Blog 61. Caveator narrowly escapes blizzard.

Reindel & Ors v Confreight Pty Ltd & Ors (No 1) [2022] VSC 163, Daly AsJ (4 April 2022).

This case is interesting for several reasons.  First, Daly AsJ discusses the subtle difference between the competing tests of ‘prima facie case’ or ‘serious question to be tried’ for a caveator to hold a sufficient interest in land in proceedings under the Transfer of Land Act s. 90(3).  Her Honour comes down on the side of the former.  (However it is difficult to think of any case in which a court held that a caveator satisfied one and not the other test).    Second, her Honour conducts a long survey of the authorities on creation of equitable charges.  Third, her Honour summarises principles of contractual interpretation.  The facts were –

  • A company developed land including for 69 residential units.  Reindel and a company of which he was director (Blizzard Winds) were the registered proprietors of one and four units respectively.  Another company (ABPC) was controlled by Baker.
  • Reindel and Baker had a long, complicated and contentious financial association culminating in a written agreement alleged by Baker and denied by Reindel to have been made between ABPC and Reindel on 11 September 2020 (2020 facility agreement).  Although Reindel’s electronic signature appeared on this document he denied signing it, alleging that Baker had affixed it without his authority.  The agreement recited that the Lender (ABPC) had agreed to provide the Borrower (Reindel) with a “secured term loan facility” of $498,956.  It defined: “Finance Document” as “this agreement, the Security Document and any other document designated as such by the Lender and the Borrower”; “Security” as “any mortgage, charge (whether fixed or floating, legal or equitable) … or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect”; and “Security Document” as ”the right to take an assignment or a legal charge in the agreed form, executed or to be executed by the Borrower or by (sic)”.  It included –

“8.1 The Borrower confirms the Security outlined in schedule A (or once entered into, will create): (a) valid, legally binding and enforceable Security for the obligations expressed to be secured by it; and (b) subject to registration, perfected Security over the assets expressed to be subject to security in it.

8.2 The security will be held by the appointed representative in favour of the Lender, until the loan has been repaid in full

8.3 It is agreed the Lender has the priority and ranking expressed to be created in the Security Document and ranking ahead of all (if any) Security and rights of third parties except those preferred by law”

Schedule A provided under the heading “Security”:

“The apartments listed below are registered in the name of the Borrower and/or Blizzard Winds Pty Ltd … It is therefore agreed that in the event of default, the Lender can immediately register a secured charge against each or any of the following apartments.  To the maximum value of the capitalized loan amount plus accrued interest Lot 203, 204, and 205 James Street Windsor 3181 Lot 502 and G12 White Stret (sic) Windsor 3181”

  • Baker alleged that Reindel owed $563,966.77 under this agreement. A proceeding was on foot in which each claimed that the other person, or a company controlled by the other person, owed the claimant money.  Reindel admitted receiving $498,956 from ABPC, but said that this was in reduction of a previous debt owed by Baker.
  • ABPC had not registered any charge. It caveated over the above five units as chargee under the 2020 facility agreement.  Reindel applied under the Transfer of Land Act s. 90(3) to remove those caveats.

Daly AsJ upheld the caveat over Reindel’s unit and removed the caveats over those of Blizzard Winds –

  1. The caveator must demonstrate a prima facie case, ie a probability of being found to have the asserted legal or equitable rights or interest in the land. There must be a sufficient likelihood of success to justify the maintenance of the caveat and the preservation of the status quo pending trial.  The ‘prima facie case’ test was preferable to the ‘serious question to be tried’ test.  The difference between the tests was one of degree, yet material, recognising the potentially adverse consequences to a registered proprietor of constraint from dealing with the property in circumstances where a caveator was generally not required to provide an undertaking for damages. [20]-[22]
  2. The question whether Reindel signed or authorised the signing of the agreement and the characterisation of the payments to him were matters for trial. [24], [75]
  3. The 2020 facility agreement was to be construed: with reference to what a reasonable business person with knowledge of the context and purpose of the transaction would have understood those terms to mean (Reindel and Baker were experienced businessmen); and avoiding commercial absurdity and commercial inconvenience as far as the language of the agreement allowed. Further, a court would endeavour to enforce rather than destroy a bargain, unless the agreement’s terms were so vague and confusing as to render ascertainment of the parties’ common intention impossible. [46]-[48]
  4. Courts would, consistent with the principles governing the construction of commercial contracts, adopt a liberal approach to the construction of instruments such as the 2020 facility agreement, and would generally strive to give effect to a clause purporting to confer a security interest in property, even if ambiguously or inelegantly expressed. [49]
  5. The 2020 facility agreement evidenced a common intention by Reindel and ABPC that any sums advanced pursuant to it were secured on the units referred to in Schedule A upon default by Reindel, and that upon default ABPC would be entitled to register a “charge” over the units. There was at least a prima facie case of an immediate intention to create an equitable charge because –
    1. The reference in the recitals to the provision of a “secured term loan facility” evidenced the purpose of the transaction and guided its construction.
    2. “Security” was defined expansively and consistently with what someone engaged in property development would understand a security to be.
    3. The definition of “Security Document” referred to an instrument to give effect to the agreement between the parties, rather than of itself creating a proprietary interest.
    4. Although the language of cl. 8.1 was clumsy, there was a prima facie case that, when read with Schedule A, the parties intended the “Security” referred to in Schedule A to be the borrower’s then unencumbered interest in the units enumerated in Schedule A. The reference to a “secured charge” being registrable upon default was merely a machinery provision in aid of enforcement in the event of default, and not an agreement to provide future security requiring further consideration.
    5. The creation of any charge over the units was not dependent on execution of a further document capable of registration. Because Part IV of the Transfer of Land Act only provided for registration of a charge securing payment of an annuity nothing further (notwithstanding what the agreement appeared to contemplate) could be done to register the charge.
    6. The entitlement to an equitable charge arose on default, not at the time of entry into the agreement. The relevant clause was “apt to create an equitable charge”.
    7. The units were sufficiently identified without reference to particulars of title.
    8. The definitions of “Security Document” and “Finance Document” did not detract from the conclusion that the agreement conferred an immediate equitable interest in the units on ABPC, because: the definition of “Security Document” was incomplete and unintelligible in attempting to equate a document with a proprietary interest; the term “Security Document” was not referred to in Schedule A; while the term “Security Document” was referred to in cl. 8.3, that clause was not concerned with the existence or creation of ABPC’s security interest but with its priority; and the term “Finance Document” was not referred to in cl. 8.1 or Schedule A, but only in other not presently relevant clauses. [59]-[63], [67], [68], [71]-[73]
  6. Accordingly the caveator had a caveatable interest in Reindel’s unit. However, notwithstanding that Blizzard Winds’ units were enumerated in Schedule A, even if Reindel entered the agreement he did not do so on behalf of Blizzard Winds. Accordingly the caveator had no caveatable interest in its units. [26], [59], [74], [75]
  7. The balance of convenience favoured maintenance of the caveat over Reindel’s unit. On the one hand there was evidence of an executed agreement and of funds advanced without repayment, a counterclaim advancing ABPC’s claims was well underway, and the caveat assisted ABPC in giving notice of its claim to other claimants.  On the other hand there was no evidence that Reindel needed to sell or encumber his unit. [75]

