Category: Mortgagee’s sale

Blog 95.          Caveator makes unsuccessful application to restrain mortgagee’s sale.

This Blog does not normally cover injunctions but for completeness I cover Trotter v RNC Nominees Pty Ltd [2025] VSC 224, Gray J. which succeeds the caveat case RNC Nominees Pty Ltd v Trotter [2025] VSC 207 the subject of the previous Blog.

The facts were –

  • The first plaintiff (Gary) established a farming business, Beverly Farming Pty Ltd (Beverly Farming), with his wife Lorna. He and their son Andrew were its directors.
  • In around January 2023 Beverly Farming agreed to purchase a property (Marnoo Property). It sought finance.  On 24 May 2023 a loan facility agreement (Facility Agreement) was made by which the first defendant (RNC) agreed to advance up to $6.8 million to Beverly Farming including: $4.1m. for this purchase (the ‘Marnoo Acquisition Limit’); and a $1.5m. ‘Crop Lending Limit’ in three tranches of $500,000 payable respectively by 31 May, 30 June and 30 September 2023.   Clause 10.5(b) in substance required the Borrower to ensure that the interest cover ratio (ICR) remained above 2.00x (the ICR Undertaking).  The ICR was calculated by dividing the ‘Annualised EBIT’ (Beverly Farming’s EBIT for the previous three months multiplied by four) by the ‘Annualised Interest Amount’ (being, in respect of a particular month, the interest amount payable that month multiplied by 12).  Clause 4.2(a)(iii) required RNC to make the Marnoo Acquisition Limit available provided the Borrower was not in breach, or would be rendered in breach by the proposed Advance, of each financial covenant in clause 10.5.
  • Beverly Farming’s guarantors were members of the Trotter family and an associated company. The advances were to be secured by registered mortgages over the Marnoo property and nine other properties, including ‘Hemphills’, ‘South East’ and ‘Woods’ (the three properties), variously owned by members of the Trotter family, and by a general security agreement (collectively, the Securities).
  • Eight of these properties were already encumbered by first registered mortgages to other lenders, seven securing a debt of approximately $4.75m to the National Australia Bank (NAB) as quantified in March 2025.  Accordingly RNC would only be the first mortgagee of the Marnoo Property and another property.
  • On 7 June 2023, the Marnoo Acquisition Limit was advanced. The first and second tranches of the Crop Lending Limit were also advanced.  However, the Marnoo Acquisition Limit did not cover $400,000 in stamp duty, interest and costs.  Accordingly Beverly Farming used approximately $400,000 of this second tranche on the costs of acquisition of the Marnoo Property.  Andrew became its registered proprietor.
  • Beverly Farming failed to pay interest for June 2023.
  • On 15 September 2023, RNC advised Beverly Farming that it was in breach of the ICR Undertaking.  Beverly Farming requested drawdown of the third tranche of the Crop Lending Limit with some $80,000 of it being applied to the interest due under the Facility Agreement on 29 September.  On 21 September 2023 RNC refused this drawdown on the basis that the Facility was in default and of non-satisfaction of conditions in a reservation of rights letter (Draw Down Dispute).
  • On 9 October 2023, RNC served a default notice, relying on the failure to pay the interest due on 29 September and the breach of the ICR clause, and calling in the whole loan.
  • In February 2024 RNC issued another default notice.
  • On 4 April 2024 the parties to the Facility Agreement entered into a Deed of Forbearance (the Deed).  This recited that the secured debt exceeded $7 m. with other amounts accruing. Clause 5.1 required the Obligors to repay the Secured Money by 19 April 2024.  RNC agreed to forbear from exercising its rights and remedies arising out of the “Existing Defaults” (defined as including but not being limited to failures to pay interest and fees due in five specified months and failure to comply with cl. 10.5(b) as at 30 September 2023) for the “Forbearance Period” (defined as the period ending on the earlier of a breach of the Deed or a future default under the Facility Agreement or Securities).  By cl. 8.1 the Borrower and the Guarantors released the Lender from any Claims which they now had or but for the execution of this Deed may have had in relation to the Facility Agreement, the Securities, the Draw Down Dispute and/or anything else under the Deed.
