karakulahian deposed that he did not know the terms of the mortgage.
Haddad died in 2023.
In 2024 Karakulahian caveated claiming an interest as chargee.

In 2025 Gold Road applied for removal of the caveat under the Transfer of Land Act s. 90(3). Elliott deposed that the expected sale price of the Property would not cover all the deductions, and that payment of mortgage interest and holding costs were eroding its equity in the Property.

Counsel for Karakulahian sought leave to amend the caveat to claim a freehold estate based on an implied, resulting or constructive trust. Karakulahian relied in part on unconscionability based on Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 in support of his caveatable interest alleging, or at least suggesting, that Elliott and Haddad acted unconscionably in the sale.

During the hearing counsel proposed an alternative amendment to claim a freehold interest over a moiety of the title.

Barrett AsJ declined to permit the amendment to the caveat and ordered that it be removed, holding –

1. The caveator did not have an interest in the Property as a chargee. [27], [43]
2. The court had a discretion to permit amendment of the caveat. Four factors relevant to exercise of the discretion and their application in this case were:
  1. Whether the amendment was to the interest claimed, or just to the grounds. As to the former the authorities were in conflict, holding that amendment was either impossible or possible but only in special or exceptional circumstances. [26(a)]
    The proposed amendment was to the interest claimed, and so the Court would be less inclined to permit it than otherwise and would likely allow it only in special circumstances. This weighed heavily against the amendment application having regard to the other discretionary factors. [28], [38]
  2. The circumstances in which the error was made. [26(b)]
    Although a lawyer had drafted the caveat, there was no evidence of the instructions given to the lawyer, and so no evidence whether: the drafter made an egregious error in describing the interest as chargee, or; the caveator’s instructions were consistent with the existence of a charge, or; another explanation existed. This weighed against the Court’s discretion to permit the amendment, on which the caveator bore the burden of proof. [39]
  3. Courts should not readily act in a way which might encourage the belief that caveats can be imprecisely formulated and ‘fixed up later’. [26(c)]
    This factor weighed against permitting the amendment. [40]
  4. The overall merits of the claim for a caveatable interest. [26(d)]
    The merits of the claimed interest were not so strong as to support amendment. It was unclear precisely how a caveatable interest was said to arise from Amadio-type unconscionable conduct, or what special disability the caveator suffered from, and there was inadequate explanation of Gold Road’s knowledge of, and taking advantage of, any such special disability. [41]

1. Accordingly the application to amend the caveat failed. [37], [42]

Philip H. Barton

Owen Dixon Chambers West

Thursday, April 30, 2026

Blog 100. How does failure to caveat affect priorities between equitable interests in land?

In this blog I deal with a recent case on the above question preceded by two reminiscences, one personal and the other relating to this legal question.

The personal reminiscence is, this being Blog 100, that the origin of my Blog was a seminar I gave on caveats for the Leo Cussen Institute in July 2017. As I walked down Little Bourke Street to the old Leo building I expected few attenders in the dead of winter and holidays. There were 56 – so I learnt that there were a lot of solicitors interested in caveats. I then proposed to Leo to write a booklet on the subject but was told that these no longer sold. I hardly knew what a blog was, but asked my friend Frank Pereira-Jackson, who had advised me on computers for 20 years, whether a blog was feasible, he said yes and we have done it ever since. I do the writing, with my work perused and at times questioned by the non-lawyer Frank, who having studied mathematics and computer science, has maintained a lifelong affection for grammar, layout and general pedantry. After critiquing my work he then creates links to cases referenced and seeks to ensure the formatting works correctly on the many different systems and browsers before launching it into cyberspace. His support has been invaluable.

The legal reminiscence is that I studied Property Law at Melbourne Uni in 1972 using the first edition of Sackville and Neave, Australian Property Law. I have recently re-read the 10th ed, 2016, in the course of which I was struck that the question with which this blog is concerned has been the subject of shifting judicial attitudes over a century. In determining equitable priorities in land some judges take the failure to caveat much more seriously than others. So the rough history has been –

In Butler v Fairclough (1917) 23 CLR 78 the majority of the High Court held that by omitting to lodge a caveat the plaintiff had lost the priority arising from its equitable interest being created earlier than that of the defendant. Griffith CJ. stated –

“A person who has an equitable charge upon the land may protect it by lodging a caveat, which in my opinion operates as notice to all the world that the registered proprietor’s title is subject to the equitable interest alleged in the caveat.”

In Abigail v Lapin [1934] AC 491 the Privy Council held that Butler v Fairclough was rightly decided.
This view held sway until J & H Just (Holdings) Pty Ltd v Bank of New South Wales (1971) 125 CLR 546, the high-water mark of downgrading the significance of a caveat in determining priorities. Barwick CJ. stated at 552- 556 –

“Much has been said in the course of this case about the failure of the Bank to lodge with the Registrar-General a caveat against dealings … Its purpose is to act as an injunction to the Registrar-General to prevent registration of dealings with the land until notice has been given to the caveator. This enables the caveator to pursue such remedies as he may have against the person lodging the dealing for registration. The purpose of the caveat is not to give notice to the world or to persons who may consider dealing with the registered proprietor of the caveator’s estate or interest though if noted on the certificate of title, it may operate to give such notice. …

But it was the respondents’ conduct in thus arming the mortgagee with the capacity to become the registered proprietor and able to deal with others as such and not any failure by them to lodge a caveat that was decisive in Abigail v. Lapin … much of what Lord Wright says about the consequences of a failure by a claimant to an equitable interest to lodge a caveat and particularly his comments on Butler v. Fairclough … became, in my opinion, obiter.

… To hold that a failure by a person entitled to an equitable estate or interest in land … to lodge a caveat against dealings with the land must necessarily involve the loss of priority which the time of the creation of the equitable interest would otherwise give, is not merely in my opinion unwarranted by general principles or by any statutory provision but would in my opinion be subversive of the well recognized ability of parties to create or to maintain equitable interests in such lands. …

Of course, there may be situations in which such a failure may combine with other circumstances to justify the conclusion that “the act or omission proved against” the possessor of the prior equity “has conduced or contributed to a belief on the part of the holder of the subsequent equity, at the time when he acquired it that the prior equity was not in existence” … This is the relevant principle to apply if it is claimed that the priority of a prior equitable interest has been lost in competition with a subsequent equitable interest. … “The Act or default of the prior equitable owner must be such as to make it inequitable as between him and the subsequent equitable owner that he should retain his initial priority. … : Lapin v. Abigail per Dixon J. … In my opinion, the failure to lodge a protective caveat cannot properly be said necessarily to be such an act or default. … As I have said, the purpose of the caveat is protective: it is not to give notice. The holder of the subsequent equity in my opinion could not properly rely upon the absence of any notification in the register book of the lodgment of a caveat as a representation or as the basis for a conclusion that no equitable interest in the land existed in any person. …”

Windeyer J. stated at 558 – 559 –

“Too much has I think been read into the statement by Griffith C.J. in Butler v. Fairclough … – repeated by Lord Wright in the Privy Council in Abigail v. Lapin …

However, the fact that a caveat discoverable by a search of the title is “notice to all the world” of the interest claimed does not mean that the absence of a caveat is a notice to all and sundry that no interest is claimed. … After all, the primary purpose of a caveat against dealings is not to give notice to the world of an interest. It is to warn the Registrar-General of a claim. … The Bank did not by not lodging a caveat warning the Registrar-General represent to the appellant that it had no claim. …”

