H G & R Nominees Pty Ltd v Caulson Pty Ltd [2000] VSC 126

11. On 4 June 1996 a third mortgage was registered on the title to the property to secure repayment to three persons named Ramayah, Seng and Sheares of the sum of $863,435.02.

14. Royal Land made default in making payments to H.G.& R. pursuant to H.G.& R.'s first and second mortgages.

17. On 1 December 1998 H.G.& R. caused to be served on Royal Land a notice to pay pursuant to s.76 of the Transfer of Land Act 1958. Royal Land failed to comply with the notice and H.G.& R. duly went into possession of the premises.

20. On 27 May 1999, and by order of this court, Royal Land was placed in liquidation.

23. On 15 September 1999 H.G.& R. entered into a contract of sale of the premises whereby it sold them to Westpoint Corporation Pty Ltd for $11,750,000. Settlement of the sale is due to occur on 31 March 2000. Hence the urgency of the present application.

26. On 10 September 1998, 20 May 1999 and 12 October 1999 respectively, the first defendant Caulson Pty Ltd (Caulson) registered three caveats on the titles to the premises. The caveats are numbered V633335T, W059268P and W343852B.

29. By its caveats Caulson claims an equitable lien over the property in respect of material supplied and installed and services rendered in relation to the land at the request of and for the benefit of Royal Land, the three mortgagees, and other corporations specified in caveat No. W343852B.

32. Caulson's case in that regard is that between about November 1997 and May 1998, and at the request of the principal director of Royal Land, Caralapati Premraj, it carried out building works at the premises to the value of $490,130.20.

35. It contends that as that work was carried out at the request of Royal Land and to the knowledge and with the assent of H.G.& R. and for present purposes the third mortgagees, it has a lien over the premises in respect of the sum of $490,130.20. I use the expression "and for present purposes the third mortgagees" because the other corporations referred to in Caulson's third caveat can be disregarded so far as the present application is concerned.

38. Because of its claim in that regard Caulson has refused to withdraw its caveats to allow settlement of the sale of the premises to take place on 31 March.

41. On 2 March H.G.& R. filed an originating motion in the court whereby it seeks (inter alia) an order that the Registrar of Titles remove the three caveats from the register.

44. This proceeding raises squarely for consideration, therefore, the question whether a building contractor has a lien over land in respect of materials he has used in the construction of a building on the land or for work he has done in connection with the construction of the building.

47. In the third edition of Halsbury's Laws of England, Vol.3 at Para.1002, the authors say:

"When the property in the materials has passed to the employer by reason of their having been affixed to the freehold, the contractor has no lien on them, or on the works constructed with them, unless he has expressly contracted with the employer that he shall have such a lien."

"The law on this point is so clear that it never seems to have been necessary formally to declare it in any judgment in England. In Upper Canada, however, Macaulay, J. stated the law as follows: 'Although a right of lien frequently attaches to goods or chattels sold or made until the price be paid, yet no such lien attaches upon houses erected under building contracts, unless expressly sanctioned by the terms of such agreement, when it forms a species of mortgage, including an interest in the estate' (Johnson v. Crew (1836), 5 O.S.200, at p.204)."

53. In Volume 4(2) of the fourth edition the authors say, at Para.382:

"Once materials are fixed as part of the permanent works, the maxim quiquid plantatur solo, solo cedit applies and the property in fixed materials passes to the owner of the land. A contractor has no lien on fixed materials and can only sue the employer for sums due under the contract. A contractor has no right to materials which although once fixed are subsequently severed."

The English translation of the Latin is "Whatever is fixed to the soil belongs to the soil."

58. If the matter rested there one would have no hesitation in holding that Caulson does not have a caveatable interest in the premises or for that matter the land on which they are built and make the order sought by H.G.& R.

61. But counsel for Caulson argues that the matter is by no means as clear as a reading of Halsbury might lead one to believe it is, and that there can be circumstances where, although a building contractor has no contract with a building owner that he have such a lien, as in the present case, nevertheless he does.

64. In that regard counsel for Caulson placed great reliance upon the decision of the High Court in Hewett and Others v. Court and Another [1983] HCA 7; (1983) 149 C.L.R. 639, in particular the following passage in the judgment of Deane, J. at p.667 et seq.:

" It has been said that the doctrine of equitable lien 'was introduced for the sole purpose of furnishing a ground for the specific remedies which equity confers, operating upon particular identified property, instead of the general pecuniary recoveries granted by courts of law' (Pomeroy's Equity Jurisprudence, 5th ed. (Symons) (1941), pars.166 and 1234). In Whitbread & Co. Ltd. v. Watt, Vaughan Williams L.J. referred to the purchaser's lien for his deposit as 'a right which may be said to have been invented for the purpose of doing justice. It is a fiction of a kind which is sometimes resorted to at law as well as in equity'. General statements of this type lend some support for the approach that one should seek to identify a comprehensive principle covering the implication of any type of equitable lien. Apart from broad generalizations such as 'the phrase equitable lien may not ... do much more than express the opinion of the court that the facts give a priority to the party said to have it' (Sexton v. Kessler) however, it is difficult, if not impossible, to formulate any satisfactory statement of the necessary or sufficient circumstances for the implication of an equitable lien which is applicable to any relationship at all (e.g. the trustee's lien over trust assets; the solicitor's lien over the proceeds of an action). I do not propose to essay that task here. It is adequate for present purposes that I identify what I consider to be the circumstances which are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship. Those circumstances have, to some extent, been indicated in what has been said above. They are: (i) that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it (see Middleton v. Magnay; Whitbread & Co. Ltd. v. Watt; Combe v. Lord Swaythling; (ii) that that property (or arguably property including that property: see Pollock, loc.cit.) be specifically identified and appropriated to the performance of the contract (see per Lord Hanworth M.R., In re Wait; and (iii) that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property (or, if it be appropriate, more than a particular portion thereof) to a stranger without the consent of the other party or without the actual or potential liability having been discharged. It may be that the above circumstances or tests, particularly (i), would be unduly restrictive if propounded as a statement of exclusion. As has been said however, they are formulated as a statement of what is sufficient rather than of what is essential. Whether or not they exist or are satisfied in a particular case should, like most questions involved in the application of equitable doctrines, be determined by reference to the substance of the transaction rather than its form."

