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 99. Specific performance and mortgages – Court of Appeal overturns Blog 73, restores Blog 63.

Parwan Investments Pty Ltd (recs apptd) v Hooper & Anor [2024] VSCA 86, McLeish, Walker and Macaulay JJA, (6 May 2024).

In this case the Court of Appeal exhaustively considered the remedy of specific performance, and the nature of a Torrens system mortgage and of the equitable interest of a purchaser.

The facts were –

In 2015 the Commonwealth Bank lent the appellant (Parwan) $850,000 to purchase an 88 ha. parcel of land (‘Lot 2’). Parwan became registered proprietor. The bank registered its mortgage.
On 21 October 2016, without the consent of the bank and so in breach of the mortgage, Parwan entered into a contract to sell 11 ha. of Lot 2 (the ‘Purchased Land’) to the first respondent (Hooper) for $900,001 with a deposit of $1. The contract –
- made settlement conditional on registration of the plan of subdivision by 21 April 2018, obliging Parwan to use its best endeavours to obtain this and giving Hooper a right of termination if this date was not met;
- specified settlement by the later of 21 March 2018 or 14 days after notice of registration of the plan;
- was subject to a contemporaneous 24 month lease to Hooper of the Purchased Land.
Hooper paid the deposit and the parties entered into the lease which provided that unless terminated it would thereafter continue as a periodic tenancy.
In 2017 Hooper caveated over Lot 2 claiming an interest as purchaser.
21 April 2018 passed without Hooper electing to exercise the right of termination of the contract of sale. It remained on foot with Lot 2 unsubdivided and so unable to be transferred to him.
In 2018 Parwan executed an equitable charge over Lot 2 in favour of Hooper for $350,000, said to reflect the value of Hooper’s improvements. In 2018 Hooper caveated based on this charge.
Parwan subsequently defaulted on the loan and the money secured became immediately payable. On 13 March 2020 the bank appointed receivers of Lot 2. Pursuant to the mortgage and their terms of appointment the receivers had power to take possession of and sell the land. The bank instructed the receivers to sell Lot 2 and recover the secured money.
In February 2021 Hooper commenced a proceeding seeking inter alia specific performance of the contract of sale. Parwan counterclaimed seeking orders for vacant possession and a clear title. Parwan sought summary judgment and gave Hooper a notice to vacate.
Matthews AsJ granted partial summary judgment, namely on those aspects of the claim and counterclaim concerning specific performance, finding that the contract was not amenable to such relief, and so dismissing that claim as having no real prospect of success (Blog 63). Forbes J. vacated these orders, allowing Hooper’s claim to proceed (Blog 73). Parwan now sought leave to appeal against the orders of Forbes J.