These views were, however, initially rejected in Victoria in Osmanoski v Rose [1974] VR 523, in which Gowans J. held that a failure to by a purchaser to caveat warranted postponement to the interest of a later purchaser. His Honour distinguished Barwick CJ. views on the ground that under the Victorian legislation (unlike the NSW legislation) a caveat was not merely directed to the Registrar.
Then Gowans J.’s view was itself rejected by the Full Court in Jacobs v Platt Nominees Pty Ltd [1990] VR 146, although Osmanoski was not specifically overruled. The court stated at 151: “we are of the view that the Victorian legislation is not so different that it provides a necessary reason for distinguishing Just’s Case.”
However, at least two subsequent Victorian cases predating this Blog have distinguished Jacobs: Mimi v Millennium Developments Pty Ltd [2003] VSC 260 and Handberg v MIG Property Services Pty Ltd [2010] VSC 388. In both cases failure to caveat led to postponement. In the latter case Robson J. stated that failure to caveat “by itself may be sufficient to defer priority if the circumstances otherwise make it fair and just to do so” (at [198]).
And in Black v Garnock (2007) 230 CLR 438, which concerned NSW legislation, Gleeson CJ. at [7] cited with approval the view of Barwick CJ. of the purpose of a caveat, while conversely Callinan J. at [80] stated of Barwick CJ’s dictum that “To hold that a failure by a person … to lodge a caveat … must necessarily involve the loss of priority … is not merely … unwarranted … but would in my opinion be subversive …” –

“I must respectfully disagree. What is much more likely to be subversive of the whole of the scheme of the Torrens system is that a person interested in, or entitled to deal with, land, who has not acted fraudulently, might suddenly and unexpectedly be saddled with, or postponed to, an equitable estate or interest in land which could have been, but was not made the subject of protection by prompt lodgment of an instrument or the filing of a caveat pending the lodgment.”

Then in the history of this Blog –

In UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (in liq) (No 2) [2021] VSC 711 (Blog 53) Richards J. held (at [33]) that the mere failure of the holder of the earlier interest to caveat did not dictate its postponement to the holder of a later interest who had searched the Register: it was but one circumstance to be considered. Similarly: Roberts Gray Pty Ltd v Brunner & Ors [2021] VSC 76 at [144], Daly AsJ, Blog 45; TL Rentals Pty Ltd v Youth on Call Pty Ltd and Ors [2018] VSC 105 at [21], Derham AsJ, Blog 13.

And now I come to KKJA Investments which held that the unexplained failure to caveat was a material consideration in postponing the earlier equitable interest to the later.

KKJA Investments Pty Ltd v Yan Shi [2025] VSC 583, Daly AsJ. The facts were –

Ms Feng was the registered proprietor of land in Camberwell encumbered by a registered mortgage to the ANZ Bank.
She and her husband borrowed $600,000 from the plaintiff (KKJA) secured by an unregistered mortgage dated 6 December 2021.
Feng also borrowed approximately $600,000 from the defendant (Yan Shi) pursuant to a loan agreement dated 3 March 2022 which described the security as a ‘caveatable interest’ over the land.
There was evidence that in the foregoing period there was at least $600,000 equity in the property.
In about early November 2022 the agreement between Feng and KKJA was varied extending the loan period from six to 12 months and reducing the principal to $550,000.
On 10 November 2022 KKJA caveated in respect of its mortgage.
On 21 November 2022 Yan Shi caveated in respect of her charge.
The land was subsequently sold yielding surplus proceeds of only approximately $255,000.
KKJA commenced this proceeding to determine entitlement to these proceeds.
KKJA’s evidence did not materially exceed exhibiting the mortgage and deed of variation and deposing to non-payment, nor did it explain the failure to caveat earlier.
Yan Shi deposed inter alia: to how her loan had occurred; that Feng asked Yan Shi not to lodge any instrument on the title because she was refinancing from the ANZ to the Commonwealth Bank (CBA); that Feng showed Yan Shi and her daughter Shi He documents connected with her refinancing and a title search disclosing the registered mortgage as the only encumbrance; that Shi He assisted her to conduct a title search which disclosed no change from the previous search; that she caveated on learning of litigation involving Feng’s husband’s company.
Shi He deposed inter alia: although not a lawyer she was familiar with caveats and understood the financial risks when a property was used to secure multiple loans; in about January 2022 she was present when Feng’s husband asked her mother to lend him $600,000, to which Shi He said that her mother would need some security and a guarantee and to caveat, but Feng requested that Yan Shi not caveat as she was refinancing; Feng said that the CBA had valued the property at $3.25 m., from whom she would borrow $2.6 m. leaving about $200,000 to provide “an extra layer of protection” to the loan agreement; Feng’s husband said there were no other interests in the property; with the borrowers’ consent she obtained relevant information from the CBA; she made other relevant enquiries showing that the title was clear, which she told her mother; she obtained further information from the CBA that its refinancing would proceed, from which she inferred that there were no caveats or encumbrances impeding this, and so told her mother that the title was ‘clear’ except for the CBA mortgage.
Yan Shi further deposed inter alia: verifying Shi He’s affidavit; that before entering the loan agreement Shi He told her that the title was clear except for the registered mortgage and there were no caveats; Shi He in effect repeated this before she advanced any funds; had she seen a title search on 3 or 4 March 2022 she would only have seen the bank mortgage confirming what Shi He had said; she was prepared to lend during the bank refinancing but would not have loaned if knowing of another secured loan behind the scenes; she relied on a title search dated 17 November 2021 and her daughter.

Daly AsJ dismissed the plaintiff’s claim to the funds, holding –

Each party held a valid equitable interest in the funds. The fact that KKJA held an unregistered mortgage and Yan Shi held a charge did not per se improve KKJA’s position. The question was whether in all of the circumstances the presumption that the earlier interest holder had priority had been displaced. [5]
While the mere failure to lodge a caveat was not of itself sufficient to displace the presumption that the earlier interest holder had priority, a failure to lodge a caveat may amount to postponing conduct if there were circumstances indicating the need or desirability of doing so to protect that person’s interests, and where the omission led to subsequent interest holders suffering detriment through relying on the absence of any caveat or other registered interests. [18], [40], [46]

In all of the relevant circumstances, in particular, the absence of any evidence of anything but an arms length relationship between KKJA and the borrowers (ie no evidence that KKJA’s failure to caveat was reasonable or at least understandable), its failure to register its mortgage or caveat amounted to postponing conduct. There was no evidence explaining why KKJA should rely upon representations by borrowers that they would not further encumber the property (if any such representations were in fact made), but KKJA’s failure to caveat armed the borrowers with the capacity to do so. It was difficult to see what more Yan Shi could have done. She suffered detriment as a consequence of KKJA’s failure to caveat. It would be unconscionable for KKJA to maintain its priority over the funds. [6], [39], [42]-[43], [45], [48].

Philip H. Barton

Owen Dixon Chambers West

Wednesday, November 12, 2025

Blog 97. Caveat claiming equitable charge survives.

Formquip Nirvana Pty Ltd v Memphis Property Co Pty Ltd & Anor [2025] VSC 348, Cosgrave J. (16 June 2025). This case is a valuable analysis of the distinction between an equitable mortgage and an equitable charge, and of how a charge may be created, this being relevant to whether an interest in land claimed in a caveat was identical to that in a lapsed caveat contrary to the Transfer of Land Act 1958 (TLA) s. 91(4). His Honour also reminds us of the concept of hypothecation. As stated in Sackville and Neave, Australian Property Law, 10th ed, 2016, p. 1079 –

“A hypothecation is the type of security which gives the creditor power over the encumbered property only in the event of default. The creditor does not take a transfer of ownership and is not entitled to possession … a Torrens system mortgage is properly classed as a hypothecation …”

I also refer to: Hycenko v VHY Enterprises Pty Ltd & Ors [2020] VSC 834; Southside Industries (Aust) Pty Ltd v D. B. Cls-B1 Pty Ltd & Anor [2023] VSC 187SR; and Symbion Pty Ltd v Sellers [2023] VSC 441.

