31 Caveat by bankrupt on ground of “estoppel” removed.

In Official Trustee in Bankruptcy v Shaw & Anor [2019] VSC 681 (14 October 2019) John Dixon J.

The facts were –

·      In 2014 a sequestration order was made against the first defendant who was the sole registered proprietor of a residential unit and an associated car parking space.  In July 2019 the Official Trustee entered into a contract to sell the property with settlement due on 4 October 2019.  In August the bankrupt ceased to be registered proprietor of the land.  In September the Federal Court dismissed an application by the bankrupt for interlocutory injunctive relief directed at the Official Trustee’s decision to sell.

·       On 3 October 2019 the bankrupt lodged caveats over each property on the ground of “estoppel”. 

John Dixon J. ordered removal of the caveats on the following grounds –

1.   There was no serious question to be tried or prima facie case that principles of estoppel could give the bankrupt a claim to an interest in the land enforceable against the Official Trustee because –

(a)   under s. 58(1) of the Bankruptcy Act (Cth) all of his right, title and interest in the land vested in the Official Trustee whether as his property when he became bankrupt or as after-acquired property;

(b)  it was inconceivable that circumstances that would give rise to his estoppel extended before the time the bankrupt ceased to be the registered proprietor, because it was nonsensical to suggest that the registered proprietor had a claim against himself for an estate or interest in land pursuant to an estoppel;

(c)   the caveat was lodged for the improper purpose of preventing sale while he appealed the Federal Court decision.   The only proper purpose of a caveat was to prevent dealings with that property because of a claimed interest in it.

[44]-[48], [53], [55]

2.     The balance of convenience was against the caveator because –

(a)  it was frustrating the settlement of the contract, affecting the interests of a third party purchaser adversely, and if, as would be the consequence of significant delay, the sale was terminated there would be the prospect of prejudice to the caveator’s creditors;

(b)   he could not proffer an undertaking as to damages;

(c)   he had not explained why the caveat had been lodged so close to settlement.  He could still in the context of further Federal Court proceedings seek relief affecting the future conduct of the Official Trustee in relation to the proceeds of sale.

[55]-[58]

Philip H. Barton
Owen Dixon Chambers West
14 April 2020

 

30. Vendors agreeing to extend settlement date through act of agent with actual or ostensible authority – Not a formal variation of contract of sale required to comply with Instruments Act s. 126 but a waiver or estoppel – However caveator by withdrawing previous caveat had elected not to sue for specific performance but only to claim damages or was estopped from asserting the contrary – Caveat removed.

Chan & Anor v Liu & Anor [2020] VSCA 28 (25 February 2020) was a successful appeal from a decision of Forbes J [2019] VSC 650 upholding a caveat.  The facts were –

  • By a contract dated 21 July 2018 the first respondent Zhenzhu Liu agreed to purchase a property in Burwood Highway, Burwood, from the applicants for $2,450,000 with settlement due on 22 July 2019.
  • Most of the discussions concerning the sale were between Mr Liu’s wife Yumei Feng and Xuehang Cheng who was a sales consultant employed by the selling agents.  Soon after the contract was entered into she asked through him whether the vendors would agree to extend settlement to 15 September 2019 without penalty.  After speaking to the second vendor he conveyed that the vendors would only agree to an extension to 22 August 2019.  Ms Feng again sought an extension to 15 September, Mr Cheng again sought the vendors’ consent and again confirmed that the vendors would extend settlement to 22 August 2019.  Further interaction to similar effect then occurred between the purchaser’s solicitors and the agents, and on 10 August 2018 the agents again stated that the vendors had agreed to extend the settlement date to 22 August 2019.
  • Mr Liu deposed that he and Ms Feng believed that the extension to 22 August 2019 was confirmed and that only the further request to extend settlement to 15 September 2019 was not, and that they were preparing their finances for settlement on 22 August 2019 in reliance on the agent’s representation.
  • On 10 August 2018 Mr Liu caveated claiming an interest in the property pursuant to the contract of sale.
  • In late 2018 the vendors requested the purchaser to temporarily ‘lift’ the caveat so that they could refinance.  The caveat was accordingly withdrawn and on 21 December 2018 a second caveat was lodged.
  • Between 12 June and 22 July 2019 the solicitors for both parties engaged in manoeuvres and negotiations including: the purchaser’s solicitor asserting that the vendors had previously agreed to a penalty free extension to 22 August 2019 and the vendors’ solicitor disagreeing; the vendors’ solicitors seeking more money; the purchaser’s solicitor stating his client had difficulty obtaining finance and asking that the vendors consider an extension of the settlement date and a deferred payment of part of the price.
  • On 22 July, following no settlement by 4.00 pm, the vendors’ solicitor at 5.19 pm served a 14 day notice of default and rescission.
  • On 9 August the vendors’ solicitor wrote to the purchaser’s solicitor confirming termination of the contract and forfeiture of the deposit.  No response was received.
  • On 20 August the vendors’ solicitor wrote again noting that as a result of the purchaser’s default his clients needed to re-sell and demanding withdrawal of the second caveat.  In response, on 22 August the purchaser withdrew the second caveat and his solicitor advised the vendors’ solicitor of this.  However, next day the purchaser’s solicitor wrote again stating that the withdrawal of the caveat was ‘without prejudice to any of the [respondent’s] rights under the contract or at all, which rights are fully reserved’.  The vendors’ solicitor responded that day stating that his clients were attempting to re-sell quickly and requesting that the purchaser not jeopardise or delay this re-sale.
  • On 27 August the vendors entered into a contract of re-sale to a third party.
  • On 3 September 2019 the purchaser lodged a third caveat claiming an interest in the property pursuant to the (original) contract of sale and next day his solicitor sent a notice to complete by 19 September 2019.  The vendors subsequently disputed the validity of these actions.  They subsequently applied under the Transfer of Land Act s. 90(3) to remove the caveat.

The court (Beach, Kyrou and Kaye JJA) gave leave to appeal and allowed the appeal, holding –

  1. The power of the court under s. 90(3) was discretionary and so to obtain leave to appeal the applicants must establish material error by the judge in the exercise of that discretion of the kind described by the High Court in House v The King (1936) 35 CLR 499. [41]
  2. The principles applicable under s. 90(3) were as stated by Warren CJ in Piroshenko v Grojsman [2010] VSC 240, (2010) 27 VR 489, ie that the caveator must persuade the court that:

(1)  there is a probability on the evidence before the court that he or she will be found to have the asserted equitable rights or interest; and

(2)  that probability is sufficient to justify the caveat’s practical effect on the ability of the registered proprietor to deal with the property in accordance with normal proprietary rights.