  • On 1 May 2024 RNC issued a third default notice, under the Transfer of Land Act (TLA) s. 76 relying on a series of defaults, including breach of cl 10.5(b) as at 30 September 2023.
  • On 6 May 2024 it took possession of the mortgaged properties, appointing the second defendant and another person its agents, and as receivers and managers of Beverly Farming.
  • On 21 February 2025 RNC entered into contracts of sale of the three properties, due for settlement on 7 April 2025.
  • Lorna caveated over these properties. RNC applied under the TLA s. 90(3) for removal of the caveats and on 16 April 2025 his Honour declined to remove the caveats, on the balance of convenience (Blog 94).  He also expressed the preliminary view of adjourning this application for two months provided Lorna undertook to commence within that period any proceeding asserting her equitable interest in the properties and alleging breach of the TLA s. 77 in the sales, with liberty to apply.  He also stated that the parties would be heard on the precise terms of the orders to be made.
  • RNC sought an urgent listing of the s. 90(3) application to obtain final orders.  It also extended the settlement dates of the contracts of sale to 30 April 2025 but stated to the Court that a further extension was likely to be impossible.
  • Before the relisted date, 22 April, the parties filed fresh material.  RNC still sought removal of the caveats.  His Honour determined that the s. 90(3) application would be reconsidered afresh on 24 April, and that Lorna could file material responding to RNC’s new material.
  • The plaintiffs then commenced this proceeding seeking an injunction, listed for mention on 24 April. The Writ claimed that:
    • it was unconscionable, including under ss. 12CB or 12CA of Australian Securities and Investments Commission Act 2001 (Cth), for RNC to rely on Beverly Farming’s breach of the ICR Undertaking. The loss claimed was that in reliance on this breach RNC had not advanced the final tranche of money, whereby Beverly Farming could not pay the September 2023 interest, and, that RNC had relied on breach of the ICR Undertaking and this non-payment to enforce the Securities, and RNC had charged default interest;
    • in entering into the three contracts RNC had failed to act in good faith and with regard to the plaintiffs’ interests, contrary to s. 77(1) and the duty it otherwise owed to Gary (breach of duty claim), and if RNC was not restrained from completing the sales the plaintiffs would suffer harm for which damages would be an inadequate remedy. It alleged that RNC should have sold properties over which it was first mortgagee because the sales of properties over which it held second mortgages would not reduce Beverly Farms’ net indebtedness to it.  It also complained about the conduct of the sales.
  • In the Writ and Summons the plaintiffs inter alia sought: injunctions restraining completion of the sales and any steps to sell any property, and; production of unredacted copies of the three contracts of sale.
  • On 24 April his Honour determined to hear the application as one for an interim interlocutory injunction to restrain both completion of the existing contracts of sale, and other sales, based on the material currently filed (pending the plaintiffs supplementing their evidence concerning applicability of the Deed and were ready for a full hearing of their Summons supported by this evidence) before further hearing the s. 90(3) proceeding. This was on the understanding that Lorna’s position was that if this interim injunction application failed the caveats would be removed.
  • On 24 April his Honour also heard the application for production of documents.
  • Evidence filed in the s. 90(3) proceeding was not treated as evidence in this proceeding.
  • Andrew deposed that the sales were defectively conducted attaining an undervalue.
  • Counsel for the plaintiffs argued that RNC had acted unconscionably because it knew before advancing any funds that: Beverly Farming’s income was mostly made in early summer; the first advance of funds occurred when Beverly Farming had forecast no or no significant income until January 2024 and accordingly it intended to use the Crop Lending Limit for working capital, including payment of interest, and; accordingly, Beverly Farming would breach the ICR Undertaking immediately.  Counsel also submitted that RNC was not required to advance the purchase monies for the Marnoo Property if that would cause Beverly Farming to breach cl. 10.5(b), and so RNC had acted unconscionably in later relying on that breach, ie it should never have advanced funds in the first place.

