Category: TLA S. 91(4) – Renewal of caveat

Blog 97. Caveat claiming equitable charge survives.

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

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

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

The facts were –

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

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

Bishop forwarded it to Mr Crozier.

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

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

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

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

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

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

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

Cosgrave J. declined to remove the caveat, holding –

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

    [72]

  5. Subject to hearing the parties the proceeding would be dismissed with costs taxed on the standard basis. [73]

 

Philip H. Barton

Owen Dixon Chambers West

Tuesday, August 19, 2025

 

Blog 84. A freehold estate?

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

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

The facts were –

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

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

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

Judge Marks removed the caveats, holding –

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

Philip H. Barton

Owen Dixon Chambers West

Wednesday, October 23, 2024

18. Registered mortgagee defeats caveat based on alleged trust – Whether repeat caveat

National Australia Bank Limited v Nilsen & Anor [2018] VSC 368
(2 July 2018) Kennedy J.

The chronology was –

  • The plaintiff had a registered mortgage over land of which the registered proprietor was Petrina Pavlic. 
  • She died, her son William was her sole beneficiary, he obtained letters of administration and a new loan from the plaintiff with the mortgage as security.  He defaulted and became bankrupt.
  • The first defendant, who was William’s current or former de facto partner, caveated claiming an implied, resulting or constructive trust.
  • In 2017 a consent order of the Family Court was made between her, William and his trustee in bankruptcy providing for the transfer of the property to her contemporaneously with payment of $550,000 by her by 5 October 2017, with liberty to the trustee to sell in default of such payment.  No payment was made.
  • The plaintiff initiated a sale of the land to a third party with settlement due in May 2018 but subsequently extended to 4 July 2018
  • On 4 June 2018 a judge ordered that caveat be removed.
  • On 8 June 2018 the defendant again caveated on the same grounds as the first caveat. 
  • The plaintiff commenced further removal proceedings under the Transfer of Land Act s. 90(3).  The defendant argued that she had an interest pursuant to the Family Court Order which was different from, and arose subsequent to, the interest relied upon for the first caveat (which had been based on alleged contributions).  Shealleged, without evidence, that the trustee in bankruptcy had agreed to extend the time for her to pay the money to obtain the land and that this ongoing indulgence gave rise to a trust.

Kennedy J ordered removal of the caveat, holding –

  1. There was no serious question to be tried.  The Family Court order did not create any interest in the land in circumstances where no money had been paid.  In any event the bank’s interest as registered mortgagee defeated any unregistered interest. [27]-[28]
  2. The following balance of convenience factors also favoured removal –
    • The interests of the innocent purchaser;
    • Delay in disposing of the property;
    • The caveator had not commenced proceedings to substantiate her claim;
    • If she had a cause of action the caveator could sue the bank for damages;
    • The caveator had not paid the money ordered by the Family Court and there was no evidence of her capacity to do so;
    • Sale was the best chance of reducing the amount of approximately $2.7 m. owed. [31]-[40]
  3. The plaintiff also argued that s. 91(4), which provided that a lapsed or removed caveat shall not be renewed by or on behalf of the same person in respect of the ‘same interest’, was breached. Her Honour did not deal finally with this argument but stated that the better view appeared to be that this section did not apply because the source of the second caveat was the Family Court Order which postdated the first caveat.

 

Comment:

  1. As to her Honour’s statement that “The Family Court order did not create any interest in the land in circumstances where no money had been paid as provided for in that order” –

There is authority that a Family Court order can create an interest in land: Bell v Graham [2000] VSC 142 at [19]. However her Honour’s statement is authority for a different view if no money has been paid pursuant to the order. Presumably, however, if it had been paid the payor would have a lien giving rise to a caveatable interest: see eg SixBruce Pty Ltd v Milatos [2017] VSC 784 (See my earlier blog here)

  1. The fact that the sources of the two caveats was different did not mean that they were not in respect of the same interest: Layrill Pty Ltd v Furlap Constructions Pty Ltd[2002] VSC 51 at [9].