Blog 72. Caveat lapses under Section 89A(5) but caveator obtains injunction

Luna v V & A Luna Pty Ltd & Anor [2023] VSC 126 (22 March 2023), Derham AsJ.

This case is interesting for disparate reasons.  First it affirms that the time for a caveator to give notice under the Transfer of Land Act s. 89A(3)(b) to the Registrar of Titles that proceedings had commenced is strict.  Secondly it shows that the erstwhile caveator may still be able to obtain an injunction having similar effect to the caveat (albeit at the price of an undertaking as to damages).  Thirdly, evidence of the agreement or understanding underlying an alleged constructive trust being weak, his Honour reflected –

“At present, the agreement or understanding, or even assumption, upon which Pasquale provided this assistance is not fully spelled out in his evidence.  But I remind myself after long experience of Australians of Italian origin, that a patriarchal feature of their family arrangements often results in the father, and perhaps the mother as well, holding the family’s wealth either personally or through companies and trusts, with the intention of sharing that wealth either equally or according to the deserts of the members of the family who have contributed to it.”

The Transfer of Land Act s. 89A provides –

(1) … where a recording of a caveat … has been made … any person interested in the land affected thereby … may make application … to the Registrar for the service of a notice pursuant to subsection (3).

(3) Upon receiving any such application … the Registrar shall give notice to the caveator that the caveat will lapse … on a day specified in the notice unless in the meantime either—

(b) notice in writing is given to the Registrar that proceedings in a court or VCAT to substantiate the claim of the caveator in relation to the land and the estate or interest therein in respect of which the application is made are on foot.

(5) Upon the specified day, unless—

(b) notice in writing has been given to the Registrar that proceedings as aforesaid are on foot—

the caveat shall lapse …

The facts were –

  • The first defendant (the company) was the registered proprietor of a 20 acre farm at Wollert.  In 2018 the plaintiff (Pasquale) caveated claiming a freehold estate in it based on an implied, resulting or constructive trust.
  • On about 12 December 2022 Pasquale received a notice under s. 89A(3) dated 8 December stating that the caveat would lapse on the first moment of 17 January 2023 unless before that date he gave notice satisfying the requirements of s. 89A(3).
  • The solicitor for Pasquale deposed that on 16 January she telephoned the Land Registry Services – Secure Electronic Registries Victoria (SERV) and was informed by Tiffany in the specialist registration team that, notwithstanding the clear terms of the notice, the final day to respond to it was 17 January.
  • On 17 January (after the first moment) the solicitor filed a generally indorsed Writ and the notice under s. 89A(3)(b) was given.  The basis of the claim as indorsed (observed by his Honour to “have only a slight conformity with the facts as later revealed”) was largely related to an alleged partnership between Pasquale and his late parents Arturo and Vincenza.  Pasquale’s brother, the second defendant (Antonio), was sued as executor of their estate.
  • On 18 January the solicitor was informed by an employee of SERV that the caveat had lapsed.
  • On 23 January 2023, Pasquale issued a Summons.  The Summons sought, first, a declaration that the notice under s. 89A(3)(b) filed on behalf of Pasquale was valid and substantiated his interest in the land and so remained in force, alternatively that 50% of the net proceeds of any sale be held for his benefit pending the determination of the proceeding.
  • On 24 January a judge granted an interlocutory injunction in substance enjoining the defendants from dealing with the land pending final hearing and made further directions.   After the hearing the solicitor for the defendants informed the plaintiff’s solicitors and the court by email that the land had been sold pursuant to a contract of sale some time ago, but that completion of the sale was 24 months hence.
  • Shortly before the hearing on 17 March (see below) the plaintiff’s solicitors learnt of transactions which they alleged were in breach of the injunction, in particular a mortgage and issue of a new electronic title with different title particulars.  The plaintiff filed a Summons seeking that the defendants be dealt with for contempt of the January Order.
  • At that hearing before Derham AsJ on 17 March counsel informed his Honour that the land had been sold by a contract dated December 2022 for about $15 m.  This apparently required a mortgage to be lodged with a countervailing Bank Guarantee to secure the sale.
  • Pasquale deposed in substance that:
    • he worked with his parents from the time of a partnership in a delicatessen in 1969 to build their wealth for the benefit of the whole family. His contributions over the years enabled his parents to acquire properties that ultimately fed the purchase price of the land.  In 1989 he arranged for a family trust to be established with the company as trustee, being a discretionary trust of which the primary beneficiaries were Arturo and Vincenza.  Thus, his efforts and work over a lengthy period contributed indirectly to the purchase price of the land in 1989 and those contributions were made either (not fully spelled out) with the agreement, or on the understanding, that he would share equally with the other members of the immediate family in the wealth accumulated.
    • he contributed directly both his labour and money in establishing a house on the land, and maintaining it, on the assumption that he would retain an equal share in the ultimate wealth created through his and his family’s efforts.
  • Antonio filed an affidavit substantially disputing Pasquale’s affidavit.  This included that Pasquale had been made bankrupt (in fact in 2003) and discharged in 2006.