Gray J. dismissed the application for interim injunctions and did not determine the application for production, holding –

  1. The Court had a broad discretionary power to grant injunctions where just and convenient pursuant to the Supreme Court Act 1986 s. 37 (also the Supreme Court (General Civil Procedure) Rules 2015 r. 38.01) and as an incident of its inherent jurisdiction to preserve the subject matter of litigation and ensure the effective exercise of its properly invoked jurisdiction. [47]
  1. The general organising principles for applications for interlocutory injunctions were:
    1. The applicant must show a prima facie case for obtaining the relevant relief, ie not that the relief was more probable than not but rather a sufficient likelihood of success to justify the preservation of the status quo pending either trial or, if applicable, expiry of the interim injunction. The required strength of probability depended upon the nature of the rights asserted and the likely consequences of the order sought.  A prima facie case existed where, if the evidence remained as it was, there was a probability that the applicant would obtain relief at trial [48]-[49], [57];
    2. And the balance of convenience favoured an injunction being granted. The Court inquired whether the inconvenience or injury likely to an applicant on refusal of the injunction outweighed injury to the respondent if the injunction were granted.  The Court took the course apparently having the lower risk of injustice if it should turn out to have been “wrong”, in the sense of granting an injunction to a party who failed, or in failing to grant an injunction to a party who succeeded, at trial.  A weaker prima facie case generally required a stronger case on the balance of convenience.  Because the duration of restraint sought by an interim injunction was shorter, the balance of convenience, all other things being equal, was in this case more likely than otherwise to favour relief; [48], [51], [52], [57], [60]
    3. The Court would consider, whether as part of the balance of convenience inquiry or as a separate principle, whether the applicant had demonstrated irreparable injury for which damages would be inadequate compensation, this being presumed where an interest in land was in question; [53], [57]
    4. The Court would generally require the applicant to give the usual undertaking as to damages, moulded to fit the circumstances of the case, and if the undertaking offered was not worthwhile or meaningful this may weigh against granting the injunction. These circumstances may include the likelihood of the applicant’s insolvency, so requiring security to support the undertaking; [54]-[55], [57]
    5. Delay in seeking the injunction was a discretionary factor possibly weighing against granting it. [56], [57]

Most such applications were heard on affidavit material untested in any way, with the Court being unable to resolve disputed questions of fact and often having difficulty resolving conflicts and difficult questions of law. [50]

  1. There was no prima facie case, and on current evidence no prospect, that completion of the contracts would be restrained at trial, for two reasons. The first was that the Deed’s releases covered the unconscionable conduct claim, including the argument that RNC need not have advanced money at all. [2], [66], [67], [76], [77], [78]
  2. The second reason was no prima facie case that RNC had exercised its power of sale in breach of its duty of good faith and of s. 77.  Under general law, a mortgagee had a duty to exercise the power of sale in good faith and for the purpose for which it was conferred, ie it could not recklessly or wilfully sacrifice the mortgagor’s interest. Section 77 widened this duty to require the mortgagee to exercise this power in good faith and having regard to the interests of the mortgagor.  However, a mortgagee had the right to exercise it for its own benefit – it was obliged to obtain the best price consistent with its entitlement to realise its security.  But even where a specific duty of care to achieve market value applied (not claimed here), a controller acting under the Corporations Act 2001 (Cth) or mortgagee, acting in good faith, was not obliged to improve the property’s value, nor to secure market value or a better price by the method or timing of sale.  In such cases, the Court focused on the process of sale, not on whether market value was achieved. [2], [81], [82], [85], [90]
  3. In particular, the following did not give rise to a prima facie case of breach of duty –
    1. the fact that the properties sold were subject to second mortgages; [86]
    2. choice of the selling agent, ie RNC had not disregarded relevant factors and acted with lack of care; [87]-[88]
    3. the timing of the sales; [89]-[91]
    4. the description of the properties being sold; [92]-[94]
    5. the fact that the sales were private. A mortgagee could make a reasonable attempt to obtain market value by auction, private treaty, or public tender; [95]-[96]
    6. there was inadequate evidence of undervalue, even having regard to the non-disclosure of the prices by RNC. A sale at a very significant undervalue could be relevant to assessment of breach of duty, but mere non achievement of market value estimates was not in itself evidence capable of establishing breach. Even if the non‑disclosure founded an arguable claim of breach of duty under s. 77 this was insufficient to justify an interim injunction restraining settlement. [97]-[108]
  1. The balance of convenience was also against restraining completion of the contracts of sale, because –
    1. the evidence fell well short of establishing that if the status quo was preserved there was a good prospect of repayment of RNC’s and NAB’s debts; [114]-[116]
    2. it was uncertain that RNC could further extend the contractual settlement dates. The contracts were open to the interpretation that the extension power could be used only once; [117]-[118]
    3. the fact that RNC would not be paid in full from the sales was of no real significance; [119]
    4. although the Trotters had long farmed the land they had not established that damages would be an inadequate remedy for sales at an undervalue in breach of duty. The debt was so great, and the evidence of refinancing so inadequate, that sale of at least some properties seemed inevitable; [120]-[125]
    5. the plaintiffs had not established that their undertaking as to damages would be meaningful; [128]
    6. if the three sales were not settled on 30 April 2025 RNC faced risks in the other sales campaigns and of increased loss; [129], [131]
    7. the plaintiffs had delayed commencing this proceeding for a lengthy, mostly unexplained, period. [132]

