Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd

JUDGMENT

1. This matter involves a contest over money which has been paid into Court. The money represents the surplus proceeds of sale of three separate properties formerly owned by Roger Gregory Simmons, now a bankrupt.
2. The first proceeding, 2023/00028270, concerns $318,839.26 paid into Court by BNY Trust Company of Australia Ltd (BNY). Those funds are the surplus proceeds of sale of 8 McCourt Road, Moss Vale, which was sold by BNY pursuant to a mortgage executed on 28 January 2021.
3. The second proceeding, 2023/00094695, concerns $400,913.07 paid into Court by Keystone Capital Ltd as trustee for the KC Select Income Fund (Keystone). Those funds are the surplus proceeds of sale of 9 McCourt Road, Moss Vale, which was sold by Keystone pursuant to a mortgage executed on 6 September 2021.
4. The third proceeding, 2023/00101621, concerns $111,855.51 paid into Court by Windlock Pty Ltd (Windlock). Those funds are the surplus proceeds of sale of Unit 5, 13 Old Dairy Close, Moss Vale, which was sold by Windlock pursuant to a mortgage executed on 9 November 2021.
5. I will refer to 8 McCourt Road, Moss Vale, 9 McCourt Road, Moss Vale and Unit 5, 13 Old Dairy Close, Moss Vale together as 'the properties'.
6. There are three claimants to these various sums, and their claims in each proceeding are relevantly identical as between the proceedings. They are Mr Hengyi Zhao, Bizcap AU Pty Ltd (Bizcap) and FundIT Ltd (FundIT). The dispute is a priority contest to the funds, with all parties asserting an equitable entitlement to the money in preference to the other parties' entitlements. All parties accept that the interests of the plaintiffs, who were registered mortgagees, were superior to their own.