The facts were –

The directors of Formquip Project Management Pty Ltd (Project Management) were Messrs Stone and Bishop. They were also the directors of the plaintiff (Nirvana) until July 2024 when Stone became sole director.
Nirvana was the registered proprietor of land in Bulleen being developed into 31 residences (the Property). It had entered into 14 contracts for sales off-the-plan.
The Property was mortgaged to a mortgagee (Payton) registered in July 2022.
The directors of the first defendant (Memphis) were Mr and Mrs Crozier. Memphis alleged that it had lent Nirvana $1m. for construction work on the Property pursuant to an agreement (Loan Agreement) made on about 29 December 2022 between it, Project Management and Nirvana (as varied or novated), by which Nirvana had charged and mortgaged the Property to it. It alleged that this agreement was in writing and implied from: a deed dated 29 December 2022 (the First Deed); an email dated 17 January 2023 (the email), and; another deed executed in January 2023 (the Second Deed) by agreement backdated to 29 December 2022.
The parties to the First Deed were Project Management as borrower and Memphis as lender agreeing to lend $1 m., the loan commencing on 29 December 2022 and being repayable six months later. Its schedule referred to “Security” and Nirvana, but its body referred to neither. It was executed by Stone on behalf of Project Management but unexecuted by Memphis.
The email was from the then solicitors for Nirvana including to Bishop and Stone. It stated:

“We confirm your instructions that the Borrower will be Formquip Nirvana Pty Ltd ATF Formquip Nirvana Trust and not Formquip Project Management Pty Ltd as per your previous instructions given that Formquip Nirvana will be providing a second mortgage over 118–120 Manningham Road, Bulleen, Vic.

Bishop forwarded it to Mr Crozier.

The Second Deed was signed by Stone and Bishop on behalf of Nirvana and by the Croziers on behalf of Memphis. Its parties were Nirvana as borrower and Memphis as lender. The principal sum was $1 m. advanced or to be advanced by 29 December 2022 for the purpose of working capital for Nirvana, repayable six months later. Clause 5 provided:

“IN consideration of the Lender entering into this Deed, and in order to secure the obligations of the Guarantor herein the Guarantor hereby CHARGES AND MORTGAGES in favour of the Lender the property described in Item 9 of the Schedule (“the Mortgaged Premises”).”

Item 9 referred to the “Mortgaged Premises” and to a second ranking mortgage over the Property.

In June 2024 another mortgage to Payton was registered. In August 2024 caveats were lodged by persons surnamed Mifsud each claiming an interest as chargee.
On 2 October 2024 Memphis caveated claiming an interest as mortgagee pursuant to the Loan Agreement.
Later in October another company controlled by Stone (Boutique) caveated claiming an interest as chargee.
In December 2024 Memphis commenced a Supreme Court proceeding inter alia claiming relief attributable to being an equitable mortgagee of the Property.
On 8 January 2025 Memphis’ caveat lapsed through a notice from the Registrar of Titles under the TLA s. s. 89A which Memphis alleged it had neither received nor known of. It then lodged a second caveat, claiming an interest as chargee pursuant to the Loan Agreement.
Nirvana issued a proceeding including seeking removal of the caveat under the TLA s. 90(3), in part arguing that the second caveat contravened s. 91(4), which provided that a caveat that had lapsed or been removed by court order shall not be renewed by or on behalf of the same person in respect of the same interest.
Nirvana argued that the caveat was impeding it obtaining further finance and thus the development. Stone deposed that:
- Payton’s initial finance was exhausted but a new financier had agreed to lend $4.8 m. to complete the development provided its debt was fully secured on the Property which was prevented by Memphis’ caveat (however, the proposed agreement with the new financier referred to different title details from those in the court documents);
- this further funding “would allow Nirvana to complete the development and perform its obligations under the 14 contracts of sale…”, and that “[t]he financier requires such completion to occur on or before 30 September 2025”, which could not occur if the caveat remained;
- the relevant planning permit expired on 7 October 2025;
- Nirvana was required to enter a section 173 agreement with the municipality for which the caveator’s consent was required.

In his affidavit Stone requested that, due to commercial sensitivities, details of the new financier and any party involved in the development not be revealed to Memphis.

Counsel for Memphis submitted: the loan was from Memphis to Nirvana which charged and mortgaged the Property in its favour; the word “Guarantor” in cl. 5 of the Second Deed was an error for “Borrower”; notwithstanding the ostensible terms of the deeds it was apparent that Nirvana was the borrower from the intended effect of cl. 5, the Second Deed being created shortly after the email confirming that Nirvana (not Project Management) was the borrower.
Counsel for Nirvana submitted: there was no such error in cl. 5; the loan was a “three-way arrangement” with Project Management as borrower and the Second Deed being executed so as to obtain a guarantee from Nirvana; but the Second Deed was irremediably defective principally because Nirvana as principal borrower could not also be a guarantor.
Counsel for Memphis relied on Australian Secured & Managed Mortgages Pty Ltd v Horizon Hotels Pty Ltd (“Horizon Hotels”) [2022] NSWSC 1647, where the following clause in an agreement was held to create an equitable charge:

“The applicant/s hereby charges and mortgages to and in favour of … Highmore the applicant’s interest in any and all assets and real property owned by the applicant/s individually or jointly (including the security offered) to secure payment by the applicant/s to … Highmore of the fees and any and all other monies due to … Highmore by the applicant/s including all amounts that … Highmore may incur in connection with the enforcement and/or preservation of its rights under this agreement.”

Cosgrave J. declined to remove the caveat, holding –

Although “Guarantor” was referred to in cl. 5, the Second Deed did not otherwise refer to a guarantor in its description of parties or schedule. Further: Nirvana’s lawyers had prepared it and to that extent it could be construed against Nirvana contra proferentem; there was no evidence that Mr Crozier obtained professional advice about either deed; it was undisputed that Nirvana was the registered proprietor of the Property, that Memphis had lent $1 m. in connection with its development, not repaid, and that as confirmed in the email (sent by a director of Nirvana to Memphis) Nirvana had instructed its solicitors that Nirvana not Project Management was the borrower. [39]-[40]
Accordingly, notwithstanding issues with the documentation, the caveator had raised a serious question of having an equitable charge, cl. 5 of the Second Deed being materially similar to that in issue in Horizon Hotels. The email was important in confirming the thrust of Memphis’ case that by agreement the borrower would not be Project Management but Nirvana which would grant security to Memphis. Even if there was some uncertainty and the Second Deed did not accurately represent the agreement, the party to be charged signed it consistently with Memphis’ case. [37], [41]
Because the relevant clause referred to both charging and mortgaging, the Second Deed created two different types of interest in the property which could attract protection by a caveat. More particularly –
1. Whereas an equitable charge was a pure hypothecation not entitling the chargee to foreclosure on default, an equitable mortgage was a mixed hypothecation giving the mortgagee potential full beneficial ownership through the process of foreclosure. [52], [57]
2. The creation of a charge did not require any specific wording. It sufficed that the grantor manifested an immediate intention to create a charge by using words, such as “will charge”, creating a present intention to charge land specified as security. [57]
3. Further, an agreement to execute a registrable instrument upon request transferring to one party another’s estate and interest in land by way of security created a specifically enforceable right to call for a legal mortgage, which was a species of equitable mortgage. [57]
Notwithstanding Nirvana alleging that its urgent need for finance was being forestalled by the caveat the balance of convenience did not favour its removal because:
1. Nirvana would still be impeded by five prior interests. There was no evidence of the position of the registered mortgagee or other caveators, in particular the size of their debts or willingness to be paid, or of project completion costs; [63]-[64]
2. If the caveat remained the new financier could still register a security interest with likely priority subsequent to the other claimed security interests; [65]
3. Stone did not expressly depose that the only way to complete the project by 30 September 2025 was with the asserted further finance, or that without it the project would not be completed; [66]
4. If the new financier registered a mortgage with priority over Memphis (and potentially over other parties claiming interests in the Property) then Memphis could not only lose its priority but the security interest itself. The Court could not assess with reasonable confidence whether if its caveat was removed Memphis would be repaid, absent evidence both of the debts owed to the registered mortgagee and other caveators and evidence enabling comparison of total construction and development costs with the likely proceeds of sale. The Court suspected non-payment, with Memphis suffering serious potential damage; [67]-[68]
5. The new finance documentation exhibited was unclear and uncertain because much was redacted or entirely missing. Evidence was lacking on both the final terms of the building contract and whether the prospective new financier approved it. Hence it was uncertain whether the building would proceed even if the caveat was removed; [69]
6. There was no compelling rationale for the confidentiality sought. The Court could have been asked to preserve confidentiality by for example placing an affidavit or exhibit in a sealed envelope with no access without curial leave. However, Nirvana had acted unilaterally by withholding documentation without sufficient explanation. [70]
7. The discrepancy in title details between the proposed new finance facility and the court documents was unexplained. [71]
[72]
Subject to hearing the parties the proceeding would be dismissed with costs taxed on the standard basis. [73]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 19, 2025

Blog 91. A NSW case and a pseudo-law case providing some light Christmas relief.