Philip H. Barton
Owen Dixon Chambers West
Friday, October 28, 2022

Blog 60. De facto partner v former wife – No constructive trust.

Seaborne v Lester & Anor [2022] VSC 52, Irving AsJ (17 February 2022)

The facts were –

  • Andrew Lester (Lester) and the first defendant were divorced. In 2019 the Family Court made final property orders contemplating that he would pay her over $2 m.
  • Lester failed to comply with these orders and enforcement proceedings ensued resulting in consent orders in June 2020 including that: he would pay her $750,000 within 90 days and $313,000 within 90 days thereafter; and contemporaneously with the first payment she would transfer her interest in a Unit in Richmond to him and he would discharge the mortgage over it.
  • She alleged that when the parties were negotiating the June 2020 orders he informed her: that he proposed to obtain a loan to enable the first payment; and that just before agreement was reached he told her that he could not obtain a loan and that he intended to transfer the Unit to his de facto partner the plaintiff so that the plaintiff could obtain a loan on security of the Unit.
  • The first defendant also alleged that her consent to the June orders was induced by the plaintiff’s representation that if she so consented the plaintiff would on security of the Unit obtain a loan to be applied by Lester to satisfy the June orders.
  • Lester paid the first defendant the $750,000 required. The plaintiff deposed that Lester informed her that he had done this.  The first defendant transferred her interest in the Unit to Lester.
  • Subsequently, on 11 September 2020, the plaintiff purchased the Unit from Lester for approximately $980,000 and became registered proprietor.
  • In July 2021 the first defendant caveated over the Unit on the grounds of implied, resulting or constructive trust. The plaintiff applied for an order under the Transfer of Land Act s. 90(3) that the caveat be removed.
  • At the hearing the court permitted the caveator to rely on, but gave little weight to, her unsworn affidavit apparently asserting that: Lester transferred the Unit to the plaintiff to place it beyond the reach of his creditors including the caveator; Lester had an interest in the Unit pursuant to a trust by virtue of his de facto relationship with the plaintiff and of his significant contributions to the Unit; the Unit had been transferred to the plaintiff for an undervalue and so she held it or part thereof on trust for Lester; and in consenting to the June 2020 orders the first defendant relied on the plaintiff’s representation that the plaintiff would do everything she could to ‘get you everything you’re owed’.
  • It appeared that the first defendant claimed that Lester owed her $200,000.

Irving AsJ held –

  1. There was no serious question to be tried of the trust alleged. At its highest, the first defendant had asserted a debt of $200,000 owed by Lester under the 2020 orders.  The assertion that the plaintiff held an interest in the Unit on trust for Lester, inferred from the relationship between the plaintiff and Lester and the purchase price, was unsubstantiated.   Even assuming the plaintiff held an interest on trust for Lester this would not give the first defendant an interest in the Unit. [48]-[50], [53]
  2. There was no serious question to be tried that the first defendant had an interest in the Unit via a remedial constructive trust based on the first defendant’s (unsubstantiated) historical financial and non-financial contributions to the property, she having transferred her interest in the Unit to Lester on the payment of $750,000. [51], [53]
  3. The balance of convenience favoured removal of the caveat. The claim for $200,000 could be met by an award of damages, was modest when compared with the value of the Unit, and Lester was not the registered proprietor. [54]-[55]

Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, October 18, 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

 

Blog 58. Online Auction – No contract, no caveatable interest.

Maverick Signs Pty Ltd v Cetinkaya & Anor [2022] VSC 27, Ierodiaconou AsJ (4 February 2022) is a standard offer and acceptance case, interesting because arising from an online auction. The facts were –

  • The plaintiff appointed an agent, whose employee was Falconer, to sell its land. The first defendant (the caveator) deposed that on 14 August 2021 he asked Falconer if he could purchase the land for $1.25m. with a 6 month settlement.
  • On 9 September an auction using the online platform AuctionNow occurred.  The Terms and Conditions of the platform included:

In Schedule 1:

“11. The User may upload approved amendments to the contract through the Site and such amendments must include written evidence from the vendor of their legal representative accepting such alterations to the contract…”

In Schedule 3, that the following procedure applied to a User who placed a Successful Bid:

“1. The contract for purchase and sale of the Property will be sent to you electronically by the Vendor as soon as practicable after the close of the Auction.
2. The User must sign the contract for sale and purchase of the Property via the electronic software, docusign or in any other manner agreed to between the User and Agreement immediately after the Auction.
…
4. The deposit being 10% of the purchase price or such other amount agreed to in writing by the Vendor prior to the close of the auction, will need to be paid as directed by the Vendor or Vendors [sic] Agent as soon as practicable after the close of the Auction.
…”