Hengyi Zhao

1. Mr Zhao is the brother-in-law of Mr Simmons. He is a Chinese citizen and resides in China. He claims that on 1 June 2014 he entered into a loan agreement with Mr Simmons for Mr Simmons to borrow USD1,500,000 from him, to be used to purchase goods from Chinese suppliers (the 2014 agreement). He claims that the loan was to bear interest at 12% per annum, with interest payable once a year.
2. In evidence was what was said to be a copy of the agreement, in its original Chinese, together with a translation of it. The translation is as follows: "The borrower Roger Gregory Simmons, …, borrowed one million five hundred thousand US dollars (in figures) USD1,500,000.00 from the lender Hengyi Zhao, … on June 1, 2014. The borrower will purchase goods from Chinese suppliers. Within one million five hundred thousand US dollars, the lender will pay for the goods on behalf of the borrower, with the maximum amount not exceeding one million five hundred thousand US dollars. The advance payment is calculated at the annual interest rate of 12%, and the interest shall be repaid once a year. The borrower agrees to charge his current and future real estate, vehicles and other immovable and movable properties to secure the repayment."
3. The original Chinese document also bears some handwriting, in English, as follows: "Note I grant a charge of all Right title & Interest in any Properties Presently owned or acquire [sic] in the future."
4. Mr Zhao further says that he and Mr Simmons entered into a second loan agreement on 25 November 2015 (the 2015 agreement). A copy of a document in Chinese purporting to evidence the 2015 agreement was also in evidence, together with an English translation as follows: "Borrower Roger Gregory Simmons, … Lender Hengyi Zhao, … The lender will remit the fund to the borrower's account or the account designated by the borrower according to the borrower's instructions. The loan is calculated at the annual interest rate of 12%, and the interest shall be repaid once a year. The borrower agrees to charge his current and future real estate, vehicles and other immovable and movable properties to secure the repayment."
5. The evidence as to the execution of these two purported agreements was scant. Mr Zhao said that he affixed his signature to the documents at about the time they were purportedly executed, namely in June 2014 and November 2015. He was in China at the time. He in fact had never been to Australia prior to travelling here for the purpose of these proceedings. There was no evidence as to how Mr Simmons allegedly affixed his signature to the documents, save that Mr Zhao said that it was at about the same time as he signed them. Mr Simmons, who is still Mr Zhao's brother-in-law, was not called to give evidence about this or any other matter.
6. I note that neither the 2014 agreement nor the 2015 agreement contains a provision making any advance due and payable. Mr Zhao's case is that there was an oral agreement in each case that all advances would be repayable by the end of the 2023 year, but there was no evidence that Mr Simmons agreed to any such term. I am not prepared to find that such a term existed. In the absence of any express term dealing with repayment, I find that advances were repayable on demand.
7. Mr Zhao further claims that Mr Simmons became indebted to him for the sum of US$1,334,676 pursuant to the 2014 agreement and AU$255,690 pursuant to the 2015 agreement. In relation to the indebtedness under the 2014 agreement, Mr Zhao said that these amounts were paid by him between 14 June 2014 and 10 November 2021 to Mr Simmons' "suppliers" and to Mr Simmons at Mr Simmons' direction. There was no admissible evidence as to who those suppliers were, when such payments were made, what they were for, the terms of any direction, or any other detail of the circumstances that might have existed when the advances were supposedly made. There was in fact no meaningful, direct evidence as to Mr Zhao's business dealings with Mr Simmons at all.
8. Notwithstanding Mr Zhao's position that interest under each loan arrangement ran at 12% and was payable annually, he accepts that Mr Simmons never paid a cent of interest or any other amount to him on account of these arrangements at any time. It follows that on any view of Mr Zhao's case, the arrangement was one in which Mr Simmons was in continuing and serious default for virtually its entire duration.
9. Mr Zhao claims that between May and June 2022 he began to seek repayment of loans, as Mr Simmons had not paid any interest. He now claims that the total principal owing is AU$2,337,784 and the total interest owing is AU$1,364,071.33.
10. Mr Zhao claims that he only became aware of Mr Simmons' ownership of the McCourt Road properties in June 2022 and of the Old Dairy Close property in early 2023, by which time it had already been sold by Windlock.
11. Mr Zhao lodged a caveat over 8 McCourt Rd on 25 June 2022 and over 9 McCourt Rd on 30 June 2022. He did not lodge a caveat over the Old Dairy Close property prior to its sale.
12. On 2 November 2022, Mr Zhao commenced proceedings against Mr Simmons in this Court. In his statement of claim, Mr Zhao alleged that he had made a series of advances under each of the loan agreements, that Mr Simmons had repudiated the agreements, and that the whole amounts were due and payable.
13. On Friday, 18 November 2022, Mr Zhao and Mr Simmons procured a consent judgment on Mr Zhao's claim. That judgment records that Mr Simmons is indebted to Mr Zhao for the sum of $3,701,885 plus costs as agreed or assessed. Mr Zhao elected to say nothing about the circumstances in which he and Mr Simmons agreed to the consent judgment.
14. Mr Simmons was made bankrupt on Tuesday, 22 November 2022.
15. The statement of claim and consent judgment from Mr Zhao's proceedings were in evidence, although in the case of the statement of claim I admitted the document subject to the limitation that the assertions within it were not able to be relied on as proof of the facts so asserted: s 136 of the Evidence Act 1995 (NSW). So far as the judgment itself is concerned, I note the terms of s 91 of the Evidence Act 1995. It follows that the only fact established by the judgment is that, as between Mr Zhao and Mr Simmons, Mr Simmons was indebted to Mr Zhao as at 18 November 2022 in the amount stated plus costs.
16. Mr Zhao stated in his affidavit that he has never been to Australia and does not understand Australian real property law, and that he relied on an online translator to conduct his dealings, apparently in explanation for his failure to take any action to register any interest he may have had.
17. The basis of Mr Zhao's claim is that his asserted interests were first in time, having been granted pursuant to the 2014 and 2015 agreements. He says his delay in lodging caveats (or, in the case of the Old Dairy Close property, failing to lodge a caveat at all) should not be considered postponing conduct.