[2], [110], [112], [130], [133]

  1. The plaintiffs also failed to show a prima facie case for restraining sale of any of the farming properties. Their possible arguments for this injunction would have substantially overlapped those on the application for an injunction to restrain the sales. [44], [45]
  2. The injunction applications having failed, it was unnecessary and inappropriate to decide the application for discovery of unredacted contracts as part of an urgent Practice Court matter. It was unusual for an application for discovery to be determined in the Practice Court.  It could be renewed under ordinary case management processes. [3], [138]-[140]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, July 22, 2025

 

Blog 94. Common Endeavour Constructive Trust.

This Blog deals with RNC Nominees Pty Ltd v Trotter [2025] VSC 207 in which Gray J., after considerable analysis, found a prima facie case of a common endeavour constructive trust over three properties and, on an exhaustive consideration of the balance of convenience, declined to remove caveats.   This case was shortly succeeded by Trotter v RNC Nominees Pty Ltd [2025] VSC 224, which concerned an application for an injunction and will be the subject of the next Blog.

RNC Nominees Pty Ltd v Trotter [2025] VSC 207, Gray J.

The facts were –

  • The defendant’s husband, Gary Trotter (Gary), was the sole registered proprietor of three rural properties being ‘Hemphills’, ‘South-East’ and ‘Woods’. Two of these properties were largely black clays as was most of the third property.
  • A first registered mortgage over the properties was held by the National Australia Bank (NAB). In 2023 Gary mortgaged over 10 properties in total, including the three properties, owned by him or by associated persons or entities, operated as a farming business, to the plaintiff (RNC).  The mortgages were registered as second mortgages.   They secured money owed under a facility agreement between RNC and each of Beverly Farming Pty Ltd (Beverly Farming), Gary, the defendant Lorna Trotter (Lorna), and their son Andrew (Andrew), dated 24 May 2021.
  • On around 4 April 2024, Gary and Lorna, RNC and others entered a deed of forbearance. This deed recorded RNC’s debt as $7,197,591.97.  Lorna was an obligor under a relevant agreement and also a guarantor of this debt.
  • On 1 May 2024 RNC issued a default notice for $7,385,926.38 plus interest.
  • On 6 May it as mortgagee entered into possession of the three properties and other mortgaged properties and appointed agents, they also being receivers and managers of Beverly Farming.
  • On 21 February 2025 RNC entered into three contracts of sale of the three properties due for settlement on 7 April 2025. Special condition 18 in each contract provided that if the vendor was delayed or prevented from completing the contract by a caveat it could extend settlement for up to 6 months to enable it to remove the caveat or take other steps necessary to transfer title.
  • On 18 March 2025 Lorna caveated over each property on the grounds of ‘implied, resulting or constructive trust’.
  • As at 2 April 2025, the estimated payout figure under the NAB mortgage was $4,762,745.15.
  • RNC applied under the Transfer of Land Act s. 90(3) for removal of the caveats.
  • The caveator deposed –
    • When she married in 1974 Gary already owned Woods and owed certain debts. They soon bought another property registered in their joint names;
    • They had run a farm in partnership since their marriage, being a formal partnership between them from 1976, also conducted for 16 years to 2012 with Gary’s brother and his wife;
    • From the 1990s the brothers jointly owned Hemphills and another property. Gary became their sole registered proprietor in about 2012;
    • Gary acquired a further property in 1994;
    • Gary was given South-East by his mother in 2004;
    • The farming partnership was conducted on all these properties;
    • She contributed to work for the farming business in various ways, including on the three properties, this evidence being quite general;
    • During their marriage she and Gary always understood that they owned everything together and the farm properties were joint marital assets, this evidence being quite general.
  • Andrew deposed to a family understanding that his parents had contributed equally to their marriage, and that properties held in his father’s name were owned by each equally.
  • On 2 April 2025 Andrew obtained valuations (the valuations) of the three properties at $6,525,000 in total, which if attained would leave about $1.7 m. for RNC after discharge of NAB’s mortgage.
  • In an affidavit filed on 2 April, being the evening before the hearing, Andrew criticized the sales process including the marketing campaign. He gave oral evidence expressing further concerns, without objection or cross-examination.
