Category: Priorities

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

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

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

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

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

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

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

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

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

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

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

Windeyer J. stated at 558 – 559 –

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

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

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

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

  1. Then in the history of this Blog –

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

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

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

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

 

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

  1. Each party held a valid equitable interest in the funds.  The fact that KKJA held an unregistered mortgage and Yan Shi held a charge did not per se improve KKJA’s position.  The question was whether in all of the circumstances the presumption that the earlier interest holder had priority had been displaced.  [5]
  2. While the mere failure to lodge a caveat was not of itself sufficient to displace the presumption that the earlier interest holder had priority, a failure to lodge a caveat may amount to postponing conduct if there were circumstances indicating the need or desirability of doing so to protect that person’s interests, and where the omission led to subsequent interest holders suffering detriment through relying on the absence of any caveat or other registered interests.  [18], [40], [46]
  1. In all of the relevant circumstances, in particular, the absence of any evidence of anything but an arms length relationship between KKJA and the borrowers (ie no evidence that KKJA’s failure to caveat was reasonable or at least understandable), its failure to register its mortgage or caveat amounted to postponing conduct.  There was no evidence ex­plain­­ing why KKJA should rely upon representations by borrowers that they would not further encumber the property (if any such representations were in fact made), but KKJA’s failure to caveat armed the borrowers with the capacity to do so.  It was difficult to see what more Yan Shi could have done.  She suffered detriment as a consequence of KKJA’s failure to caveat.  It would be unconscionable for KKJA to maintain its priority over the funds.  [6], [39], [42]-[43], [45], [48].

 

Philip H. Barton

Owen Dixon Chambers West

Wednesday, November 12, 2025

Blog 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 –

  1. 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]
  2. 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]
  3. 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]
  4. 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]
  5. 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]
  6. 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]
  7. 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]
  8. 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]
  9. 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]
  10. 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]
  11. 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]
  12. 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]
  13. 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]

  1. 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]
  2. 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]
  3. 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 53. Priorities between equitable interests – whether earlier interest postponed for failure to lodge caveat.

The main case in this Blog is UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (in liq) (No 2) [2021] VSC 711 (29 October 2021), Richards J which concerns priorities.  See also Blog posts 13 and 45.

For completeness I first mention Antonie v Leith [2021] VSC 662 (15 October 2021), Matthews AsJ, which simply concerned whether a loan had been repaid.  An agreement, the terms of which were disputed, was made for the plaintiff to lend money to her sister the defendant or their mother, with provision for the plaintiff to lodge a caveat in respect of the loan.  The loan was made, the caveat was lodged, and money equalling the loan amount was paid to the plaintiff by their mother in November 2018, leading to the defendant seeking removal of the caveat.  The plaintiff characterized the repayment not as being of the loan but as an advancement of the defendant’s entitlement under their mother’s Will which would be eventually be repaid to the mother’s estate by deduction from the defendant’s share of the estate.   Matthews AsJ held that the November 2018 payment was of the loan and removed the caveat.

The case the subject of this Blog is a sequel to AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2019] VSC 688 and [2020] VSCA 235, the subject of Blogs 32 and 40.  Those cases had upheld UDP’s caveat over AE Brighton’s land grounded on a constructive trust arising from AE Brighton’s use of the moneys to which UDP was entitled.  Further, in UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd (in liq) [2021] VSC 528 (26 August 2021) Richards J. held that UDP could trace the proceeds of the constructive trust into the land.  The land was sold and the net proceeds of sale, after payment out of UDP’s interest, which interest had priority over all other unregistered interests, remained in court.

The case the subject of this Blog was a dispute about entitlement to the funds in court between two of the holders of later unregistered interests, Temelkovski and Hagit Pty Ltd (Hagit).  The relevant facts were –