The Court of Appeal granted leave to appeal and allowed the appeal, holding –

A mortgage registered under the TLA constituted the mortgagee as the registered proprietor of a security interest in the land. Except in the case of fraud, the registered proprietor of land (including a registered mortgagee) held it absolutely free from all encumbrances, with two exceptions not presently relevant, but subject to various specified rights including the interest of a tenant in possession. [48], [49]
Until the discharge from the secured money, the registered first mortgagee had the same rights in law and equity as a mortgagee of general law land in whom the legal interest was vested (with the mortgagor retaining the right to quiet enjoyment until default). [50]
A registered mortgagee had, upon default in payment of the principal sum or interest secured, statutory powers to enter and sell the land to enforce its security interest. But the mortgagee could instead appoint a receiver to the land and vest that receiver with powers of sale. Where a mortgage was (as here) made by deed and the power of sale was activated the mortgagee had a statutory power to appoint a receiver. This power may also (as here) be conferred by the mortgage document itself following non-compliance with a default notice. [50]-[52]
Receivers appointed pursuant to such mortgage provisions were the agents of the mortgagor. This, however, was a ‘special and limited agency’ eg. because the receiver was appointable and removable by the mortgagee and could in many ways act independently of the mortgagor or at the direction of the mortgagee. It was not an ordinary agency because in exercising powers (including of sale) the receiver was appointed for the mortgagee’s not the debtor’s benefit. [53], [54]
Specific performance in its narrow and strict sense assumed an executory or preliminary agreement to do something to put the parties in the legal position which the agreement intended, eg specific performance of a contract of sale of land to compel the vendor to execute and deliver a transfer, enabling its registration. [55]
Enforcement of the performance of an executed contract was not specific performance in this strict sense, nonetheless described as ‘relief approximate to specific performance’. [56]
Specific performance was unavailable if damages were an adequate remedy; but damages were generally an inadequate remedy against a vendor failing to complete a sale. [57]
Possible defences to an action for specific performance were –
1. that fulfilment of the contract was likely to require continual curial supervision: however, this was not an automatic bar – much depended on the period of performance of the obligations and the number and detail or complexity of the terms to be performed. Courts often exercised a supervisory jurisdiction on applications by trustees, receivers and administrators; and completion of a contract had been ordered against vendors who were also required to use best endeavours to register a plan of subdivision – the prospect of some supervision in those circumstances had not prevented the specific performance order; [58]
2. impossibility of performance, ie a prospect that the defendant would lack power to comply with the proposed order. The rationale for this defence was that equity would not specifically enforce the impossible, eg obtaining the apparently unobtainable consent of a third party. So, although a vendor must use best endeavours to obtain any necessary consent to sale, including taking necessary proceedings, and an order for specific performance could be made conditional on such consent being obtained, there would be no such order if it was sufficiently clear that consent was unobtainable; [59]-[61]
3. futility of performance, ie a possible insufficient probability that the order would sufficiently benefit the plaintiff to render it just; [59]
4. hardship suffered by a third party, eg where specific performance of a contract of sale of an interest in land would prejudice another person interested therein but not a party to the contract. A court may also refuse specific performance if it was probable that this order would involve a breach of contract with a third person. [62], [63]
Although it was often said that a contract of sale of land gave the purchaser an equitable interest therein, this only meant that the purchaser had acquired certain equitable rights to its specific performance, and that these and related rights extended, for example, to rights to obtain injunctions and other such relief against the vendor and third persons in appropriate circumstances. So, under a specifically enforceable contract of sale of land an equitable interest was created immediately. In other words, in this context, a purchaser’s equitable interests were commensurate with the extent of equity’s protection of them. [64], [65]
In this case, the circumstances in which a trial court would exercise its discretion included:
1. the bank (not a party to the proceeding) was the registered proprietor of a first mortgage with an indefeasible legal security interest in the land;
2. by contract subsequent to this registration Parwan sold a part of Lot 2 conditional on registration of a plan of subdivision creating the title to the land sold;
3. the contract was without the bank’s consent and so Parwan’s entry into and performance of it would breach the mortgage;
4. following Parwan’s default the bank appointed receivers to enforce its security interest, who wished to sell Lot 2 and who had given notice to terminate the lease;
5. it could not be assumed that registration of the plan of subdivision could or would occur;
6. Parwan had possibly breached it obligation to use best endeavours to obtain such registration;
7. the bank was not obliged to discharge its mortgage until fully paid;
8. the mortgage debt would not be discharged by payment of the amount owing to Parwan under the contract of sale; and
9. after the proceeding commenced the bank refused consent to the sale. [67]
An order for specific performance in the strict sense would be that Parwan execute and deliver to Hooper a transfer of the subdivided portion of Lot 2 corresponding to the Purchased Land. But, before that, Parwan would have to perform the following contractual promises:
1. use its best endeavours to prepare and register a plan of subdivision containing a lot corresponding with the Purchased Land (the ‘subdivision obligation’), and;
2. assuming this succeeded, procure a discharge of mortgage enabling Hooper’s registration as proprietor free of encumbrances (the ‘mortgage discharge obligation’), and;
3. to do this, either pay out the whole mortgage debt, and so compel discharge, or not so pay but persuade the bank to discharge the mortgage at least partially – in this sense completion of the contract depended Parwan’s ability to compel the bank (a third party to the contract of sale) to discharge the mortgage at least in part or the bank consenting to doing so. [68]-[70]
Having found that Parwan had not established that subdivision was impossible, Forbes J. in effect assumed successful navigation of performance of the subdivision obligation. [73]
Forbes J. –
1. assumed that, once subdivision occurred, the bank might (perhaps should), because Parwan could raise money to pay it out from sale of lots, consent to discharge the mortgage insofar as it affected the lot comprising the Purchased Land (ie. a partial discharge), even though the sale of the Purchased Land would not suffice to discharge the mortgage debt; [76]
2. and reasoned that so, because hypothetically the bank might agree to release the mortgage, this possibility met the argument that specific performance had no reasonable prospect of success. [77]