FundIT Ltd

1. FundIT is a finance company. FundIT advanced money to Mr Simmons, or to other entities guaranteed by Mr Simmons, pursuant to various written loan agreements: 1. a loan agreement with Awe-Sim Holdings Pty Ltd (Awe-Sim), now in liquidation, on 17 December 2020, guaranteed by Mr Simmons the same day, with Awe-Sim granting a Security Deed to FundIT; 2. a loan agreement with Mr Simmons on 17 December 2020, supported by a Deed of Guarantee and Indemnity in relation to that agreement, as well as by a Security Deed granted by Mr Simmons on that same day; and 3. loan agreements with Mr Simmons and Awe-Sim separately entered into on 27 September 2021.
2. Pursuant to his guarantees of 17 December 2020 and the Security Deed entered into by him personally on that day, and the loan agreement between him and FundIT on 27 September 2021, Mr Simmons granted FundIT a charge over all his present and after-acquired property.
3. On 18 December 2020, FundIT registered that charge on the Personal Property Securities Register (PPSR). The evidence shows that the only property owned by Mr Simmons as at that time was the Old Dairy Close property. FundIT did not lodge a caveat over that property in December 2020.
4. On 31 May 2022, pursuant to the charges just mentioned, FundIT registered caveats over all three of the properties. On 21 October 2022, FundIT obtained judgment in the Victorian County Court against Mr Simmons for $517,889.64 arising from his liability under the guarantee given on 17 December 2020 in respect of Awe-Sim's loan and his personal loan also dated 17 December 2020.
5. A representative of FundIT deposed that, when making the loans to Mr Simmons in 2020, they undertook an extensive financial assessment and due diligence on both Awe-Sim and Mr Simmons. FundIT formed the view that Awe-Sim would be able to meet its obligations under the proposed loan to it. Mr Simmons disclosed to FundIT that he had granted a mortgage over the Old Dairy Close property. No loans from Mr Zhao were disclosed to FundIT.
6. FundIT did not conduct real property title searches.

Bizcap

1. Bizcap is also a finance company.
2. Bizcap's evidence was filed in a somewhat haphazard state. Doing the best I can, it appears that on 22 February 2022 Bizcap executed a loan agreement with Awe-Sim pursuant to which it advanced the amount of $800,000. The agreement required $1,032,000 to be repaid in 32 weeks, with discounts for earlier repayment. Mr Simmons was the guarantor of the loan in his personal capacity and as trustee for the Simmons Family Trust. Repayments were to be weekly.
3. Bizcap conducted title searches on 22 February 2022 of 9 McCourt Road and the Old Dairy Close property. On 23 February 2022, a caveat was lodged over 9 McCourt Road, describing the claimed interest as a "charge".
4. On 18 May 2022, Bizcap and Awe-Sim executed a further loan, for $350,000, with $458,500 repayable in 26 weeks, with weekly repayments. Mr Simmons was listed as a guarantor in his own capacity and as trustee for the Simmons Family Trust.
5. Mr Simmons made the weekly repayment of $17,635 on 27 May 2022. No further repayments were made.
6. On 31 May 2022, Bizcap undertook a title search of 8 McCourt Road, and lodged caveats over that property and the Old Dairy Close property, claiming a "charge" in both cases.
7. As at 1 May 2024, the amounts owing were $733,099 under the February 2022 loan and $495,364 under the May 2022 loan.

Mr Simmons

1. There was almost no evidence before me as to Mr Simmons' circumstances, save that his company, Awe-Sim, conducted an electrical wholesaling business for many years. He married Mr Zhao's sister in March 2015.
2. Mr Simmons acquired the properties on the following dates: 1. Old Dairy Close - 31 May 2018 2. 8 McCourt Road - 28 January 2021 3. 9 McCourt Road - 6 September 2021