I do not normally deal with NSW cases, but a veteran Victorian lawyer has drawn my attention to an interesting NSW case which I first consider briefly. Then I offer the light relief found in the most recent Victorian caveat case, replete with pseudo-law.

Cui v Salas-Photiadis [2024] NSWSC 1280, Hmelnitsky J. Briefly the facts were –

The second defendant (Simpo) was the registered proprietor of land (the Land). On 27 February 2024 it as borrower entered into a Loan Agreement with the first defendant as lender. Clause 17.1(a) provided:

‘[Simpo] grant[s] a security interest in the collateral to [the first defendant] to secure payment of the secured money.

This security interest is a mortgage of the land, … and a charge over the other collateral.

This security interest is also an encumbrance.’

‘Collateral’ was defined in the agreement as including ‘the land’, which itself was described as:

‘each on [sic] or more of the following that the context allows:

(a) the real property described in the [Finance Offer Schedule];

…’

The Finance Offer Schedule stated that the security included a ‘Mortgage by [Simpo] over the land detailed below’. Underneath was a description of the Land and the words ‘2nd Registered Mortgage’.

Part of the secured money was amounts outstanding under construction contracts between a company associated with the lender and Simpo.
A form of mortgage to give effect to the security arrangement was executed but not registered.
On 12 April the plaintiff entered into a contract to purchase the land, which was improved by a home.
On 20 May the first defendant caveated claiming an interest as a ‘charge’ granted under the loan agreement.
Settlement ‘occurred’ on 28 June. However, in the words of the judge –

‘Bafflingly, no participant in the PEXA workspace noticed that the first defendant’s caveat had been lodged. If they did, they did not appreciate the significance of it. Instead, the parties blindly proceeded towards settlement in the usual way.’

The following day the incoming mortgagee received a requisition from Land Registry Services stating that the caveat prevented registration of the transfer and mortgage.
The plaintiff sought an order under s. 74MA of the Real Property Act 1900 (NSW) that the caveat be withdrawn.

Hmelnitsky J. declined to order that the caveat be withdrawn, holding –

The caveat was not invalid for failure to specify the nature of the equitable estate or interest claimed sufficiently. His Honour referred to NSW authority which had itself quoted English authority which stated –

‘An equitable charge may, it is said, take the form either of an equitable mortgage or of an equitable charge not by way of mortgage. An equitable mortgage is created when the legal owner of the property constituting the security enters into some instrument or does some act which, though insufficient to confer a legal estate or title in the subject matter upon the mortgagee, nevertheless demonstrates a binding intention to create a security in favour of the mortgagee, or in other words evidences a contract to do so: … An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale: …’

His Honour said that these references acknowledged that an equitable charge may or may not take the form of an equitable mortgage. [33], [34]

Like Victoria, NSW has legislation (the Home Building Act 1989) s. 7D of which prohibits an agreement which, in substance, purports to give a person a legal estate in land to secure the performance of (ie payments under) a residential building contract. This agreement was unenforceable by reason of s. 7D to the extent it purported to secure the payment for residential building work. [40], [46], [47]
However, as the loan agreement and mortgage created a valid and enforceable equitable mortgage in favour of the defendant to secure the repayment of loans other than the amounts due and payable under the construction contracts, to this extent the caveat was valid. The description in the caveat of the first defendant’s purported equitable estate or interest in the land remained correct (or sufficiently correct). [52], [54]

Comment:

Holding 1, appears to this blogger to be lenient to the caveator, but arguably a charge was created under the Loan Agreement. The Victorian reader should stick to the options contained in the Victorian government publication ‘Guide to grounds of claim for caveats’. But it is noted that, apart from various discrete ‘mortgage’ claims, in Victoria one can claim an interest as chargee based on a ‘charge contained in mortgage’.

As to holding 2, the similar Victorian legislation is s. 18 of the Domestic Building Contracts Act 1995.

Nelson v Greenman & Anor [2024] VSC 704, Gobbo AsJ. (15 November 2024)

The facts were:

Stephen Douglas was the registered proprietor of land at Koo Wee Rup. He was bankrupted in 2019. On the making of the sequestration order his interest in the land vested in the plaintiff under the Bankruptcy Act and in 2021 the plaintiff became its registered proprietor. Between then and March 2024 were many legal twists and turns involving the Federal Court, the Sheriff, VCAT, the Supreme Court, and the police executing a warrant of possession on the third attempt.
In the course of the foregoing the first defendant caveated on the ground of an implied, resulting or constructive trust. The plaintiff sought removal of the caveat under the Transfer of Land Act s. 90(3).

In the course of removing the caveat with indemnity costs Gobbo AsJ. grappled with documents and concepts relied on by the caveator including: the argument that the property was Christian ministry headquarters involving the DOUGLAS Stephen Ross Estate Trust of which the first defendant was the Special Trustee, and the Koo Wee Rup Ministry Trust; that the Special Trustee was formalised by trust deed which included the property; that the DOUGLAS Stephen Ross Estate Trust was a Life Estate in Fee Simple; that under the Trusts (Hague Convention) Act 1991 (Cth) whoever held a title to the property held it on behalf of the trust; accordingly the property was exempt property held in a trust by the bankrupt for someone else, ie the Koo Wee Rup Ministry, as described in the Bankruptcy Act s. 116; as to certain public figures described as the ‘Living Man’ or ‘Living Woman’; and many others.

Her Honour described the caveator’s affidavit as ‘34 pages of nonsensical quasi‑legal concepts and phrases, Bible quotes and references to organisations and entities with unconventional titles or descriptions’. Her Honour rejected an application by the caveator to remove the case to ‘the People’s Court of Terra Australis’. The blogger also learnt that there is now a body of literature on the rise of ‘pseudo-law’ being ‘a collection of legal-sounding but false rules that purport to be law’, being ‘integrated and separate legal apparatus’ with its own confounding legal theories, constituting an ‘alternative legal universe’. Her Honour lists exotic varieties of this ‘doctrine’.

The legal points of value in this case were as follows. Her Honour stated that at its highest, the first defendant’s case appeared to be that the plaintiff had no entitlement to possession as legal owner because the land was legally transferred to a trust. However, in Douglas v Nelson [2024] VSC 116 Quigley J held it not to have been established that the bankrupt had made a valid transfer of the legal ownership of the title to the land to any trust entity, referring to the law on when equity would recognise the assignment of property without consideration. Gobbo AsJ also dealt with: the circumstances in which silence could constitute acceptance of an offer sufficient to establish a contract, and; the jurisdictional basis of the office of Associate Justice.

Merry Christmas

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 10, 2024

Blog 86. Where a director’s spouse has given a charge, is lodgment of a caveat by the chargee prohibited during a company administration?

Langdon v Tradelink Pty Ltd [2024] VSC 113, Gray J.