  • In 2013 AE Brighton entered a contract to purchase the land.
  • Before settlement of the contract of sale Temelkovski and AE Brighton entered an agreement on 5 November 2013 under which he agreed to make available a cash advance facility secured by a mortgage over the land and other security. The mortgage was executed on this date, with AE Brighton’s sole director Mr Esposito executing it on the company’s behalf.  Temelkovski did not register it or lodge a caveat.
  • The contract of sale was settled on 21 November 2013 and AE Brighton became registered proprietor on 2 December 2013. It drew down on the facility between 4 December 2015 and 25 September 2018.
  • In early March 2018 Hagit offered to lend money to Mr Esposito’s wife Violeta Esposito, who by then was the sole director of AE Brighton. Mr Esposito represented to Hagit that the security would include a second unregistered mortgage over the land.  Hagit’s solicitors conducted a title search which revealed two registered mortgages and two caveats by holders of unregistered interests other than that of Temelkovski.  Mr Esposito represented to Hagit that neither the caveats nor any other security interests would affect Hagit’s proposed security.
  • Ms Esposito signed the relevant documents on 5 March 2018. The security included a caveat and unregistered mortgage over the land.  The mortgage identified the mortgagor as ‘Violeta Stojcevski’ (by which name she was also known).
  • On 5 March 2018 Hagit advanced the funds to Ms Esposito. On 6 March 2018 it caveated over the land.
  • On 2 October 2019 Temelkovski caveated over the land based on the 2013 mortgage.
  • Between 8 and 12 October 2021, relying on an authority given, Hagit ‘amended’ the mortgage by replacing the mortgagor’s name of ‘Violeta Stojcevski’ with AE Brighton’s name.

Her Honour held that Temelkovski had priority –

  1. AE Brighton’s mortgage to Temelkovski remained an equitable mortgage notwithstanding that predated AE Brighton becoming registered proprietor of the land. A valid charge could be granted over future property. [15]
  2. The general rule for resolving competing equitable interests in land was, where the merits were equal, that the first interest in time had priority. However, the earlier interest could be postponed to the later by disentitling conduct by owner of the earlier interest.  The better equity was determined having regard to the conduct of each party in relation to their respective interests, a comparison of that conduct in all the relevant circumstances, and general considerations of fairness and justice.  The mere failure of the holder of the earlier interest to caveat did not dictate its postponement to the holder of a later interest who had searched the Register: it was but one circumstance to be considered. [33]
  3. Temelkovski had the better equity. Assuming, notwithstanding its subsequent amendment of the mortgage, that Hagit’s equitable interest dated from 5 March 2018, it postdated Temelkovski’s interest.  Temelkovski’s interest was not postponed because:

the mortgage was critical to Temelkovski’s decision to lend as it was the primary security; his failure to caveat was by itself insufficient to postpone;

no other conduct of Temelkovski had led Hagit to accept the land as security in the belief that Temelkovski’s interest did not exist – there were no dealings directly between them;

the land was not the primary security for Hagit’s loan;

the title search gave Hagit notice that the land was substantially encumbered, demonstrating that it was prepared to take a significant risk in accepting the property as security. [35]-[40], [43].

   Philip H. Barton

   Owen Dixon Chambers West

   Tuesday, April 5, 2022

Blog 45. Getting your priorities straight.

This Blog deals with two recent caveat cases also involving priorities between interests in land, one simple, one complex. 

In Capital One Securities Pty Ltd v Lesic & Anor [2020] VSC 781, Ginnane J, 13 November 2020, the facts were –

  • Vongsa and Suzana Soch were registered proprietors of a property subject to a first mortgage to a bank and a second mortgage to the plaintiff securing a claimed debt of about $149,000.
  • A mortgagee’s auction had occurred.  The sale was not yet completed.
  • On 27 March 2020 the first defendant lodged a caveat claiming an implied resulting or resulting trust.  On 29 October 2020 he obtained a County Court judgment for $349,163.62 against Vongsa Soch for default in making discovery and in not attending a mediation, including a declaration that he had an equitable interest in the property and was entitled to maintain a caveat over the title. 

The plaintiff applied under the Transfer of Land Act s. 90(3) to remove the caveat.  Its director deposed to loan advances and that it would suffer a shortfall at settlement of the sale.   Ginnane J. removed the caveat and ordered the first defendant to pay costs on a standard basis.  Although there was a prima facie case that the first defendant had an equitable interest in the land, the plaintiff’s interest as second mortgagee had priority and the balance of convenience favoured removal of the caveat because it was impeding settlement of the mortgagee’s sale.

Roberts Gray Pty Ltd v Brunner & Ors [2021] VSC 76, Daly AsJ, 9 March 2021.