The issues in dispute

1. FundIT and Bizcap contend that Mr Zhao has failed to demonstrate that he had an equitable interest in any of the properties owned by Mr Simmons and that he has no entitlement at all to the funds now in Court. Alternatively, they claim that any priority which his equitable interest in the properties might otherwise have enjoyed by reason of being first in time must be postponed to their own interests by reason of Mr Zhao's conduct.
2. Shortly prior to the commencement of the hearing, FundIT and Bizcap reached agreement to the effect that their respective equitable charges over Mr Simmons' property had equal priority and that, as between themselves, they would share in the funds on a 50:50 basis.
3. No one disputed that FundIT and Bizcap each had an equitable interest in the properties, in each case by reason of the charges granted by Mr Simmons to support his indebtedness and that of his company.
4. It follows that the issues for determination are broadly as follows: 1. Has Mr Zhao demonstrated that he had an equitable interest in the properties owned by Mr Simmons? 2. If so, does his interest take priority over either or both of the interests of Bizcap and FundIT?

Did Mr Zhao have an equitable interest in the properties?

1. Mr Zhao claims to have had equitable charges over the properties by reason of the terms of the 2014 and 2015 agreements.
2. So far as the agreements themselves are concerned, I was not asked to find that they were not executed by Mr Zhao and Mr Simmons at about 1 June 2014 and 25 November 2015 respectively. Instead, FundIT and Bizcap contended that (a) the agreements, properly construed, did not create a charge, (b) I would not in any event be satisfied in all of the circumstances that an equitable charge actually arose, particularly having regard to the complete absence of evidence as to the circumstances surrounding Mr Zhao's supposed dealings with Mr Simmons, and (c) even if a charge did arise, I would not be satisfied that it predated those created in favour of the other claimants.

Did the agreements create a charge?

1. FundIT and Bizcap submitted that the language of the 2014 and 2015 agreements was not apt to create a charge over Mr Simmons' later acquired property. They submitted that the language used was that of a promise or agreement to create a charge in the future, and that it was not the language of a grant. They submitted that the language gave rise to a mere equity which does not participate in the competition for priority: Shawyer v Amberday Pty Ltd [2001] NSWSC 399 at [11] per Bryson J.
2. The language in dispute is in each case the same: "The borrower agrees to charge his current and future real estate, vehicles and other immovable and movable properties to secure the repayment".
3. This language appears in the typed part of the agreement originally in Chinese. I am not prepared to have any regard whatsoever to the holograph annotation at the bottom of each of the agreements. There was no evidence as to who wrote it or when it was written.
4. Mr Rizk, who appeared for Mr Zhao, submitted that I would have regard to the fact that the language had been translated from Chinese to English and that the nicety on which the other parties' submission turned (the difference between "the borrower agrees to charge" as opposed to "the borrower charges") may not be apparent in Chinese.
5. It would be inappropriate for me to accept that submission. I will only have regard to the English translation. To do otherwise would involve speculation on my part.
6. Nonetheless, I am satisfied that the language used is apt to support the equitable charge for which Mr Zhao contends. What is required is that there be a clear intention to create a charge: White v Conroy (1921) 21 SR(NSW) 257; (1921) 38 WN (NSW) 63; Southern Wine Corp Pty Ltd (in liq) v Frankland River Olive Co Ltd (2005) 31 WAR 162; [2005] WASCA 23. In considering this question, I should not adopt a narrow or pedantic approach to construction: Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437; [1968] HCA 8; see also Bresmist Pty Ltd v State Rail Authority of New South Wales [1993] NSWCA 37. Taking that approach, I find that the language discloses a clear intention on Mr Simmons' part to charge his present and future property in favour of Mr Zhao to support the repayment of the funds advanced under each agreement. I am unable to accept the submission that the language amounts to no more than an agreement to create a charge in the future.

Was an equitable charge actually created?