But that these propositions were qualified by the fact that the discretion conferred by s. 90(3) was expressed broadly and enjoined the court to make such order as it thinks fit, and so the test adopted by the court ought not to restrict the statutory power.   Further, (1) and (2) are not mutually discrete: the exercise of the court’s discretion ultimately involved a synthesis of the Court’s conclusions on each. [42], [43], [75], [76]

  1. Where a purchaser had a right, in equity, to specifically enforce a contract of sale the purchaser thereby had an interest in the land, akin to an equitable interest, which may be protected by a caveat. [53]
  2. The parties had agreed that the specified settlement date be extended to 22 August 2019. Even if the vendors had insisted that the agent Mr Chan impose a condition on the extension of time, which he failed to do, for the purpose of the summary application under s. 90(3) it was appropriate to proceed on the basis that he had, at least, ostensible if not actual authority to enter into such an extension arrangement on behalf of the applicants.  Accordingly there was a serious issue to be tried that that ‘arrangement’ did not constitute a formal variation of the contract of sale (which would have been required to comply with s. 126 of the Instruments Act) but, rather, was a waiver of the stipulated settlement date of 22 July 2019 or founded an estoppel precluding the vendors relying on that date (instead of 22 August 2019). [55], [56]
  3. However, as to whether there was a serious issue to be tried that the purchaser, when he lodged the third caveat, had and continued to have the right to specifically enforce the contract, notwithstanding failure to pay the balance of purchase monies on 22 July 2019, as a consequence of which the vendors purported to rescind the contract –

(a)  Under the doctrine of election, a party confronted by two truly alternative or inconsistent rights or sets of rights (such as the right to avoid or terminate a contract and the right to affirm it and insist on performance of it) may lose one of those rights by election by acting in a manner which is consistent only with that party having chosen to rely on the other alternative or inconsistent right; [60]

(b) Ordinarily, a caveat removal application, being in the nature of an application for an interlocutory injunction, was not an occasion for the final determination of disputed factual issues, or of the substantive claims which the caveat sought to protect, and so it was not appropriate or necessary for the court to determine conclusively whether there was a binding election.  In the circumstances of the case, it was sufficient that there were strong grounds for concluding that the purchaser had made an unequivocal election not to retain his right to specific performance but, rather, to treat the contract of sale at an end, and pursue a claim for damages ([57], [59], [63], [67], [71]) for the following reasons –

(i)       the purpose of the lodgement of the second caveat was to protect the right of the purchaser to specific performance; [64]

(ii)   on 9 August the purchaser was placed on clear notice that the vendors took the position that the contract had been terminated.  Then, in the context of neither seeking to rebut nor respond to that position, he on 22 August withdrew the second caveat in response to the demand that he do so that the vendors could re-sell.   At this point it was strongly arguable that, in those circumstances, the purchaser’s conduct in withdrawing the caveat was an election no longer to claim a right to specific performance, which was an essential pre-condition to maintaining the second caveat.  That proposition was reinforced by the email of 23 August reiterating that the vendors were attempting to re-sell the property.  There was no assertion by the purchaser at any time before the re-sale on 27 August that the vendors were precluded from doing so because the purchaser had a right to specific performance; [65]

(iii)  the context in which the purchaser’s solicitor emailed on 23 August stating that the withdrawal of the caveat was done ‘without prejudice’ etc militated strongly against the proposition that the purchaser thus preserved his right to specific performance.  The only purpose served by the removal of the second caveat was to enable the applicants to re-sell the property, which re-sale would be directly inconsistent with any potential right of the purchaser to specific performance, and the email of 23 August did not suggest that the rights sought to be preserved included a right to specific performance or that the vendors could or should not re-sell. [66]

(c) For the same reasons there was a strong basis for concluding that the purchaser, by his conduct between 9 August and 27 August 2019, was estopped from contending that he continued to have a right to seek specific performance of the contract of sale.  He represented that he did not seek to maintain a caveatable interest in the property, so implying that he no longer sought to pursue a right to specific performance; by his withdrawal of caveat on 22 August, and his conduct at that time, he enabled the vendors to re-sell; if he was now permitted to depart from this representation the vendors would suffer detriment, namely, the loss of the contract of re-sale and exposure of them to a claim in damages (or other relief) by the new purchaser. [69], [71]

6.   The degree of likelihood of success in the proceeding was relevant to evaluation of the balance of convenience.  The above conclusions on election and estoppel were  of critical significance in an assessment of the balance of convenience against the fact that retention of the caveat would prevent completion of the contract of re-sale.   The balance of convenience accordingly favoured removal of the caveat. [73], [74], [77]

7.    The vendors’ further argument that, insofar as the parties had arranged, in August 2018, for the settlement date to be extended to 22 August 2019, nevertheless the conduct of the respondent between June 2019 and 22 August 2019 in some way rendered the extension of time nugatory, raised a question of fact which the court could not determine. [79]-[82]

Comment:

This case is interesting for the following reasons –

1.     In cases of contracts of sale the caveator/purchaser will often win or lose depending on whether there was a contract at all or if there had been whether it had been repudiated.  In this case the caveator lost because by the withdrawal of the second caveat he had given up the right to specific performance by affirmation or by estoppel.

2.    The court (paragraph 3 above) states that the right to specific performance is an “interest in land, akin to an equitable interest”.  The words “akin to” are interesting and are based mainly on Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315 at 332–3.  Older cases simply said that a specifically enforceable contract of sale confers an equitable interest on the purchaser (eg Bunny Industries Ltd v FSW Enterprises Pty Ltd [1982] Qd. R. 712, based on earlier authorities). 

3.   The principle that on a caveat removal application it is not appropriate or necessary for the court to determine conclusively whether a particular legal event would happen (see paragraph 5(b) above) is normally applied in favour of caveators, ie that the caveator has only to show a serious question to be tried.  In this case the Court of Appeal turned this principle on its head by applying it in favour of the registered proprietor, ie it was sufficient that the registered proprietor showed only “strong grounds” for there being a binding election. 

Philip H. Barton
Owen Dixon Chambers West
7 April 2020

29. A rare High Court foray into caveats – a claim for compensation under the equivalent of the TLA s. 118 – in what circumstances a trustee in bankruptcy has a caveatable interest – whether the interest claimed was correctly stated in the caveat – why maintenance of a caveat does not require an undertaking as to damages.

Boensch v Pascoe [2019] HCA 49 (13 December 2019) concerned the interaction between bankruptcy law and NSW caveats law, materially identical to Victorian law.  The following provisions of the Bankruptcy Act 1966 were relevant:

Upon a person becoming bankrupt, s 58(1) vests in the trustee in bankruptcy property then belonging to the bankrupt that is divisible among the bankrupt’s creditors together with any rights or powers in relation to that property that would have been exercisable by the person had the person not become a bankrupt.  Excluded by s. 116(2)(a) from the divisible property is property held in trust by the bankrupt for another person.  However where the person who becomes bankrupt is a trustee of property who has incurred liabilities in the performance of the trust, such entitlement as the person has in equity to be indemnified out of the property held on trust gives rise to an equitable interest in the property held on trust taking that property outside the exclusion in s 116(2)(a) (on the basis that the exclusion is limited to property held by the bankrupt solely in trust for another person).

