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

Blog 63. Mortgages/Charges and Caveats

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

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

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

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

The facts were –

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

Matthews AsJ made orders including for removal of the caveats –

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

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

The facts were –

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

Ginnane J held –

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

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, November 22, 2022

 

Blog 59. Mother and Son.

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

These cases concern the same piece of land.  The first case deals with the uncommon points of an application under the Transfer of Land Act s. 90(3) being brought by Summons in an existing proceeding, rather than by Originating Motion and Summons, and with abuse of process.  The second case is more routine, there being a dubious caveatable interest but the balance of convenience favouring removal of the caveat, nonetheless raising two interesting points not explicitly touched on by Gorton J.  First, the solicitors lodging the caveat could not decline to accept service: Transfer of Land Act ss. 89(4) and 113(3) (Blog 49).  Second, in weighing the balance of convenience his Honour could have considered whether, as there was also a purchaser, the caveator was able to give the undertaking as to damages (Blog 56).

Fazal v Fazal [2022] VSC 165, Gorton J. (4 April 2022).

The facts were –

  • The plaintiff was the mother of the defendant.
  • In August 2018 the son purchased a property for $650,000 after obtaining a bank loan secured by a mortgage guaranteed by his mother. Work started to construct townhouses on the property.
  • Loan repayments fell into default, the bank took steps to enforce the mortgage, and with its agreement the son in November 2021 entered into a contract for sale for $865,000, with a 10% deposit that was paid, with settlement due on 21 January 2022.
  • On 17 January 2022 the mother lodged a caveat. The son applied for its removal under s. 90(3) of the Transfer of Land Act.  The mother produced a 2018 declaration of trust to the court which she alleged, and he denied, was signed by him.
  • On 17 February after an opposed hearing a judge ordered removal of the caveat.
  • On 21 February the mother commenced a proceeding seeking, inter alia, a declaration that the proceeds of the sale were held on trust for her and equitable compensation.  She made an interlocutory application to restrain the distribution of the proceeds of sale.  The selling agent deposed that the value of the property was $850,000 – $900,000 and that the sale was for market value.   The mother produced a valuation that the underlying unencumbered value of the property was $760,000 but that it was worth $1 m. with the planning permit and settlement of sale of three dwellings before the end of 2022.   She also produced an affidavit in which the deponent swore that he would lend money to her and otherwise assist her completing the development, and lend money to her ‘to repay any outstanding home loans’.
  • The hearing of the interlocutory application on 25 February (the caveat not yet being removed) expanded from one seeking restraint of distribution of the proceeds of sale to one seeking restraint of the sale until trial. The judge however only ordered that the net proceeds of sale to be held in the son’s solicitor’s trust account until trial or further order.
  • On 27 February the mother lodged another caveat asserting the same interest as the previous one. The son made a further application under s. 90(3), by Summons in the proceeding commenced by his mother.

The mother among other things: stated that the property was hers and that she intended to appeal against the decision of 17 February; relied on material which had been before the court on 25 February; and referred to her recent proposal to the bank to repay the arrears, finish the development, and sell the property, not yet eliciting the bank’s substantive response.

Gorton J. held –

  1. Although an application under s. 90(3) was normally made by Originating Motion and Summons it could be made by Summons in an existing proceeding. The filing of the Summons amounted to the bringing of ‘proceedings in a court against the caveator for the removal of the caveat’ as those words in s. 90(3) were to be understood.  This outcome was supported by s. 8(1) of the Civil Procedure Act 2010.  It was significant that the Summons was brought in a proceeding between the two relevant parties relating to their rights. [5]
  2. A second interlocutory application for the same relief was an abuse of process if it would be unjustifiably oppressive to the other party, or would bring the administration of justice into disrepute. Ordinarily, an abuse of process was associated with commencement of a proceeding or application, rather than its defence.  However although an application under s. 90(3) was not commenced by the caveator, the caveator was treated as if the caveator were the moving party seeking an interlocutory injunction.  Accordingly, in substance, it was the caveator who was potentially abusing the process of the court by supporting a second caveat identical to a removed caveat.  The maintenance of this caveat was an abuse of process. [13]-[15]

Fazal v Madappilly [2022] VSC 227, Gorton J. (9 May 2022).