The facts were –

The plaintiff was married to Shane Langdon. Langdon Building Pty Ltd was incorporated in 2005. He became its sole director in 2007. It was a home builder.
In 2012 the third defendant (now known as Tradelink) agreed with the company to supply building materials on terms of credit by Tradelink as ‘Supplier’ to the company as ‘Customer’. The application for a credit account and agreement included a ‘Guarantee and Indemnity and Charge’ (Guarantee) signed by the plaintiff. This included her agreement: ‘To pay the Supplier … all monies which are now or may … be owing or remain unpaid by the Customer to the Supplier …’; that she as guarantor ‘To better secure the payment of all monies which the Guarantor may become liable to pay to the Supplier hereunder … charges all of its interest in real property both present and future … with the amount of the Guarantor’s indebtedness to the Supplier’; that she appointed the Supplier as her attorney in substance so that it could caveat over her real property – this clause also provided that ‘Each Guarantor undertakes to not … take any steps to remove any such caveat’.
In January 2024 voluntary administrators were appointed to the company. Next day Tradelink lodged a caveat over a property of which the plaintiff was sole registered proprietor based on its interest as chargee.
On 4 March 2024 the company’s creditors resolved to accept a deed of company arrangement (DOCA) proposed by Shane. The DOCA proposal included an initial and deferred cash contribution. A formal DOCA was not yet executed.
The plaintiff applied under the Transfer of Land Act s. 90(3) for removal of the caveat. She deposed that it was adversely impacting her ability to access a bank line of credit, secured by a mortgage, needed for funds required for the DOCA proposal.

Section 440J of the Corporations Act 2001 (Cth) provided –

‘440J Administration not to trigger liability of director or relative under guarantee of company’s liability

(1) During the administration of a company:
- (a) a guarantee of the liability of the company cannot be enforced as against
  - (i) a director of the company who is a natural person; or
  - (ii) a spouse … of such director; and
- (b) without limiting paragraph (a), a proceeding in relation to such a guarantee cannot be begun against such a director …;

except with the leave of the Court …’

Gray J dismissed the application, holding –

A caveat lodged under the Transfer of Land Act s. 89 was a statutory injunction, in the sense of preventing registration of new dealings with the title on the Register pending an application under s. 90 or administrative action under s 89A. [41]
In determining whether lodgment of a caveat was prohibited by s. 440J(1)(a) the principles of statutory interpretation were to be applied. These included: the statutory interpretation process must begin and end with the text used; where the words of a provision were clear, unambiguous, and could be intelligibly applied to the subject matter, the provision must be given its ordinary and grammatical meaning; the text must be interpreted in its context, and context should be considered at first instance, rather than at a later stage when ambiguity might arise; the context included the purpose Parliament intended to achieve, as discerned from the legislation itself, and relevant extrinsic material; the legislative context included the statute as a whole, with an assumption that Parliament intended interrelated provisions to operate coherently, giving effect to ‘harmonious goals’. [25]
By reason of s. 13 of the Acts Interpretation Act 1901 (Cth) section headings were part of the Act. [27]
The principal purpose of s. 440J was to remove any inhibition on directors commencing a voluntary administration. [35]-[36]
Lodgment or extension of a caveat relating to a charge or guarantee did not amount to enforcement, but to prioritisation, of security interests. The policy underlying s. 440J did not include that a secured creditor could not maintain this priority, even if that were thought necessary or desirable to facilitate a deed of company arrangement. [39]
There was at least a prima facie case that the caveator had an interest in the property as chargee. Accordingly lodgment of the caveat was permissible from the time the agreement and charge first applied to the property, well before any suggestion of the Guarantee being enforced. The subsequent commencement of company administration could not alter the fundamental character of the caveat’s lodgment as a step in protecting the chargee’s security interest from a loss of priority but not a step in enforcement of the Guarantee. Accordingly the lodgment of the caveat did not breach s. 440J(1). [20], [42]-[45]
This case was distinguishable from Waco Kwikform Ltd v Jabbour [2010] NSWSC 1379, being an application under s. 74K of the Real Property Act 1900 (NSW), in response to a lapsing notice, to extend the operation of a caveat lodged before the commencement of a company administration, which decided that s. 440J(1)(a) did not prohibit that application but that it was prohibited by s. 440J(1)(b) so as to require the grant of retrospective leave for extension. [30]-[34]
The balance of convenience favoured maintenance of the caveat. On the one hand, it was unclear whether the bank would not consent to, or allow the funds needed for, the DOCA. On the other hand the caveator had established a real risk of prejudice if its caveat was removed, in that it appeared likely that equity in the property may be diminished and there was a real risk that priority might be lost. The mere fact that removal of the caveat might help bring the DOCA proposal closer to operation did not outweigh this entitlement to priority. Further, because the DOCA was subject to other conditions precedent there was force in the caveator’s submission that the court could not be satisfied that even if the caveat was removed the DOCA would necessarily proceed – it weighed heavily against the plaintiff that if the caveat was removed the caveator could lose its priority yet the DOCA still not proceed. [49]-[53]

Philip H. Barton

Owen Dixon Chambers West

Friday, November 8, 2024

Blog 84. A freehold estate?

The Victorian government publication “Guide to grounds of claim for caveats” lists “Freehold Estate” in certain circumstances under “Estate or interest claimed”. In Alliance Developments Pty Ltd v Arbab & Anor [2019] VSC 832 (Blog 34) Garde J. stated at footnote [15] –

“At common law, there are three kinds of freehold estates – a fee simple, a fee tail and a life estate. The most common freehold estate encountered in Victoria is the fee simple estate.” Because it has been impossible to create a fee tail in Victoria for a long time (see Property Law Act 1958 Part VI) the field is reduced to fee simple and life estate. In Marchmont v Keeshan [2023] VCC 2138 Judge Marks considered: caveats claiming a freehold estate; issue estoppel, Anshun estoppel or abuse of process arising from a previous caveat removal proceeding; and whether a stay should be granted pending an appeal from orders removing caveats, in the course of which her Honour considered the nature of a caveat.

The facts were –

In March 2017 the plaintiffs lent the defendant $50,000 pursuant to a written agreement. On about 20 September 2017 the plaintiffs and the defendant entered a second agreement relating to the original $50,000 loan and to a further loan of $185,000. Clause 8.1(b) of the Second Agreement in substance provided that if there was a default by the Borrower the Lender (i) ‘may call on the Borrower to provide a mortgage over real property determined by the Lender on such terms and conditions as are determined by the Lender, at any time prior to the Repayment Date’ and (ii) ‘At any time prior to the Repayment Date the Lender may, pursuant to this clause, lodge a caveat over any such real property it may determine as appropriate to provide security pursuant to sub-clause (a) hereof.
The defendant repaid part of the debt, the extent of repayment being disputed.
On 6 July 2020, the plaintiffs lodged caveats over properties owned by the defendant stating the ‘Estate or interest claimed’ as ‘Freehold Estate’ and the ‘Grounds of claim’ as ‘Agreement with [the Registered Proprietor(s)] dated 20/09/17’.
February 2023 the defendant, in the context of seeking a particular refinancing facility, applied to the Supreme Court to remove the caveats, resulting in a consent order dismissing the proceeding with no order as to costs. Under “Other Matters” McDonald J. noted –

“The parties have agreed to resolve the matter with the First and Second Defendant consenting to a registration of first ranking mortgages over the properties the subject of the proceeding. The First and Second defendants undertake to provide all relevant consents in writing for the registration of first ranking mortgages in relation to the facility referred to at paragraph 17 of the affidavit of Clinton Keeshan …”.

That refinancing did not proceed and the defendant now applied to the County Court under the Transfer of Land Act s. 90(3) for removal of the caveats.