The facts were –

  • The first defendant (Brunner) owned a disused mining site at Yandoit Creek Road Franklinford worth about $320,000 (‘the land’). 
  • In 2016 a company (‘Vesterdix’) entered a rental agreement with TL Rentals Pty Ltd (‘TL Rentals’).   Brunner guaranteed Vesterdix’s obligations and as security agreed to mortgage the land to TL Rentals.  On 30 March 2017 TL Rentals caveated over the land based on this mortgage.  Vesterdix subsequently defaulted and TL Rentals eventually claimed a debt of about $96,000. 
  • On 11 April 2017 the fourth defendant (‘PG Walton’) registered a mortgage over the land to secure a short term advance. 
  • On 23 June 2017 it was agreed between the third defendant (Kellam) and Brunne that Kellam lend Brunner $30,000 and Brunner charge any freehold land he owned in favour of Kellam (‘June 2017 agreement’).  A copy of this document was in evidence but there was no direct or documentary evidence of the actual advance of monies.
  • Kellam also alleged that in August 2017 he acquired the debt (then standing at $188,065.50) and first mortgage held by PG Walton and made a further advance to Brunner.  There was, however, no direct or documentary evidence of payment to PG Walton.   However, PG Walton’s solicitors subsequently sent to Kellam’s solicitors the certificate of title and a discharge of its mortgage.  Kellam did not lodge these documents for registration. 
  • On 26 September 2017 Brunner executed a mortgage in favour of Kellam (‘Kellam mortgage’) under which Brunner promised to pay the mortgagee on demand all moneys owing by the mortgagor to the mortgagee including the moneys under a loan agreement between the parties executed that day.  However, no loan agreement was in evidence other than the June 2017 agreement.   There was no direct evidence of the sums secured and conflicting evidence about the size of the mortgage debt. 
  • From 2016 to 2018 the plaintiff (Roberts Gray), whose principal was Roberts, acted for Brunner including in a Family Court proceeding fixed for trial on 6 July 2018.  Brunner was non-compliant with financial disclosure orders and had not put Roberts Gray in funds.    
  • On 11 May 2018 Brunner emailed a draft financial statement to Roberts, prepared with the assistance of an accountant (‘the accountant’), which included: under the heading ‘Other mortgage payments’ that Kellam was the lender, that the address of the property was Yandoit Creek Road Franklinford and that the average weekly amount was $360; under the heading ‘Other mortgages’ that Brunner was the borrower, that ‘your share’ was 100% and ‘amount of your share’ was $200,000 (without specifying any security property).  However, the section headed ‘Liabilities’ did not list Kellam as a creditor.
  • On 5 July 2018 Brunner executed a document charging in favour of Roberts Gray ‘all land owned by me … now or in future as security for the payment of all professional fees and disbursements now owing or at any time may be owing by me to Roberts Gray Pty Ltd for legal services provided to me’.  (Roberts Gray subsequently conceded that the charge was ineffective to the extent that it sought an equitable interest in properties not legally and beneficially owned by Brunner, ie any property other than the land).
  • The Family Court trial date of 6 July was vacated.  On 20 July Brunner’s financial statement, in substantially similar form to the draft, was filed.  The reference to the payment of $360 per week to Mr Kellam remained.  However, under the heading ‘other mortgages’, appeared: ‘Jon Brunner borrowed against Yandoit and 308/6 Victoria Street the sum of $600,000’.
  • The plaintiff ceased acting for Brunner, claimed a debt of about $85,000 with interest, and on 30 August 2018 caveated over the land claiming an interest as chargee pursuant to an agreement with Brunner, J. B. & F. Investments Pty Ltd, and Vesterdix.  Brunner was the sole director of both companies and deposed that there was no agreement between Roberts Gray and either company.
  • On 10 December 2018 the Kellam mortgage was lodged for registration.
  • Following notice of this lodgment Roberts Gray commenced a proceeding seeking relief, including: an order under s. 90(2) that the Registrar of Titles delay registering the Kellam mortgage; an order that it have leave to amend the grounds of claim in its caveat by deleting all parties to the agreement with Brunner except itself; a declaration that it held an equitable charge; and an order for sale of the land.
  • Registration of Kellam’s mortgage was ordered to be delayed, eventually until the trial and determination of the proceeding.    
  • On 20 February 2020 Brunner was declared bankrupt.
  • Roberts deposed or gave evidence:
    • that on 25 August 2017 the solicitors for the other party in the Family Court proceeding, Lander & Rogers, sent a copy of the June 2017 agreement to his firm;
    • that on 2 November 2017 Lander & Rogers wrote referring to the June 2017 agreement and to a loan from PG Walton to Vesterdix of $165,000 secured by a mortgage over the land and another property.
    • that on receipt of the draft financial statement on 11 May 2018 he knew of the $30,000 loan by Kellam to Brunner;
    • that when the charge was executed (on 5 July 2018) he believed that this loan had been paid off or (he also deposed) significantly reduced but had not contacted Kellam about this;
    • denying that before execution of the charge he was aware that Kellam had an interest in the land or that Brunner (who deposed to the contrary) had so instructed him, or that the Kellam mortgage existed, and stating that before taking the charge he did not do a title search or attempt to ascertain what interest if any PG Walton or TL Rentals had in the land;
    • denying that Brunner told him, immediately before filing the financial statement on 20 July, of the Kellam mortgage;
    • stating that on 20 July 2018 the accountant told him that the loan of $30,000 had been repaid and had not told him of a mortgage securing $250,000 plus interest.  He denied (contrary to evidence of the accountant) that the accountant had told him that the ‘private client mortgage’ over Yandoit secured $250,000 plus interest and denied that the accountant had met him before 20 July;
    • that he had never seen any document evidencing a loan by Kellam in any amount other than $30,000;
    • that he believed that the sworn financial statement “loaded up” the land to defeat the interests of the other party.
  • Brunner gave evidence that: Roberts did not ask him how much equity he had in the land; and he did not tell Roberts that he had no equity in the land, as there was no need because, having prepared Brunner’s financial statements, Roberts knew this.