Counsel for Pasquale submitted inter alia that: it was reasonable for Pasquale’s solicitors to rely upon the representations of Tiffany in lodging the material required by s. 89A(3) on 17 January 2023; the Registrar should be estopped from lapsing the caveat; the court had an inherent jurisdiction to make orders ‘voiding the lapsing of the caveat’.

Derham AsJ in substance continued the injunction (while altering its wording), holding –

  1. The caveat lapsed at the commencement of 17 January 2023 by reason of the operation of s. 89A(3) and (5). The court had no power to reverse this. [15], [49], [55], [56]
  2. The evidence in support of the plaintiff being the beneficiary of a constructive trust of the land was, at present, rather frail and somewhat sketchy: the prima facie case was not strong. It sufficed, however, that the plaintiff show a sufficient likelihood of success that in the circumstances justified the practical effect of the injunction on the defendants.  His Honour doubted as a matter of principle the defendants’ argument that the plaintiff could not take an interest pursuant to a constructive trust where he was also a beneficiary of the family trust: if it was unconscionable in the circumstances for the trustee of the family trust to deny that he had a proprietary interest in the land, why would his being a beneficiary of that trust, particularly one with no vested interest in its assets, be a barrier?   This argument required further elucidation. [26], [75], [77]
  3. With respect to the plaintiff’s bankruptcy and the possibility that his interest in the land had vested in his trustee in bankruptcy, it would be in the parties’ power to inform the trustee and give him an opportunity of being joined as a party. It was not, in his Honour’s preliminary view, satisfactory for the defendants to use this vesting as a defence without joining the trustee as a party. [76]
  4. On the balance of convenience, in the current circumstances where the plaintiff’s proof of his rights was not strong, an interlocutory injunction may be granted because to withhold it would do him irreparable harm while (the contract of sale having a 24 month settlement date) to grant it would not greatly injure the defendants. Maintenance of the status quo would not harm the defendants but to deny the injunction could injure the plaintiff by denying him protection against dissipation of the value of the land. [78]
  5. The further continuation of the interlocutory injunction would be subject to the plaintiff complying with the requirement to file further evidence in support of his claim. [79]

Philip H. Barton
Owen Dixon Chambers West
Thursday, April 20, 2023

Blog 62. Caveators lost in blizzard, but obtain injunction.

Reindel & Ors v Confreight Pty Ltd & Ors (No 2) [2022] VSC 442, Daly AsJ (8 August 2022).

This case arises from the same development as that the subject of Blog 61.   It concerns imposition of caveats based on Barnes v Addy claims, no caveatable interest being found to exist. In the 1874 English case of Barnes v Addy (1874) LR 9 Ch. App. 244 at 251 – 252 Lord Selborne LC stated –

“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility.  That responsibility may no doubt be extended in equity to others who are not properly trustees, if … But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers … unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees”.

Subsequent cases have worked out the scope of these principles, known as the “first and second limbs of Barnes v Addy”, ie knowing receipt of trust property or dishonest assistance in a breach of trust (being an accessorial liability).