Judge Marks removed the caveats, holding –

The reference to ‘sub-clause (a)’ at the end of sub-clause (b)(ii) was to be construed as a reference to sub-clause (b)(i). [27]
There was no serious question to be tried that the plaintiffs had the estate or interest claimed, because –
1. Each caveat “overclaimed”, in that cl. 8.1 gave no sort of freehold estate interest but at most a charge or something akin to a chargeable interest. This case was distinguishable from 187 Settlement Road v Kennards Storage Management [2022] VSC 771 (Blog 69) where a ‘freehold estate’ was claimed in circumstances involving a right which might later turn into holding the freehold estate, in that that caveator had a conditional right to purchase that land. The highest interest ever available to the plaintiffs under cl. 8.1(b) was the right to call on the defendant to provide a mortgage. [21], [24], [25], [28], [31]
2. Clause 8.1(b) did not entitle the plaintiffs to restrain any dealing with the freehold estate. An unregistered charge, unregistered mortgage, or even a registered mortgage, did not prevent the registered proprietor of the land from granting further charges or mortgages. The principal vice in a caveat which overclaimed in the manner of these caveats was that they could achieve that unjustified effect. This was a key reason underpinning the requirement for a caveator to establish a serious question to be tried of the estate or interest claimed and not some other interest. This case was analogous to those in which a creditor claimed ‘an estate in fee simple’. [29], [30]
Further, on the proper construction of the second agreement, a ‘call’ under cl. 8.1(b)(i) was likely necessary before a caveatable interest arose (and there had not been one). [35]
The balance of convenience also favoured removal of the caveats over some of the properties, because, having regard to amount arguably secured, the plaintiffs would have been protected by maintaining caveats on the other properties. There was no identifiable prejudice to the caveators from this removal, but the registered proprietor needed to avoid the consequences of the first mortgage being in default. [36], [37], [39]
None of the doctrines of issue estoppel, Anshun estoppel or abuse of process, founded on the existence of the Supreme Court order, barred this application. In particular –
1. although an issue estoppel could arise where a final order was made, including by consent, the estoppel could only exist in respect of matters necessarily resolved by the earlier order and where the decision was ‘final and conclusive on the merits’. Nothing as to the validity of the caveats was necessarily resolved as a step in reaching the ‘determination’ made in the Supreme Court order; [49]-[51]
2. An Anshun estoppel precluded the assertion of a claim, or the raising of an issue of fact or law, if that claim or issue was so connected with the subject matter of the first proceeding as to have made it unreasonable for the claim not to have been made or the issue not to have been raised in that proceeding. There was no hearing on the merits in the Supreme Court: it was not arguable that it was unreasonable for claims or arguments as to the validity of the caveats (and the overclaim) to have been made in circumstances where the first proceeding was settled at an early stage without any submissions being made. [52]-[53]
3. An abuse of process existed where in an earlier proceeding a claim was made or an issue raised and determined, or where it ought reasonably to have been so made or raised for determination. It was not the case that arguments about the validity of the caveats ought reasonably have been made in the Supreme Court proceeding in circumstances where it was settled at an early stage without submissions being made. The circumstances underlying this application and the earlier one were different – the consent orders in the Supreme Court proceeding were tied to a particular refinancing facility being sought. [55]-[56]
An application for a stay to allow time to appeal was refused. The consequence of the orders removing the caveats did not have the effect of extinguishing whatever security the plaintiffs were entitled to over the land. A caveat did no more than provide notice of an asserted security interest. It did not create, nor did its removal extinguish, rights over the land. The only effects of removing the caveats would be: to enable the defendant to refinance, involving discharge of old and registration of new mortgages; (at worst for the plaintiffs) if the properties were ultimately sold, potentially prejudice the priority of their asserted equitable rights as chargee against (hypothetical) equitable claimants to the proceeds of sale. There was no risk of the defendant dissipating the properties. [63], [65]
Section 91(4) of the Transfer of Land Act, which provides that a “caveat that has lapsed or been removed by an order of a court shall not be renewed by or on behalf of the same person in respect of the same interest” did not prevent lodgement of a fresh caveat where a caveat was removed for claiming the wrong interest (as had occurred here). [65]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 23, 2024

Blog 81. Security documents inadequate to create caveatable interest.

Rainford & Ors v SA & RT Tesoriero Pty Ltd [2023] VSC 617, Waller J.

This case is a reminder of the importance of exact drafting of security documents. The facts were –

The plaintiffs (Philip, Christopher and Pylades Pty Ltd (Pylades)) were registered proprietors of a property (the Property) as tenants in common. Pylades was the trustee of a family trust. Pylades and another company related to the plaintiffs (Drofniar) owned the shares in a third company (Workspace).
By a Deed of Secured Loan (DSA) dated 1 February 2023 the defendant loaned $2.86 m. to Workspace due for repayment on 30 May 2023. Workspace was required to provide security over its land, which it did. Further, cl. 9.3 of the DSA provided that Philip, Pylades and Drofniar (not Christopher) were obliged to “execute deeds of guarantee and indemnity in such form as the Lender may require”.
Also on 1 February 2023, Philip (on his own behalf and as director of Workspace) and Christopher (as director of Pylades and Drofniar) executed a General Security Agreement (GSA) and a Guarantee and Indemnity (Guarantee) in favour of the defendant. Although Christopher added his name and signature to each of the DSA, GSA and Guarantee he was not stated to be a party in his own right in any of them.
Clause 2.1 of the GSA provided –

“Each of the Grantors as beneficial owners charge in favour of the Secured Party, and grants a Security Interest to the Secured Party by way of charge over, the whole of their Collateral and the Proceeds.”

In the GSA “Collateral” was defined to include all real property of the Grantor and “Security Interest” in relation to any Collateral other than personal property was defined to mean:

“… any mortgage, charge, … which is or has the effect of a security for the payment of a debt or other obligation or the compliance with any other obligation, …”.

Clause 5.4 of the Guarantee provided –
“Upon request in writing by the Lender, the Guarantor shall:
1. grant to the Lender a legal mortgage of any property … now or hereafter held by that person containing a covenant:
  1. That Philip … Rainford and Pylades … and Drofniar … shall duly pay all monies now or hereafter due and payable to the Lender by them, the Borrower or by any other person named in the Deed or Collateral Document as a Guarantor.
2. Where property that the Lender requests be given a [sic] security by the Guarantor is held jointly by the Guarantor and another person (not a party to this Guarantee), the Guarantor shall: … “
  1. take such steps … to effect the registration of a legal mortgage over such jointly held land; or
  2. in the case of a corporation, as beneficial owner charge in favour of the Lender … any property … with the payment of indebtedness pursuant to this Deed …”

The Guarantee defined “Securities” to include a ‘General Security Interest’ over all property granted by Philip, Christopher and Pylades as trustee for the family trust.

In March 2023, Pylades and Drofniar sold their shares in Workspace to another company. The sale required the consent of the defendant and the defendant thus required execution of a Deed of Variation to the DSA. The Deed of Variation included as parties Workspace, Philip, Christopher (stated to be a party in his own right and described as one of the “Initial Guarantors”), Pylades, Drofniar and other legal and natural persons as “Additional Guarantors”.
On 4 August 2023 the plaintiffs entered a contract of sale of the Property due for completion on 20 October. The purchaser paid the deposit.
Workspace failed to repay the loan and on 21 September 2023, the defendant’s solicitors emailed the plaintiffs’ former solicitor stating:

“Pursuant to clause 5.4 of the deed of guarantee and indemnity legal mortgages of over [sic] real property in the name or names of the guarantors jointly and severally. [sic]
Caveats will be placed on title of all land.

Please provide us with title particulars of all land that the guarantors are the registered proprietors of so that mortgage documents can be prepared.”

No title particulars were supplied.

Also on 21 September, the defendant caveated over the Property claiming an interest as mortgagee on the grounds of a mortgage with the registered proprietors dated 2 February 2023. The plaintiffs applied under s. 90(3) of the Transfer of Land Act to remove the caveat. On the balance of convenience issue the plaintiffs led evidence that the caveat would prevent settlement of the sale with consequential detriment. The plaintiffs also submitted that the defendant had security and potential security over other properties.