Kellam submitted that he held two distinct security interests over the land: a subrogated right to the PG Walton mortgage; and an equitable interest by reason of his possession of the unregistered Kellam mortgage, the discharge of PG Walton mortgage and the certificate of title.  It was common ground that the interest in the land of TL Rentals had priority over any interest of Roberts Gray’s.  TL Rentals abided the outcome of the proceeding.

Daly AsJ held –

  1. On the balance of probabilities Kellam paid out the PG Walton mortgage.  While there was no evidence of the time and amount of funds transferred, the PG Walton loan was by inference discharged before October 2017, when the certificate of title and discharge of mortgage were delivered to Kellam’s solicitors.  The timing of the execution of the epitome of the Kellam mortgage was also consistent with this. [125]-[127]  
  2. Ordinarily, absent evidence that the epitome of mortgage was either a forgery or a sham, its very existence was compelling evidence of the evidence and validity of an equitable mortgage. [129], [133]
  3. The authorities were divided on whether a party claiming to be subrogated to the rights of a prior mortgagee was entitled to the benefit of the terms of the underlying loan contract.  The better view was that the subrogated party did not automatically acquire identical contractual rights to the original interest holder, such as, for example the interest rate payable by the mortgagor to the original lender. [123]
  4. Kellam had discharged the onus of establishing his entitlement to be subrogated to the rights of PG Walton under the PG Walton mortgage to the extent of the sum paid by him to it to discharge its loan to Brunner secured by the mortgage, plus interest. [83], [118], [131] 
  5. As Kellam was entitled to be subrogated to the rights of PG Walton under its mortgage, and this mortgage was registered, Kellam had priority over TL Rentals and Roberts Gray with respect to the amounts paid by him or on his behalf to PG Walton. [131]
  6. Any sums secured by the Kellam mortgage which were not referable to the PG Walton mortgage were thus secured only by an equitable mortgage, which ranked behind the interest of TL Rentals. [131]
  7. As to whether Kellam’s interest as the holder of an equitable mortgage should prevail over Roberts Gray’s later interest as chargee –

    (a)    Where merits were equal, the general principle applying to competing equi­table interests was that priority in time of creation gave the better equity. [118], [141], [160]

    (b)   Where merits were unequal and favoured the later interest, as for instance where the owner of the later interest was led by conduct of the owner of the earlier interest to acquire the later interest in the belief or on the supposition that the earlier interest did not then exist, the later interest would have priority.   It was always necessary to characterise the conduct of the holder of the earlier interest in order to determine whether, in all the circumstances, that conduct was such that in fairness and in justice the earlier interest should be postponed to the later. [141], [143], [144]