The proposition that, for Parwan to show Hooper’s lack of such real prospect, it should also show that the bank would not consent to the sale, which it was not obliged to do, after a subdivision it was actively resisting, appeared somewhat fantastic and artificial. In any event, the proper inference from the evidence was that the bank would not give such consent. This sufficed to require that the appeal be allowed. [79]

Accordingly, the judge ought not to have allowed the appeal from the associate judge’s decision on the basis that, in order to demonstrate Hooper’s lack of a real prospect of obtaining an order for specific performance, Parwan was required, but failed, to expressly address the bank’s attitude to a partial discharge of mortgage on the assumption that a plan of subdivision had been registered. [81]
However, a more fundamental barrier to an order for specific performance was that –
1. the bank’s interest had priority to Hooper’s potential equitable interest (ie to the extent that the contract was amenable to an order for specific performance) and so this potential interest could not defeat the bank’s immediate entitlement to enforce its legal interest; [83]
2. an order for specific performance would cause the bank hardship because the caveats referable to Hooper’s right to specific performance would prevent the bank recovering its debt while (presumably funded by it) the receivers pursued registration of the plan of subdivision, with the bank then waiting to see whether the subdivided lots (including the Purchased Land) could be sold in such a sequence that the entire mortgage debt was recovered before the mortgage was discharged. Such an order would safeguard the interest of a subsequent, unregistered interest-holder (Hooper), contrary to Parwan’s obligations under its mortgage, in preference to the immediately exercisable rights of the prior registered proprietor (the bank). An order with this effect would upend priorities in the Torrens title system; [84]
3. hardship to a third party being a reason for declining specific performance, such hardship to the bank would be virtually certain to lead a court to so decline. [85]
There was accordingly no real prospect of Hooper obtaining an order for specific performance at trial. Summary judgment would be granted on Hooper’s claim for specific performance and for injunctions restraining sale of the Purchased Land, and on the counterclaim. Orders would be made enabling sale of the Purchased Land including for removal of the caveats and distribution of the proceeds of sale. [86], [87]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 8, 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 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 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

Blog 63. Mortgages/Charges and Caveats

This Blog covers three recent cases of interaction between caveats and securities taken over land. In Launch Concept Developers Pty Ltd v Di Mauro & Ors the registered proprietor failed to have caveats based on charges temporarily removed so that it could refinance. In Hooper v Parwan Investments Pty Ltd (recs apptd) caveats based respectively on a contract of sale and a charge were removed to permit sale by receivers appointed by a mortgagee bank. In BD78 Pty Ltd & Anor v FGK3GEN Pty Ltd & Anor a caveat based on an equitable mortgage was removed to permit the registered proprietors to refinance by paying out a registered mortgage, on condition that the debt secured by the equitable mortgage was repaid and an amount calculated for interest was paid into court or into trust to be released by agreement or court order.