The facts were –

  • In around 2015 Messrs Reindel, Murone and Monson decided to carry out a multi – unit residential development in Windsor. A company (WDC) was incorporated to perform the development.  It was trustee of a unit trust in which Confreight Pty Ltd (Confreight) and Supply Chain Logistics (SCL) controlled respectively by Murone and Monson together held 35%, and an entity associated with Reindel held 65%, of the units.  In 2020 the development was completed and WDC was wound up with negligible return to Confreight and SCL.
  • Five residential units in the development valued at approximately $2 m. in total had been transferred by WDC, one to Reindel and four to a company controlled by him (Blizzard Winds).  On 3 February 2021 the liquidator wrote to the unit holders in the trust seeking information including on this transfer.  On 15 February 2021 the liquidator made his statutory report including stating that there were claims totalling over $2 m. by unsecured creditors.
  • In the first half of 2021 Confreight and SCL caveated over the five Windsor units and over a Toorak property of which Reindel’s wife Ms Runhardt had been registered proprietor since 2015. Relevantly the interest in land claimed was as beneficiary of an “implied, resulting or constructive trust”.
  • In July 2021 Reindel and associated parties commenced a proceeding under the Transfer of Land Act s. 90(3) to remove the caveats. The caveators opposed this and, if their opposition failed, applied to restrain the registered proprietors from dealing with the land pending the determination of their proceeding referred to below.
  • In August 2021 Confreight and SCL commenced a proceeding (the investors’ proceeding) alleging inter alia that: Reindel had caused WDC to transfer much cash and the Windsor units to himself and his associated entities for little or no consideration; by reason of his alleged breaches of fiduciary duty and of trust they were inter alia entitled to orders that property of the unit trust be transferred to WDC (in its capacity as trustee), and/or equitable compensation for the value of property transferred from WDC in breach of trust or for less than market value, and certain other relief.
  • The defendants to the investors’ proceeding in substance denied the allegations against them, alleging that transfers were in reduction of debts duly owing.
  • The plaintiffs in the investors’ proceeding also alleged that Reindel had used WDC’s funds for mortgage payments on and renovations to the Toorak property. Reindel admitted these payments into his and Runhardt’s joint account, and that payments were applied to paying the mortgage, but denied misappropriation.  The plaintiffs also alleged that Runhardt participated in Reindel’s breach of fiduciary duty and breach of trust by receiving trust property with knowledge of his breaches.  Runhardt basically denied all allegations concerning her.
  • On 14 September 2021 WDC’s liquidator applied to intervene in the caveat proceeding, supported by an affidavit exhibiting his letter of 3 February and his report. He subsequently did not pursue this application.
  • The caveat and injunction proceedings were heard in October 2021 with judgment reserved. Although no orders were made in the caveat or the investors’ proceeding that the evidence in one proceeding would stand as evidence in the other Daly AsJ would (footnote [92]) if necessary have ordered this now as for then (traditionally “nunc pro tunc”). Her Honour stated ([25]) that the findings and issues raised by the liquidator’s report and letter and WDC’s accounting records were a generally reliable guide to the affairs of WDC and the unit trust, although it was unnecessary for present purposes to determine whether the concerns raised therein had been established.  Her Honour noted ([64]) that the liquidator’s affidavit, his letter, his report and the accounting records revealed evidence of the transfers of Windsor units being for no consideration or at an undervalue, although it was premature to conclusively determine whether in breach of trust or otherwise invalid (also [34]).
  • In January 2022 the liquidator sought, inter alia, court approval to enter an agreement to assign certain unspecified causes of action to a Mr Baker – it was unclear but her Honour inferred that there was a substantial overlap between these causes of action and those in the investors’ proceeding ([31]). The liquidator also applied to be appointed as a receiver of the unit trust, deposing that he believed that this was necessitated by cl. 12.5 of the trust deed which provided that on its liquidation WDC ceased to be trustee of the trust.
  • Clause 37 of the trust deed provided:

“the rights of the trustee to indemnity for losses … and to recoupment for expenditure incurred shall … be limited to the monies and property comprising the Trust Fund … but this clause shall not be construed as in any way limiting the liability of any trustee (or of any director of a company which is a trustee hereof) to the unit holders for any breach of trust involving the dishonesty or wilful act or omission of that trustee or director.”