Notwithstanding the foregoing, where the property held on trust by the bankrupt out of which the bankrupt had an entitlement in equity to be indemnified comprised legal title to land registered under the Real Property Act 1900 (NSW) (“the NSW Act”) (ie the equivalent of the Transfer of Land Act 1958), what was vested in the trustee in bankruptcy until the trustee could obtain legal title by registration was only the equitable estate (s. 58(2)).

The NSW Act provided:

any person who, “by devolution of law or otherwise, claims to be entitled to a legal or equitable estate or interest in land” under the provisions of the Act “may lodge with the Registrar-General a caveat prohibiting the recording of any dealing affecting the estate or interest to which the person claims to be entitled” (s. 74F(1));

a caveat must be in the approved form and specify “the prescribed particulars of the legal or equitable estate or interest … to which the caveator claims to be entitled” (s. 74F(5));

failures strictly to comply with the formal requirements for caveats are to be disregarded by a court in determining the validity of a caveat (s. 74L);

upon application by the registered proprietor the Registrar-General was required to serve a notice on the caveator that it would lapse unless within 21 days from service the caveator obtained and lodged a Supreme Court order extending the caveat (s. 74J(1));

any person who is or claims to be entitled to an estate or interest in the land described in a caveat may apply to the Supreme Court for an order that the caveat be withdrawn by the caveator (s. 74MA(1));

any person who, “without reasonable cause” lodges or after request refuses to withdraw a caveat is liable to pay compensation to any person who sustains pecuniary loss attributable to the lodging of the caveat, or the refusal or failure to withdraw it (s. 74P(1)).

The facts were –

  • Mr and Mrs Boensch were registered proprietors of a property.  He claimed that in 1999 they had reached a matrimonial property settlement under which she agreed for consideration to transfer her interest in the property to him.  He also claimed that in 1999 they had executed a Memorandum of Trust which included that she would cause her share of ownership to be transferred to him to hold the whole of land in trust, in substance for their children, and would arrange for a professionally drafted trust document.
  • In October 2003 he was served with a bankruptcy notice.
  • He claimed that in March 2004 they had executed a deed of trust confirming the settlement upon him as trustee in the 1999 Memorandum of Trust, constituting “the Boensch trust”and creating their children as First Group Beneficiaries.
  • On 23 August 2005 a sequestration order was made against him.  The trustee in bankruptcy was legally advised that there were strong prospects of defeating the trust claim.  Documents produced by the bankrupt did not lead the trustee to a contrary view.  On 25 August 2005 the trustee lodged a caveat claiming a “Legal Interest pursuant to the Bankruptcy Act 1966”.
  • Documents and evidence subsequently produced by the bankrupt were for a long time unconvincing.   However in December 2007 a court held that the Memorandum of Trust was not a sham and that it manifested a sufficient intention to constitute a trust.   Appeals failed.
  • The caveat lapsed on 15 September 2009.
  • The bankrupt took proceedings claiming compensation under s. 74P(1).  The primary judge concluded that, because the bankrupt had not proven that the trustee in bankruptcy lacked a caveatable interest it could not be said that the trustee had lodged or maintained the caveat without “reasonable cause”, but that even if the trustee had not had a caveatable interest he nevertheless had an honest belief based on reasonable grounds that he had a caveatable interest and thus reasonable cause to lodge and maintain the caveat within the meaning of s. 74P(1).
  • An appeal by the bankrupt failed but he obtained special leave to appeal to the High Court.  The appeal was unanimously dismissed.  There were two judgments: by Bell, Nettle, Gordon and Edelman JJ.; by Kiefel CJ, Gageler and Keane JJ.  Unless otherwise stated references below are to the judgment of the plurality.  The following propositions emerge from the judgments –
  1. Provided the bankrupt had a valid beneficial interest in the trust property, the trust property vested in the trustee in bankruptcy subject to the equities to which it was subject in the hands of the bankrupt.  For these purposes, a valid beneficial interest meant a vested or (subject to applicable laws as to remoteness of vesting) contingent right or power to obtain some personal benefit from the trust property. [15]
  2. Notwithstanding s. 58(1), a legal estate or interest in land subject to the Real Property Act could not pass to the bankrupt’s trustee in bankruptcy unless and until the trustee applied and subsequently became registered as proprietor of the land.  After this the trustee still held the estate or interest subject to the equities to which it was subject in the hands of the bankrupt. [94]
  3. The onus was on Mr Boensch to establish that he had lacked any valid beneficial interest in the property.  However, the evidence established that he had a beneficial interest in the property – to the extent of his right to retain the property as security for satisfaction of his right of indemnity as trustee of the Boensch trust.  By reason of that beneficial interest, an estate in the property vested forthwith in equity in the trustee in bankruptcy pursuant to s. 58 of the Bankruptcy Act 1966, subject to a subtrust on the terms of the Boensch Trust but permitting the trustee to exercise the right of indemnity.  On that basis, the trustee in bankruptcy was entitled to be registered as proprietor and that was a sufficient basis to sustain his caveat. [102], [116] (Similarly Kiefel CJ, Gageler and Keane JJ at [2]).
  4. There was a division of opinion on whether the interest claimed in the caveat, ie “Legal Interest pursuant to the Bankruptcy Act 1966”, was adequate.  On the one hand, expressing themselves very cautiously, the plurality stated that ([107]) “Generally speaking” it was to be doubted that this claimed interest was adequate to describe an equitable estate vested in a trustee in bankruptcy pursuant to s. 58(2) by reason of the bankrupt’s right of indemnity.  While noting that NSW statutory provisions did not require the caveat to specify whether the interest claimed was legal or equitable, their Honours gave reasons why this wording was inadequate, stating that ([107]) it “may be accepted that a court would not ordinarily make an order under s. 74K(2) of the NSW Act extending the operation of a caveat which employed that description”; and stating in a footnote that it was unnecessary to determine whether the court would have power to order amendment of the caveat in those circumstances referring to Percy & Michele Pty Ltd v Gangemi [2010] VSC 530 at [92]- [102] per Macaulay J.On the other hand Kiefel CJ, Gageler and Keane JJ held that the equitable estate vested in the bankrupt was adequately described in the caveat [11].
  5. The trustee in bankruptcy also had good reason to believe, as he did, that the Boensch Trust was not validly constituted.  However, the possibility that the trust might have been set aside under the Bankruptcy Act would not have been sufficient to sustain the caveat.  The interest asserted in the caveat must be in existence at the time of its lodgment.  The assertion by a caveator, who at the time of the lodgment did not have an estate or interest in the land, that he had commenced proceedings which may result in such an interest being vested in him did not suffice. [103] – [104]
  6. The test for liability under s. 74P(1) was established in Beca Developments Pty Ltd v Idameneo (No 92) Pty Ltd (1990) 21 NSWLR 459 at which time the statutory words were “wrongfully without reasonable cause”.  This test was that the claimant for compensation must establish that the caveator had neither a caveatable interest nor an honest belief based on reasonable grounds that the caveator had a caveatable interest (and thus “without reasonable cause”), and that the caveator acted deliberately, knowing that he or she had no interest in the land (and thus “wrongfully”).  Notwithstanding the repeal of “wrongfully” this remained the correct test. [110], [111] (Similarly Kiefel CJ, Gageler and Keane JJ at [12]).
  7. The plurality noted that the Beca Developments test had been substantially followed by intermediate courts in other States including in Edmonds v Donovan [2005] VSCA 27;  (2005) 12 VR 513 at 548 per Phillips JA (Winneke P and Charles JA agreeing at 516 [2], [3]).  The High Court however left open whether, if that test is not satisfied, a person may still be liable under s. 74P(1) by reason of acting with an ulterior motive or where the only interest supporting a caveat is de minimis in terms of legal content or economic value. [114]
  8. Accordingly provided the caveat was lodged on the basis of an honest belief on reasonable grounds that the bankrupt had an extant beneficial interest in the property (including a beneficial interest by way of right of indemnity) the trustee in bankruptcy had reasonable cause to do so.  In fact there was a caveatable interest here.  Further the trustee honestly believed on reasonable grounds that the property vested in him either because the trust was void or because of the bankrupt’s right of indemnity [105], [108], [116] (Similarly Kiefel CJ, Gageler and Keane JJ at [12]).
  9. Even if, as the plurality had held, there was a mere technical deficiency in the statement of the interest claimed this did not of itself demonstrate the absence of a “reasonable cause” to lodge and not withdraw the caveat, at least where the caveat did not overstate the interest sought to be protected. [108]
  10. The plurality noted that, although a caveat was “a statutory injunction to keep the property in statu quo until [the caveator’s] title shall have been fully investigated”, unlike an application for interlocutory injunction it did have to be supported by an undertaking as to damages.  Their Honours justified this on the ground that the holder of an unregistered interest in land under the Torrens system is more vulnerable to inconsistent dealings. [113].