  • In a subsequent County Court proceeding the caveator pleaded that Falconer stated: at the commencement of the auction, in effect, that unless the vendor or bidder refused to sign the contract following the auction, the auctioneer must not accept any bid or offer made after the property had been knocked down to the successful bidder; during the auction, that the land was “on the market”; at the end of the auction, that the land had been sold to bidder number 6.
  • The caveator made the winning bid of $1.25m. At 1.16pm he received an automated email from AuctionNow stating that the property had sold for $1.25m.
  • The caveator deposed that at 1.20pm Falconer congratulated him on the purchase and said that the contract would be sent shortly. The caveator deposed, and the vendor disputed, that: he reminded Falconer of a previous discussion concerning changing the settlement date; Falconer said he would get the vendor to agree to the settlement terms and that part-payment of the deposit would not be an issue provided the balance was paid shortly thereafter.
  • At 1.31pm the caveator received an email from the agent with a link to an unsigned copy of the contract and a section 32 Statement.
  • The caveator deposed, and the vendor disputed, that at 1.41pm Falconer said that the vendor had accepted the amendments to the contract and to make the amendments on the contract and get it back to him as soon as possible.
  • The caveator deposed that at 2.21pm Falconer said to him that he needed the contract returned to which the caveator replied that he needed access to his computer and printer to make the agreed amendments and would be at his office shortly upon which he would provide the amended contract.
  • At 2.55pm the caveator received an email with a link to the contract.
  • At 3.00pm the caveator texted Falconer that he was restarting his computer.
  • The caveator deposed that at 3.17pm he rang Falconer saying that he was having issues with his printer and would provide a signed copy shortly, with Falconer replying that he had no issue with this.
  • The caveator deposed that he orally requested Falconer and then Falconer’s employer to provide trust account details to enable part-payment of the deposit, without response.
  • At 3.38pm the caveator paid $12,500, being part-payment of the deposit, by EFT.
  • At 3.40pm the caveator received an email which said that the contract was void.
  • Meanwhile the vendor had entered a contract of sale with a third party, the deposit being paid at 3:49pm.
  • At 3.58pm the caveator emailed the agent’s office, attaching a contract with a price of $1.25m., stating that the attachment was as discussed with Falconer and requesting an executed copy. The attachment contained handwritten amendments, which the vendor deposed were unauthorized: making the deposit not payable “on acceptance of this offer” but “payable by bank cheque of which $12,500 has been paid by EFT.  Fee (sic) attached receipt”; and altering settlement from 11 October 2021 to 8 March 2022.
  • The caveator caveated alleging the existence of a contract of sale and issued a County Court proceeding for specific performance. The vendor applied under the Transfer of Land Act s. 90(3) for removal of the caveat.

Ierodiaconou AsJ held –

  1. There was no serious question to be tried. There was no written evidence that vendor accepted alterations to the contract of sale.  The caveator was not assisted by the provision in the AuctionNow terms that payment of the deposit was required ‘as soon as practicable’ after the auction – this was subject to the subsequent written contract of sale.  And even if the change in settlement date had been accepted by Falconer’s earlier alleged representation, this representation was overtaken by the written contract of sale and the caveator’s agreement to the AuctionNow terms including Schedule 1 Item 11.  [40], [43], [44], [46]-[49].
  2. Even if the caveator had established a serious question to be tried, the balance of convenience was against him, there being an executed contract of sale between the vendor and the third party with which the caveat interfered. [53]

       Philip H. Barton

          Owen Dixon Chambers West

        Tuesday, June 21, 2022

Blog 57. Amendment of caveat – proprietary estoppel?

Goldberg v Campbell & Shaw and Anor [2022] VSC 24, Randall AsJ (3 February 2022) was the fourth round in the legal bout between Mr Mathers and Mr McColley or his estate.  The first two rounds were at VCAT under Part IV of the Property Law Act (ie co-ownership disputes).  The third round was Matthews AsJ’s decision in Goldberg v Campbell and Shaw & Anor [2021] VSC 647, the subject of Blog 51.  As that decision lies in the background of the decision of Randall AsJ it assists to summarise and supplement it, as follows –

  • Norman Mathers and Alexander McColley were registered proprietors as tenants in common in equal shares of a residential property.  Mathers deposed that they had on 29 March 2005 entered into a deed of arrangement whereby McColley could live there rent-free for life, or until he permanently vacated the property, on the proviso that he execute a will devising his share in the property to Mathers.
  • McColley lived there until August 2016.  He never made the contemplated will.
  • On 10 March 2017 Mathers caveated claiming a freehold estate on the grounds of an agreement with McColley dated 5 August 2016.
  • In the first VCAT decision, on 21 September 2017, the Tribunal found that Mathers had at that time no claim to a freehold estate in McColley’s moiety but also found that Mathers gained ‘a right to an equitable remedy against a threatened disposition of [McColley’s] half interest in the land which would put it out of his power to devise it by will’ under the deed and noted that ‘[p]recisely how the right should be classified is not clear’.
  • The second VCAT decision was dated 21 August 2019.  McColley died on 7 December 2019 leaving a will made in 2008.  Goldberg, who was his executor and beneficiary, obtained probate of this will.

Goldberg sought orders under s. 90(3) of the Transfer of Land Act for removal of the caveat and other relief.  Matthews AsJ ordered removal of the caveat but granted a stay pending any application to amend the caveat, holding –

  1. There was no evidence of an agreement dated 5 August 2016. In any event an application to amend the caveat by amending the date of the agreement to 29 March 2005 would not avail the caveator for various reasons.
  1. However, it was “highly likely that [Mathers] does have a prima facie case that he has a freehold estate in Mr McColley’s half-share of the Property on the grounds of a constructive trust arising from the doctrine of proprietary estoppel” (at [44]). McColley had made a promise as to the future acquisition of ownership of his moiety by Mathers on which Mathers had been induced to rely to his detriment.  This trust came into existence at the time of reliance: a credible argument existed that the constructive trust came into existence when McColley commenced living at the property rent‑free after entering into the deed, or possibly the trust came into existence when McColley made his will.
  1. The balance of convenience favoured maintenance of the caveat provided it was amended to assert this trust.

The caveator duly filed a summons under s. 90(3) to amend the grounds of claim in the caveat by substituting for ‘agreement with the following parties and date’ ‘constructive trust arising from the doctrine of proprietary estoppel’ or ‘implied, resulting or constructive trust’ or ‘estoppel’.  Despite Matthews AsJ’s use of the words “high likelihood” Randall AsJ refused to allow the amendment.