  • Andrew gave evidence: of a record sale in February 2025 of a nearby property (Lot 5) rich in ‘black soil’, which he suggested would increase the values of the properties; and that a week after that sale the receivers and managers told him that they would enter contracts of sale unless they received unconditional refinancing offers that day. The valuations had referred to sales in the previous 24 months but not to the sale of Lot 5.  But they did refer to a recent sale of a property rich in black clays for $19,920 per hectare.  However, for location reasons the valuation did not ascribe this figure to the properties, though nonetheless ascribing relatively high values to attain $6,525,000.
  • Andrew’s affidavit exhibited a solicitor’s letter disputing the three contracts and referred to a financing agreement between RNC and Beverly Farming, allegedly breached by RNC and thus invalidating all its actions including appointment of the receivers and managers. The letter foreshadowed an application for an injunction and requested a delay in settlement.
  • Andrew gave evidence of steps taken to refinance all mortgage debts.

RNC did not tender evidence of sale prices but provided a confidential exhibit to the court before the hearing and sought to apply ex parte for it to be kept confidential.  The court required a formal application on summons supported by affidavit(s); this did not occur; and the confidential exhibit was not filed but a redacted version was filed not disclosing the purchasers or the prices.  Counsel for the caveator applied for disclosure, ultimately of just the sale prices.  Counsel for RNC submitted that the identities of the purchasers and the prices were market-sensitive information that might depress the future prices of the remaining seven properties.

Gray J. declined to remove the caveats, holding –

  1. The evidence supporting the existence of a joint endeavour constructive trust under which the caveator was a beneficiary, based on Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78 and Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59, was very superficial. The mere fact that the farming partnership involved the couple and that its operations occurred on various pieces of land did not give the caveator an interest in any particular piece of land.  Nonetheless, she had established a weak prima facie case of this trust.  However, this was the court’s preliminary view, based only on her limited evidence, uncorroborated by Gary and without RNC having a meaningful opportunity to respond.  This evidentiary weakness was also relevant to the balance of convenience. [21], [22], [25], [26], [27], [42], [43], [83]
  2. A joint endeavour constructive trust only arose where the substratum of a joint relationship or endeavour was removed without attributable blame, and where the benefit of money or other property contributed by one party on the basis and for its purposes would otherwise be enjoyed by the other party in circumstances not specifically intended or specially provided for, equity then preventing that other party from asserting or retaining this benefit to the extent unconscionable. In this case –
    1. The couple remained married and their farming endeavour had not come to an end or been ‘removed’; [30], [31]
    2. It was however debatable whether the farming endeavour continued, at least in its intended form: the appointment of receivers and managers and the control of the land by agents of the mortgagee in possession had arguably ‘removed’ the ‘substratum’; [31]
    3. This raised whether a joint endeavour constructive trust could be asserted against someone other than the ‘other party’ to the endeavour, in circumstances where that ‘other party’ was not the one retaining the benefit of the property – and whether in those circumstances it could be said to be ‘unconscionable’ for a third party mortgagee to ‘assert or retain the benefit of the relevant property’; [32]
    4. The court’s preliminary view was that these factors did not prevent the trust arising. Nonetheless, the court acknowledged: that Lorna’s asserted equitable interest arose because of the operation of the doctrine on the conscience of the sole registered proprietor Gary; RNC’s position was different, as its registration conferred indefeasibility on its rights, notwithstanding Lorna being beneficiary of a constructive trust, subject only to fraud or to an in personam claim by Lorna, neither being asserted here; and accordingly RNC’s interests probably had priority over Lorna’s asserted equitable interests; [34]
    5. Although these considerations did not preclude recognition of Lorna’s equitable interest they were relevant to the balance of convenience. [35]