Daly AsJ removed the caveats but granted an interlocutory injunction restraining Reindel and Blizzard Winds from dealing with their residential units –

  1. The possibility of the caveators having a prima facie case of an interest in the land was undermined if they lacked standing to bring their claims in the investors’ proceeding, or this was in doubt. Generally the proper party to bring a claim to recover trust property was the trustee but this was subject to “special circumstances”, eg collusion between the third party wrongdoer and the trustee, insolvency of the trustee, or where the trustee was unwilling or unable to take action to recover trust property. There were real doubts whether the caveators had standing to, in effect, recover WDC’s property.  Alternatively, any claim for damages and/or equitable compensation would have to be calculated by reference to their shares in the unit trust.  [40]-[41], [46], [47]
  2. Confreight and SCL could also in their capacity as shareholders of WDC apply under s. 237 of the Corporations Act 2001 (Cth) to bring a derivative action to bring the claims in the investors’ proceeding on behalf of WDC. This application had not been made, although they had made an informal application for leave to continue the investors’ proceeding standing in the shoes of WDC in its capacity as trustee. [48]
  3. On the issue of standing, the position was somewhat fluid and far from clear cut. There was some doubt whether on its liquidation WDC remained as trustee of the unit trust or whether the liquidator was ready, willing, and able to pursue any claim by WDC against third parties for the benefit of the beneficiaries (and creditors) of the trust, but it appeared that liquidator had not reached a final position.  Clause 37 of the trust deed preserved the beneficiaries’ entitlement to pursue claims against the trustee and the directors, at least on their own behalf. And although the plaintiffs arguably needed curial leave to proceed with their claims in the investors’ proceeding to recover trust property, it was in the context of the current case neither necessary nor appropriate to determine the possible fate of this application for leave.  It was accordingly difficult for present purposes finally to resolve the question of standing and this undermined the caveats, given that the entitlement to lodge a caveat must exist at the time of lodgement. [55], [56], [57], [62], [63]
  4. The caveators must demonstrate a prima facie case, ie a probability of being found to have the asserted legal or equitable rights or interest in the land. The ‘prima facie case’ test was preferable to the ‘serious question to be tried’ test of such rights or interest. [69]-[70]
  5. The caveats over the Toorak property were unsustainable. Runhardt was alleged at most to have accessorial liability for Reindel’s (and WDC’s) alleged breach of trust.  In Barnes v Addy cases a constructive trust was only imposed over the property concerned on a curial determination to this effect.  Until then there was no proprietary interest, even where it was claimed that trust property could be “traced” to a particular (other) property.  Further, any “notice” Runhardt had of Reindel’s alleged breach of trust postdated her becoming registered proprietor of the Toorak property. [80]-[82], [91(c)], [138]
  6. Even if breach of trust or of fiduciary duty was established against Reindel or WDC, the liability of Blizzard Winds was (notwithstanding that Reindel was its sole director) only accessorial. Further, even if the transfers to Blizzard Winds were arguably tainted by fraud which could be sheeted home to it so it lost the protection of indefeasibility of title, and a court ultimately determined to impose a constructive trust over the units, the entitlement of a former registered proprietor to set aside a transfer for fraud was an in personam claim giving rise to a mere equity, not an equitable and so caveatable interest.  Accordingly the caveats over its property would also be removed. [83]-[87], [91], [94], [96], [138]
  7. The claim concerning the transfer to Reindel was also only an in personam claim incapable of supporting a caveat. [87], [91(a)], [94], [96], [138]
  8. However, Reindel and Blizzard Winds would be restrained from dealing with the units transferred to them. Runhardt would not be restrained from dealing with the Toorak property. [117]-[121], [133], [137], [138]

       Philip H. Barton

          Owen Dixon Chambers West

        Monday, November 7, 2022