Randall AsJ held –

  1. The court had power to amend the grounds of claim in a caveat. [26]
  2. In determining the amendment application the court would consider four factors. The first was the nature of the amendment, ie whether to amend the interest claimed and not just the grounds of claim or the scope of the protection.  In favour of the caveator this application was only to amend the grounds. [30]
  3. The second factor was the circumstances in which the error was made. As to this:
    1. From the words quoted above in VCAT’s first decision it was clear that the Tribunal considered that the deed provided some kind of right to Mathers. It was accordingly reasonable for Mathers to understand that the deed was the basis of the caveatable interest, particularly as the court noted the caveator’s submission that a fine distinction existed between the deed being the source of the proprietary interest and the deed containing a promise of the proprietary interest by reason of a constructive trust arising from proprietary estoppel. [37]
    2. It was not unreasonable to infer that Mathers’ solicitors had advised him that he had a freehold estate in the property arising from the deed. By deposing that the solicitors had advised him to lodge a caveat Mathers had probably not waived privilege. [39]-[40]
    3. The circumstances of the error in the grounds of claim did not favour either party given that after the VCAT proceedings there was on the one side no application to remove, and on the other side no application to amend, the caveat. [38], [41]
  4. The third factor was the principle that the Court ‘should not readily act in a way which might encourage the belief that caveats could be imprecisely formulated and then “fixed up later”’. The amendment would simply clarify the basis of the freehold estate claimed in the caveat and the court again noted the matters set out in Holdings 3a and 3c.  The third factor accordingly did not defeat the caveator. [45]-[47], [115]
  5. The fourth factor was the overall merits of the claim for a caveatable interest as sought by the amendment, engaging the same considerations as on an application for the removal of a caveat in the terms sought. To establish proprietary estoppel Mathers had to establish the following elements ([90]), stating also the outcome:
      1. A representation by McColley that he would confer an interest in property on Mathers.
        This representation was made in the deed and the fact that it was subject to contingencies was irrelevant. [92], [94]
      2. Mathers reasonably believed or expected that he presently had, or in the future would acquire, an interest in the property.
        The representation being expressly in the deed, this element was established. [95]
      3. McColley knew or intended that Mathers defendant would hold that belief or expectation and would act or abstain from acting in reliance on it.
        Given that the deed was executed by both men this element was established. [96]
      4. That Mathers reasonably acted to his detriment and changed his position in reliance on his expectation or belief. As to this –
        1. Mathers carried the burden of proof. [97]
        2. In certain previous cases the representees had improved the property and rendered services to the representors. Mathers did neither but simply contended that he permitted McColley to live in the property rent-free alone, it being however highly unlikely that Mathers would if the representation had not been made have lived there, and that he refrained from applying for its sale and division of proceeds, there being however no evidence that he intended to exercise this right and indeed he had opposed it. [100], [109]
        3. Generally one co-owner was not required to pay rent to another co-owner for use and occupation of a property.  Exceptions to this were: actual ouster; constructive ouster; a claim by the occupant for contribution for improvements to the property; breakdown of relationship rendering cohabitation unreasonable or not practicably sensible. These exceptions were inapplicable.  The other exception was where there was a lease between the occupying and non-occupying co-owner.  However, the deed did not constitute a lease because it did not confer exclusive possession.  Accordingly the fact that Mathers did not claim rent was irrelevant because McColley was not liable to pay it anyway. [101]-[108]
        4. Mathers had not voluntarily contributed to the maintenance and upkeep of the whole of the property. He successfully claimed half those costs in the second VCAT proceeding. [110]

        Accordingly Mathers failed on this issue. [111]

      5. The detriment was such that it would be unconscionable for McColley’s estate to depart from his representation.
        By reason of (d) this element was not established. [111]

Accordingly Mathers had not established a prima facie case of proprietary estoppel to support the proposed amendment [112], [115].  It was unnecessary to consider whether there was a prima facie case of a constructive trust arising by reason of proprietary estoppel [112].

Comment: In [112] the court appears to draw a distinction between proprietary estoppel and constructive trust arising by reason of proprietary estoppel.  However, proprietary estoppel gives rise to a constructive trust – see Blog 54 and McNab v Graham [2017] VSCA 352. 

       Philip H. Barton

          Owen Dixon Chambers West

        Thursday, June 2, 2022

Blog 56. No contract of sale, no caveatable interest – Undertaking as to damages?

Wright & Ors v Insert Pty Ltd & Ors [2022] VSC 1, M. Osborne J (11 January 2022)

In this case M. Osborne J. comprehensively dispatched a caveat based on an alleged contract of sale.  His Honour’s thorough reasoning was: no arguable case of a contract (Holdings 1 – 3); non – compliance with s. 126 of the Instruments Act (Holding 4); no part performance (Holding 5); no estoppel (Holding 6); even if there was a prima facie case of an enforceable contract, there was not a prima facie case that a court would grant specific performance of that contract, because the vendors had, after the alleged contract with the caveator, entered a contract with an innocent purchaser, and the caveator arguably would have lost priority to that innocent purchaser (Holdings 7, 8, 10); the caveator would not have been defeated by the doctrine of laches (Holding 9); if the caveator had established a sufficient prima facie case the court would, in assessing the balance of convenience, have required an undertaking as to damages of substance (Holding 11); in any event the caveator failed on the balance of convenience (Holding 12).

This case is interesting for two reasons.  First, where there is no prima facie case of a contract of sale, a court will normally cease its analysis at this point.  M. Osborne J. went further, stating ([87])–

“It is also something of an oversimplification to characterise the critical question as whether the Purchaser has a prima facie case that it has an enforceable contract of sale; in fact, the Purchaser must establish that it has a prima facie case that it has an enforceable contract of sale in respect of which the Court will order specific performance.”

The second interesting point is that, if the balance of convenience had been decisive, his Honour would have required, as part of the caveator attaining a credit balance, an undertaking as to damages.  As part of the exercise of judicial discretion the court can require such an undertaking from a caveator – his Honour notes this in footnote 22 of his judgment.  However, whereas undertakings as to damages are universally required from applicants for interlocutory injunctions, they are uncommon in caveat cases.  In Boensch v Pascoe [2019] HCA 49, the subject of Blog 29, the plurality of the High Court noted that, although a caveat was conceived as “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 not at least in the first place have to be supported by an undertaking as to damages.

 Footnote 22 to M. Osborne J.’s judgment continues that “invariably such an undertaking is required” citing a 1995 text and Harvey v Emery [2021] VSC 153.  That this statement is limited to where there are third party rights is elucidated by the following passage in Harvey v Emery (the subject of Blog 36) at [48] –

“Thirdly, neither by their affidavit, nor their submissions, did the defendants offer any undertaking as to damages, notwithstanding that such an undertaking is invariably required when a caveator is permitted to maintain a caveat in circumstances where third party rights will be detrimentally affected.”