Comment: The equivalent Victorian provision to s. 74P(1) is the TLA s. 118 which provides –

“Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as a court deems just and orders”.

Accordingly the two provisions are materially the same and the High Court’s decision applies in Victoria.  The test in Victoria has however been the same as in NSW, or virtually so, as illustrated in Blogs 9 and 24.

The case is also instructive on –

  1. whether the interest claimed in the caveat was correct.  The comment in paragraph 4 above that the NSW statutory provisions did not require the caveat to specify whether the interest claimed was legal or equitable applies equally in Victoria – the TLA s. 89 simply requires that caveator be a person “claiming any estate or interest in land”;
  2. the interest claimed in the caveat must be in existence at the time of its lodgment – it is not enough that the caveator has commenced proceedings which may result in such an interest being vested in him – paragraph 5 above;
  3. why an undertaking as to damages is not normally required – paragraph 10 above.

28. Contracts of sale – No caveatable interest.

Gold Road No. 3 Pty Ltd v Platt [2019] VSC 714 concerned a completed contract of sale as to which the erstwhile vendor caveated on the ground of no consideration, repudiation, and misleading or deceptive conduct.  Jovanovski & Anor v T Square Investments Pty Ltd & Anor [2019] VSC 641 concerned a caveat lodged by a purchaser who had nominated a substitute purchaser.  The caveats were removed.

Gold Road No. 3 Pty Ltd v Platt [2019] VSC 714, Ginnane J (17 October 2019)

The facts were:

·        In March 2017 Mr and Mrs Platt entered a contract of sale of their bayside property to Evergrande Properties Pty Ltd, controlled by Michael Elliott.  The contract did not proceed, Evergrande sued for specific performance and the Platts counterclaimed. 

·     The proceeding was settled.  The settlement documents included a deed which inter alia: substituted the plaintiff, being another company controlled by Elliott, as purchaser, and affirmed the 2017 contract; and contained mutual releases.  The Platts had legal advice.  The proceeding was subsequently dismissed without any right of reinstatement.

·      On 27 September 2018 the sale settled including by Gold Road paying approximately $2 m. to a bank to discharge its mortgage, Gold Road having borrowed this from AusFinance Group Pty Ltd, who it must now repay.  Evergrande also advanced the Platts approximately $100,000 to repay money owing to another company.  Gold Road became registered proprietor.

·   The parties also entered into a Development Rights Agreement (‘DRA’).  Its recitals included that the Development Manager (Gold Road) and the Platts had agreed that the Development Manager would develop the land and that the Platts would have the right to purchase a lot in the development. 

·   On the ground, disputed by the Platts, that the development was commercially unviable and that a condition precedent was not met, Gold Road terminated the DRA and asserted the right to deal with the land at its discretion. 

·    The Platts caveated claiming a freehold estate and an absolute prohibition on Gold Road dealing with the land.  The Platts contended that the consideration for the transfer had been illusory, that Gold Road had repudiated the DRA, and that Elliott and his company may have engaged in misleading or deceptive conduct.  As to the consideration argument the Platts argued inter alia that: the DRA effectively enabled the Development Manager to acquire land for an undervalue; the DRA did not require the Development Manager to attempt to develop the land; that the settlement was a ‘hoodwink’ of Mrs Platt’s rights;

·        Gold Road applied under s. 90(3) for removal of the caveat.

Ginnane J. held –

1.    The settlement deed was supported by consideration in the form of mutual releases and the payment by Gold Road on behalf of the Platts. [14], [31]

2.    The Platts’ case, if proved, would probably provide a remedy in damages for breach of the DRA or other agreements based on their repudiation by Gold Road or for damages caused by misleading or deceptive conduct.  This did not create a prima facie case of a caveatable interest: the possibility of a remedy under the Australian Consumer Law, particularly under s 243, did not create an estate or interest in land. [28], [29], [32]

3.   The balance of convenience also favoured removal of the caveat, in particular Gold Road needed to repay the loan to AusFinance and the fact that it was registered proprietor normally carried the right to sell the property. [34]-[35]

 

Jovanovski & Anor v T Square Investments Pty Ltd & Anor [2019] VSC 641,
Cameron J (20 September 2019).

The plaintiffs and first defendant entered into a contract of sale under which the price was payable in four instalments.  The first defendant caveated.  It failed to pay the third instalment and did not comply with a rescission notice.  About a year before the third instalment was due it nominated a nominee purchaser and her Honour stated that from that date the nominee “became exclusively liable for the due performance of all the obligations of the First Defendant pursuant to the Contract”.  Her Honour held that as the first defendant had nominated another purchaser there was no serious issue to be tried that the first defendant had a caveatable interest. 