    [30]

  3. Although some cases had treated the joint endeavour constructive trust as superseding the common intention constructive trust, and some cases conflated them, the Supreme Court had treated the latter as a distinct doctrine. Having found a prima facie case of a joint endeavour constructive trust it was strictly unnecessary for the court to form a view on the existence of a common intention constructive trust, but if it existed its prospects of success were no stronger than those of establishing a joint endeavour constructive trust. [24], [25]
  4. Any proprietary interest held by Lorna existed even if there was no basis for subordinating RNC’s registered interests to her alleged interests or whether she might receive any return from the sale (also possibly relevant being that she was jointly and severally liable for Gary’s debt). [36]-[41]
  5. As to the application for disclosure of the sale prices –
    1. Section s. 90(3) of Transfer of Land Act did not confer jurisdiction to order production of the sale price information – it was unclear that s. 90(3) extended to procedural, interlocutory orders of this kind – it may be limited to dispositive orders relating to the caveat or dealings with the land; [48]
    2. But the court had power to order disclosure of documents (in unredacted form) in the nature of discovery orders under the Supreme Court (General Civil Procedure) Rules 2015 or the Civil Procedure Act 2010. Perhaps the court could have ordered discovery, but that power had not been invoked here; [49]
    3. The parties did not address whether RNC’s concerns could be allayed by the caveator agreeing to keep market-sensitive information confidential. Absent such safeguards, the court was disinclined to exercise its power, assuming it existed, to order disclosure of the prices. [50]
  6. In contrasting the potential injury to the respective parties from the caveats remaining or being removed, or (in other words) taking whichever course appeared to carry the ‘lower risk of injustice’ should the course chosen turn out to have been ‘wrong’, the balance of convenience favoured maintenance of the caveats at least for a limited time, on balancing:
    1. The weakness of Lorna’s prima facie case; [43], [63]
    2. The non-disclosure of prices – this led the court to assume in the Lorna’s favour that the prices were substantially below the valuations. Importantly, this non-disclosure supported her having further time to consider whether to sue RNC and the agents for breach of their duties.  On the assumption that the sales were for an undervalue, the removal of the caveats and consequent completion of the contracts could prejudice her as she was jointly and severally indebted to RNC for much more than the proceeds of sale, even if $6.525 m. had been achieved; [51], [52], [65], [66]
    3. A mortgagee exercising a power of sale under the Transfer of Land Act s. 77 owed duties at least to the registered proprietor and maybe also to the holder of an equitable interest through the registered proprietor. But even assuming the sales were well below $6.525 m. Lorna had not articulated a clear claim relating to the sale process; [55], [56]
    4. Nevertheless, because this was an urgent Practice Court application akin to an injunction application the court would on the balance of convenience weigh Andrew’s evidence about the sale process and alleged undervalue, notwithstanding that it was untested and that inferences of misconduct were impermissible against the agents, who were officers of the Court, without proper notice of this assertion and lack of evidence of breach of duty; [57]-[62], [64]
    5. The indefeasibility of RNC’s mortgage and the subordination of Lorna’s asserted equitable interests to repayment of RNC’s debt; [63]
    6. On an application for an injunction the court would consider whether damages were an adequate remedy. However damages were not an adequate remedy where rights to land were concerned.  Lorna may assert an interest over approximately seven other titles, and so even if it was inevitable that the current sales would give her no return, she could suffer prejudice from their sale at undervalue in the form of enjoyment of  her asserted equitable interests in the other properties.  As all the titles covered the farming business, and given the presumption of the special nature of an interest in land, damages were inadequate, or at the very least this was arguable; [67]-[69]
    7. The solicitor’s letter, which concerned the related dispute between RNC and Beverly Farming, carried no weight; [74]
    8. There was no convincing evidence of prejudice to RNC if the settlement was delayed, special condition 18 having very significant weight; [76], [77]
    9. There was no evidence that delay in repayment of RNC’s loan would cause it loss – the lapse of 9 months between its entry into possession of the land and into the contracts of sale could be due to market conditions or suggestive of no pressing need for a sale; [78], [79]
    10. The court gave little weight to Andrew’s refinancing evidence because it was superficial, unlikely to succeed within the next few weeks, and if Lorna had caveated simply based on needing additional time for refinancing this would be perilously close to an attempt to use a caveat as a ‘bargaining chip’; [81], [83]
    11. In summary the potential prejudice to Lorna of removing the caveats outweighed the lack of any imminent prejudice to RNC in maintaining them, provided she undertook to within a reasonable time, suggested by the court to be two months, sue the agents or RNC for alleged breach causing sales at an undervalue. The application for removal of the caveats would then return to court for further consideration. [84]-[87]