In the instant case the facts were –

  • The four plaintiffs were the registered proprietors of a residential property.  The sole director of the first defendant (Insert) was Shaw.  In 2020 the plaintiffs entered into a contract of sale with Shaw.  He did not pay the balance of purchase monies, the vendors rescinded in July/August 2021 and the deposit was forfeited.
  • Although the vendors had an estate agent, one vendor, Nicholas Wright (Wright), continued with their authority to negotiate directly with Shaw, generating a proposed sale with settlement on 4 October 2021.  However, between 1 and 4 October Wright requested Shaw to do various things, with little response.
  • On 7 October Wright texted Shaw asking whether he was in or out and that a sale could occur possibly that day.  Shaw replied within 30 minutes ‘In’.  Some hours later Wright texted that he was taking it that Shaw was out “unless I get a commitment today”.  A conversation then occurred in which Shaw assured Wright that he was serious about purchasing and had finance, to which Wright responded that there was no contract until a deposit was paid and a contract signed.
  • At 3:50pm on 7 October a conveyancing clerk (the conveyancer), associated with the solicitors acting for Insert and Shaw, emailed the vendors’ solicitor stating her understanding that the clients had been communicating, that the purchase by Shaw was to proceed, and requesting that the vendors’ solicitor advise his clients’ instructions.
  • On 8 October at 6.51pm the vendors’ solicitor emailed in substance that: no contract existed but his client would enter a new contract if put in the same position as if the previous contract had been substantially performed; a draft contract and vendor statement prepared by him could be downloaded from the internet; ‘Our client is prepared to consider entering into a contract with your client on the following terms’ then setting out a price of $4,838,500 and how it was calculated, the deposit and when payable, settlement date, and that a director’s guarantee was required; and ‘this email is not an offer capable of acceptance’.
  • Between 11 and 22 October the parties communicated, including as to clarification of the email of 8 October and communication between Shaw and his financier (the financier).   On 19 October the financier offered a 6 month loan of $3,881,250 subject to verification by it and due diligence.
  • Shaw deposed that on 25 October he stated to Wright that Insert accepted the terms contained in the 8 October email, that the purchase would proceed on that basis, and that Wright agreed that if the financier accepted those terms the financier would issue a PEXA invitation for settlement on 28 October.
  • Shaw also deposed that later on 25 October the financier informed him that it would fund the purchase on the terms of the 8 October email.  He also deposed that later that day he informed Wright that the financier had confirmed finance, and Wright replied that if a PEXA settlement appointment was not set up that day he would sell to someone else next day, and in consequence he (Shaw) requested the financier to open a PEXA transaction that day for settlement on 28 October.  (In fact a PEXA workspace was established on 26 October by Insert’s lawyers).  Wright deposed that he had one telephone discussion with Shaw that day in which Shaw promised that a PEXA transaction would be set up, but he denied that he agreed to sell the property to Shaw in the event that the financier accepted the terms and he denied that Shaw said that a PEXA workspace would be set up for settlement on 28 October.
  • On 25 October, after emails about the terms of any contract, the conveyancer at 3:33pm advised that Shaw was agreeable to proceed on the terms set out in the 8 October email, and she sought a written contract and vendor statement.  At 4:21pm the vendors’ solicitor replied asking when Shaw proposed to settle, noting that the proposed settlement date in the 8 October email was that very day.  The email also stated the solicitor’s statement of the process to be followed, including that he would provide a contract of sale once the details of Shaw’s proposal were confirmed, and that on receipt of the signed contract and a 5% deposit he would submit the ‘offer’ to his client, and that a contract would be formed when he returned the fully signed contract to the conveyancer by way of exchange.
  • On 27 October Insert executed a mortgage to the financier and a PEXA invitation was given for a settlement proposed for 28 October.  The vendors’ solicitor did not accept the invitation and on 27 October advised that the vendors had signed a contract of sale with a third party.  This contract was due for settlement on 17 January 2022.
  • On 28 October Insert caveated on the ground that it had an interest as purchaser pursuant to a contract dated 25 October.
  • Following an application by the vendors under Transfer of Land Act s. 89A(1) Insert commenced, but did not serve, a County Court proceeding seeking a declaration that it had an equitable interest in the property under a contract of sale.  The vendors commenced a proceeding under s. 90(3).

Although the caveat stated that the contract was made on 25 October counsel for the caveator argued that it was made on 7 October 2021.

The vendors deposed that the extent of authority given by them to Wright was to negotiate on their behalf, not to bind them to sell.  The caveator argued that any non-compliance with the Instruments Act s. 126 was overcome by part performance, namely: it executing the mortgage to the financier; it incurring liability to pay the financier $330,878 for fees and prepaid interest; and the opening of the PEXA transaction workspace.

Shaw deposed that if he did not obtain specific performance he would lose the ability to make a profit of $4.2m. in developing the land.