Waller J. ordered removal of the caveat, holding –

Clause 2.1 of the GSA created a charge, not a mortgage, by ‘each of the Grantors’ including by Philip and Pylades but not by Christopher. (It was unnecessary to determine whether the reference to Pylades in the various documents was to it in its own right or as trustee of the family trust (and so binding the trust property)). [32]-[34]
Clause 5.4 of the Guarantee did not purport to grant the defendant any interest at the time it was entered into. Rather, it gave the defendant the right to request a Guarantor to grant it “a legal mortgage of any property … now or hereafter held by that person” containing the covenant set out in cl. 5.4(a)(i). If a provision such as cl. 5.4 conferred an immediate right of recourse to the property it would amount to an equitable charge or mortgage, but it would not so amount if it was contingent upon further acts of the parties, such as requiring the lender to make a written request for provision of such a security. Clause 5.4 was of this latter character. This contingency had not been satisfied: the email of 21 September 2023 asked only for title details. [36]-[38]
Further, a caveat could only in form be commensurate to the interest it was designed to protect. This caveat was not so commensurate because Christopher was not a named party to the Guarantee and so the caveat wrongly purported to rely on a “Mortgage” with “The Registered Proprietor(s)”. This caveat was accordingly not limited in its operation to the interest that could be said to have arisen between the relevant parties. [39]-[41]
Although the Deed of Variation named Christopher as a Guarantor and Obligor, and defined “Securities” to include a “General Security Interest” over all property granted by Philip, Christopher and Pylades as trustee, it did not itself create a mortgage over the Property, let alone a mortgage of the kind referred to in the caveat. [42]
Thus the defendant had not established a prima facie case of having an interest in the Property. The balance of convenience would also not have favoured the maintenance of the caveat. [43], [55]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, April 23, 2024

Blog 79 Caveator who adopted conflicting positions left unsatisfied.

Colony Constructions Pty Ltd v Zain Homes Pty Ltd & Ors [2023] VSC 529, Ginnane J.

This short case is an illustration of the importance, when faced with a serious breach of contract by the other party, of either accepting the breach and thereby terminating the contract or declining to accept the breach and asserting your intention to go on with the contract. Confusion between these options possibly contributed to this caveator claiming the wrong interest and grounds. The first defendant was a purchaser under a contract which did not settle on the due date, following which the vendor served a 14 day Notice of Default and Rescission and the third defendant (invalidly because it was the nominee transferee) served a 14 day Default Notice based on alleged deterioration to the premises and an inadequate planning permit. Following expiry of both Notices the first defendant: wrote stating that the alleged breach had not been rectified and that the contract was at an end; and caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust. On the plaintiff vendor applying under the Transfer of Land Act s. 90(3) to remove the caveat the purchaser adopted conflicting positions: its director deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”; its counsel submitted that its conduct demonstrated that it wished to settle the contract; and in written submissions the purchaser relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962. Ginnane J. held it arguable that the vendor had breached the contract, raising an arguable issue of whether it had the right to serve its Notice, but as the caveat had not claimed an interest as a purchaser the caveator only arguably had asserted an equitable lien for the return of the deposit. Accordingly, appropriate relief was removal of the caveat with the deposit to be held in the vendor’s solicitor’s trust account. His Honour stated –

“I have noted and considered the emphatic submissions of the defendant’s counsel that if the caveat is removed it will lose its right to settle the property, a right which may be later established. However, … I can only consider the claims described in the caveat and they do not rely on the contract of sale …”

The facts were –

On 18 February 2022 the plaintiff entered a contract to sell a property to the first defendant for $727,270, with a deposit of $77,000 which was paid, due for settlement on 18 February 2023. The conditions included that: the “contract is subject to the vendor providing the purchaser endorsed plans and permits” (Special Condition 6); the vendor must deliver the property to the purchaser at settlement in the same condition as it was in on the day of sale, except for fair wear and tear (General Condition 24.2).
The first defendant nominated the third defendant as transferee.
A planning permit was issued allowing partial demolition of a building and erection of six units.
The contract did not settle on the due date. On 20 February 2023 the vendor served a 14 day Notice of Default and Rescission describing the default as “failure to settle per the terms of the contract”. On the same day the nominee served a Default Notice describing the default as “non-compliance of general condition 24.2 & special condition regarding endorsed planning permit” and stating that the purchaser intended to exercise its rights unless within 14 days the default was remedied and legal costs were paid.
On 9 March the first defendant by its lawyers emailed the plaintiff’s conveyancer stating that the alleged breach had not been rectified and that the contract was at an end. It also caveated claiming an interest as chargee on the grounds of implied, resulting or constructive trust.
The plaintiff resold the property and applied under the Transfer of Land Act s. 90(3) to remove the caveat. The first defendant’s director deposed to damage to the property alleged to have occurred after the date of the contract. The first defendant submitted that the plans provided did not contain a valid planning permit as stipulated in Special Condition 6 so as to enable performance of the building works.
The plaintiff argued that the first defendant had adopted conflicting positions concerning whether the contract was still on foot. The first defendant submitted that its conduct demonstrated that it wished to settle the contract, but its director also deposed that “the caveat was lodged to protect my interests in the property namely the return of the deposit and or to purchase the property”. In written submissions the first defendant also relied on the right of rescission under ss. 32K and 34 of the Sale of Land Act 1962.

Ginnane J. ordered removal of the caveat on condition that the deposit was held in the vendor’s solicitor’s trust account until final determination of the proceeding or further order and on condition that the purchaser counterclaimed to substantiate its claim to the deposit –

The third defendant’s Notice was invalid because it was a nominee who could not exercise rights under the contract. [7]
The first defendant’s contentions that the plaintiff had breached the contract in failing to provide a valid planning permit and because of damage to the property raised an arguable issue as to whether the plaintiff had the right to serve its Notice. [8]
Although the caveat had not claimed an interest as a purchaser (the claim of an implied, resulting or constructive trust did not claim an estate or interest arising under the contract) the caveator had established a serious question to be tried of an interest in the land in the form of an equitable lien for the return of the deposit – the caveat asserted such an interest when it referred to the first defendant’s interest as a chargee. [10]-[11]
The first defendant’s arguable interest in the $77,000 deposit could be protected by a removal of the caveat on condition as stated above. The balance of convenience favoured that course. This removal would deprive the first defendant of its right (which may later be established) to settle the contract but the caveat had not relied on the contract. [12]-[13]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, December 19, 2023

Blog 78 Mortgage and caveat securing solicitor’s fees survive.

Dixon (as trustee of the bankrupt estate of Toufic Sassine) v Lennon & Anor [2023] VSC 426, Barrett AsJ.

This is the first case covered by this Blog involving a solicitor’s costs agreement. The agreement was held non-binding for breach of the Legal Profession Uniform Law (Vic) but nonetheless a charge and all monies mortgage in respect of the solicitor’s costs were valid, a term in the deed of charge permitting the solicitor to lodge a caveat. The facts were as follows –