    (c)   The mere failure of the holder of a prior equitable interest in land to lodge a caveat did not in itself involve the loss of priority which the time of the creation would otherwise give. [144] (d)    A person taking an interest with actual, imputed, or constructive notice of an earlier interest took subject to that interest, unless the earlier interest holder had engaged in conduct to induce the belief in the later interest holder that the earlier interest no longer existed. [156], [157], [161]

    (d)     A person taking an interest with actual, imputed, or constructive notice of an earlier interest took subject to that interest, unless the earlier interest holder had engaged in conduct to induce the belief in the later interest holder that the earlier interest no longer existed. [156], [157], [161]

    (e)    The onus rested on the holder of a later interest to show that the earlier should be postponed. [84]

    (f)    The evidence was inconclusive on whether Roberts Gray had actual notice of the Kellam mortgage.  However, it would have been open to Roberts Gray (and prudent) to conduct a title search before taking the charge.  This was inexcusable in the context of a priority dispute.  Although a title search at the time the charge was taken would not have disclosed Kellam’s interest in the land the PG Walton mortgage and the TL Rentals caveat would have been revealed.  Upon such a discovery, Roberts Gray would have been in a position to make more fulsome inquiries of PG Walton and/or TL Rentals and Brunner.  Accordingly Roberts Gray had at least constructive notice of Kellam’s interest. [118], [162], [165], [167]-[169]

    (g)     However, even if this finding of constructive interest was incorrect, there was no basis for postponing Kellam’s equitable interest to Roberts Gray’s interest.  Kellam had not so conducted himself as to induce a party in the position of Roberts Gray into believing there was no prior interest holder.  The agreement by Brunner and Kellam to keep their arrangements private did not misrepresent the position to third parties. [118], [170], [171] 

  8. The application to amend the caveat by deleting J. B & F Investments Pty Ltd and Vesterdix would be granted because:

    (a)    it would not alter the estate or interest claimed in the caveat, but amend the grounds of the claim, with no prejudice to anyone; [178]

    (b)    Roberts Gray undoubtedly had an interest in the land as chargee.  The ques­tion of the validity of the charge has fallen away and the only dispute was over priority, which should be determined on the merits; [179]

    (c)    although less latitude was affordable to a caveat lodged by a solicitor, as op­posed to one prepared by a lay person, the prejudice to Roberts Gray of not being able to amend the caveat outweighed this consideration. [118], [180]

  9. Given that Kellam stood in the shoes of the holder of a registered mortgage, he had a prima facie entitlement to take possession of and sell the land, provided the requirements of s. 77 of the TLA had been fulfilled, and subject to his obligations to account to TL Rentals and Roberts Gray.  However, there was no evidence that the threshold requirements of s. 77 had been met, and given that the parties all agreed on sale, the court would appoint the trustee in bankruptcy to do this and account to the interest holders. [118], [183]

Philip H. Barton

Owen Dixon Chambers West

Tuesday, 29 June 2021

13. Caveat lodged to protect priority of equitable mortgage but badly expressed – Caveat not amended but interlocutory injunction granted to protect priority

TL Rentals Pty Ltd v Youth on Call Pty Ltd and Ors [2018] VSC 105 (8 March 2018) Derham AsJ.

This interesting case demonstrates that a badly drawn caveat can be rescued

– not under the TLA caveat provisions but by an interlocutory injunction.

The case is also a good discussion of general caveat principles and priorities

between equitable interests

Katherine and Damian Shannon were the joint proprietors in equal shares of land mortgaged to a bank.

The chronology was –

12 October 2016  Plaintiff (TL) leases equipment to first defendant whose obligations are guaranteed by Katherine.  Guarantee provides that she mortgaged her interest in the land and would on request execute a registerable mortgage. 

12 December 2017 Lessee in default.  TL serves notices on it and Katherine seeking payment. 

21 December 2017 TL lodges caveat claiming a “freehold estate” pursuant to an agreement with the “registered proprietor(s)” dated 12 October 2016.

7 January 2018   Permanent Custodians Limited (PCL) enters loan agreement with the Shannons. 

22 January 2018  Relying on an old title search predating the caveat, PCL advances the funds due by paying out the existing mortgage with the balance to the Shannons.  Mortgage lodged for registration. 