M. Osborne AsJ held –

  1. No contract was made on 7 October 2021.  At its highest, Shaw’s evidence that he was ‘in’ evidenced that he wanted to purchase.  To determine whether an agreement had been reached it was permissible to have regard to subsequent communications: those post 7 October were all inconsistent with such an agreement – in particular the conveyancer’s emails of 11 and 25 October and the caveat itself. [73]
  2. The email chain did not evidence a contract made on 25 October, and in fact contradicted it, particularly the emails of 8 October at 6:51pm and 25 October at 3:33pm and 4:21pm. [70]
  3. As to Shaw’s evidence that, notwithstanding these emails, by their conversations on 25 October he and Wright agreed on a sale for $4,838,500, with no deposit, and with settlement on 28 October subject to the financier agreeing to finance the purchase on the terms of the 8 October 2021 email:
    1. although on an interlocutory application the court would not definitively reject this evidence yet an assessment of it was relevant to whether there was a prima facie case;
    2. in this regard Shaw’s evidence was: disputed by Wright’s evidence; in disconformity or inconsistent with emails that day; uncorroborated in any significant way by contemporaneous documentary evidence; not adverted to by Insert’s solicitors in their email of 29 October; and entailed (notwithstanding Shaw having defaulted under the 2020 contract) Wright agreeing to sell subject to a condition wholly for Shaw’s benefit, which was then satisfied by establishment of a PEXA settlement appointment three days later with no deposit or signed contract, with the consequence that the property was taken off the market despite negotiations with other purchasers. [71]
  4. Even if there was an agreement, s. 126 of the Instruments Act was not complied with.  Even if (which the court did not decide) the co-vendors had cloaked Wright with ostensible authority to bind them to sell on terms negotiated by him, this was not in writing and so did not comply with s. 126. [75]-[77]
  5. Non – compliance with s. 126 was not in this case overcome by part performance.   The doctrine of part performance permitted enforcement of an oral contract where there were acts undertaken which of their own nature were unequivocally referable to a contract of the kind alleged.  Such acts must be such as to change the relative positions of the parties in relation to the subject matter of the contract.   Each act relied on here, particularly the mortgage and opening of the workspace, was a unilateral act of the supposed purchaser, readily explicable as preparatory to the making of an agreement and not changing the purchaser’s relative position to the property.  It was also difficult, the loan not having been drawn down, to accept that Insert had incurred a liability of $330,878.  The evidence at most suggested possible payment of a non-refundable application fee of $5,000. [78], [79], [81]-[83]
  6. For related reasons the purchaser’s argument that the vendors were estopped from denying the enforceability of the alleged contract was rejected.  Even on the most favourable view of the evidence for the purchaser, there was no clear and unequivocal representation that a legally binding contract of sale existed, no detrimental reliance (unless, of which the court was not satisfied, substantial fees had been incurred to the financier), and no evidence of the vendors knowing that such fees were being incurred on the faith of a representation by them.  Moreover, the period of any detrimental reliance was two days at most, such that the equity said to arise was wholly disproportionate to the minimum equity necessary to ameliorate the detrimental reliance. [84]-[86]
  7. It was an oversimplification to characterise the critical question as whether the purchaser had a prima facie case of an enforceable contract of sale of land: it must establish such a case in respect of which the court would order specific performance.  Ordinarily such a prima facie case sufficed to establish a prima facie case for specific performance, land being of a sufficiently unique character as to make damages an inadequate remedy, even land purchased as part of the business of a property developer. [87], [89]
  8. However, here the basic position (set out in the holding 7) was complicated by the third party contract, rendering this in essence a priority dispute between Insert and that purchaser (there being no evidence of that purchaser having notice of any interest of Insert’s in the land).  As to this –
    1. priority was accorded to the competing equitable interest created first in time, save where conduct by the holder of the prior interest rendered this inequitable;
    2. the failure to lodge a caveat may in certain circumstances constitute postponing conduct;
    3. although Insert alleged that the contract was made on 7 or 25 October, the caveat was not lodged until 28 October, being the day after the third party contract, and from 7 October onwards not only, while knowing that vendor’s agent was negotiating with other parties from at least 4 October, did Insert fail to assert that it had an enforceable agreement, the solicitors’ communications were to the contrary effect.  If Insert had made this assertion there was every reason to believe that the vendors would not have entered into the third party contract.  There might therefore have been considerable force in the proposition that any interest of Insert was postponed to that of the third party, in which case, specific performance would not have been ordered. [90]-[93]
  9. Further, the doctrine of laches required that those seeking equitable remedies, such as specific performance, use due diligence, where on notice or otherwise knowing that prejudice could arise to a defendant or third party if the claim was not pursued.  However, mere delay not occasioning prejudice was insufficient.  Any prejudice here was most likely to have occurred in the periods from 7 October onwards and from 25 October onwards.   Accordingly, the delay in initiating legal proceedings and prosecuting the claim for specific performance was insufficient to establish laches (but was relevant to the balance of convenience). [94]-[96]
  10. For the foregoing reasons, the caveator had not established a prima facie case of the existence of a legally enforceable agreement for sale with sufficient likelihood of specific performance to justify the maintenance of the caveat and the preservation of the status quo pending trial. [97], [105]
  11. In assessing the balance of convenience, had the court been minded to maintain the caveat this would have only been on the basis of an undertaking as to damages of substance, ie by Shaw not Insert. [99]
  12. Even if the caveator had established a prima facie case it would have failed on the balance of convenience because:  Shaw was open to a monetary solution; Insert’s pursuit of the claim for specific performance was marked by lack of urgency; Insert could sue for damages.  This was particularly so when assessed in light of the weakness of Insert’s claim and (as the effect of not removing the caveat would be to equivalent to enjoining the vendors from settling the third party contract) interference with the third party’s rights. [96], [100]-[105]

   Philip H. Barton

          Owen Dixon Chambers West

        Wednesday, May 25, 2022

 

Blog 55. Alleged unconscionable dealing/undue influence – no caveatable interest established.

Pryse v Castleman & Anor [2021] VSC 833, Ierodiaconou AsJ (14 December 2021)

The facts were –

  • Gweneth Pryse had three children: the plaintiff Raymond, his sister Lorna, and his other sister the first defendant Colleen.
  • A farm at Walpeup dating at least from the lives of Gweneth’s late parents consisted of land in various Lots.  In 1994 Gweneth became registered proprietor of Lots 52 and 53.  Raymond worked on the farm.
  • In 2013 Gweneth and Raymond discussed the possibility of her giving him Lots 52 and 53.  In September 2013 he had an argument with Colleen’s husband about this.  In October 2013, Gweneth met twice with a solicitor to obtain independent legal advice on the transfer, eliciting letters of advice dated 2 and 18 October 2013 described by her Honour as “forthright and frank”.  The solicitor subsequently deposed in the caveat removal proceeding that: he was not the family solicitor; at the first meeting he conferred with Gweneth for over an hour and did not doubt her capacity to understand his advice and give instructions; on his recommendation she agreed to go away and think about the matters he had raised; during the second meeting it was apparent that Gweneth had understood and considered these matters; she wanted the farm to go to her son who had worked it all his life and wanted to keep the farm together and in the family.
  • After the advice Gweneth transferred the two Lots to Raymond who became registered proprietor. They executed a deed of agreement regarding the transfer of the land.  At this time he was aged 61 and she was aged 85.
  • In 2013 (it appears after executing the transfer) Gweneth moved from the farm to a house owned by Raymond in Walpeup.  Lorna also lived there.  Gweneth was physically frail.
  • In 2014 Colleen applied to VCAT to have an administrator and guardian appointed for Gweneth.  Three medical reports were produced, including from Drs Vowels and Wardill.  Dr Wardill met with Gweneth at her home.
  • In August 2014 Colleen sought leave to withdraw the VCAT application.  Initially VCAT refused to give leave as it was not satisfied that this would be in the best interests of the proposed represented person.  However, at the conclusion of the hearing leave was granted.
  • Gweneth died on 8 July 2021.  On 7 October Raymond executed a contract to sell the two Lots.  On 20 October Colleen lodged a caveat over them.  Raymond commenced this proceeding under the Transfer of Land Act s. 90(3) for removal of the caveats.  Settlement of the purchase was due on 15 December, being the day following the hearing.