Another caveat was lodged on 13 April 2022, ie nine days after the previous decision, by the first defendant Madappilly claiming a freehold estate based on an agreement with the son dated 5 August 2020.  Further –

  • On lodgment of the caveat Madappilly’s solicitors wrote to the son’s solicitors stating their instructions that the son was attempting to sell the property in breach of the Constructive Trust Agreement and Construction Contract both dated 5 August 2020, under which agreements approximately $300,000 was owed to Madappilly.
  • They provided copies of these documents. The ‘Construction Contract’ was undated and purportedly signed on 5 August 2020.  It was a contract between the son, one of two other alleged joint venturers (see further below), and a company associated with Madappilly, in which the son and one of the other parties declared that they intended to enter a contract to build townhouses on the property and appointed the company as building supervisor.  It provided that the company would be paid a deposit of $300,000 upon execution of the agreement, and that it could charge for services at an hourly rate left blank.  It then stated that the son and the joint venturer would ‘permit’ the company ‘to have equitable and beneficial interest in the land, pending making the deposit of $300,000’ and would when requested transfer the land “to [the company] to [the company’s] interest”.
  • In the ‘Constructive Trust Agreement’, dated and purportedly signed on 5 August 2020, the son declared that he intended to enter into a contract to purchase the property and that he confirmed that he held Madappilly’s interest in the property and/or benefits accrued or to accrue in respect of that interest upon trust for Madappilly absolutely subject to the terms and conditions set out in this deed. Madappilly’s interest was defined to mean ‘full interest in the… Property as tenants-in-common’.
  • The son’s solicitors stated that he denied having signed these documents and that ‘[t]he builder who actually was doing the construction on the property is not aware of your client’.
  • The son sought an order under the s. 90(3) for removal of the caveat. Madappilly’s solicitors advised that they were not instructed to accept service and did not hold instructions to continue to act.
  • Madappilly, who described himself as building supervisor, deposed that –
    • In around mid-2019 he entered into an oral joint venture agreement with the son and two others; and the son undertook and represented to them that the son would pay the mortgage and other outgoings, would provide $150,000 towards the completion of the joint-venture, and that when the development was completed it would be sold;
    • In reliance on those promises, he and the other two people jointly invested ‘around $500,000’ in the joint-venture in work and materials, and implicitly that the four persons were to share the net profits of sale.
  • The son identified the builder he had dealt with, deposed that he did not know who Madappilly was, and denied entering any joint venture agreement.
  • Madappilly produced to the court a valuation that the property was in its current state worth approximately $1 m. and that if $209,500 was spent completing the project the property could be sold for $1.635 m.
  • The net sale proceeds were under $140,000.

Gorton J. held –

  1. The interest asserted by the caveator in his affidavit sat uneasily with any interest based on the agreements purportedly signed on 5 August 2020. The arrangements contained in the Construction Contract were entirely inconsistent with the affidavit evidence and at best gave a caveatable interest to the company not Madappilly.  The Constructive Trust Agreement was unusually worded, and read strictly did not give Madappilly an equitable interest but confirmed that the son held Madappilly’s interest on trust for Madappilly.  It was difficult to reconcile the two documents.  Madappilly could not explain caveating asserting an interest based on an agreement reached on 5 August 2020 but now relying on an oral joint venture arrangement entered into the previous year.  Turning to Madappilly’s evidence: he did not identify to what extent he contributed to the ‘around $500,000’, and so, even if his evidence was accepted did not establish the extent of his beneficial interest; and he produced no documents supporting provision of work and materials.  Because of the inconsistency between what had been advanced by his solicitors and what was now advanced in court there was   reason to doubt his version of events. [8]-[10], [15]-[17]
  2. The court inferred that Madappilly either through his previous solicitors or now advanced arrangements known by him to be incorrect. However, in light of the affidavit material filed there was an issue to be tried that Madappilly had an equitable interest in the property, albeit one difficult to establish. [5], [17]
  3. The balance of convenience favoured removal of the caveat ([25]) –
    1. The alleged sum required to complete the project was said to be pursuant to the unproduced Building Contract and was unclear whether inclusive of landscaping expenses. [18]
    2. It the contract of sale was completed the son could discharge the mortgage and stop interest running. [18], [24]
    3. The contract of sale was on its face unimpeachable (note that his Honour states that the contract price was $850,000, but this seems to be a slip). [19]
    4. The property was not the residence of either party and if the caveat was removed and the sale completed Madappilly would retain a cause of action against the son for damages. [20]
    5. There was no evidence that the purchaser was other than bona fide for value without notice of the caveator’s alleged interest, the contract of sale being apparently specifically enforceable giving the purchaser an equitable interest and giving a claim for damages against the son if the sale did not proceed. Madappilly had not offered to indemnify the purchaser or the son against any liability in damages if the caveat remained.  In one sense, the same issues arose as in a priority dispute between Madappilly and the purchaser, it being relevant that Madappilly had not caveated until after the contract of sale. [19], [22], [23]
    6. There was no evidence that Madappilly or the other alleged joint venturers had the means to complete the development. [21]

       Philip H. Barton

       Owen Dixon Chambers West

       Friday, October 13, 2022

 

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].