In Launch Concept Developers Pty Ltd v Di Mauro & Ors [2022] VSC 512, Moore J., (1 September 2022):

The plaintiff was registered proprietor of properties at Portland and Elsternwick.
The Portland property was subject to a registered first mortgage to a third party securing a debt of approximately $434,000.
The first and second defendants had lent money to the plaintiff secured by mortgages over the Elsternwick property and, ranking after the registered first mortgage, charges over the Portland property. The Elsternwick mortgage was in default.
Caveats had been lodged over the Portland property based on these charges.
The principal of the first defendant’s loan was $390,000, the sum outstanding was approximately $550,000, and interest was running at 23% per annum. The principal of the second defendant’s loan was $55,000, the sum outstanding was approximately $90,000, and interest was running at 36% per annum.
The estimated value of the Elsternwick property was only $600,000 and accordingly these debts exceeded the value of that property.
The plaintiff desired to refinance by discharging the Portland mortgage (which was in default) in favour of a new registered mortgage securing a loan of $520,000 but incurring less interest than under the current mortgage.
The plaintiff sought orders under the Transfer of Land Act s. 90(3) for removal of the Portland caveats to permit this new mortgage but with the caveators being permitted to re-caveat thereafter.
At the hearing the parties led differing evidence of the value of the Portland property. However, it was agreed that: on the plaintiff’s valuation plus estimate of building costs, taking into account both the Elsternwick and Portland properties, there would be total equity remaining of about $230,000; on the defendants’ valuation the remaining equity would be approximately $100,000.
Moore J. dismissed the application. The caveators indisputably had a caveatable interest and the balance of convenience was in their favour. The proposed new mortgage would secure about $85,000 more than the existing mortgage and the caveators would suffer practical detriment from losing priority in this amount. Even assuming that the remaining equity in both properties would be about $230,000, this was marginal given the plaintiff’s apparently parlous financial circumstances, there being no evidence of likely improvement.

Hooper v Parwan Investments Pty Ltd (recs apptd) [2022] VSC 285, Matthews AsJ (2 June 2022).

The facts were –

In 2015 the first defendant (Parwan) entered a contract to purchase a residential property (the Property) with funds obtained from a bank pursuant to a loan agreement with a facility amount of $850,000. On 16 December 2015 it became registered proprietor of the Property subject to a registered mortgage securing the loan.
On 21 October 2016 Parwan and the plaintiff (Hooper) entered into a contract of sale of part of the land (Purchased Area) for $900,001, with settlement on 21 March 2018 unless the Purchased Area was a lot on an unregistered plan, in which case settlement was due on the later of 21 March 2018 or 14 days after notice of registration of the plan. Special Condition 7.1 of the contract made settlement conditional on Parwan subdividing the Property within 18 months from the day of sale and required that it use its best endeavours to achieve this.
The contract of sale also provided that it was subject to a lease between Parwan and Hooper. That day Parwan agreed to lease the Purchased Area to Hooper for 24 months and thereafter, unless terminated in accordance with the Residential Tenancies Act, to continue as a periodic tenancy, and that each party must comply with that Act.
In 2017 Hooper caveated over the Property claiming an interest as purchaser under the contract of sale.
In 2018 Parwan executed a deed of charge in favour of Hooper creating an equitable charge over the Property securing payment of $350,000, said to reflect the value of Hooper’s improvements to the Property. In 2018 Hooper caveated over the Property claiming an interest as chargee based on this document.
On Parwan falling into default of mortgage repayments the bank in 2020 appointed receivers of the Property. Thereafter Parwan acted through the Receivers. In 2021 the Receivers applied to the Registrar of Titles under the Transfer of Land Act s. 89A for a lapsing notice to remove the caveats.
On 7 July 2021 Parwan gave Hooper a notice to vacate the Property pursuant to s. 91ZZB of the Residential Tenancies Act, stating the reasons as the receivership and the intent to offer the Property for sale with vacant possession immediately after the termination date specified in the notice. Hooper did not vacate.
Subdivision had not occurred. The bank and Receivers did not consent to sale of the Purchased Area to Hooper. As at 3 December 2021 the mortgage debt was over $1.1m.
Hooper commenced a proceeding seeking specific performance of the contract of sale and certain declarations. Parwan filed a Defence and Counterclaim. Parwan also issued a Summons applying for summary judgment under the Civil Procedure Act ss. 61, 62 and 63 on certain aspects of its pleading, which effectively mirrored the relief sought by Hooper, a declaration concerning the lease, and alternative relief in the form of removal of the caveats.