[62]

  1. Caveats should be proportionate and properly adapted to the interests sought for protection. Consideration should be given to amendment so that these caveats did not prohibit any dealings absolutely and without qualification. [88]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, June 3, 2025

 

Blog 89. Removal of caveat following mortgagee’s sale.

Archer Wealth v Casey [2024] VSC 300, Moore J.  

The facts were as follows.

  • The second defendant (Kookee) was the registered proprietor of 100 acres in rural Victoria (the Property).  Its sole director and shareholder was the fourth defendant Ms Lagoutatzis.
  • Following a formal letter of offer by the first plaintiff (Archer) to Kookee and Ms Lagoutatzis, signed on 10 August 2023, Archer on 16 August agreed to lend Kookee $4,325,000 secured by first mortgage over: the Property; two properties in Doncaster owned by Kookee (Victoria Street and Daphne Street); and a property in Warrandyte owned by Ms Lagoutatzis where she lived with her husband the first defendant (collectively ‘the security properties’).   Clause 11.1(a)(i) of the Loan Deed required Kookee, within 30 days of the loan advance, to engage or procure a real estate agent acceptable to Archer, to list and market the security properties for sale.  The mortgages also required the mortgagor to pay the land tax and municipal rates.
  • On 23 August Archer agreed to lend Kookee an additional $700,000 on the security of second mortgages over the security properties.   The loans were advanced on 23 August, refinancing existing secured debts.
  • On 24 August Archer assigned part of its interest in the mortgages to the other plaintiffs.
  • Between 25 September and 10 November 2023: a Lender’s Demand by Archer alleged breach of cl. 11.1(a) of the Loan Deed and non-payment of land tax on the Doncaster properties, requiring rectification within seven days; Archer tried to obtain the cooperation of the tenant of Victoria Street to list it for sale; Archer took possession of Daphne St as mortgagee, it subsequently being sold for $1,057,000; a default notice under the Transfer of Land Act s. 76 was served in respect of the mortgages over the Property and the Doncaster properties, giving Kookee one month to remedy its breach of cl. 11.1(a) and to pay certain land tax and rates.
  • Following non repayment of the loans on the due date of 23 January 2024 the plaintiffs took possession of the Property, gave another s. 76 notice for over $4 m., obtained an independent valuation of market value at $800,000, and conducted a mortgagees’ sale for $850,000 plus GST due for settlement on 13 May.  The parties were ready, willing and able to complete this sale.
  • On 18 April Ms Lagoutatzis sought an injunction restraining sale of the Property for under $1.4 m., resulting not in restraint but in an order that she be provided with a copy of the contract of sale, which was complied with.
  • On 15 May a caveat was lodged on behalf of Kookee claiming a freehold estate with an absolute prohibition on dealings based on ‘Registered proprietor(s) being entitled to possession of the certificate of title for the land and to prevent improper dealings’.  Other caveats were lodged which counsel for the defendants acknowledged to be without foundation.