Comment: The fact that the first defendant no longer had a caveatable interest appears to hinge on the form of the nomination, ie that the nominee became “exclusively liable”. By contrast in Six Bruce Pty Ltd v Milatos and Ors [2017] VSC 784 (Blog 8) the plaintiff contracted to sell a property to the first defendant Milatos. He nominated a substitute purchaser AM Land. The first defendant eventually rescinded the contract and caveated on the ground of a lien to secure repayment of money paid under the contract. The caveat did not name the substitute purchaser. An argument that the caveat was defective, at least as to part of the monies paid because the nominee was not named was rejected by Keogh J: after nomination A M land did not acquire rights as purchaser against Six Bruce. The rights and obligations as purchaser remained with Mr Milatos. Keogh J. referred to: Tonelli v Komirra Pty Ltd [1972] VR 737 at 739; Commissioner of State Revenue v Politis [2004] VSC 126, [11]; 428 Lt Bourke St Pty Ltd v Lonsdale St Cafe Pty Ltd & Ors [2009] VSC 133, [24]-[25].


Further, General Condition 18 in the REIV/LIV contract of sale provides that despite nomination the name purchaser remains personally liable for the due performance of all the purchaser’s obligations under the contract.

 

 

27. Caveat removal procedure – whether originating application for removal of the caveat required or just a summons in the proceeding sufficed?

 

Walters v Perton (No 2) [2019] VSC 542 (16 August 2019) Derham AsJ.

The facts were:

·      Mr Warring was Mrs Perton’s father and Mrs Walters’ domestic partner.  Mrs Perton, as trustee of a trust, was the registered proprietor of certain land.  

·    The Supreme Court had previously granted judgment in favour of Mrs Perton for possession but in the current proceeding Mrs Walters sued Mrs Perton claiming that the property was held on trust for her.  She had also lodged a caveat grounded on this claim. 

·    In this proceeding Mrs Perton made no claim by counterclaim or otherwise for removal of the caveat but nonetheless filed a summons seeking its removal. 

·    The hearing of the removal application was fixed for hearing with the hearing of an unrelated application.  Two months before the hearing date the defendant notified the Court that she no longer pressed the hearing of the caveat removal application but would seek a speedy trial of all issues in the proceeding including the caveat removal.

·       The plaintiff applied for costs of the caveat removal application, including submitting that it had been incompetent because the defendant had not filed an originating application for such removal.

Derham AsJ held –

1.   Having regard to the Civil Procedure Act 2010, the requirement set out in s. 90(3) of the Transfer of Land Act that the person “bring proceedings in a court against the caveator” for the removal of the caveat, if it meant commence a proceeding by writ, originating motion or possibly a counterclaim, must yield, if necessary and appropriate, to give effect to the overarching purpose of facilitating the just, efficient, timely and cost-effective resolution of the real issues in dispute.  Shaw v Yarranova Pty Ltd [2005] VSC 94 was accordingly distinguishable because it preceded the Civil Procedure Act. [13]

2.   Accordingly if the caveat removal application were otherwise well founded in fact and law it could have been brought by summons in the proceeding.  But in a case such as the present, the caveat removal application amounted in substance to an application summarily to dismiss the plaintiff’s claim that she had an equitable proprietary interest in the land sufficient to sustain the caveat.  The matters relevant to determination of the validity of the caveat were intimately wrapped up with the plaintiff’s claims for a declaration that she had an equitable interest in the land.  Because of the operation and effect of the Civil Procedure Act the Court looked to the substance of the application rather than its form – if that would further the overarching purpose.  The defendant had accordingly in this case employed the wrong procedure to remove the caveat. [14], [16], [17]

3. The defendant was ordered to pay the plaintiff’s costs thrown away by the abandonment of its caveat removal application. [19]

 

Comment: A decision on an unusual point, and subtle in the sense that it holds that a summons may suffice in some proceedings but not in others.

 

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

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

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

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

As to caveats her Honour found or held –

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

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

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

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

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

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

The facts were –

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

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

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

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

His Honour held –

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

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

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

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

25. Delinquent lodging of caveat through PEXA – Contrite conveyancer dodges discipline.

Guirgis v JEA Developments Pty Limited [2019] NSWSC 164 (26 February 2019), Kunc J (Supreme Court of New South Wales)

This is the first NSW case dealt with in the caveatsvictoria.blog.  It is a reminder of the care needed in lodging a caveat, specifically here in the context of the Electronic Conveyancing National Law, as denoted in the opening words of the judgment –

“Lodging a caveat is not a trivial act to be undertaken lightly.  It has immediate legal effect and can have significant commercial and financial consequences.  Legal practitioners and licensed conveyancers who advise on, prepare and certify caveats that are lodged electronically have an important role to ensure that obviously unmeritorious caveats are not lodged.  This judgment arises from a failure by a licensed conveyancer to perform that role properly”.

The facts were –

  • The plaintiff and his wife were engaged in Family Court litigation. She was the sole director, secretary and shareholder of the defendant.
  • In December 2018 he entered into a contract for the sale of a property owned by him, with settlement due on 25 February 2019.
  • On 11 February 2019 a caveat was lodged over the land electronically through PEXA. The caveat had been prepared, certified, electronically signed and lodged on behalf of the defendant by a licenced conveyancer, whose company was described on the caveat as the “Responsible Subscriber”.  The estate or interest claimed was a charge, by virtue of an agreement between the defendant and the plaintiff.  Under “Details Supporting The Claim” was “Outstanding loan”.  The caveat also stated certain things to the best of the knowledge of the Subscriber including that the caveator had a good and valid claim to the estate or interest claimed.
  • After his solicitor unsuccessfully attempted to obtain evidence of the alleged agreement from the conveyancer, the plaintiff commenced this proceeding seeking orders under ss. 74MA and 74P of the Real Property Act 1900 (NSW) for the removal of a caveat and for compensation against the defendant.
  • At the hearing on 20 February the plaintiff asserted that he had never entered into any agreement of the kind alleged in the caveat. Mrs Guirgis, who appeared in person, stated that there was no written loan agreement and insofar as there was any agreement it was “a husband and wife agreement” containing nothing giving the defendant a mortgage, charge or other interest in the property.  She acknowledged that the caveat was a negotiation tactic for a Family Court hearing.  The defendant was ordered to remove the caveat with costs.
  • The judge questioned Mrs Guirgis about her dealings with the conveyancer. Mrs Guirgis stated that: she phoned the conveyancer and asked that caveat be lodged; the conveyancer gave no advice about this; and the conveyancer asked whether there was an agreement between the plaintiff and the defendant to which the answer was yes, but the conveyancer did not ask whether it was in writing or oral.
  • His Honour formed a prima facie view that the conveyancer had been delinquent, required the conveyancer to appear to explain why the papers should not be referred to the appropriate body to consider disciplinary action, and on the  conveyancer appearing and apologizing etc (under the heading in the judgment  “The Conveyancer’s contrite explanation”, including “It is the first caveat I have ever put on” [36]) decided to take no further action, but also published his reasons “to make clear how seriously the court viewed the obligations of those who advise  on, prepare and certify caveats” ([5]).