Ierodiaconou AsJ held –

  1. The law on where a transaction would be set aside for unconscionable dealing was as stated by Mason J. in Commercial Bank of Australia v Amadio (1983) 151 CLR 447 –

    “… if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interest, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in doing so is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that the situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.”  [41]

  2. Given the independent legal advice, there was no serious question to be tried of unconscionable dealing.  This was reinforced by the fact that the proposed transfer was discussed in the family and that Lorna deposed that Gweneth said she would give the land to Raymond. [43]
  3. In equity, a transaction, whereby a donor transfers property to a donee (or recipient), is voidable if the result of undue influence exercised by the recipient over the mind of the donor. [44]
  4. There was no serious question to be tried that the transfer was the result of undue influence.  Against the suggestion that Gweneth was not exercising her own free will was –
    (a)   the independent legal advice;
    (b)   the Wardill report indicated that Gweneth had capacity;
    (c)  Lorna deposed that her mother was “sharp as a tack until the day she died”.  [45]-[46]
  5. The doctrine of laches may have been applicable in light of the matters agitated before VCAT.  However it was unnecessary to consider this further. [48]
  6. The balance of convenience favoured removal of the caveat so that the sale could proceed.  Colleen had established no prejudice to her if the caveat was removed and there should be no order regarding preservation of the sale proceeds. [51]

Philip H. Barton

Owen Dixon Chambers West

Wednesday, May 18, 2022

Blog 54. Proprietary estoppel/Trusts

Groom v Leafbusters Pty Ltd (in liq) [2021] VSC 765, Cavanough J (20 November 2021).

Olsen v Olsen [2022] VSC 95, Ierodiaconou AsJ, (1 March 2022).

Konkoly v Konkoly & Anor [2022] VSC 74, Irving AsJ, (23 February 2022).

These cases concern trusts, mainly what Cavanough J compendiously described as the “common intention constructive trust (by way of proprietary estoppel)” (Groom v Leafbusters Pty Ltd (in liq)) at [4].  In that case caveats were lodged over a property based on various forms of trust.  In a long judgment following a final hearing, ie not a proceeding under the Transfer of Land Act s. 90(3), Cavanough J found that the claims of the caveator to an interest in land failed on the facts.  His Honour also stated certain legal points, one of which was engaged in the other two cases which were proceedings under s. 90(3).  In Olsen the caveator established a serious question to be tried of an interest in land based on proprietary estoppel or a constructive trust.  In Konkoly the caveator failed to establish a serious question to be tried of any interest in land. Continue reading “Blog 54. Proprietary estoppel/Trusts” →

Blog 53. Priorities between equitable interests – whether earlier interest postponed for failure to lodge caveat.

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

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

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

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

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

Her Honour held that Temelkovski had priority –

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

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

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

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

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

   Philip H. Barton

   Owen Dixon Chambers West

   Tuesday, April 5, 2022

Blog 52. Court of Appeal upholds registered proprietor’s appeal on balance of convenience ground.

Lee v Yap [2021] VSCA 297 (3 November 2021), Court of Appeal (Kyrou, McLeish and Walker JJA) is interesting because it deals with the scope of balance of convenience considerations.  In particular the court clarified that the two-stage test (ie interest in land and balance of convenience) only informed how the court should exercise its discretion under the Transfer of Land Act s. 90(3) and did not subsume or restrict the power conferred by s. 90(3).

Before proceeding to the case, however, I welcome my first international follower Dr Jan Halberda of the Jagiellonian University, Krakow, Poland, founded in 1364. I met Jan at a Conference  in 2016. I have sent him excerpts of the Transfer of Land Act with an explanation of the caveat procedure. I am reminded that Oliver Cromwell described English Law as a “tortuous ungodly jungle” and trust that Jan will  not find that an apt description of this area of law.

This case is difficult to understand without listing the parties in connected proceedings –

This appeal –

Applicant                              Ms Lee (registered proprietor).

Respondents                         Eng Hock Yap, Sau Lin Kam, Eng Hing Yap (caveators),

     Registrar of Titles.

The substantive proceeding (issued 2017) –

Plaintiffs                               Eng Hock Yap, Sau Lin Kam and Chin Huat Yap,

   (Adam Yap was formerly the second plaintiff).

Defendants                          Ms Lee, Yap Brothers Holdings Pty Ltd, Eng Seng (Vincent) Yap, Eng Hing Yap.

2019 application in the substantive proceeding for appointment of receiver –

Applicants                               Eng Hock Yap and Adam Yap

Respondents                          As in substantive proceeding.