1. FundIT and Bizcap submitted that I would not be satisfied on the evidence that any charge was actually created by Mr Simmons under either of the agreements. They pointed to the dire state of the evidence on which Mr Zhao relies. They correctly pointed out that there was no admissible evidence as to when and how Mr Zhao acquired any goods for Mr Simmons. They also correctly pointed out that there was not a scrap of written evidence (such as any note, account, email or indeed any other form of record) corroborating anything said Mr Zhao.
2. There is much force in these submissions, but I am unable to accept them. As I have already noted, it was not suggested to Mr Zhao that the agreements were not entered into or that they were shams. He said that between 14 June 2014 and 10 November 2021 he paid a total of USD1,334,676 to Mr Simmons's suppliers at his direction. He also said that between 31 January 2017 and 25 October 2021 he advanced AUD255,690 to Mr Simmons pursuant to the 2015 agreement.
3. This evidence was not supported by a skerrick of documentary evidence. Nonetheless, Mr Zhao's evidence is not inherently unbelievable and in the absence of any challenge to it, I am inclined to accept Mr Zhao's account of what occurred.
4. I am therefore satisfied that Mr Zhao did in fact acquire goods on behalf of Mr Simmons' and that Mr Simmons' resulting payment obligation was supported by the charge to which the 2014 agreement refers. I am also satisfied that Mr Zhao advanced funds pursuant to the 2015 agreement and that Mr Simmons' resulting payment obligation was supported by the charge to which the 2015 agreement refers.

Did Mr Zhao's charge precede the charge granted to FundIT?

1. FundIT and Bizcap submitted that I would not be satisfied that any charge in favour of Mr Zhao was in fact granted prior to those granted to them.
2. The argument proceeded on the basis that the temporal priority as between the charges was to be determined by reference to the date at which each claimant advanced funds to Mr Simmons on the terms of any such charge. This was the common assumption underpinning all parties' positions and I proceed on that basis. No argument was made, for instance, that the charges only attached to the properties when Mr Simmons bought them, and therefore that any priority should be considered at the date of purchase of each property. Nor was any argument advanced as to whether Mr Zhao engaged in "tacking" and how that might affect any priority contest.
3. In the case of FundIT and Bizcap, the date on which their charges were created was on this view readily identified. FundIT's charge arose on 17 December 2020 when it advanced funds to each of AWE-SIM and Mr Simmons on the terms of the loan schedule, security deed and deed of guarantee and indemnity dated that day.
4. Bizcap's charge arose on 18 May 2022 when it advanced $335,751 on the terms of its loan agreement dated the same day under which Mr Simmons agreed to grant a charge to secure repayment of the advance.
5. The position in relation to Mr Zhao is less clear. The only admissible evidence as to the creation of charges by Mr Simmons in favour of Mr Zhao is that: 1. Mr Zhao entered into the loan agreements on 1 June 2014 and 25 November 2015; 2. By 10 November 2021, the sum of USD1,334,676 had been advanced under the 2014 agreement; and 3. By 25 October 2021, the sum of AUD255,690 had ben advanced under the 2015 agreement.
6. Mr Zhao did say in relation to the 2014 agreement that these funds had been advanced over time commencing in 2014. But as I have already noted, there was no admissible evidence at all as to the amount or circumstances of any such advance.
7. Mr Simmons therefore probably had some level of indebtedness to Mr Zhao supported by a charge under the 2015 agreement prior to 25 October 2021. He probably also had some level of indebtedness to Mr Zhao supported by a charge under the 2014 agreement prior to 10 November 2021.
8. The state of Mr Zhao's evidence does not allow me to reach any conclusion as to what level of indebtedness was supported by a charge at any time prior to those dates. Nonetheless, I find that Mr Zhao had a charge supporting some indebtedness prior 17 December 2020 when Mr Simmons granted a charge to FundIT.
9. FundIT did not address any submissions to the question of whether the whole of Mr Zhao's indebtedness was supported by the charge, as opposed to only that portion that had been advanced as at the time FundIT acquired its equitable interest on 17 December 2020. For reasons already explained, the evidence does not allow me to reach any particular conclusion about the extent to which Mr Zhao's advances were made prior to that date. However, in view of the conclusions I have otherwise reached as to Mr Zhao's postponing conduct, and in view of the fact it was not addressed in submissions, I will leave to one side the question of whether Mr Zhao's charge actually supported a level of indebtedness sufficient to give rise to a conflict with FundIT's claim to the surplus in the first place and proceed on the basis that it did. I note in this regard that Mr Zhao's evidence that he did not know that Mr Simmons had engaged in dealings with, and granted charges to, FundIT and Bizcap, was unchallenged.