The first defendant (Lennon) was the principal and registered proprietor of Lennon Lawyers being a registered firm pursuant to the Business Names Registration Act 2011(Cth).
Toufic Sassine (Sassine) and Andrew Sassine (the Sassines) were registered as tenants in common in equal shares of certain land (the Land) encumbered by a registered mortgage to a bank.
On or around 20 November 2020 (as deposed by Lennon on 22 November 2022) the firm was retained to act for the Sassine family and their related corporate entities and a Disclosure Statement and Costs Agreement (costs agreement) bearing the date of 20 November 2020 was provided to the Sassines. Lennon exhibited to his affidavit a copy of the costs agreement which identified the law practice as Lennon Lawyers, stated that the clients were Sassine and Angela Sassine, and stated that the matter was “(SUP) Our Ref: 20/0723” with no description of the legal services to be provided. The document provided that “it may be accepted by writing to us indicating your acceptance, by returning a signed copy of this document as provided in the Acknowledgement at the end of this document or by continuing to give us instructions in this matter”.
Lennon also deposed that to secure payment for legal services for the Sassine family it authorised Sassine and Andrew Sassine to execute a deed of charge in favour of the firm over their interest in the Land, and that a deed of charge and mortgage were executed accordingly.
On 20 November 2020 a deed of charge (the charge) was executed between Lennon Lawyers and the Sassines. It inter alia:
- recited that the firm had provided and would provide professional services (the Services) to the Sassine family and their corporate entities;
- provided that the firm had provided and would provide the Services up to the value of $100,000 (cl. 1);
- provided that the Sassines hereby charged as security for the Services all their interest in the Land, agreed to execute a mortgage, and agreed that the firm “shall register a caveat over the said property to better secure the Services in accordance with this Deed” (cl. 2).
On 24 November 2020 Lennon caveated claiming an interest as chargee on the grounds of an agreement with the registered proprietor(s) dated 20 November 2020.
On 30 November 2020 a mortgage was executed over the Land by the Sassines as mortgagors and Lennon as mortgagee. This inter alia provided –
- the mortgagor mortgaged the land to the mortgagee “as security for the debt or liability described in the terms and conditions set out or referred to in this mortgage”;
- under the heading “Terms and Conditions of this Mortgage” were the words “Document Reference AA3553” being an incorporation by reference of Memorandum of Common Provisions AA3553 whose provisions included:
  1. “Secured Money” was defined to include: (a) the Advance; (d) all amounts that are or may become owing to the Mortgagee under any agreement between the Mortgagor and the Mortgagee now or in the future (cl. 11.1);
  2. The Mortgagor promised to pay all the Secured Money to the Mortgagee (cl. 1.2(a));
  3. The Mortgagor was entitled to a discharge when all the Secured Money was paid and the Mortgagee was reasonably satisfied that it would not have to repay anything and that the Mortgagee did not have any contingent liability (cl. 2.6(b));
  4. the Mortgagor must pay the Mortgagee the Secured Money in accordance with this mortgage (cl. 5.2(a)).
On 24 February 2021 a sequestration order was made against the estate of Sassine and the plaintiff was appointed as the trustee of his bankrupt estate.
On 1 March 2021 Lennon registered the mortgage.
On a number of occasions from February to December 2021 the plaintiff attempted, invoking ss. 77A, 90 and 91 of the Bankruptcy Act, to obtain extensive information and documents from Lennon about his asserted security interest and the affairs of the bankrupt. Lennon did not respond to the plaintiff for many months and when he did, on 18 June, the response was less than complete, being provision of the charge, mortgage and mortgage form lodged with PEXA on 24 February 2021. He did not provide any details of any fee agreement, work, invoices, payments, mortgage balance, valuation, or related documents. Pursuant to s. 77C of the Bankruptcy Act the Australian Financial Security Authority sought similar information to that sought by the plaintiff, with no response.
In June 2022 the plaintiff commenced this proceeding seeking a declaration that the mortgage was invalid and for orders removing it and the caveat from the certificate of title of the Land.
Lennon swore an affidavit on 22 November 2022 to which (as an exhibit) he produced the costs agreement for the first time. The final paragraph of the affidavit read –
“At the date of swearing this affidavit, LL is owed substantial fees for the provision of legal services which I believe to be in the order of at least $40,000. The costs include the costs necessary to defend this proceeding. The legal work necessitated by the difficulties the Sassine family have encountered are ongoing.”

Barrett AsJ. dismissed the proceeding, holding –

The charge was “an agreement” as described in the caveat, notwithstanding that it recited that Lennon Lawyers not Lennon had provided and would provide services, as Lennon was the legal entity carrying on business under that business name. The use of the business name in the charge did not render it incapable of supporting the caveat. [37], [45]
The costs agreement was not binding because –

1. 1. Although its provision for acceptance was consistent with cl. 180(3) of the Legal Profession Uniform Law (Vic) (LPUL) there was no evidence that the clients had accepted the offer, whether by signing and returning the document or by continuing to give instructions. The final paragraph of Lennon’s affidavit was insufficient: its first sentence did not state who owed the fees or pursuant to what agreement, if any; its last sentence did not identify whether Lennon had been retained to perform any work and if so, what or pursuant to what, if any, retainer. [49]-[51]
  2. The fact that Lennon did not produce a signed copy of the costs agreement, or written instructions or file notes of such instructions constituting acceptance of it, supported the inference that he did not have them. [55]
  3. Clause 174(3) of the LPUL required the solicitor to take all reasonable steps to satisfy himself that the client had understood and consented to the proposed course of action for the conduct of the matter and the proposed costs. There was no evidence of this. [52]-[53]

Accordingly, Lennon had not discharged the onus of establishing that the costs agreement was entered into or that legal services were provided pursuant to it. [55]

As to documents requested in a notice under s 77A of the Bankruptcy Act sent on 20 April 2021, Lennon neither produced them nor stated whether had had them, permitting the inference that he did not have them and consequently that neither the charge or mortgage secured any monetary amount owing. [55]
However, the charge supported a caveatable interest notwithstanding the lack of a binding costs agreement. More particularly –
1. The charge did not purport to secure the provision of any costs that may be identified by, or referable to, any particular costs agreement alone, but rather, secured the costs of such legal services as may be provided to the extended Sassine family and related entities. A charge could validly, before any particular retainer, not secure an extant monetary liability but be a security available to be employed between the parties in accordance with their agreement. [37], [56], [57]
2. The term in the charge permitting Lennon Lawyers to lodge a caveat supported the caveat. Unless there was evidence of an intention to the contrary, the grant (by a borrower to its creditors) of an authority to lodge a caveat implied the grant of an estate or interest in the land affected by the caveat sufficient to resist its removal. [57]
3. The recovery of legal fees did not depend upon the existence of a valid and enforceable fee agreement: an agreement not satisfying the LPUL may be void (cl. 178(1)(a)) but the client may still have to pay costs once assessed or the subject of a determination of a costs dispute by the designated local regulatory authority (cl. 178(1)(b)). [58]
[59]

It was not a requirement of validity of a charge or other security that it secure a sum certain liability, eg an “all moneys” mortgage (such as the mortgage here) could secure potential legal fees up to a particular sum. It was accordingly permissible for the charge to stipulate that the firm would provide the Services up to the value of $100,000. [16], [37], [61]
There was accordingly at least some probability that the caveator would be found to have the equitable rights or interest in the land asserted in the caveat sufficient to justify the practical effect of the caveat on the ability of the plaintiff to deal with it. [63]
The balance of convenience favoured maintenance of the caveat. The prejudice occasioned to the caveator by removal outweighed the prejudice to the plaintiff by maintenance of the caveat because removal would occasion: the loss of the security for payment of fees incurred in accordance with the terms of the charge; the mortgage (for reasons stated below) prevented the plaintiff dealing with the title anyway; and the plaintiff could still seek partition of the co-ownership or redemption of the mortgage. [64], [65]
The mortgage was expressed as security “for the debt or liability described in the terms and conditions set out or referred to in this mortgage”, and, although no debt or liability was specified in the mortgage document itself, the terms in the Memorandum of Common Provisions including particularly cl 11.1 rendered this an “all moneys” mortgage. “All monies” clauses were to be construed in light of the language used and having regard to the context of the mortgage and its commercial purpose. There was no reason to read this clause down to exclude any future liability resulting from any of the Sassine family or related entities engaging Lennon to provide legal services as described in the charge. [38], [68] – [70], [72]
When all amounts owing under the mortgage had been paid the mortgagor was entitled to redemption, if necessary by compelling the mortgagee to provide a discharge of the mortgage. Where a mortgagor became bankrupt, the trustee had rights under s. 136 of the Bankruptcy Act to redeem. [74], [76]
Proceedings between tenants in common of mortgaged property could not affect the mortgagee’s interest in the entirety, and so, if a co-tenant mortgagor obtained partition, the mortgage would affect each severed portion, and a co-tenant, or the trustee in bankruptcy of a co-tenant, wishing to redeem a mortgage must redeem it entirely. Given Lennon’s failure to provide information the plaintiff understandably had not offered to redeem, but this was not a basis for declaring the mortgage invalid or to discharge it on the application of the trustee in bankruptcy of only one tenant in common. [76], [77]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 28, 2023

Category: Charge (Equitable)

Blog 102. A Federal Court case concerning a caveat, equitable priorities and much else besides.

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Blog 97. Caveat claiming equitable charge survives.

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Blog 86. Where a director’s spouse has given a charge, is lodgment of a caveat by the chargee prohibited during a company administration?

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Blog 81. Security documents inadequate to create caveatable interest.

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Blog 79 Caveator who adopted conflicting positions left unsatisfied.

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Blog 78 Mortgage and caveat securing solicitor’s fees survive.

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