 

His Honour –

  1. Set out at length the NSW statutory provisions on caveats and electronic conveyancing (ie the Electronic Conveyancing National Law). [19]-[28]
  2. Held that the caveat and the conveyancer’s purported certification of it were deficient in at least five respects. [29]
  3. As to the conveyancer’s representation that –

“The Caveator, to the best of the knowledge of the Subscriber identified in the execution of this Caveat document, has a good and valid claim to the estate or interest claimed as specified in this Caveat”.

held that “to the best of the knowledge” conveyed a representation that the conveyancer had a suitable level of knowledge about how an interest in land can arise and had taken reasonable steps to inform himself or herself of the relevant facts so as to be able to express a properly informed opinion. This was also true of the other statements in the caveat said to be “to the best of the knowledge of” the person or entity electronically signing it.   Such statements did not, however, amount to an unqualified warranty of the existence of the relevant state of affairs. [30], [33]

  1. The conveyancer appeared to have lodged the caveat with either a reckless disregard for the conveyancer’s obligations or had failed to meet the standard of care to be expected of a reasonably competent conveyancer certifying a caveat. No reasonably competent conveyancer who had bothered to take proper instructions from Mrs Guirgis would have co-operated in the lodgement of the caveat. [34]
  2. His Honour concluded in part –

“As New South Wales’ conveyancing system moves to a completely electronic platform, the role of conveyancers, solicitors and others as persons qualified to prepare and lodge caveats becomes all the more important.  Ordinary members of the public are, in practical terms, no longer able to lodge caveats without the intervention of a “Subscriber”, who in many cases will be a solicitor or licensed conveyancer.  The requirement to give the requisite representations and certifications operates to confer on them the role of a guardian at the gate”. [39]

Comment.

Victorian cases exposing delinquent lodgment of caveats by legal practitioners are: Legal Services Commissioner v Mercader [2011] VCAT 2062; Pearl Lingerie Australia Pty Ltd v Giarratana [2012] VSC 451; Legal Services Commissioner v Kotsifas [2014] VCAT 1615 (arising from the previous case); Gatto Corporate Solutions Pty Ltd v Mountney [2016] VSC 752.  Space does not permit reference to any other than Mercader, which also arose in the matrimonial context.

In Mercader, on termination of her instructions for a wife in a matrimonial dispute, the solicitor lodged a caveat over the former husband’s property (in which the wife claimed a share) claiming an equitable estate in fee simple “By virtue of constructive trust”.  The notion that the circumstances gave rise to the solicitor having a caveatable interest in the husband’s land was described by Judge Lacava as “a legal nonsense” [27] as was the interest claimed in the caveat [43].  The solicitor was charged with unsatisfactory professional conduct by lodging and/or refusing to withdraw the caveat where she knew and/or ought to have known that she had no caveatable interest and by providing information to the Registrar of Titles that she ought to have known was false.  She was convicted with the question of penalty adjourned.

24. Solicitors breathe a sigh of relief! – Compensation claim under TLA s. 118 – Whether solicitor who lodged caveat liable – Scope of “Any person lodging … any caveat”.

Lanciana v Alderuccio [2019] VSC 198 (28 March 2019), Moore J.

The facts and relevant legislation were –

  • The plaintiff and Bloomingdale Holdings Pty Ltd (Bloomingdale) were equal unitholders in two trusts. The sole shareholder and director of Bloomingdale was Antonio Gangemi.
  • In 2001–2 the trustee of one trust purchased a property and the trustee of the other trust purchased another property.
  • A dispute arose between the plaintiff and Gangemi concerning their business dealings and rights in respect of both properties. The defendants acted as solicitors for Bloomingdale and Gangemi.
  • In 2003 the dispute was settled by an agreement whereby Gangemi’s and Bloomingdale’s interests in both properties would be transferred to the plaintiff or his entities. This transfer to the plaintiff occurred, on which he became solely entitled to the beneficial interest in both properties, and caveats lodged on behalf of Bloomingdale over both properties were withdrawn.
  • However, on 29 March 2005, the defendants as “Alderuccio Solicitors” lodged caveats over both properties on behalf of Bloomingdale as caveator, claiming an equitable estate in fee simple pursuant to a deed of trust dated 25 February 2002 between Bloomingdale and both trustees. The caveats identified “Alderuccio Solicitors” as the address for service of notice and were signed by an “agent being a Current Practitioner under the Legal Practice Act 1996”.
  • The plaintiff alleged that these 2005 caveats caused it loss and damage.
  • The TLA s. 118 provided that –
    “Any person lodging with the Registrar without reasonable cause any caveat under this Act shall be liable to make to any person who sustains damage thereby such compensation as the Court deems just and orders”.
  • The plaintiff sued the defendants alleging that when the 2005 caveats were lodged they knew or ought to have known that Bloomingdale did not have a caveatable interest and could not reasonably have held an honest belief based on reasonable grounds that it had a caveatable interest capable of supporting any caveats.
  • The court heard a preliminary question including whether, assuming the foregoing facts, the defendants were “a person” lodging a caveat for the purposes of s. 118.

His Honour –

1.    Held that the defendants were not such “a person”.  The case contains much statutory analysis going back to the 19th century and reference to cases for this conclusion which it is unnecessary to set out. [5]

2.   Approved the summary of applicable principles under s. 118 in KB Corporate Pty Ltd. v Sayfe and Anor (see Blog No. 9) –

(a)  the applicant must show the caveator had no caveatable interest;

(b)  the applicant must show the caveator did not have an honest belief based on reasonable grounds that a caveatable interest existed;

(c)  the test is partially subjective and partially objective;

(d)  the subjective component requires an examination of the caveator’s belief and whether it was honestly held;

(e)  it is objective in that it requires that the belief is held on reasonable grounds;

(f)   it is a fallacy is to think that the absence of a caveatable interest at the time when the caveat was lodged establishes that the caveator did not have a reasonable basis for a belief that it was entitled to lodge a caveat; and

(g)  legal advice that the caveator was entitled to lodge the caveat may be of considerable significance in determining whether the claimant has established that the caveat was lodged without reasonable cause, but the content and accuracy of the legal advice must be evaluated with all other relevant circumstances. [80]

3.    Held that “Any person” in s. 118 –

(a)  was capable of covering someone who lodged a caveat without any authority. [82]

(b)  may cover: someone named as executor who had not yet taken out probate where the unregistered interest which could the subject of a caveat was part of the estate and was threatened, or; someone seeking a guardianship order in respect of an incapable person who had such an unregistered interest. [64], [82]

23. Caveat based on constructive trust imposed due to theft.

Aust Café Pty Ltd v Thushara de Soysa & Ors [2019] VCC 237 (15 March 2019) Judge A. Ryan.