Should Mr Zhao's equity be postponed?

1. There was no dispute as to the principles to be applied in determining the priority of the parties' claims.
2. The general position in the case of competing equitable interests is that where the merits are equal, the earlier in time prevails: Rice v Rice (1853) 61 ER 646 at 648. However, where the merits are unequal, priority may be afforded to the later interest: Latec Investments Ltd v Hotel Terrigal Pty Ltd (1965) 113 CLR 265 at 276; [1965] HCA 17; Heid v Reliance Finance Corporation Pty Ltd (1983) 154 CLR 326 at 339 (Mason and Deane JJ); [1983] HCA 30 (Heid). The mere failure to lodge a caveat does not of itself amount to postponing conduct. Rather, "it is just one of the circumstances to be considered in determining whether it is inequitable that the prior equitable owner should retain his priority": Heid at 342. It has repeatedly been emphasised that the real task of the Court is to determine where the better equity lies: Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99 at [229]-[257] (Ward JA) (Linfield).
3. In the present case, Mr Zhao advanced funds to his brother-in-law over a period of about seven years on terms that were quite unreal. There is no written record of any description in relation to the acquisition of the goods, including any direction by Mr Simmons (he says this was done on the phone), the payment for the goods, the delivery of the goods, or the amount of the resulting debt or any other relevant matter. He was entitled to interest at 12% per annum payable annually, but never received any payment whatsoever. His evidence is that he did not seek payment of either interest or principal until the middle of 2022.
4. Mr Zhao's case, taken at its very highest, is that Mr Simmons was in constant default of their agreements, yet Mr Zhao continued to purchase goods on his behalf and never asked to be paid for them until mid-2022.
5. FundIT and Bizcap submitted that I should find that Mr Zhao was negligent in lending on these terms and in failing to lodge caveats. They accepted that Mr Zhao's failure to lodge caveats was not a sufficient basis to postpone his prior equity but submitted that, in the circumstances, there was far more than a mere failure to lodge caveats. They relied on the whole course of dealing between Mr Zhao and Mr Simmons (to the extent it could be discerned) to support the conclusion that Mr Zhao had the lesser equity.
6. I accept that submission. The fact that Mr Zhao continued to acquire goods on Mr Simmons' behalf and that he was prepared to take no action to enforce his charges over so many years despite having the opportunity to do so was quite remarkable even apart from his failure to lodge caveats. Mr Zhao was all the while in the unique position of being able to know exactly what Mr Simmons' financial position was, unlike each of FundIT and Bizcap who dealt with Mr Simmons at arm's length. It is clear that Mr Simmons misrepresented his financial affairs to each of them, at least to the extent that he failed to mention his dealings with Mr Zhao. I do not attribute these misrepresentations to Mr Zhao, but this fact illustrates the sharp disparity in Mr Zhao's position vis-a-vis Mr Simmons and his property compared with the other applicants. It also highlights the degree to which he was (at least) negligent in failing to act sooner to protect his interests.
7. Mr Zhao offered no satisfactory explanation as to why he took no action to recover his indebtedness until mid-2022, despite (on his case) Mr Simmons having at that point been in compounding degrees of default for some seven years. He said that the reason he took no action was that it was a family relationship, but this only underscores the point that he was in a position to know Mr Simmons' true financial position but deliberately chose not to act on that knowledge. Even if he did not know that Mr Simmons owned realty (a doubtful assertion but one which was not challenged in cross-examination), he knew full well that he had goods against which he could enforce a security, but chose not to do so. He could also have stopped buying goods for Mr Simmons, yet he continued to do so.
8. The time at which it is necessary to determine the priority in the competing equities is the time at which each of FundIT and Bizcap acquired their equitable interests. I am therefore cautious in having regard to the circumstances in which Mr Zhao and Mr Simmons later procured the consent judgment in determining Mr Zhao's equity relative to the other claimants. Nonetheless, those circumstances do shed some light on the nature of their relationship and their dealings in relation to the indebtedness between them. The circumstances reveal a marked degree of cooperation as to financial matters, which supports my conclusions as to the nature of their business relationship generally. Those later circumstances tend to suggest that they did not deal with one another at arm's length in relation to either the 2014 agreement or the 2015 agreement and that Mr Zhao was in a position to know Mr Simmons' true financial position all along. If he was in such a position, and chose not to act, or not to make himself aware of Mr Simmons' position at all, then that is all the more reason to consider his equity as being lesser to that of Bizcap and FundIT.