Matthews AsJ made orders including for removal of the caveats –

Although the appointment of the Receivers extended only to the Property and was not in respect of the whole company, they had standing to counterclaim and press the Application contained in the Summons in the name of the registered proprietor Parwan. Both the mortgage and s. 420 of the Corporations Act gave the Receivers broad powers. [31]-[36]
Although the contract of sale was binding Hooper’s claim for specific performance turned on whether the Property could be subdivided and on whether the sale could be settled given the bank’s attitude and in particular whether it would discharge its mortgage. The weight of evidence was that because the Receivers and the bank did not consent to the sale Parwan was unwilling to, and could not effect, subdivision or transfer whereby it refused to perform its contractual obligations. In such circumstances the remedy of specific performance would probably require supervision by the court, which was usually a reason not to grant specific performance. Further even if Parwan took steps towards subdivision, its achievement was outside its control. A further barrier to specific performance was that Parwan could not deliver clear title to Hooper by redeeming the mortgage, which had priority over Hooper’s interest as purchaser and the mortgage debt now exceeded the purchase price. When the foregoing barriers, particularly impossibility of settlement because the mortgage would not be discharged, were combined there was no real prospect of specific performance. [57]-[65]
There was a prima facie case of the interest claimed in the purchase caveat. On the balance of convenience –
1. neutral factors were: (a) that, although the bank desired sale, no contract of sale to a third party yet existed; (b) Hooper’s claim that he remained in possession of the Purchased Area, which in light of the evidence was questionable; (c) possible VCAT enforcement proceedings by the local municipality, on which there was a paucity of evidence; (d) Parwan’s offer to pay the net proceeds of sale into court or a trust account pending determination of Hooper’s claims.
2. Hooper’s proposed undertaking to pay the difference between the price for the Purchased Area and the mortgage debt did not affect the balance of convenience because it was ambiguous and failed to articulate relevant factors including Hooper’s capacity to pay.
3. the balance of convenience favoured removal of the caveat because of strong evidence of fundamental barriers to specific performance (and so any remedy for breach of contract would be for damages in lieu of specific performance). [66]-[72], [75]-[79]
Although there was a prima facie case of the interest claimed in the charge caveat Hooper would retain the protection of the charge even without the caveat, there being no evidence that it could not be satisfied out of net proceeds remaining after payment under the bank’s mortgage. Accordingly, the balance of convenience overwhelmingly favoured removal of this caveat on condition that the net proceeds of sale were paid into court or a trust account. [81]-[83]
Parwan was entitled to summary judgment on its application for a declaration that the Lease Agreement had been validly determined. [91]

BD78 Pty Ltd & Anor v FGK3GEN Pty Ltd & Anor [2022] VSC 361, Ginnane J (23 June 2022)