The facts were –

  • The applicant (Ms Lee) was a director of Yap Brothers Holdings Pty Ltd (the ‘trustee’).  In 2005 the trustee transferred a property in Glen Iris to her for no consideration.   This property was subject to a mortgage and to caveats lodged by the above caveators.
  • In the substantive proceeding it was alleged that this transfer was in breach of trust and held by Ms Lee on a resulting trust for the contributors of funds to the trustee, ie for the plaintiffs.  They also claimed that this transfer, after the loss of the trust deed had been discovered by Ms Lee in 1998, occurred in breach of her duties to the trust.
  • In 2019 an application was made in the substantive proceeding for appointment of a receiver to the trust to secure the trust property.  On this application Ms Lee deposed that the trust assets included cash, shares, and properties in Carlton and Balwyn.   The trustee’s directors also offered undertakings as to the assets of the trust.   The defendants also filed proposed orders including a proposed undertaking not to deal with the Balwyn and Carlton properties and the shares, and an undertaking (the Proposed Undertaking) by Ms Lee not to sell or otherwise deal with the Glen Iris property, pending resolution of the substantive proceeding.
  • At the receivership hearing, counsel for the applicants only sought that “the title deeds” (ie the duplicate certificates of title) of the Carlton and Balwyn properties be taken into control to prevent their use by way of mortgage deposit (ie, although the court does not say it, to prevent creation of an equitable mortgage).  (Because the Glen Iris property was subject to a mortgage and its “title deeds” were not in the defendants’ possession).  The application was abandoned on the defendants’ undertaking to lodge with the Prothonotary the title deeds to the Carlton and Balwyn properties and Ms Lee’s counsel giving an acknowledgement concerning trust distributions.  The undertakings included in the defendants’ proposed orders were not sought, the Proposed Undertaking having been rejected.
  • Later in 2019 the Court declared in the substantive proceeding that the trust had failed for uncertainty and the trustee held all its assets on resulting trust for those who had contributed property to the trustee at any time.
  • In April 2021 Ms Lee entered into a contract to sell the Glen Iris property with settlement due in June. This required removal of the caveats.  Correspondence between solicitors ensued, the upshot of which was that the caveators did not object to a sale for proper market value with the only outstanding issues being where the net proceeds of sale were to be held and what deductions were to be made before this pay in, in particular were agent’s fees and commission to be deducted?  (The agent was the third defendant in the substantive proceeding).
  • Following the breakdown of discussions Ms Lee sought removal of the caveats pursuant to the Transfer of Land Act s. 90(3). She offered an undertaking to the court at first instance and to the Court of Appeal to pay the net proceeds of sale, after discharge of the mortgage and usual sale expenses, into a solicitor’s trust account or into court.
  • At the hearing before McDonald J. it was was common ground that the caveators had an arguable case of a caveatable interest. However, before considering the balance of convenience, the judge observed that: the reason why there was no undertaking at the receivership hearing to lodge the Glen Iris title deeds was because the bank had them; the Proposed Undertaking was designed to address the applicants’ concern that there was a risk that the trust property would not be preserved; and it had not been suggested at the receivership hearing that there was any risk of Ms Lee selling the property.  His Honour also observed that her subsequent conduct in entering a contract of sale was therefore inconsistent with the basis upon which the application for the appointment of a receiver had not been pressed.
  • Counsel for Ms Lee submitted that a significant balance of convenience consideration was her preparedness to pay the net proceeds of sale into court. The judge stated that viewed in isolation this submission had force but that it was necessary to include in the assessment her conduct in entering into a contract of sale in light of the resolution of the receivership application.  He observed that it was extremely unlikely that the applicants would have abandoned the receivership application if there was any prospect of Ms Lee being free to sell the Glen Iris property.
    His Honour stated that the “gravamen” of the resolution of the receivership application was that the three properties would not be dealt with until the determination of the substantive proceeding (the “gravamen finding”).  Accordingly his Honour stated that the balance of convenience strongly favoured the maintenance of the status quo.
  • As to a submission that it was relevant that Ms Lee would suffer financial prejudice if the sale did not proceed the judge stated in substance that any adverse financial consequences were of her own making.
  • Ms Lee sought leave to appeal.

The Court of Appeal granted an application for an extension of time to appeal, granted leave to appeal and allowed the appeal, holding –

  1. The court reiterated caveat removal principles in standard terms (see eg Blog 1). [78]-[80]
  2. Because the court’s power under s. 90(3) was discretionary an applicant for leave to appeal against an exercise of that discretion must establish error of the kind identified in House v The King (1936) 55 CLR 499. [78]
  3. In dealing with the Proposed Undertaking the judge was aware that it was never given but that it was relevant to understanding how the receivership application came to be resolved. It was not legally irrelevant to the caveat removal application.  The judge had not treated it as decisive, rather the judge treated as significant the manner in which the receivership application had been resolved. [83]-[84]
  4. The proposition that the judge erred in giving substantial weight to a factor which did not on proper analysis bear upon the balance of convenience, namely the Proposed Undertaking, was erroneous. This argument proceeded on a mistaken understanding of what matters a court could permissibly consider when dealing with an application under s. 90(3).  Although the courts had adopted the two stage test (ie that the caveator must estate a serious question to be tried of an interest in the land and that the balance of convenience favoured maintenance of the caveat) s. 90(3) was drafted broadly and enjoined the court to make such orders as it thought fit.  The two-stage test could only inform the court in considering whether to exercise the discretion conferred on it in any particular case and, if it chose to do so, what form that exercise should take.  This test did not subsume or restrict the power conferred by the statute.  What a court may consider as going to the balance of convenience was unconfined.  Thus, in assessing the balance of convenience it was open to the judge to have regard to the manner in which the receivership application was resolved and the assumptions that underpinned that resolution. [85]-[86]
  5. The gravamen finding, which was based in part on the Proposed Undertaking, was erroneous. On its face that finding could potentially be understood as either a finding: that the parties had agreed to resolve the receivership application on the basis that the Glen Iris property would not be dealt with, or; (a somewhat strained reading of the finding) that Ms Lee’s conduct of the receivership application had induced the applicants to believe that the Glen Iris property would not be dealt with, based on which they agreed not to pursue their application.   Neither finding was open on the evidence.  There was no evidence suggesting an agreement of that kind and the rejection by the receivership applicants of the Proposed Undertaking suggested to the contrary.  The receivership hearing was conducted in a way suggesting that the concern was not with the Glen Iris property, but with the Carlton and Balwyn properties.  The gravamen finding treated Ms Lee as being constrained in the manner she would have been constrained had she given the Proposed Undertaking. [91]-[99]
  6. The gravamen finding plainly played a significant if not determinative role, infecting the judge’s assessment of the balance of convenience. [6(c)], [99]
  7. As to the judge’s reliance on the proposition that Ms Lee was the author of the circumstances she faced, a statement of that kind could be made in any case where the registered owner entered a contract of sale before removal of a caveat, and it was not a significant factor. It could also be said that the receivership applicants were authors of their circumstances because they had rejected the Proposed Undertaking. [100]
  8. As the Court of Appeal had before it the submissions and evidence that were before McDonald J, and as the matter was urgent, it was appropriate for it to make the orders that his Honour ought to have made, ie exercise afresh the s. 90(3) discretion, and not remit the matter. Ms Lee would plainly suffer immediate financial prejudice if the caveats were not removed and there was no real evidence that the caveators would suffer prejudice if the caveats were removed.  The balance of convenience favoured the removal of the caveats provided appropriate steps were taken to preserve the proceeds of sale.  The undertaking proferred by Ms Lee’s counsel sufficed. [104]-[109]

 

 

Philip H. Barton

  Owen Dixon Chambers West

  Thursday, February 17, 2022