The facts were –

  • The second defendant was at all material times the registered proprietor of a property, mortgaged to the ANZ Bank from 2006 to 24 August 2016 and thereafter to Westpac.
  • The plaintiff operated a café where it employed the first defendant as a floor manager and, from August 2009 to February 2014, his then wife the second defendant as a food server.  The third defendant, now married to the first defendant, was also employed there.
  • According to the third defendant’s bank-statements between 29 November 2012 and 30 December 2013 $32,400 was transferred from her to the second defendant by regular payments of $600, said to represent spousal maintenance by the first defendant to the second defendant.
  • There was also evidence that between 22 February 2013 and 8 January 2014 payments of $600 were regularly made into the second defendant’s home loan account.
  • The plaintiff plead or affidavits filed on its behalf deposed that –
    • The first and second defendant had misappropriated moneys by undervaluing customer transactions, and the first defendant retained the extent of the undervaluation and distributed part of it to the second defendant;
    • The second defendant applied some of this money to pay off her mortgage;
    • She had admitted the misappropriation to a private detective retained by the plaintiff.
  • The second defendant plead or deposed –
    • that she had not stolen from the plaintiff but was instructed by its director to record large cash sales as low cash sales, because he did not want a high valuation of the business for Family Law purposes;
    • that the cash registers were cleared every 15 minutes and there was CCTV surveillance;
    • that the alleged admissions were inadmissible;
  • The plaintiff caveated over the property claiming a freehold estate on the grounds of “Implied, Resulting or Constructive Trust”.
  • The second defendant applied under the TLA s. 90(3) for removal of the caveat.

Judge Ryan held:

  1. A person who misappropriates funds held them from the time of receipt on constructive trust for the defrauded party. [20], [21], [24]-[26]
  2. Where those trust funds were used exclusively to acquire property, so long as the trust property could be traced and followed into other property into which it has been converted, that property remained subject to the trust. Further, equitable rights were not lost by the mere fact that the misappropriated funds were mixed with other funds. [20]
  3. The beneficiary may claim a charge over the acquired property to the value of the
    misappropriated funds. [20]
  4. Where the thief gave the funds to a volunteer recipient that recipient came under an equitable obligation once it had notice of the theft. [21]
  5. There were serious questions to be tried about: whether the second defendant colluded with the first defendant to defraud the plaintiff; whether she received stolen moneys via the third defendant; whether any stolen moneys were applied towards her mortgage repayments.  There was accordingly a serious question to be tried that the plaintiff had the interest in the property which it claimed. [28], [18]
  6. The balance of convenience favoured the plaintiff: the second defendant did not point to any current prejudice in dealing with her property beyond general disadvantage. The course which appeared to carry the lowest risk of injustice favoured maintenance of the caveat. [29]
  7. The second defendant was ordered to pay the costs of the application. [32]

Comment: This is a relatively unusual type of case. For completeness a longer list, taken from the author’s Leo Cussen Paper on caveats in July 2017, and including a case cited by her Honour, is –

“Constructive trusts imposed following breach of fiduciary duty or trust. Examples are: Dennis Hanger Pty Ltd v Brown, [2007] VSC 495 – a company maintained a caveat over a former employee’s land, he having used forged company cheques to make mortgage repayments; George v Biztole Corporation Pty Ltd, 26 February 1996, Ashley J – a caveat was maintainable where the alleged misappropriation was applied in making improvements to land already owned by the defaulting fiduciary; Dharmalingham v Registrar of Titles [2005] VSC 417 – a wife maintained a caveat over land given by her husband to his sister, on the grounds of “matrimonial property of caveator and husband fraudulently transferred to husband’s sister”. In Somerville v Nufarm Australia Ltd [2002] VSC 520 a caveat based on an alleged constructive trust over land of the wife of a former employee, who had gambled with his employer’s funds and paid proceeds to her, failed on the ground of no serious question whether the wife had active or constructive knowledge of her husband’s wrongdoing”. 

22. Caveats based on trusts alleged to arise in the domestic context – Muschinski v Dodds trust? Sale of land subject to caveat with requirement of retention of net proceeds to meet caveator’s future claim – Requirement in case of conflict of testimony that caveat be removed unless caveator commenced proceeding to establish interest – Power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on trusts – Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest though court order under that Act could have that effect – Comparison of procedures under TLA s. 90(3) and s. 89A – Indemnity costs against client and reserved against solicitor who lodged caveat.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

 

Karan is a case of a son with a caveatable interest in his parents’ property based on a Muschinski v Dodds constructive trust.

McRae is a dispute between real or alleged domestic partners concerning two properties, involving a Muschinski v Dodds constructive trust, with analysis by Derham AsJ of: (1) the balance of convenience where despite a caveatable interest it is necessary that a property be sold, and; in the case of a property not being sold, the law that, where a caveator has established a prima facie case but there is a conflict of testimony, the caveat would not be removed outright but may be ordered to be removed unless within a certain time a proceeding is issued to establish the caveator’s title.

Hermiz is a groundless claim for a Muschinski v Dodds constructive trust by the mother of a registered proprietor’s child, which also: ventilated why the TLA s. 90(3) procedure should be taken rather than that under s. 89A, and; attracted an order for indemnity costs against the caveator and reserved the caveating solicitor’s liability also to pay them.  This case reiterates that the power of courts exercising Family Law jurisdiction to alter property interests rests on legislation not on the principles of constructive trusts; and that the Family Law Act does not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect.

Karan v Nicholas [2019] VSC 35 (7 February 2019) Daly AsJ.

The facts were –

  • Mrs Karan was the registered proprietor of a residential property. Her son Theo was registered proprietor of a neighbouring property where his parents and then his mother lived for many years.
  • She died, as administrator of her estate her other son Frank desired to sell the property, but Theo had caveated claiming an equitable estate in fee simple on the ground of an implied or constructive trust.
  • Frank applied under the Transfer of Land Act (TLA) s. 90(3) to remove the caveat. Theo was agreeable provided part of the sale proceeds was held in trust pending determination of his claim.
  • Theo alleged in substance:
    • residence in the property since 1988;
    • that Frank had used both properties to raise funds for business ventures on the basis of being responsible for the mortgage repayments which he subsequently ceased making leaving Theo to make some repayments;
    • payment of rates and outgoings including insurance;
    • expenditure on repairs, renovations and extensions;
    • in summary, total contributions of over $200,000.

Daly AsJ:

  1. Referred to a “Baumgartner constructive trust” (based on the High Court case of Baumgartner v Baumgartner (1987) 164 CLR 137, also known as a Muschinski v Dodds constructive trust, based on the High Court case of that name: (1984) 160 CLR 583)). The elements of this trust are that a constructive trust for the holding of a beneficial interest in land in particular shares may arise regardless of agreement or intention where:

(a)   A relationship or joint endeavour has broken down without any blame attributable to any party to it;

(b)   There has been a financial contribution by one or both parties to the relationship or to the joint endeavour;

(c)   In these circumstances, and in all the circumstances, it would be unconscionable for one party to the relationship or joint endeavour to retain a benefit greater than that party’s contribution. [7]

  1. Held that Theo had established a serious question to be tried that such a trust existed from before 2012, on the basis of arguments that:

(a)   he and their parents were involved in a joint endeavour whereby he made contributions to the property, which enabled him and his family to live rent free at the property, and enabled his parents to live rent free at his property;

(b)   they all pooled their resources to facilitate the joint endeavour;

(c)   the joint endeavour ended without blame upon the death of the parents; and

(d)   it would be unconscionable for the estate to retain the benefit of his contributions. [8], [14], [16]

  1. Ordered removal of the caveat on condition that all or part of the net sale proceeds be retained to meet any claim by Theo, who was also required to commence a proceeding to pursue his claim within a specified time. [3(k)], [18]-[20]

McRae v Mackrae-Bathory [2019] VSC 298 (7 May 2019) Derham AsJ.  