23 January 2018  Pursuant to the Transfer of Land Act (TLA) s. 90(1) Registrar gives notice to TL of lodgment of an inconsistent dealing and that its caveat would expire in 30 days.

20 February 2018 TL commences proceeding claiming a declaration that it had an equitable mortgage or charge over Katherine’s interest in the land securing payment of the sum owed. 

21 February 2018 TL applies the court pursuant to TLA s. 90(2) for an injunction directing the Registrar to maintain the caveat until registration of a mortgage in favour of the plaintiff or further order.

22 February 2018 Interim court order directing the Registrar to delay registration of any dealing.  TL foreshadows application to amend caveat to limit it to a claim for an equitable mortgage over Katherine’s interest in the land.  

2 March 2018      Hearing.  TL abandons argument for amendment and maintenance of caveat but seeks amendment of summons to claim an interlocutory injunction to protect the priority of its mortgage against defeat by registration of PCL’s mortgage.

The TLA s. 90(2) in substance provided, a notice under s. 90(1) having been given, that if within a particular period the caveator appeared before a court, the court may direct the Registrar to delay registering any dealing with the land or make such other order as was just.  Section 90(3) provided that any person adversely affected by a caveat may bring proceedings for the removal of the caveat and the court may make such order as it thought fit.

Derham AsJ  held –

1.     An application under s. 90(3) was in the nature of a summary procedure and analogous to the determination of an interlocutory injunction.  The caveator had the burden of establishing a serious question to be tried that it had the estate or interest in land as claimed and that the balance of convenience favoured maintenance of the caveat until trial.  In an application under s. 90(2) the same burden rested on the caveator. [29]-[30]

2.     The interest or estate claimed in a caveat could probably be amended but only in special or exceptional circumstances, as it effectively substituted a different caveatable interest.  In this case it would have been substitution of a claim to a freehold estate in respect of the registered interests of both proprietors with a claim to an interest under an equitable mortgage granted by one proprietor. Although TL’s mortgage was not in registerable form it was entitled to an unregistered (equitable) proprietary interest over Katherine’s share of the land that was capable of supporting a caveat.  Whilst remaining unregistered it was an agreement to mortgage.  [9]-[10], [20], [31]

3.     TL was granted leave to amend its summons to claim an interlocutory injunction.  The caveat procedure was essentially a statutory injunction granted upon consideration of the same factors applied when granting interlocutory injunctions in equity. [34]-[36] 

4.     PCL was entitled by subrogation to the rights of the mortgagee (NAB) whose mortgage it had paid out.  This gave PCL priority over TL for this part of its loan.  Otherwise approximately $130,000 was secured by TL’s equitable mortgage and $271,000 by PCL’s equitable mortgage. The interest first in time would prevail but that may change where the prior equitable interest holder had so acted that it would be unconscionable if its interest were to prevail. However, mere failure by the prior holder to caveat was insufficient to postpone that interest, even where the subsequent interest has been acquired bona fide and for value without notice and on faith of the title.  The latter interest holder must show a change of position and prove detriment as a necessary element of any claim for postponement. [21]-[22], [44]

5.     It was not unconscionable for TL’s equitable mortgage to be afforded its usual priority.  PCL should have conducted title searches later than six weeks before advance of funds.  Further, having regard to evidence that the market value  of the property sufficed to cover all monies secured against it, PCL had not proved detriment if postponed. [23]-[25]

6.     There was accordingly at least a prima facie case that TL’s mortgage had priority.  Whether this prima facie priority would justify the restraint sought depended on: (a) the practical consequences likely to flow from the interlocutory order sought; (b) whether if the injunction was not granted the plaintiff would be likely to suffer injury for which damages would not be an adequate remedy; (c) whether the balance of convenience favoured the granting of an injunction, as to which the strength of the case on serious question to be tried was relevant; (d) whether other discretionary considerations militate against the grant of the injunction.  TL met these tests.  The grant of an injunction until trial carried the lower risk of injustice if it should turn out to have been wrong. [26], [33], [37]-[38], [46]-[48]

7.     Due to doubt whether TL could satisfy the undertaking as to damages required for an interlocutory injunction, it would be made a condition of the grant of the injunction that the ultimate holding company or another company in the same group join in giving the usual undertaking as to damages. [53]-[54]