The facts were –

In August 2020 the plaintiffs agreed to sell land to the first defendant for $12.7m. The contract had not yet been settled.
The plaintiffs also borrowed $6.9m. from third parties and in September 2020 a mortgage securing that loan was registered.
On 5 October 2020 the plaintiffs and the first defendant entered a loan agreement under which the first defendant lent $1.9m. to the plaintiffs secured by an instrument of mortgage over the land which was only to be registered if there was an Event of Default (cl. 8.2(b)). The agreement:
- permitted the lender to caveat over the land to record its equitable interest as mortgagee (cl 8.2(a));
- defined “Repayment Date” as the earlier of settlement of the contract and termination of the contract for any reason other than breach of it by the lender;
- because the land was on an unregistered plan of subdivision, in substance made settlement due 14 days after notice to the purchaser of its registration. If the plan was not registered by 31 August 2022 either party could end it before registration with refund of the deposit (Special Condition 14);
- made interest payable on the Repayment Date unless the Loan and all other “Secured Money” was repaid on that date (cl. 3). The agreement defined “Interest Rate” and “Default Interest Rate”.
- defined certain matters as an “Event of Default” and in cl. 10.1 stated “Effect of Event of Default”.
On 11 March 2022 the first defendant caveated over the land claiming an interest as mortgagee and stating the prohibition as “unless I/we consent in writing”.
The plaintiffs were in default under the registered mortgage and in May 2022 the mortgagee foreshadowed issue of a Callup Notice unless a definite payment date was stated.
On 17 June the first defendant served a Notice of Default alleging two Events of Default under the loan agreement, the first being a change of effective control of the borrower. The notice demanded repayment of $1.9m. with interest on that amount and on the “Secured Money” pursuant to cl 10(1) of the loan agreement.
The plaintiffs desired to refinance the first mortgage loan on 24 June and to repay the first defendant in return for withdrawal of its caveat. The plaintiffs applied under the Transfer of Land Act s. 90(3) for removal of the caveat, which they contended was preventing this refinancing. The hearing commenced on 20 June.

Ginnane J held –

As the first defendant’s mortgage was at least an equitable mortgage it had a caveatable interest. [5], [8], [17]
An Event of Default, to at least a degree sufficient for this application, had been established namely a change of control in the shareholding of the borrowers. [16], [21], [27]
The question of whether the plaintiffs could repay the loan amount of $1.9m. before the ‘Repayment Date’ had been overtaken by the service of the Notice of Default. Clause 3 made no provision for early repayment, even following a Notice of Default, and it was arguable that it had to be read with cl. 10 which mandated interest at the ordinary rate when early repayment occurred. It was reasonably arguable that the plaintiffs were obliged to pay interest on $1.9m. but only at the ordinary rate of 5%. [16], [27], [28], [30]
The first mortgagees had foreshadowed possible enforcement of their rights, which may prejudice both the plaintiffs and first defendant. Further, if the Notice of Default and demand for repayment had not been served, a Repayment Date only two months away (on 31 August 2022) may have been reached based on non-registration of the plan of subdivision, in which case the contract could have been terminated with no interest payable. The caveat would accordingly be removed on condition that the plaintiffs repaid $1.9m. and paid interest at 5% ($169,758.56) into court (thereby giving the first defendant some security for additional claims for payment) to be released by agreement or court order. As such security existed no undertaking as to damages by the plaintiffs was necessary. [31], [32], [34]
Because the caveat was removed by court order the first defendant could not, by reason of the Transfer of Land Act s. 91(4), lodge another caveat in respect of its same interest under the loan agreement, but could have done so if the existing caveat had been withdrawn. [33]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 22, 2022

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

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

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

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

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

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

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

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

Daly AsJ removed the caveat, holding –

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

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

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

Philip H. Barton

Owen Dixon Chambers West

20 April 2020

26. Four disparate cases – (1) Injunction against caveat – (2) Residuary beneficiary and prospective testator's family maintenance claimant with no caveatable interest – (3) Offer of caveat not sufficient security for costs – (4) Failure to remove caveat as breach of mortgage.

This blog deals with 4 cases not warranting a blog in their own right, at times however dealing with arcane points. They are –
R.G. Murch Nominees Pty Ltd v Paul David Annesley & Ors [2019] VSC 107 (26 February 2019) Sloss J. – A further contribution by Mr Annesley, the subject of Blog 4, to the law on injunctions against caveats, he succeeding in this instance.
In the matter of the Will of Dorothea Agnes Baird [2019] VSC 59 (13 February 2019) Keogh J. – A reminder that a residuary beneficiary of an estate does not have a proprietary interest in a specific asset during administration, nor does a prospective testator’s family maintenance claimant have an interest in land in the estate.
Brooklyn Landfill & Waste Recycling Pty Ltd v Commonwealth Golf Club Inc [2019] VSC 52 (6 February 2019) Hetyey JR. – which in short held that the offer by the plaintiff’s director to consent to lodgment of a caveat over her property was insufficient security for costs. [40], [42]
S Pty Ltd v B V [2019] VSC 125 (4 March 2019) Lansdowne AsJ. – which in short, in the course of a much wider dispute, noted that a registered proprietor, who commenced a proceeding for caveat removal but by orders agreed that the proceeding be stayed, was in breach of his obligation under a mortgage to cause a caveat lodged without the consent of the mortgagee to be removed. [34]