The chronology was –

  • The plaintiff (Zachary) was the registered proprietor of a property at Albion acquired in 2004 and of a property at Lara acquired in 2013, each encumbered by the same mortgage.
  • In January 2019 the defendant (Rachel) caveated over each piece of land claiming an interest in the land “as chargee” under an implied, resulting or constructive trust.
  • In March 2019 Zachary entered into a contract to sell the Albion property to be settled in May 2019.
  • He applied for removal of the caveats under the TLA s. 90(3).
  • He alleged that:
    • in 2012 she gave birth to their twins, but he had never lived with her as a couple in a de facto relationship and there was no agreement between them sufficient to give rise to a constructive trust;
    • until recently the children lived with her during the week and with him every weekend;
    • in January 2019 she had attempted to kill him leading to an intervention order.
  • Rachel alleged that:
    • they had resided in a ‘full emotional and sexual’ committed de facto relationship between 2002 and 2019 and were publicly known as such;
    • they pooled their income for joint expenses;
    • the properties were acquired during the course of the relationship;
    • she made financial contributions to their purchase and development;
    • Zachary always ‘indicated’ to her that she had an interest in both properties and was entitled to a half share of them;
    • his evidence as to residence with the children was incorrect and that she had not assaulted him.

Derham AsJ held:

  1. The estate or interest claimed as chargee was likely to be the result of a legal error. [3]
  2. If Rachel’s testimony was accepted there was a sensible basis for, and a sufficient probability of, finding that there was a Muschinski v Dodds constructive trust over both properties to the extent of her having an equitable estate in fee simple as a co-tenant with Zachary. This basis was: her direct contributions to the acquisition of the Albion property; her contributions to the maintenance and mortgage payments of both properties. [17]-[19]
  3. Accordingly, while it was neither necessary or appropriate to determine disputed questions of fact, Rachel had a sufficient likelihood of success justifying the practical effect of maintaining the caveat over the Albion property or of requiring deployment of most of the net sale proceeds in reducing the mortgage. [13], [20]
  4. The interaction between the strength of the caveator’s case and the balance of convenience was such that the lowest risk of injustice, whatever the outcome of the disputes, lay in removal of the caveat at settlement on the proviso that the net proceeds of the sale were (after payment of certain credit card debts – see below) applied to reduce the mortgage (Zachary also undertaking not to withdraw loan monies under the mortgage). This outcome preserved most of the benefit of Rachel’s caveatable interest.  To withhold this protection would do her irreparable harm if she succeeded in establishing her claimed interests, while to grant it would not greatly injure Zachary if her claims failed. [4], [21], [22], [24]
  5. However, certain of Zachary’s credit card debts were first to be paid out of the sale proceeds because most were incurred during the relationship alleged by Rachel and some had been incurred in completing the Lara property and so would ultimately benefit Rachel if her constructive trust claim succeeded. [4], [23]
  6. As regards the Lara property, it was clearly established law that where a caveator established a prima facie case but there was a conflict of testimony the court would not order outright removal of the caveat but may order removal unless steps were taken to establish the caveator’s title within a certain time. Accordingly the caveat would be ordered to be removed unless the caveator commenced proceedings to establish her title within a month. [5], [25], [26]
  7. Having regard to offers made by each side before the hearing, which were each to some extent appropriate, the defendant was ordered to pay the plaintiff’s costs fixed at $1,400, being disbursements incurred in issuing the originating process and paying the search fees incurred in putting forward exhibits to his affidavit in support. [27]

 

Hermiz v Yousif [2019] VSC 160 (15 March 2019) Derham AsJ.

The chronology was –

  • In 1998 the plaintiff (Hermiz) and the first defendant (Yousif) were sexually intimate leading to the birth of a child.  They ceased their relationship at about this time and Hermiz had never met the child.
  • Hermiz paid child support.  Yousif never provided him with any financial support.
  • Hermiz married his wife Dina in 2004.  In 2010 they purchased a residential property, became registered proprietors and subsequently cohabited there.
  • Yousif made no contribution to the property, or to any other asset owned by Hermiz, he made no promise about the property or declaration of trust or like arrangement concerning it, and no court order related to it.
  • In December 2018 Hermiz and Dina entered into a contract to sell the land with settlement due in February 2019.
  • In January 2019 Yousif lodged a caveat claiming an interest in the land pursuant to a court order under the Family Law Act.  There was no order giving such an interest.  The caveat was voluntarily removed.
  • On 1 February 2019 Yousif via a firm of solicitors lodged the caveat the subject of this proceeding claiming a freehold estate on the basis of an implied, resulting or constructive trust.  Hermiz’s solicitors wrote to Yousif’s solicitors expounding the absence of basis for the caveat and forshadowing an application for damages and indemnity costs.
  • Hermiz and Dina could not complete the sale, but gave the purchaser possession under a licence and also remained liable to keep up mortgage repayments.
  • Hermiz applied under the TLA s. 90(3) to remove the caveat.
  • Two days before the Supreme Court hearing Yousif filed an application in the Federal Circuit Court for a property order, in particular for an order that the net proceeds of sale of this property be held in trust pending final orders, supported by an affidavit including allegations referred to in 1 below.

Derham AsJ held:

  1. Yousif had not discharged the burden of establishing a serious question to be tried (in the sense of a prima facie case) of the interest in land claimed in the caveat.  There was insufficient evidence of a Muschinski v Dodds constructive trust: her allegation of cooking, cleaning and supporting Hermiz financially whilst he studied for his Australian medical qualification more than a decade before purchase of the land did not reveal that it is or would be unconscionable for him to deny her an interest in the land. [32]-[37], [40], [41]
  2. On the dissolution of marriage or the breakdown of a de facto or domestic relationship, the scope of the Federal Circuit Court’s power to alter property interests was determined by legislation, in this case the Family Law Act s. 90SM, rather than by the principles of constructive trusts.  The Family Law Act did not, of itself, give a party to a ‘marriage’ or a de facto relationship a caveatable interest, although an order under that Act could have that effect. [38], [39]
  3. The balance of convenience was also against Yousif. [42]
  4. Hermiz was justified in applying under the TLA s. 90(3) as opposed to using the administrative procedure in s. 89A. The very reason for the summary procedure under s. 90(3) was to enable an application that avoided the delay involved under s. 89A. [44], [45]
  5. Indemnity costs would be awarded against Yousif because: the nominated basis of resulting, implied or constructive trust for lodging the caveat was without merit, and; she was using the caveat process as a bargaining chip. [52], [53]
  6. Leave would be reserved to Hermiz to claim costs against the solicitors who lodged the caveat. [54]