68. But the facts in that case were totally different from the facts in the present case.

71. There, a builder of prefabricated houses had agreed to construct a house for a purchaser and to transport it to his land on practical completion. The price was to be paid by payment of the deposit on the execution of the contract and further instalments as the construction of the house progressed.

74. The purchaser made the first two payments. The builder then became insolvent. However, shortly before the commencement of the winding up, it entered into an agreement that the purchaser take the unfinished house on payment of the value of the work done in addition to that already paid for.

77. The liquidator sought to recover the value of the house immediately before the agreement on the ground that the transaction involved a preference. The court, by a majority, held that the purchaser had an equitable lien over the house for the amount of the purchase money and for that reason his acquisition of it was not a preference.

80. The most obvious point to note, of course, is that the house was not affixed to land.

83. Perhaps an equally obvious point to make in the present case is that it is not the owner of the property which is seeking to sell the property but the mortgagee in possession.

86. Senior counsel for the plaintiff conceded that if Royal Land had in some way encouraged Caulson to form a belief that in carrying out work to the premises it would acquire an interest in the land, or acquiesced in Caulson forming that belief, then it may be arguable that Caulson had a lien over the premises in respect of the money it claims.

89. But even if it could be argued that in law that could be so, the fact of the matter is that neither Royal Land nor H.G.& R. and the third mortgagees ever did any such thing.

92. There is no evidence to suggest that any of those parties encouraged Caulson to form such a belief or that they acquiesced in Caulson forming that belief. Indeed, from the content of the affidavit of Caulson's director James Dibben McLennan sworn 15 March 2000, it is clear that Caulson's expectation was not that it would acquire an interest in the land but that it would be paid for the work it carried out to the building on the land.

95. In my opinion, in the absence of an express contract with the building owner that he shall have a lien over a building in respect of work performed by him on the building, a building contractor has no lien over a building or the land on which it is situated in respect of such work, unless the building owner encouraged him to form such a belief or acquiesced in him forming that belief.

98. Finally in this regard, it was argued by counsel for Caulson that because H.G.& R. knew of, and assented to, the work being carried out by Caulson, such a lien was created.

101. In my opinion it is not the law that a mortgagee of land who does no more than assent to work being carried out to a building on the land pursuant to a contract between the owner of the land and a building contractor thereby creates a lien over the land in favour of the building contractor.

104. I would have thought it most unusual if a mortgagee who had made funds available for the development of the mortgaged land did not take a keen interest in the work being performed by the building contractor pursuant to his building contract.

107. The conclusion I have arrived at is that there is no serious issue to be tried in this proceeding. But, even had I been persuaded that there is, there are two reasons why I would grant the order H.G.& R. seeks.

110. In the first place I consider that the balance of convenience is such as to justify the granting of the order. In the second place I consider that the delay on the part of Caulson in seeking to enforce such a lien has been such as to now disentitle it to maintain its caveats.

113. In so far as that latter aspect is concerned, the first caveat of Caulson was lodged on 10 September 1998, yet it was only on the eve of the hearing of H.G.& R.'s application that it filed a writ in the court seeking (inter alia) a declaration that it had an equitable lien over the premises and a declaration that its lien ranked in point of priority ahead of each of the first, second and third mortgagees.

116. In my opinion, where a person registers a caveat on the title of land owned by another claiming an interest in that land, it is incumbent upon the person to pursue his rights in respect of that interest with reasonable despatch.

119. In the present case Caulson has allowed more than eighteen months to pass without seeking to establish any entitlement it considered it had to an interest in the property.

122. The mortgagee rightly in possession has now sold the land to a bona fide purchaser and in my opinion that sale should not be held up by the failure of Caulson to take action at an earlier point in time to establish its claim.

125. As to the balance of convenience, if there is a delay in settlement of the sale the sale may well fall through, causing financial loss to H.G.& R., the other mortgagees and the creditors of Royal Land.

128. On the other hand there is no suggestion that H.G.& R. is not a corporation of substance. If in the final analysis the views I have expressed in my reasons for judgment prove to be erroneous and Caulson does establish an entitlement to recover a sum of $490,130.20 from H.G.& R., it should have no difficulty in doing so.

131. Pursuant to s.90(3) of the Transfer of Land Act I order that the Registrar of Titles remove caveats numbers V633335T, W059268P and W343852B from certificates of title Volume 10255 Folios 637 and 638 and Volume 10255 Folios 675 to 694 inclusive.

134. I order that the first-named defendant pay the plaintiff's costs of the proceeding including reserved costs.

137. As to Caulson's summons filed in proceeding No. 4727 of 2000, in my opinion there is no basis for granting any of the relief sought in that summons.

140. When settlement of the sale of the property is effected I have little doubt that H.G.& R. will disperse the proceeds of sale in the manner required by s.77(3) of the Transfer of Land Act.

143. The summons in that proceeding will be dismissed. I order that the plaintiff pay the first defendant's costs of the summons.