R.G. Murch Nominees Pty Ltd v Paul David Annesley & Ors [2019] VSC 107 (26 February 2019) Sloss J.
The facts were:

The first defendant (Annesley) was director of a company which owned a rural property mortgaged to a bank. There had been lengthy litigation between the bank and the company. In August 2018 the bank conducted a mortgagee’s sale at which the plaintiff, whose sole director was Mr Murch (Murch), entered a contract to purchase the property. The contract was settled, the plaintiff became registered proprietor and a mortgage by it was registered.
After settlement of the sale there were altercations between Murch and Annesley, allegations of violence by Murch, intervention orders, and the execution by the defendants of a document whereby certain defendants were purportedly appointed to take control of property of the plaintiff for the purpose of enforcing a security interest.
The plaintiff brought this proceeding in substance to prevent the defendants interfering with the plaintiff or what it purchased, including seeking an injunction against registering or attempting to register any caveat over the land and certain other land of which the plaintiff was registered proprietor. It relied on the body of past conduct of Annesley in the improperly lodging caveats and similar documents, recorded in judgments of various courts, as manifesting his modus operandi.

As to caveats her Honour found or held –

1. The plaintiff was in substance applying for a quia timet injunction and so was required to demonstrate a threatened infringement of the plaintiff’s rights sufficiently clearly to justify the court’s intervention. This application did not arise from previous caveat lodgment over the land but from the defendants’ history. [79]

2. Authorities related to quia timet injunctive relief established the following principles –

(a) the plaintiff must show that what the defendant intended or was likely to do would cause immediate (or imminent) and substantial damage to its property or business. However, no fixed or absolute standard of proof was required;

(b) the court would have regard to the degree of probability of apprehended injury, the degree of the seriousness of the injury, and the requirements of justice between the parties. [79]

3. There being no evidence of the relevant defendants threatening or intending to lodge caveats over the plaintiff’s land, the plaintiff’s apprehension that they may do so did not qualify as an ‘imminent’ threat, and accordingly no injunction would issue. [87]

In the matter of the Will of Dorothea Agnes Baird [2019] VSC 59 (13 February 2019) Keogh J.

The facts were –

· Dorothea Baird, who had two sons Peter and Michael, was registered proprietor of a property at Rhyll and was also registered as a one third proprietor of a property at Wonthaggi.

· On her death Peter obtained probate of her will under which she left her interest in the Wonthaggi property to him, made dispositions of property other than of land, and left the net residue of her estate to both sons equally as tenants in common.

· Michael foreshadowed a testator’s family maintenance proceeding. He also lodged caveats against both properties stating as the grounds of his claim
that he was a beneficiary under the will.

· Peter brought this proceeding inter alia under the TLA s. 90(3) to remove the caveats.

His Honour held –

1. That the caveator had not raised a serious question to be tried that he had an interest in the properties. In particular –

(a) as a residuary beneficiary he did not have a legal or equitable interest in a specific asset of the estate during the course of administration, only a chose in action, or personal right, to compel proper administration of the estate by the executor. Further, the residue did not come into existence until administration of the estate was complete;

(b) the proposed testator’s family maintenance gave him no interest in the property. [21]-[22]

2. The balance of convenience also favoured caveat removal. [23]

Category: Mortgage

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26. Four disparate cases – (1) Injunction against caveat – (2) Residuary beneficiary and prospective testator's family maintenance claimant with no caveatable interest – (3) Offer of caveat not sufficient security for costs – (4) Failure to remove caveat as breach of mortgage.

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