The plaintiffs commenced this proceeding ultimately seeking removal of all three caveats under the Transfer of Land Act s. 90(3).  Ms Lagoutatzis’ deposed that: the Loan Deed was entered into so that Archer could provide the finance necessary to sell the four properties; despite cl. 11(a) of the Loan Deed the plan, of which she had told Archer’s director, had always been only to sell the three Melbourne properties and for her family to move to the Property where they would build a home to live in retirement – the director denied being told this; the couple had spent about $100,000 in preparation for building this dwelling.

A draft counterclaim was provided to the court which among other things pleaded that: Kookee had engaged an agent to list and market the Melbourne properties, which Archer approved, whereby Kookee did not engage another agent; it was exonerated as regards land tax and rates because of a particular representation by Archer; accordingly the Lender’s Demand was void, whereby Archer’s enforcement of the Doncaster mortgages exceeded its power as mortgagee and breached the Loan Deed; on substantially the same grounds as those relied on to invalidate the Lender’s Demand, Archer had no right to serve the November Default Notice, on the basis of which it sold the Property; Archer had engaged in conduct which unreasonably prevented Kookee from refinancing; Archer did not sell Daphne Street and the Property in good faith; the sale of the Property should be restrained and the contract of sale set aside.

Moore J. ordered that the caveats be removed, holding –

  1. The improper dealings referred to in the caveat may be taken to be those articulated in the draft counterclaim.  On the authority of Swanston Mortgage v Trepan Investments [1994] 1 VR 672 this did not give rise to an estate or interest in land and a mortgagor’s right to have an improper sale of mortgaged property set aside was a ‘mere equity’.  Accordingly there was no caveatable interest. [42]-[45], [47]
  2. The fact that the interest in land claimed in the Swanston Mortgage caveat was an equitable interest as mortgagor, whereas Kookee had asserted a ‘freehold estate’, was immaterial. [46]
  3. The balance of convenience would also have favoured removal of the caveat because
    Archer’s exercise of its rights as mortgagee did not infringe Kookee’s proprietary rights.  This informed the general rule that the court would not restrain the exercise of a mortgagee’s power of sale unless the mortgage debt, if undisputed, be paid, or, if it was disputed the amount claimed by the mortgagee be paid into court.  The defendants had not offered any payment. [48]-[50], [58]
  4. However, being an application of the equitable maxim that ‘he who seeks equity should do equity’, this general rule was subject to exceptions.  Depending on the facts and circumstances and overall justice of the case, payment into court may not be required if it was alleged that:
    1. the mortgagee’s power of sale was not properly exercisable or was being exercised for an improper motive;
    2. the mortgage was invalid, or had not been breached so as to engage the power of sale, or a notice required to engage that power was ineffective;
    3. the mortgage or the power of sale was impugned pursuant to the Australian Consumer Law or the Australian Securities and Investments Act 2001 or equitable principle. [51]
  5. On the basis of the allegations in the draft counterclaim, whatever might be the position of the other security properties, it appeared most unlikely that this sale enlivened any of these exceptions.  Kookee had not complied with cl. 11.1(a)(i) of the Loan Deed (and the alleged representation in the draft counterclaim in relation to the engagement of a real estate agent was limited to the other security properties).  Accordingly it had defaulted under the Loan Deed whereby the total amount owed by it was immediately due and payable.   Further, any allegation that the ‘express purpose’ of the loans was for the couple to build a house on the Property for their retirement was fundamentally weak: whatever their subjective purpose, the plan deposed to by Ms Lagoutatzis was contradicted both by her also deposing that the Loan Deed was entered into to enable Archer to provide the finance necessary to sell all four properties and by the terms of the formal letter of loan offer.  There was also no evidence that the Property was included in the Loan Deed by common mistake. [52]-[57]
  6. Accordingly, Kookee was not relieved from the obligation to bring in an amount either sufficient to meet the mortgaged debt, or such other amount as may be appropriate – which was in this case an amount equal to the mortgagee’s maximum possible loss from the sale being lost, this not being the amount of the mortgage debt but the value of the security itself. [58]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, November 26, 2024