9. Mr Zhao submitted that he had merely failed to lodge caveats and that a mere failure to lodge caveats was not of itself postponing conduct. In the case of FundIT, he points out that FundIT did not inspect the register and that his failure to lodge caveats cannot have caused their loss. He also submits that each of FundIT and Bizcap lent on the strength of Mr Simmons' ability to repay the loans, not on the strength of any representation as to available equity in real property.
10. I am unable to accept any of these submissions.
11. As to the failure to lodge caveats, I find that the failure to lodge was but one aspect of his overall dealings with Mr Simmons. His is not a case of mere failure to lodge caveats.
12. As to the fact that FundIT did not search the register, it is important to emphasise that the question for determination is not whether the earlier chargee caused loss to the later charge: Heid at 341-342 (Mason and Deane JJ); Linfield at [256]-[257] (Ward JA). Even if the earlier chargee does cause loss, that is not a sufficient basis to determine the question of priorities in any event.
13. Rather, the question of priorities must be determined by weighing the overall equity of each chargee. When that is done, I find that FundIT has the better equity, compared with Mr Zhao, despite its failure to search the register. It is true that it would not have discovered Mr Zhao's caveat even if he had lodged one, but that is but one matter to be taken into account. Considering the totality of Mr Zhao's dealing with Mr Simmons, and his failure to take any action over a substantial period of time to enforce his rights despite being in the privileged position of being related to Mr Zhao, or to make the world aware of his rights even once they had crystallised on default, I am comfortably satisfied that his equity must give way to FundIT's.
14. As to the submission that both FundIT and Bizcap lent on the basis of Mr Simmons' ability to repay, I first repeat the observation made above: the question is not whether Mr Zhao caused them loss. In any event, I do not accept that their lending decisions can be characterised in the simplistic fashion suggested by Mr Zhao's submission. It is true they lent on the basis of assurances as to Mr Simmons' ability to repay the loans, but at the same time they both took security to protect their interests. Bizcap lodged caveats to protect those charges immediately. FundIT lodged PPSR filings and, in due course, lodged caveats. There was evidence from FundIT, which I accept, that it would not have lent to Mr Simmons had it been aware of his loan agreements with Mr Zhao.
15. I find that Bizcap also would have declined to lend to Mr Simmons if it had been aware of those dealings. I reach that conclusion based on the terms of the loans which it advanced, which clearly did contemplate the taking of security to support its position, and its action in both searching the register and then also immediately lodging caveats to protect its interests. Had Bizcap been aware that Mr Simmons was already in default in an amount that exceeded its own proposed advances and that the pre-existing lender was a related party who had a charge to support his claim, it is unlikely that Bizcap would have been prepared to lend at all. Considering this, and the above conclusions about Mr Zhao's actions generally, I find that Bizcap's claim must also take priority over Mr Zhao's.

Conclusions

1. Mr Zhao's claims must be deferred to those of both FundIT and Bizcap.
2. The combined claims of FundIT and Bizcap exceed the amount of money paid into Court. Mr Zhao will have no entitlement to any of those funds once FundIT and Bizcap receive the funds to which they are entitled.
3. As between FundIT and Bizcap, I was informed that it was unnecessary for me to make any finding as to priority, nor to make any order in relation to their costs as against one another.
4. The orders in each proceeding will therefore be: 1. The plaintiff's costs be paid out of the funds in court. 2. As to the balance of funds in court after payment of the costs referred to in order (1), 50% be paid to FundIT and 50% be paid to Bizcap. 3. Mr Zhao pay the costs of FundIT and Bizcap in relation to his claim to the funds.

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